austin3515

In other words, the K-1 income is out - you can count solely W-2 income. The distinction from partnerships is that the Corporation is considered a separate entity from it's owner, whereas a partnership is comprised of individuals as partners, not distinct from the enttity iteslf. Thereofre, in a partnership, the partnership's income is the partner's income (at tleast their pro-rata share).

For the second time today I was guilty of not reading the entire post. I'll try to do better... I was focused on the fact that there is no way to discontinue it altogether. I TOO agree with Sieve, though it would concern me if the sole reason for the plan year change was to reduce and/or amend the 3% SHNEC which the regulations clearly are seeking to avoid. So I think this would make me nervous about those catch-all rules (don't interpret the rules in a way contrary to the spirit of the rules)... Particulalry if you opted for the match instead of the 3% SHNEC.

Right...

Let's say, for argument's sake, that the owner is 65 and the employees are all younger than 25. Let's also say that the employees are getting at least 1/3 of what the HCE is getting (in fact bet their getting more than half what the owner is getting). I think it would pass, personally... (using xtesting)

I think I was just saying that you can't simply amend the plan year to get rid of your 3% SHNEC effective immediately (or even oin 30 days). After my bolded sentence in the regs, you still think your solution would work? Because it quite clearly seems to be out based on that sentence?

(3) Change of plan year. A plan that has a short plan year as a result of changing its plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the plan year has less than 12 months, provided that— (i) The plan satisfied the requirements of this section for the immediately preceding plan year; and (ii) The plan satisfies the requirements of this section (determined without regard to paragraph (g) of this section) for the immediately following plan year (or for the immediately following 12 months if the immediately following plan year is less than 12 months).

Just one more big thing to defend on audit... I suppose the exact same logic applies, but two is more than one!

Since 401k is subject to medicare and SS, not running the 401k through payroll does create a medicare and ss tax problem. For example, to get a $15,500 401k contribution, you need at least like $17,000 of wages to cover all those payroll taxes. So I would suggest amending W-2's and all your payroll tax returns and sending in the missed withholdings. Since the $15,500 was actually depositted and the failure to run through payroll was clearly a clerical error, I see no problem with this personally. The amended W-2 COULD be a red flag for audit, but I would suggest that your goose would only be cooked if you amended the w-2 today, and deposited the 15,500 today. Since the $15,500 was already deposited before year-end, I really don't think this would be a problem under audit. But of course, avoiding the audit altogether would also be desirable...

I've looked into similar questions before and found this nuggett in the ERISA Outline Book (paraphrased). The HCE question generally follows whether or not participants are treated as having a break in service for distribution purposes. Because Company B assumed the portion of the Plan attributable to Company X, that plan is treated as the continuation of A's Plan, and therefore, you WOULD look at X's 2007 payroll . Conversely, but for the transfer of assets, the answer would be that you would NOT look at their 2007 compensation. That's because under a little known exception, transferring from a wholly under sub of Company A to a wholly owned sub of Company B actually accounts as a break-in-service (some GCM somewhere). Seems strange, I know...

I suppose as long as you could pass rate group testing and, if necessary, average benefits you could integrate at $50,000.

http://www.asppa.org/pdf_files/govpdffiles...r.Unsol.FIN.pdf Thanks K2 Retire - I went out and found the letter... Looks like they were all over this...

Sieve - From ERISA Outline Book: For what its worth, I agree it would not be a cutback, but alas it is not permissible. The basis for suspending the match is in Treas. Reg. §1.401(k)-3(g) and there is no corresponding "out" for SHEC plan's. From Treas. Reg. §1.401(k)-3(e) "In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of §1.401(k)–1(b) if it is amended to change such provisions for that plan year. " The title of that paragraph is "(b) Coverage and nondiscrimination requirements" and INCLUDES the ADP test. So if you amend the plan (except as provided in (g) regarding suspending the SH match) the plan CANNOT pass nondiscrimination. And that (I believe) is the basis for Sal's conclusion.

I agree with KEvin C, cuz we went down the exact same question and gave the client the exact same answer. Not to change the subject too much, but REALLY bothers me is that you can't discontinue the SHNEC mid year. I think it's obscene that a company cannot control its expenses on a PROSPECTIVE basis. I've some simple projections and determined that A LOT of plans will be needlessly terminated this year as the sole means of controlling a substantial cost. Perhaps when regulators realize this, they'll make change this idiotic prohibition. I sent this email to Brian Graff of ASPPA, but haven't heard back yet (I'm not holding my breath!). Maybe if he gets several copies of the same email, he'll respond on these boards!!! Brian – Has there been any discussion regarding the prohibition of discontinuing a 3% Safe Harbor Nonelective contribution mid-year, similar to the rules regarding discontinuing safe harbor matching contributions? It would seem that absent a change, many hundreds of retirement plans will be needlessly terminated as this is the only way to limit a very significant expense. And of course, such a termination will result in the depletion of retirement savings for thousands of individuals who will likely decide to cash-out their balances in lieu of rolling over their contributions to an IRA due to the economic climate. Furthermore, a new replacement plan cannot be installed for at least one year which would mean that the employees lose a year of retirement savings, at a minimum.

