austin3515

That makes me very happy - but do you have anything that I can put in my file, in defense of that position?

Please elaborate... This sounds interesting even though I have no idea what you mean!

You mean Option 2, right?

Wife works for husband Docotor doing books for 10+ years, but never was on the payroll. Wife's involvement is clearly documented by workflow, emails, etc., so the existence of her service would be verifiable on audit. Well, now the plan is safe ahrbor, so the wife now wants to get paid so she can defer the max as well. Plan requires 1 Year of Service. Option 1: Wife is eligible from day of compensation because we can count all of her pre-pay check service. This is based on the fact that she was "entitled to compenation for services rendered" even though none was actually paid. Option 2: Because the wife never actually received any compensation, and most hours of service crediting rules reference "hour of service for which compensation was paid" or soemthing to that affect, wife must satisfy eligibliy treating day 1 as the first day of her paycheck, delaying her entry for at least a year. [ignore the fact that wife should have been on the payroll all along, and probably was not to avoid the social security tax by tacking it on to the Doctor's paycheck, whcih was above the wage base - that is someone else's BIG problem - not mine! The question presented to me is solely "can she participate from day 1"]. So which option is it? Option 1 or Option 2?

You;'ve just violated the unspoken code of a TPA. NEver EVER do a refund that you don't have to!! Even if you make 10 cents on the dollar when you add up all the tiome you spent

PArt of the confusion (indeed my original confusion) is that you referenced the need to pas a(4) with and withhout. The crux of it is, why are we testing a design based safe harbor under (a)(4) in the first place? And the answer is because (As Tom already pointed out) (a)(4) must be passed with and without QNEC's. In this little twist of events, (a)(4) is actually FAILED when QNECS are INCLUDED, because rate group testing is failed, and because the design based safe harbor is blown (i.e., two different contribution rates for HCE's and NHCE's). (a)(4) is actually PASSED if QNEC's are EXCLUDED, because the design based safe harbor is in tact. I think it usually would work the other way around, which is why I find this scenario more interesting. But regardles, the BOTH requirement is failed, and tehrefore, the QNEC's cannot be included in the ADP test. It makes no difference (in my situation) that the plan passes coverage, because I am not able to my QNEC's in the ADP test, which was an important part of the strategy.

Found the answer (EOB)... 2.c.1) Elective deferrals included under rule of parity for post-2005 plan years. Treas. Reg. §1.401(k)-1©(1), as amended on December 29, 2004, provides that elective deferrals are disregarded only for purposes of IRC §411(a)(2). IRC §411(a)(2) addresses only the application of vesting schedules. Thus, these regulations require that elective deferrals be taken into account in determining whether the employee is 0% vested for purposes of the rule of parity. The regulations are effective for plan years beginning on or after January 1, 2006, although the regulations may be applied, at the employer’s election, for earlier plan years ending after December 29, 2004. See Treas. Reg. §1.401(k)-1(g) (December 29, 2004).

True or False: Service can NEVER be disregarded under the rule of parity in a 401k plan, becuase the participant always has a nonforfeitable right to their 401k contributions (even if they never made 401k contributions, and even if they never had a balance in the plan). They always mentioned "Employer provided benefit" but my understanding from somewhereorother (very reliable source!) is that this is a TRUE statement.

Once you throw othenr contributions in the mix, the design based safe harbor evaporates. QNEC's must pass (a)(4) as well (i.e., there is nothing excluding them from the non-elective portion fo the plan).

I think I had mentioned earlier though I have little or not actual experience with the subject matter, so I have no idea if it's leagal or not. But if it was legal, and they could permanently hold the money, you bet they would. That's exactly what they did in the 403b market. Even the clients that hate TIAA (and some do) are totally and competely, and irrevocably STUCK for this very reason. But of course, in TIAA's defense it was borne of a different era altogether. As a practical matter, I have a hard time believing a 401k would be banned from investing in such a product.

TIAA-CREF, as an example, has many plans that are all individual contracts. They built their system to be able to run reports that look just like John Hancock (ie., trust level, participant detail reports). I assume they are not the only ones who know how to do this - especially if they were able to pick up a 1,000 life plan!

But what about this: A plan funded solely through an insurance contract is not required to have a trust, and threfore, there might not be a trustee. At the risk of suggesting I have any on-point experiences, could the rule I just provided lend some credibility to the insurance company's position?

Did you conclude that I was suggesting that the employer impose a blackout? I'm not quite sure where I suggested that my advice was to lock people out of their accounts. What I was trying to convey was that if the RECORDKEEPER locks people out for more than 3 days from making investment elections (which is common) that you have a blackout and require the notice.

