austin3515

3% Safe Harbor Nonelective excludes HCE's. Need I concern myself with the definition of compensation/414s? So for example, may I exclude bonuses and overtime from the calculation of the Safe Harbor? I will be doing some profit sharing for the HCE's, but all of the nondiscrimination testing would of course be done using a 414s definition of comp.

As an example, NHCE is 55. He contributes $23,000 in 2014. Match formula is 100% of deferrals excluding catchups. The 45 year old HCE has ALL of his deferrals matched when contributing $17,500, and therefore 100% of his contributions are matched. Only 85% or so of the NHCE's are matched (I did not break out a calculator). I'm having a hard time coming up with a scenario that might actually come into play under an ACP Safe HArbor Match, or even a Basic SH Match. But then I suppose my original question is one answer - a pay-period match. My NHCE in November and December gets no match, while the HCE gets it.

Two plans, one with all the HCE's and one with all the NHCE's. The HCE Plan uses prior year testing and the NHCE Plan uses CY testing. I need to aggregate to pass coverage. Is EPCRS my only option? [obviously, no one knew about the coordination rules - the operation of the entities was quite disparate].

I know that a plan MUST match catch-ups as part of the Safe Harbor Match Calculation. What about a discretionary match that otherwise satisfies all of the ACP Safe Harbor Requirements (in my case, the match is 50% of the first 4%, no allocation conditions). I know what you're thinking, 18,000/265,000 is way more than 4% anyway so who cares? The catch here is, the match is calculated each pay-period, and as such towards the end of the year eligible deferrals will be zero. So it actually does end up making a difference. Corbel's document seems to prohibit excluding catch-ups for either the ADP or ACP safe harbor's. Fidelity's on the other hand seems to apply exclusively to Safe Harbor Match calcs.

Gray area, but you're probably right.

Maybe "employees who only work between June and August and the month of January" would work....

Kevin, interesting... The short plan year regs I think only say "you must be safe harbor fort he next year" and do not specify that it must be the same safe harbor? That is very very interesting!

That is really odd. I think it is valid because it is not based on service for the Employer. But how do you find out who is a college student? How could you possibly enforce it? That would be my concern. What if they drop out and forget to tell you? What if they were not in college before, but subsequently enroll, and forget to tell you (or intentionally withhold the information?). The plan should not include criteria that is not based on information it can verify. That is just plain silly.

So many threads on these boards about this. Do a quick search and you should find them. The answer is YES. People take this way too far. Shame on the IRS for instilling paranoia. I swear some of these questions are akin to "can I tie my shoes if they are untied?" Don;t get me wrong I'm not saying it's a stupid question at all. My frustration is aimed 100% at the IRS for being insane about this.

1.416-1 Questions and answers on top-heavy plans. M-7 Q. What is the defined contribution minimum? A. The sum of the contributions and forfeitures allocated to the account of any non-key employee who is a participant in a top-heavy defined contribution plan must equal at least 3% of such employee's compensation (see Question and Answer T-21 for the definition of compensation) for that plan year or for the calendar year ending within the plan year. Based on the above, I concluded that she gets the THM on full year pay, No wiggle room at all. The same regs by the way indicate very clearly that union employees do not get the THM. So if the exclusion related to union v non-union I believe it is very clear that the union wages would be excluded. Actually it's clear in the internal revenue code too. 416(i)(4) (4) Treatment of employees covered by collective bargaining agreements The requirements of subsections (b), ©, and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.

That would probably be used as evidence that you misclassified the "consultant" in the first place. The auto mechanic is actually a terrific example of what the IRS wants to see for a 1099 contractor. It's really for that situation exactly, and nothing else. If someone is working for you and only you, on a project that you designed the strategy, to be completed in the time-frame you dictated, and in the manner you dictate, if they are working in your office, with your supplies, with support from your staff, they are probably your employee. "He was only working for me on a special project" is not the criteria. No matter how many times I hear it, it is not the criteria.

1099 income is not eligible because only non-employees are getting 1099's and you'll disqualify your plan in a New York minute if the plan is not for the exclusive benefit of employees. I cannot imagine a scenario that justifies giving an employee a 1099 for a special project under any circumstances. If you pay your employee for any services rendered, the rules are clear, they get a W-2. That's true even for Board Members who are traditionally paid via 1099. If they are employees, any comp for being on he board is w-2.