If I'm not mistaken, that package is sold separately from the document software.

If its the GUST document, see 12.4(j) that you can apply the provisions of Section 12.4 (which is just the plain vanialla ADP language) AND 12.5 (which has adjustmetns to the ADP test, including QNECs) separately to each "plan" (i.e., the otherwise excludable plan and the statutory employee plan). So that is your basis in the document for providing QNECs to the statutory participants only (or non-excludables, whatever you want to call them).

What a dolt... I screwed up a one word answer... Funny, I read your original question to me and was quite surprised by YOUR question! So I'll put you back up to your original lofty position on the respect scale... FYI, I'm now about 1/3 of the way through my morning coffee, which probably is why the question was more clear when I read it this time!

That said, insurance products, while sometimes costly to set up, usually have very low annual costs, and commissions drop dramatically after the first year for the broker. I should hope they would drop after the first year - they can be downright obnoxious in year 1... I've seen 6 figure commissions on big plans...

EVery document I've ever seen says "if the employer eleclts to test statutory exclusions separately, QNEC's can be allocated soley to the plan being tested" or somehting like that... Very standard...

OK, spoke too soon - better check the doc to make sure a competent attorney drafted the doc to give you permission to do this. If not, it's a bad document!!!

Yes. Been a long time since I gave one word answer

In general insurance products are a lot more expensive... Personally, I'm a fan of the Registered Investment Advisor approach because their fee is say 50 bps, and that's it. Their not allowed to take commissions, etc. so you know what your're paying. The same cannot be said for insurance products where there is high likelihood revenue sharing, and undisclosed commissions (OK, the savvy plan sponsor MIGHT look at the schedule A, but then again...)

Perhaps the other (better?) option, of course, is to stay far away from this type of plan design altogether!! Ain't that the truth...

It is not lost on me that not benefitting for 410(b) = excluded from ACP. So let's then go with including them in the ACP test, since that what a literal interpretation would require. What's more, the plan does pass coverage by treating them as not benefitting. So I'm now OK with leaving them out of the ACP test. I guess my position comes back to what it means to have a purely ministerial requirement in order to be eligible for the match. Since the reg offers the example of "simply handing in an enrollment form", my opinion is that mandating a minimum 4% contribution presents a coverage issue. And THIS is the crux of what I think about this. SO, you think mandating a minimum 4% contribution DOES fall into the "ministerial" requirement definition, which would allow them to be treated as benefitting. So I guess we won't agree... Oh well!!

Since every plan I've ever seen a document that didn't require whole percentages, apparantely everyone on the planet agrees that requiring a minimum deferral of at least 1% does not create something beyond a ministerial act. In fact the basis for limiting deferrals to whole percentages is perfectly reasonable in my opinion, since it improves the odds of accuracy and the difference between 3% and 3.5% is miniscule. LEave them out of the ACP test? Let's admit we're in bizaaro world witht his plan design in the first place. So if by some stroke of incredible coincidence, this plan was able to pass coverage, I dare not be so bold as exclude all those zeroes from the ACP test. So just out of curiousity, are you taking the position that these people WOULD be benefitting, and that deferring 4% is purely ministerial? Remember, the individuals deferring 2% DID complete an enrollment form, but are not getting the match... At a minimum, I would consider the 4% deferral requirement an additional allocation condition, which again would suggest a coverage problem. I too agree that there is a BRF issue, but I think the coverage issue is paramount.

Yes you can, you can only not do this in an ACP safe harbor - 401(k) (1.401(m)-3(d)(2). Since the rule stated above applies only to safe harbor plans, the implication is that you CAN have increasing rates for non-safe harbor plans. NOW, accoridng to the 410(b) regs an employee is treated as benefitting if they are treated as an eligible employee under 1.401(m)-5, which defines an eligible employee this way: Eligible employee means an employee who is directly or indirectly eligible to make an employee contribution or to receive an allocation of matching contributions (including matching contributions derived from forfeitures) under the plan for all or a portion of the plan year. For example, if an employee must perform purely ministerial or mechanical acts (e.g., formal application for participation or consent to payroll withholding) in order to be eligible to make an employee contribution for a plan year, the employee is an eligible employee for the plan year without regard to whether the employee performs these acts. Since deferring 4% is not a purely ministerial act, I'd say you have a coverage issue, and this a no go unless you can demonstrate it passes coverage. Of course, if at the end of the year you fail coverage, you can amend the plan to pass coverage, except that such an amendment needs to be the exception, and quite frankly, I just don't see how this is not going to present a problem since anyone not deferring at all would have to be treated as not benefitting.