austin3515

But on a PT document, everyone in their own group limits the number of allocation groups you're allowed. So based on gross pay, each participant could be in their own allocation group if the operational intent is to use only bonus. But hey, maybe a VS document would work? Definitely aggressive no matter how you slice it...

I would say yes, but there's one thing that's sticking in my head. And that is that the employer has total discretion to allocate bonuses however they want, and therefore can allocate PS however they want, which might be argued to violate the requirement that the allocation of contriubtions are definitely determinable. But if my contrarian view has no basis, then you should be fine!

I'm not sure it was clear what advice you are giving your client, but the issue seems to be perfectly moot. As was made pretty clear in the very first post, catch-ups MUST be matched for a SH Plan. So whether deferrals are catch-up or not, is irrelevant. All that matters is whether or not it's 401k, which obviously it is. So it needs to be matched. So I presume your advice to your client was "make sure all 401k gets pulled into the match calc, whether catch-up or otherwise." I think some of the discussions above are very very interesting when you talk about a REGULAR match that is funded during the year. It seems to me that excluding catch-ups from the match could have some very bizarre consequences.

Plan has two entities adopt the Plan. Both entities operate fast food restaraunts. The ownership is similar in both plans, and is considered a controlled group after attribution. One has a modest profit and the other has a modest loss. Is it safe to assume that each different entity represents its own "trade or business"? What concerns me is that thye are both fast food restaraunts that are therefore in the same business (they are even operating the same franchise). Is this one "trade or business"? Does the fact that it's a controlled group make it "one trade or business"? If they are "separate trades or businesses" my interpretation (and apparently the EOB's) are that I can ignore the losses based on the following site. My interpretation is tha tthis holds even both adopt the same plan (they could, after all, have created two plans and there should be no dispute at all). From 401(d): A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.

"talks about someone deferring who was not eligible because of age or service or not passing an entry date. I can't find where any excluded class is mentioned. " If memory serves this provision of EPCRS is in the context of a self-correction. I think what Sieve is saying ??? is that if you submitted this to the IRS under the VCP, they would most likely approve it.

If the HSA is done through an after tax-deduction, it should be completely ignored (I'm told these deductions are not always done through a 125 plan). The employee might as well be writing you a separate check for the HSA amounts. If the HSA is provided by EMPLOYER contributions (i.e., similar to employer paid health insurance) it should also be ignored. Neither one of these would be affected by any "normal" definition of compensation.

Let's say you just want to make a plain vanilla plan amendment to (let's say) add hardship distriubtions, or change the plan's eligibility? When does such an amendment need to be signed? Or perhaps more to what I'm looking for, is there a good write-up somewhere that goes into when various amendments need to be signed? Before implented, by the last day of the plan year, etc., etc. Has Corbel done this??

You're not forcing the catch-up for 2009; that's a done deal. You;ve got $4,000, since that's what you exceeded 402g by. There is no way to get the full 5,500 for 2009. I'll wait to hear from others on how they feel about going over 54,500.

ADP and 402(g) is only one way to get a catch-up; there's a couple more, one of which is going over 415. So as soon as you go over the 415 limit, you get yourself a catch-up contribution. So in a calendary year plan, someone defers $10,000 and you make a profit sharing contribution of 44,500, total additions are 54,500, and $5,500 of 401k is reclassed as catch-ups.

Wow, very interesting question... BUT, you would not get the full catch-up limit for 2009 for sure, because the 402g/401a30 was only exceeded by $4,000. Other than what I've pointed out, I can't see any problems. Catch-ups are NOT counted for 415 purposes. If you were running an ADP test, you could clearly have the full 11,000 (5,500 per year) excluded from the test. Why not 415 as well? I'll be curious to see what the outcome of this is!

This is from the IRS Correction Program, called EPCRS, Section 2.07. I think SCP is avaialble. Doesn't fit perfectly, but boy it sure is close!! (3) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan’s minimum age or service requirements, or (ii) has completed the plan’s minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan’s actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. (b) Example. Example 27: Employer L maintains a § 401(k) plan applicable to all of its employees who have at least six months of service. The plan is a calendar year plan. The plan provides that Employer L will make matching contributions based upon an employee’s salary reduction contributions. In 2007, it is discovered that all four employees who were hired by Employer L in 2006 were permitted to make salary reduction contributions to the plan effective with the first weekly paycheck after they were employed. Three of the four employees are nonhighly compensated. Employer L matched these employees’ salary reduction contributions in accordance with the plan’s matching contribution formula. Employer L calculates the ADP and ACP tests for 2006 (taking into account the salary reduction and matching contributions that were made for these employees) and determines that the tests were satisfied. Correction: Employer L corrects the failure under SCP by adopting a plan amendment, effective for employees hired on or after January 1, 2006, to provide that there is no service eligibility requirement under the plan and submitting the amendment to the Service for a determination letter.

Beli3eve it or not, Roth deferrals woudl be treated the same way as traditional deferrals fort hat particular purpose. So even if Sue made Roth 401k, you still use 45,000 for comp. I think the IRS should clarify this eventually, but according to the EOB, this is the most logical conclusion based on the structure of the regs. We looked into this a lot when running ADP testing (i.e., if we were running the test using net comp, were we allowed to reduce comp by Roth 401k as well, and the answer was yes (though more guidance would be appreciated).