Because you union people are specifically exempted from getting the THM I think that one is more clear cut that they don't get it for the portion of the year that they are union.

Yes, this I can see...

Participant is a member of an excluded class in the document. After getting "promoted" to an eligible class, they are going to be eligible for a top-heavy minimum. Can I use comp while eligible in this scenario? What if they went the other direction, eligible class to an ineligible class? In other words, can I always limit the top-heavy contribution to compensation earned while not part of an excluded class? I tried to find a spot-on reference in the document and in the EOB but couldn't find anything...

http://www.federalreserve.gov/pubs/feds/2008/200842/200842pap.pdf Loan interest payments, on the other hand, can indeed be considered double-taxed under traditional consumption tax principles—since interest payments are like new contributions, they should be made with pre-tax dollars and then taxed upon withdrawal. In practice, however, the double-taxation of loan interest relative to a consumption tax is offset by the break borrowers get on the timing of their tax payments: recall that rather than paying taxes on loan proceeds when they are distributed (i.e., consumed), borrowers pay the taxes gradually over the following five years as they repay the loan with after-tax dollars. The time value of these delayed tax payments offsets the double taxation of interest—perfectly so, if the discount rate is the pre-tax rate of return; only partially if the discount rate is lower. An algebraic illustration of the taxation of 401(k) loans is provided in Appendix 1. Summary: Because you are not taxed on the loan proceeds when you receive them, and repay these untaxed proceeds with after-tax dollars, these repayments are akin to paying the taxes you owed. They're saying that your tax advantage of a loan is the use of pre-tax money without paying taxes. However, I have always said that the double taxation analysis is only relevant when compared with borrowing the money from another source outside the plan. If you took the same loan from that other source, and the rate of return is the same in your account is equal to the interest paid on the borrowing, you've still made the same total payments on the loan and still have the same amount of money in your 401(k) account. And as I wrote this down, I said to myself, "self, if that is true then really was no difference at all in either strategy and you truly pay no more taxes in either situation. So maybe double taxation really is as described - a very convincing mirage... And if we've just proven that borrowing from your 401k results in no additional taxes paid as compared to borrowing a bank then perhaps there really is no double taxation on the interest." Interesting...

Perhaps they forgot that the interest is actually taxed twice.

I'm down with everything you just said, I'm just trying to step into my clients shoes. They might be ok with a few more loans. I'm not sure there would be a "flood" on account of 1% more interest. Presumably people take the loans only when they need/want the money.

Have a new client that uses prime for the loan interest rate. It's a fairly big plan (few hundred actives) and a very active loan program. We're recommending that they go up to prime +1. Now when I have done this in the past we've just increased it, but I think this client is going to think this change is a big deal so what I am wondering is how have other people approached the transition, in terms of employee communications, and perhaps advance notice, etc (i.e., similar to a fee disclosure notice). I think the fee disclosures philosophy will be on the forefront of their minds...

EOB says look tot he promissory note, and that's exactly what the promissory note says. Loan balance is treated as a distribution actually paid on the date of default. Thanks!

That;s not what I'm saying at all. I'm saying those hyper-rare situations, wich I have never experienced, where the coverage ratio (i.e., from coverage testing) is less than the mid-point, then you would use the lower coverage ratio. Otherwise, can you explain what the above cite means?

Yes, for nondiscrimination/rate group testing (not for coverage).

(don;t worry about the future dates, just making an example). Participant A terminates on 3/3/2015 with a loan balance of $5,000. Participant is not eligible for a distribution from the Plan until after the end of the plan year (I..e, not until January 2016. Participant is rehired in December 2015, after the loan is defaulted, but before he is eligible for a distribution. Has there been a loan offset?

I know everything you just said and yet still have the same question? That;s just it - under item 2, the ratio %age might be less than the mid-point. HEre is a question, plan's ratio %age is 32, and the mid-point is 35. There is just 1 rate group. What must the ratio percentage for the rate group be to pass testing (assuming ALL other aspects of Avg Ben. are passed, including facts and circumstances)?

Thanks!