austin3515

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!

(ii) Application of nondiscriminatory classification test. A rate group satisfies the nondiscriminatory classification test of § 1.410(b)-4 (including the reasonable classification requirement of § 1.410(b)-4(b)) if and only if the ratio percentage of the rate group is greater than or equal to the lesser of— (A) The midpoint between the safe and the unsafe harbor percentages applicable to the plan; and (B) The ratio percentage of the plan. I could never figure out the significance of B), but is the point that it is possible for a plan to pass coverage with a coverage ratio of less than the mid-point, assuming it can pass the facts and circumstances test? So the mid-point is 35, the coverage ratio is 32% (Avg Ben is passed of course), and therefore each rate group need only be 32%?

I didn't think this applied for some reason, I think I thought it was referencing a severance pay plan. I guess in a sense it is, but the point is, if you couple this with an additional requirement (i.e., future service) then that is only MORE substantial? "For this purpose, if a service provider’s entitlement to the amount is conditioned on the occurrence of the service provider’s involuntary separation from service without cause, the right is subject to a substantial risk of forfeiture if the possibility of forfeiture is substantial." So to hr 4 me's point, if the employee can intentional screw things up and therefore get fired, because that is within his control, perhaps that is where the substantial risk of forfeiture loses water. I was wondering why they specified "without cause" but I think I have my answer... Agreed?

That's what I like to hear, thanks QDRO! Is that in any published article that you've seen?

I did read that actually but it speaks only broad terms and did not address my specific question... But that was a good tip because it was one of the few documents specifically on point.