Because it sounds like you know what you are talking about, I'll presume that the 410(b)(6)© grace period has expired? How about a bottom-up -11(g) profit sharing contribution to get the average benefits test to pass (assuming you meet the nondiscrim ratio percentage threshhold)? If the NHCE's are young, some profit sharing for them might do the trick to pass the average benefits test. Not sure how far back you are going with this (-11g deadline is 8.5 months after year-end) I may be speaking out of turn, as this would be quite aggressive, but it might be worth asking an ERISA attorney... The Bottom-up restrictions do not apply to profit sharing contributions - only the ADP test...

No, the er contributions don';t become a "plan asset" until they are deposited. The only reason that 401k becomes a PT is because the DOL regs specifcially state that 401k becomes plan assets "as soon as it can be segregated." If the employer stilll has the money it's account at that time, it using plan assets for its own benefit. But as I saidf the case law is very clear on this - outstanding Employer contributions are not plan assets until they are deposited. The only exception to that (I'm told) is in rare circumstances where the document specifically states that they become plan assets when due, but I'm also told that is really only in multiemployer plans.

We've never broached the topic in the past with anyone; and I hadn't even considered the RK limitations. I was more focused on the inability of our clients to stop withholdings when the loan is done, let alone reduce the loan payment in 2 years! Glad to hear I am not alone...

If someone wants to refinance for the max proceeds available, then generally they do not get a new5 year term. Btut there is an exception whereas the OLD loan balance can be repaid down to zero in the original 5 year term, and the new loan proceeds can be amortized over a full 5 year term. The number one complication here is that the payments need to DECREASE after the original balance is paid off. Is any actually doing this? Or is this just being ignored?

Well sure, that sounds discriminatory... But I was assuming the owners need to work for a little while (months??) before having enough business to hire employees...

For some reason your start-up example sounds even less aggressive than my scenario 1, since you can point to the fact that this was a new plan, and to not waive eligiblity would render the plan with no participants, which would be ridiculous. I agree with Bird that scenario 3 does work the best if thre are other NHCE's...

Plan uses statutory 1 YOS/age 21 eligiblity. Scenario 1: Owner and owner's immediate family are the only employees. Owner's Kid is hired on January 1, 2010, and owner wants him in the Plan from Day 1. No other employees have been hired since that date and there are no immediate plans to hire anyone else. Would an amendment that waives eligiblity for anyone hired as of 1/1/2010 be allowed? My assumption is yes, since there are no other NHCE's, and therefore there is no issue of discrimination. If the answer is "no, this isn't allowed" then it would seem that this type of Plan would be precluded from making several kinds of amendments, which would seem wholely inappropriate... Scenario 2: Same as Scenario 1, except that there are three employees who have been working there for 5 years who were made to satisfy statutory eligiblity. My feeling is that this WOULD be discriminatory because there are NHCE's in the Plan, and as such the amendment is subject to discrimination testing. Scenario 3: Same as scenario 2, except that eligbility is amendmed to be immediate. The employer has very very low turnover and is not growing, and it is not anticipated that any new employees will be hired any time soon.

I guess that makes sense... I have run across it once or twice. If that's the purpose of it, then I agree with Bird that netting would definitely be required...

Yup

From the EOB: 8.Change in status from employee to partner. It is possible that, within a plan year, an employee might become a partner in the partnership that maintains the plan. As a result, the individual is an employee for a portion of the year and a self-employed individual for the rest of the year. In that case, the compensation taken into account under the plan will be the sum of the individual’s compensation as an employee plus his earned income as a partner. If the combined amount exceeds the compensation dollar limit prescribed by IRC §401(a)(17) (see the discussion in Section II of Chapter 3A), the combined amount is limited to that dollar limit. 8.a.What if the partner’s earned income is negative - does that offset the compensation received as an employee? The Joint Committee on Employee Benefits of the American Bar Association posed this question to the IRS. Suppose a participant works as an employee for part of the year, and then becomes a partner for the rest of the year. For the part of the year he is an employee, his compensation from the partnership is $40,000. Due to a one-time charge to the partnership, the participant’s earned income for the year is a $45,000 loss. What is the person’s section 415 compensation? The IRS says it is zero because the loss completely offsets the compensation. See 2001 Q&A-25 at www.abanet.org/jceb/2001/qairs.html. This is a surprising conclusion, since the individual nonetheless earns W-2 wages for that year as an employee. An opposing view is that the negative earned income is simply treated as zero and this person’s section 415 compensation for the year is $40,000. Proponents of this view argue that the W-2 wages paid as an employee are different from guaranteed payments, as described in 7. above, which are paid to the individual in his or her capacity as a partner and are subject to offset by partnership losses distributable to the individual. There certainly is room for disagreement here!

How do they have both W-2 and K-1, Box 14A income? That's really not supposed to ever happen. The two ideas are mutually exclusive. You are either a partner (receiving a K-1) OR an employee. Are you sure this isn't a K-1 from an S-Corp?

Yes, it is a year-to-year thing. I meant you lose top-heavy exemption just for that plan year.

If as of the last day of the plan year the plan is top-heavy, AND you do profit sharing for the first plan year, than the top-heavy minimums are due. SH only makes you exempt from thm's if the plan solely cosnsits of 401k and SH contributions. As soon as you do ps, the plan cosnsits of something other than SH and 401k, and the top heavy minimums are due. Of course, the SH Match would count towards the thm that would be due.