Two people, HCE and NHCE. -Plan is integrated at taxable wage base. -NHCE terminated (no break) and does not qualify for a contribution. -Plan is failing ADP test and a small QNEC would pass the ADP test. As it turns out, the QNEC would allow us to pass the average benefits test as well. The question is, do I have a nondiscrimination problem, in light of the fact that I need to pass (a)(4) testing with and without QNEC's. I maintain that I have a design based safe harbor allocation, which is being adhered to, and is therefore stil in tact. I failed the ratio percentage test but passed Avg. Benefits. I am only yusing Avg. Ben. for COVERAGE, not for (a)(4) testing, and to the best of my knowledge, I am not required to pass coverage with and without QNECS. So am I OK? OR does that fact that NHCE is getting a nonelective contribution (i.e., the QNEC) that is less than HCE's mean that I now need to satisfy rate group testing? Sometimes when you finish writing a question, you change your mind about what the answer is... And in this case, I think I just convinced myself that I do indeed have an (a)(4) problem because QNEC's are not exempt from (a)(4) testing. Thoughts?

It's not uncommon to lock people out for two weeks BEFORE liquidation. I know of at least one major vendor that commits this unspeakable attrocity. Sure, some of the best will do what you suggest, but I think the ones on the older chasse's are much less able to turn this around in a day. But in Bill's example, clearly there would not be an investment blackout, and probably not one on distirubtions or loans either. But if there is even a shadow of doubt, with penalties of $1,100 per day per participant, the good advice is to take the extra 20 minutes and disclose what exactly is going to happen. Edit: Please let us know your exact situation in terms the timing of lockout/liquidation. If it is one of those vendors that does lockout before liquidation, I think it will be important to memorialize that it does indeed take place in these boards for all those searchying in the future!

Kevin C - Imagine the followign "hypothetical" situaiton: Plan notifies vendor they are leaving to trustee directed Vendor puts plan into blackout for a week during deconversion Duyring that week, the DOW tanks 500 points You didn't do a black out notice. This is not a position I would like to find myself in... I seriously doubt the DOL would agree with your interpretation.

A lot of times during deconversion, thre is a period of time during which participants cannot change their investments. Since this is the definition of a blackout, you would definitely need the notice.

(EDIT to add heading: Excruciating Minutiae Question) Why does otherwise excludibles even come into play? She was not eligible for the profit sharing component of the plan? So for example, if I had this plan on Relius, RElius would not include her in the test, even if I chose not to disaggregate.

Because you can impose a limit on deferrals that applies only to HCE's or a gorup of HCE's (such as a limit applicale only to the owners). For example, there's a lot of talk about limiting owners/key employees to $1 of deferrals so the Top Heavy Minimum will be essentially nothing, but the owner can still defer the 5,500 of catch-ups. So for example, if there is an HCE deferring $16,500, and the HCE limit will be 5%, and the owner only makes $100,000, you might impose a limit of 5% of pay. That way, the HCE can defer 5,000 in the ADP test, PLUS the $5,000 of catch-ups. Without the plan imposed owner limit of 5% of pay, had the owner deferred $10,000, the refunds would have gone to the non-owner HCE first. Not sure if that is what you are trying to accomplish, but if it is, then you're welcome

Anyone know if this amount is reported on the K-1, and if so, what is the code?

But are you also puzzled by the paragraph I highlighted? I agree with your conclusions about "Why all the extra info" if there is no change required, but of course if I don't have to go through and change all my templates for this I would be quite happy..

Did anyone esle see this Relius technical update regarding 2010 SE Calculations? http://www.relius.net/News/TechnicalUpdates.aspx?ID=555 Included in the article is the following sentence, which seems to suggest that the rule change can be igored, but the balance of the article runs through how the calculations should be run... Anyone have any insight?

Bt you could impose such a limit on owners

While perhaps Bird's interpretation is just as (if not more reliable than mine, I would contend the 3rd party sick pay is usually so small, and 3% of that number is therefore VERY small, the best course of action would generally be to include it. In favor of my argument though, I do find it sort of hard to justify NOT using W-2 wages, if that is the plan's definition of compensation. In toher words, using an insurance company to provide sick pay shouldn't be a back door to avoiding a safe harbor contribution (as an example).

Since most plan's use W-2 as the defintion of wages, ST disability (sometimes called TP Sick Pay) is included in the plan's definition of compensation (i.e., because the STD is reported on the w-2. Because it is no different than a normal sick day, it would not be a fringe benefit, and therefore would have to be speciically excluded. No word on how 401k works on that, but if shomeome for example is SH Eligible, the amounts should be included.