Gilmore

A 401(k) plan with a pro-rata discretionary profit sharing allocation is written on a standardized prototype document. The document provides for an allocation if the participant is employed on the last day of the year, or earned 500 hours of service. The employer would like to make a profit sharing contribution, but would like to use a tiered allocation rather than the pro-rata allocation. I understand that the existing plan cannot be amended if a participant has earned 500 hours. Is it permissible for the employer to adopt a second profit sharing plan that allows for a tiered allocation and a last day requirement? If so, would the plans be allowed to merge at some point in the future? It seems to me that starting the second plan circumvents the contribution provisions that would be required under the first plan, especially if the plans were merged, say the next plan year. Thanks.

Thanks again.

Thank you Mac, that is good to know. One additional question... Let's assume the salary deferral/safe harbor portion of the plan provides for a 3 month wait, but we amend the profit sharing to provide for a 1 year wait. A participant that is not yet eligible for the profit sharing may be required to receive a top heavy contribution. Assuming we are not using statutory exclusions for testing the profit sharing coverage, then the participant would need to get a top heavy minimum, and then also be bumped up to the gateway, correct? If that is correct, are those contributions used in the 401(a) testing, or are those contributions just "wasted" for purposes of 401(a) since the participant is not technically eligible for that portion of the plan? Thanks again.

All good points. Thank you very much for your confirmation.

We have a safe harbor plan using the basic safe harbor match formula. Plan is top heavy. The plan is considering amending for 2013 to allow the discretionary non-elective contribution to be allocated putting each employee into their own class. Assume Participant A defers 5% and receives a 4% safe harbor match. Assume Participant B does not defer. Participants A and B are NHCEs. Each meet the allocation requirements for the non-elective contribution, and assume the employer wants to give $0 to each in the non-elective allocation. Since the plan is top heavy, each must receive a top heavy minimum. Am I correct in that: Participant A's top heavy minimum is satisfied with the 4% safe harbor match, does not benefit under the non-elective, and thus is not eligible to receive the gateway? Participant B must receive the 3% top heavy minimum and thus must also receive the gateway? If that is the case, then I am assuming the employer could opt to provide $0 non-elective to any participant who receives at least 3% match, and would not need to provide additional gateway, assuming coverage and non-discrimination passes? Thank you for your assistance.

Was wondering if anyone else is having trouble renewing their PTIN online. Apparently I do not have my correct password, however I am certain I am using the correct email address and "Secret Phrase". I've tried a number of times to have the password sent to my email address, however I do not receive the reset password. I've tried to request my user ID to be sent, and even tried to change my email address, and I still do not receive any emails from the IRS. I've checked spam folders and junk folders and even lowered the spam filters...still nothing. The assistance number seems to only refer you back to the online solutions. Has anyone else had a similar issue, or does anyone know of a number to call where you can speak with an actual person? Appreciate your help.

I am assuming this covers Form 5330 as well? Thanks.

I received my ERPA designation on 10-8-2010, with expiration date of 9-30-2013. Is the 9-30-2013 date the date by which I need to submit my CPE credits? Thanks.

Just ran into the same situation, involving a rollover to an IRA. One clarification on the great information already discussed: Is it possible for the HCE to leave the taxable portion in the IRA as a non-deductible contribution, assuming no other IRA contributions were made for the tax year, and the Custodian permits non-deductible contributions? Thanks!

Plan's loan program provides for a cure period not to exceed the last day of the calendar quarter following the quarter in which the loan payment was due. If the loan payment is due in the 3rd quarter, the cure period ends on 12/31/2010. Would you consider the loan to be in default as of 12/31/2010, or does the participant get the benefit of the "entire" cure period, and the loan is considered in default on 1/1/2011? Thanks!

Thanks very much for your replies.

If an "eligible plan" was effective January 1, 2001, submitted for GUST and received a waiver of the User Fee, is that plan eligible for another waiver if submitting again for the EGTRRA restatement. Plan is on a prototype document. I thought the waiver was a one time waiver for the first letter submitted for. But now we are getting responses back from reviewing agents suggesting that the plan might be eligible for the waiver and do we want the $300 back. Thanks!

Can a 401(k) plan keep its safe harbor status if it is amended mid-year to eliminate the safe harbor match for the HCEs only? Thanks.

Thank you Jim.

For corrective distributions for excess contributions, paid within 2.5 months of plan year end, for 2008 plan years, is the 10% withholding applicable if a W-4P is not completed? I've heard that yes it is applicable since the distributions are taxable in the year distributed, and I've seen things from service providers saying that withholding within the first 2.5 months (6 months for EACAs) is not applicable. Thanks!

