MWeddell

The group to whom the early retirement window is offered must pass BRF testing. The employees who accept the offer are subject to coverage and 401(a)(4) testing.

My prior post accurately summarized my view, but its last paragraph mentioned that others' views differ. Sorry, Austin, but I'm more interested in keeping my clients' plans in compliance with the regulations than preserving your sense of balance.

There are multiple positions available on this issue. The most conservative position is to only allow mid-plan year amendments to a 401(k) / 401(m) safe harbor plan if IRS guidance explicitly permits the amendment. The position I tend to favor is to allow mid-plan year amendments to a safe harbor plan if the amendment would not alter anything in the safe harbor notice. For any amendment allowed under this standard and not the first, I suggest that one disclose the compliance risk in writing to the client. However, in your situation, this standard also would disallow the amendment because in-service withdrawal options must be described in the safe harbor notice: see Treas. Reg. 1.401(k)3(d)(2)(ii)(G). Others (as describe more fully in other threads on BenefitsLink.com) advocate more permissive standards. I don't.

Consider amending the plan document to do the following for the 2015 plan year only: (1) Change the match formula for 2015 to be computed on a payroll period basis using 25% of the first 2% of pay deferred through August 31 and 50% of the first 5% of pay deferred after August 31. (2) However no one's matching amount will be less than 25% of the first 2% of pay deferred when considering contributions and compensation for the entire plan year.

The rules are in Treas. Reg. Section 1.401(k)-3(g). There you will find that: Depending on how the safe harbor notice was worded and whether the employer is operating at an economic loss, the employer may not be permitted to make this change until the plan year ends (in which case you may be researching the rules for a short plan year for a safe harbor planin Treas. Reg. Section 1.401(k)-3(e)). If the reduction is permitted, then ADP testing will be required for the plan year.

I agree with Mike Preston. See pp. 17. 114 of http://www.irs.gov/pub/irs-drop/rp-13-12.pdf and you'll find that self-correction via plan amendment is not available. Instead, look at page 40, which lets one correct an in-service distribution by not making the participant's account whole.

Yes, one can do that, but not with the plan document language you quoted, which does not assign employees to separate classes. Furthermore, it is too late to make a discretionary (optional) amendment for the 2014 plan year. I agree that whatever their matching formula is (e.g. 95.4% on deferrals up to 6% of pay) they have to make the same match for all eligible employees. Note that the plan document's matching contribution formula doesn't comply with the definitely determinable requirement today by leaving both the matching % and the maximum deferrals that are matched undefined, but it is common for the IRS to issue favorable determination letters on that type of language.

I think you may measure whether a participant has a year of service using either the elapsed time or the hours of service method. The regulations are not very specific regarding how one determines who is in the otherwise excludable group. This is the sort of issue that the ERISA Outline Book covers well, so you should check that resource if you have an subscription to it.

A short plan year can only satisfy the 401(k) / 401(m) safe harbor conditions if it is both preceded and followed by a 12-month plan year that meets the safe harbor conditions. Sounds like that won't happen in your situation.

I encourage anyone who finds this thread in a search to instead look at http://benefitslink.com/boards/index.php?/topic/51935-cure-period-applicable-to-5-year-max-loan/?hl=loan, a thread where the same topic was raised but the discussion became more robust.

There's definitely no problem adopting a safe harbor 401(k) plan, assuming of course that there are at least 3 months left in the initial short plan year.

That makes logical sense, although I can't squeeze buckaroo's answer out of the authorities. Code Section 414(q)(4) uses 415 compensation. Treas. Reg. 1.415©-2(f) limits 415 compensation to the 401(a)(17) compensation cap. Treas. Reg. 1.414(q)-1T, Q&A-9 contains the more detailed rules for applying the top-paid 20% group election, but it doesn't address the issue, which is not a surprise since that regulation was issued before 415 compensation was limited by the compensation cap. I would conclude that you have a tie for who has the highest 414(q) compensation and everyone with prior year 414(q) compensation at the 401(a)(17) compensation cap would have to highly compensated. Keep collecting others' opinions, however.

