I am testing a 2009 plan for ADP. One employee had 2008 comp of $105,700 and I have (and feel correct in doing so) considered him an HCE for 2009. Doing so, the test fails. If I use the 2009 compensation limit threshold of $110K, ADP test would pass. Is there any support for doing so or am I correct in my original thought process? Thanks.

A participant in a Top Hat Plan died. He was divorced from his first wife, and married to his second wife when he died. He named his children from his first marriage as his beneficiaries, but if the usual QP beneficiary rules apply, his second wife would be the beneficiary. The employer just wants to make sure they pay out the money correctly.

I have a client that gives a SH 10% NEC at the end of the year. The 10% is written into the document. I have explained to client that he could do 3% SH and the rest discretionary but he does not want to.

For 09, once we allocate the 10%, there are 5 people who will be over the 415 limit, because ER also gives a pay period match.

Document states that if an ER contribution will cause the plan to fail 415, the plan should reduce the contribution. However, I wonder if that applies in the case of a safe harbor contribution. I am reluctant to not give the full 10% since it is a required SH contribution. On the other hand, since plans really only have to give 3% in order to be safe harbor, maybe I could reduce the contribution as long as I don't go below the 3%.

Has anyone seen any guidance about whether a SH can be reduced because of 415 problems? The next remedy, according to the document, would be to return the employee deferrals till the plan passes.

The Background

A loan from a 401(k) and subsequent repayment of the loan do not trigger tax consequences unless it is deemed distributed, e.g. because it failed to meet the requirements of §72(p)(2).

When a loan (or portion of a loan) is deemed distributed the participant is taxed on that portion of the loan (to the extent it would have been includible in gross income under §72 had an actually distribution been made), but no basis is credited at that time. Basis is credited once repayments are made on previously-taxed loans. See Treas. Reg. §1.72(p)-1, Q&A-21.

The portion of a loan that is attributable to a Roth account will be treated as a non-qualified distribution even if the participant met the qualifying distribution requirements. See Treas. Reg. 1.402A-1, Q&A-11. As a result, the portion of the Roth loan that represents earnings will be includible in income at the time of the deemed distribution. When the loan is repaid, basis gets credited for the earnings portion that was previously taxed. See Treas. Reg. §1.72(p)-1, Q&A-21.

The Question

But what about the portion of the loan that was not included in income when the loan was deemed distributed (i.e. the portion that represented the after-tax Roth contribution)? Is it taxed again when it is repaid? Or is there basis adjustment when it is repaid?

Employer pays the $1,000 deductible under the employees health insurance plan as a way of "Sefl insuring." The reimbursement runs through payroll. Has anyone seen this before? It seems to me this should be no different than an employer paid health insurance premium. Does that make sense?

Lead Plan Sponsor in a Multiple Employer Plan is terminiating the plan. Several participating employers (who just happen to be "owner only" plans) are not responding to requests to complete the associated documents to properly close out their individual plans and distribute funds as specified under the plan document.

Plan document provides for an "involuntary spin-off" in the event a participating employer does not comply with requirements.

So no problem so far.

But here's the catch. We can't find anyone to act as custodian for these spin off plans. (Would be easy if it was a rollover to an IRA)

Anyone know of a custodian that will accept the assets based on the signature of the lead plan sponsor's signature instead of the participating employer? (or other solution that seems to be escaping us currently)

Here is the link to the EBSA's fact sheet DOL

I have a large plan that matches 50% of the first 6%. They calculate the match annually and it is discretionary. They want me to give the match rate to the NHCEs and then give the HCE's the rate that will pass the test. So, they would be giving the HCEs less match than the NHCEs. Can this be done?

Are you allowed to add a loan provision to a cash balance plan?

Employer sponsors 401(k) plan that uses W-2 definition of compensation.

Employer permits employees to extend group health and other insurance coverages to domestic partners, both "registered" domestic partners who have the same status as spouses under state law, and unregistered domestic partners (e.g., opposite sex) who have no special status under state law.

Presume 100% of all domestic partners receiving coverage DO NOT qualify as the employees' dependents under IRC Section 152.

For federal tax purposes, employer reports imputed income equal to the value of the coverage provided to the domestic partners, on the employees' Form W-2s, in boxes 1, 3, 5, and 12.

Will the "phantom" income be included in compensation for plan purposes unless the employer expressly excludes it from the definition of compensation in the plan document? Or is it a non-issue, in most instances, because salary deferrals and matching contributions are based on payroll period income and the imputed income from domestic partner benefits is only tracked for W-2 purposes on an annual basis, and not reflected payroll period to payroll period???

Have others had this issue come up?

A profit sharing plan is originally set up with a new comparability allocation method and works fine for a few years until the employer's demographics change drastically - many of the younger employees were replaced with workers who are older than the owner. The plan now cannot pass the cross-testing even when everyone (including the owner) receives the same percentage of compensation as an allocation. I remember hearing a while back that in a scenario like this you can always "default" to a pro-rata allocation and not have to worry about cross-testing, even if the document does not specifically state this - has anyone else heard of this?