Right, Blinky, and because the new regs did not apply the plan administrator did not take any deferrals out of the last paycheck. Therefore using the de minimis timing rule would require a rerun of the 2007 ADP test, since the participants ADP would now be lower.

A participant in a calendar year plan terminates on 12/31/2007. Their final paycheck is paid on 1/15/2008 and includes only pay for hours worked in final pay period. The compensation will be shown on the participant's 2008 W-2. (The compensation was not used as part of the 2007 plan compensation.) Should this participant be included in the 2008 ADP test since they had plan compensation paid in 2008? Or are they not included in the 2008 ADP test since they are not actually an employee in 2008? Thanks.

I was wondering if anyone could provide some insight into how salary deferrals from a bonus that is paid within 2 1/2 months after the plan year ends are handled. I had some confusion about how this rule would be administered. Assuming the plan year and the ER taxable year are both the calendar year: If the ER pays a bonus on February 1, 2004 for services applicable to the 2003 plan year, can deferrals from this bonus be considered for the 2003 plan year? If yes, I'm assuming they would be tested in the 2003 ADP test? Would the additional deferrals be reflected in the 2003 W-2s? Are these deferrals deductible to the employer for the 2003 taxable year? When would the ER had to have declared the bonuses? For example, if the ER declared the bonus on February 1, 2004 this would have been after the W-2s had been issued. Sorry for my confusion, and thanks for any help.

A 401(k) Plan has been deemed to pass coverage due to the fact that no HCEs participated in the Plan. The Plan excludes a certain classification of employees. The Plan Sponsor is being purchased, and one of the new owners is an existing participant, who will become an HCE due to his new ownership. The effect of now having an HCE participating in the plan will mean that the exluded class of employees will cause the plan to fail coverage testing. If the Plan is a calendar year plan, and the purchase is effective during the plan year, would the transition period for an acquisition apply in this case, and if so, would the Plan continue to be deemed to meet coverage for that plan year and the following plan year? Thanks.

Hey thanks for the thoughts. Actually more information came to light after my initial posting. It seems that Company A had already sought the advice of counsel with regard to the status of the employees of the LLCs for other purposes and was advised that the employees are employees of the LLCs. As you say, they cannot be treated differently for different purposes, so Company A has decided on a multiple employer plan. Thanks again.

A builder of residential homes Company A, creates a new LLC for each project under development. Each LLC will have a small number of employees, all of whom are hired, fired, and under the control of Company A. Some of the LLCs are owned 100% by Company A. Others are owned 50% by Company A and 50% with another developer. However, even in the 50% only LLCs, Company A has direct control over the employees. When one project is completed and another started a new LLC is created and the employees of the dissolved LLC will sign a new employment contract with the new LLC, as directed by Company A. Clearly the 100% owned LLCs are a controlled group, however, Company A would like to cover all of the employees in all the LLCs regardless of the amount of ownership. Is there a case that the employees in the 50% owned LLCs are common law employees of Company A and would be able to participate in Company A's plan. Is there any special wording I would need in the plan document under eligible employees? Thanks for any assistance!

Thanks, and sorry to be dense, but are you saying that if the allocation is being made for the plan year ending 12/31/2003, and being deducted for the fiscal year ending 6/30/2003, then I would use the compensation for the twelve months ending 6/30/2003 of the participants who are benefitting as of 12/31/2003? Thanks again!

I had a question regarding the participants compensation that is used to calculate the 404 maximum employer deduction limit, if the employer's fiscal year is different from the plan year. For example, the plan year ends 12/31 and the fiscal year ends 6/30. I believe that the 404 limit is based on the employers taxable year. I am confused over which participants are used in the 404 calculation. Do you use only the participants that are eligible as of the end of the taxable year (6/30) or do you use the participants that are eligible as of the plan year end in which the contribution is allocated and use their compensation from the taxable year in which the contribution is deducted? Or am I just completely confusing the whole thing? Thanks!

Thank you.

In order to ensure that a participant does not exceed the 415 limit when we calculate the ps contribution after the plan year ends we need to know what other additions were made during the plan year; in this case the salary deferrals. If we are taking about a calendar year plan ending 12/31/2003, and a catchup eligible participant who deferred $12,000, my question is, can we allocate $30,000 in a profit sharing contribution? Since the $30,000 and the $12,000 add up to $42,000 that exceeds the 2003 415 limit by $2,000. Is it possible at that point to consider $2,000 of salary deferrals as catchup? Once again this is assuming that all of these contributions pass nondiscrimination testing. I guess by making the $30,000 ps contribution we are "forcing" the participant to exceed a statutory limit (415) and thus creating the situation for recharactorizing deferrals as catchup.