Yes. The universal availability rule is in Code Section 403(b)(12). Whether it is subject to ERISA or not does not matter.

The employee deferral portion of the 403(b) plan must have immediate eligibility. The universal availability rule in the 403(b) regulations will then force any employees who are eligible for the 401(k) plan to have immediate eligibility over there. You may required age 21 and/or a year of service for employer contributions.

Yes, the employees who never had a year of eligibility service (using the 1,000 hours method if that is how the plan document measures service) are in the < age 21 or < 1 YOS group that may be tested separately. There's also the rule that allows you to exclude just NHCEs from that group and include any HCEs in the ADP/ACP testing with the bulk of the workforce.

Thanks, John. I tried locating a free copy on the Internet of the IRS Q&As from the 2012 ASPPA Annual Conference and had no success. That discussion is in Chapter 11, Section 5.a.1)b) of the 2014 edition of the ERISA Outline Book.

Yes, but the original poster's facts do not suggest that any of the limitations were violated here. The relevant possibility seems to be (ii), but my post #3 explains why that limitation is not violated. Sorry to be stubborn, but I'm about to recommend the same plan design to a client (100% match on first 6%: first 4% of match is a fully-vested SHNEC and last 2% of match has a vesting schedule), so I'd like the feedback directly if people think my post #3 is wrong and why that is.

Your colleague is correct. Please read Treas. Reg. 1.401(m)-3(d)(2), entitled "Matching rate must not increase." The prohibition on having the matching rate increase as the amount of the employee's deferrals increases applies to "matching contributions," not "discretionary matching contributions" or "matching contributions not used to fulfill the 401(k) safe harbor requirements" or any other subset of matching contributions. The prohibition seems to apply to all matching contributions, so the prohibition is not violated.

I don't think it is clear in either direction, assuming that the plan excludes expense allowances and fringe benefits. I would ask the plan administrator to use its Firestone discretion to interpret the plan provision and would suggest that the next time a discretionary amendment is otherwise needed, that the plan provision be clarified to match the client's operational practice.

You could amend the plan to state: Compensation is reduced by reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation , and welfare benefits. For purposes of clarification, an "expense allowance" includes any allowances provided by the employer for specific purposes regardless of whether it would be included in gross income or whether the employees must document how the allowance was spent. Seems to me that phrased this way (1) one is less likely to run into trouble for not following the plan document and (2) it still complies with 414(s).

Yes, the breakpoint (but it applies to the prior year compensation) is currently $115,000. So if the person made about $80K in the prior year, definitely well below the breakpoint. The HCE definition was simplified effective in 1997 I believe. The highest paid officer is not an HCE.

Assuming the president made about the same $80K last year too, no, he is not a highly compensated employee. The definition is in Code Section 414(q).

To use the rule that masteff cited, there must be at least 9 months left in the plan year and one still has to make up for missing matching contributions. On the other hand, the EPCRS does not limit one's corrections to only the pre-approved methods. Perhaps there is room, especially if the participant agrees, to interpret it to let the situation ride as is because the participant subjectively has time to make up for the missing deferrals and an opportunity to earn the missing match.

It is a worthy question, but the IRS decided a long time ago (circa 1994 in some very informal guidance) that it was going to allow allocation groups as small as one participant per group and it still would be a definite allocation formula. I think you have to communicate to the trustee who is in each group. Collect other opinions though because I don't work on many new comparability plans.

Yes, you can amend the profit-sharing allocation formula, including changing it completely to a new comparability formula, any time before the allocation conditions are satisfied. For a plan that requires employment on the last day of the plan year (with no exceptions for those who die, retire or become disabled during the plan year), then you can amend the plan on the penultimate day of the plan year.