Does anyone know how to export into an excel format a report that reports employee name and SSN, and ending balance per participant per source of money? We want the sources in columns and then each row represents a participant.

thanks.

Testing a DB plan for 410(b) using the Average Benefits Test which for the ABT is combined with profit sharing allocations. Want to impute permitted disparity. Happen to be testing on an allocations basis (but that should not matter for this question).

The Plan years differ so the allocation rates are being separately computed and added together. Is permitted disparity imputed on one of the plans and then the two are added together, or are the allocation rates first combined, then permitted disparity imputed?

I thought it could be done either way but 1.401(a)(4)-9(b)(2)(iii) seems to say that if you choose to impute, you must impute on the aggregate allocation (or accrual) rate. That does not make sense to me. It seems like you're integrating two plans. Plus, how do you inpute one aggregated allocation rate if you have two sets of testing comp?

Opinions?

P.S. Said another way, what does 1.401(a)(4)-9(b)(2)(iii) say, and why?

I really thought this would be an easier issue than it's turning out to be, but here are some generic facts for an issue being faced by a few of my clients:

Assume a fully-funded cash balance pension plan is being terminated for the appropriate business reasons. Can the cost of the distribution process only (not the valuation process) be allocated among the individual participants' hyponthetical accounts? I have one TPA who is taking this approach and an unrelated TPA (for an unrelated client) who is questioning this approach.

Does it matter whether the Plan is subject to the PBGC?

Does it matter whether the allocation of cost is pro rata among all partiicipants or in proportion to each participant's hypothetical account balance?

I would appreciate any type of guidance anyone might have.

What is the most typical method for correcting a plan's failure to list recently acquired subsidiaries among the list of predecessor employers for which service is credited for vesting purposes? For example, company forgot to timely amend its plan to list a company acquired in 2006 among predecessor companies for which the plan recognizes years of service. Can the plan simply amend the plan retroactively to recognize this past years of service since this is all for the benefit of participants (and actually consistent with the plan's administration) or does this have to be done as a restroactive amendment through EPCRS?

Plan has a pay-period match and for wahtever reason does not want to be bothered with setting it up on payroll the right way to get the match to calculate including Roth.

So they want to NOT match on Roth 401(k). I know, I know, it's ridiculous, but that's what they want to do. Note also that based on who is deferring Roth, benefits rights and features are passed with no problem at all.

Is there any sort of rule that requires Roth and traditional 401k to be treated the same way under the Plan?

From 402A (is this expansive enough to mean that Roth must always be treated just like elective deferrals?)

(a) General rule

If an applicable retirement plan includes a qualified Roth contribution program—

(1) any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income, and

An employee being laid off wants to reimburse the company for a large claim(s). Sounds suspicious to me, as if the company might not be communicating her rights. So I will probe a little further. However, are there procedures or rules to handle such things? What if the employee truly wants to reimburse because she doesn't feel good about taking more money than she's contributed? Should I simply recommend to the company that they tell her to keep it? What if the claims turned out to not be legit and the money is already reminbursed? Can the company expect to be reimbursed?

Group of employees is eligible for a profit sharing contribution. It is a new comp plan with each participant in his/her own class. Can the employer allocate the PS contribution based on each participant's deferrals? Seems like no since this would "coincidentally" basically be a match. Anyone have a regulation citation forbidding this? Thanks.

Our plan was amended to permit deferrals prior to statuatory entry. 2008 was the first year. We elected to separately test OEs (under age 21, less than one year at the immediately prior entry date or covered by a collective bargaining agreement).

I remember learning that "no one is an HCE in the first year of employment except 5%+ owners."

I don't think that will prevent us from having OEs who are HCEs. An employee hired in Sept. 2008 and earned $150K in 2008, has a statuatory entry date of 1/1/2010, and will be an OE NHCE in 2008 and an OE HCE in 2009. Right?

Based on other threads and comments I believe my options are to test the OE HCE with the OEs or include the OE HCE in the regular testing group. Is that still correct under current regs.?

Thanks!

My issue is that I have two terminated participants that received a 5% QNEC in order for the plan to pass the ADP Test. The plan is also cross-tested, has individual allocation groups, and requires a participant to be actively employed on the last day of the plan year (no hours requirement). Assume the Gateway minimum is 5%. Must these participants receive an additional 5% under the plan's non-elective provision, or does the 5% QNEC cover the Gateway? Does it matter if one of the terminated participants has less than 500 hours of service (if I exclude from the General Test do they receive the Gateway).

I've read several threads on this topic (the more recent ones differ from the earlier answers), but besides the IRS Q&A comment at the 2006 ASPPA Conference I could not find anything definitive. The issue has arisen because I just read a newly restated EGTRRA VS document and there is a paragraph under the Gateway definition which clearly states that QNECs can be used to offset the Gateway minimum requirements.

Any thoughts would be appreciated.