austin3515

Word of caution: Do NOT underestimate how incredibly complicated it is to apply the catch-up rules to an off-calendar year plan, PARTICULARLY if you consumed some catch-ups to reduce an ADP refund. If you're response to reading this is "what's so complicated about it??" then you need to do some research!!

Great question... If he's an "earned income" person then you automatically get a true up since all income is deemed earned on the last day of the Plan Year. Of course, based on the fact pattern, it seems unlikely, considering the OP is the 401king

I think calling it a manipulation is unfiar - let's face, the owner got screwed here. Let's also remember that the other participants can only BENEFIT from this amendment. Personally, I was floored when I learned you couldn't make this change...

Agreed that the category "temp" would not be a permissible exclusion since the classification is based inherently on service. But let's the employee transfered to the mail-room, and mail room employees are excluded from the Plan. Regardless, loan payments must continue because repaying loan payments has nothing to do with accruing benefits/participating under the plan. Rather, the participant loan is an INVESTMENT of the Plan which the trustees have a duty to collect.

This has been discussed on the boards before. Although there is no de minimus amount, the IRS has said publicly that they lose money processing tax returns for, say $15. I've heard from other places that the "break-even" point is about $100. Also consider that the charge to prepare is likely over $100 by the time the form is completed, reviewed, filing instructions prepared, etc. and that the penalty and interest for failure to file a $75 tax are likely miniscule - as such, there is not a lot of risk to simply not filing for taxes of less than $100.

OK, so the individual in question contributeds $4,500 of Roth before terminating. He now wants to withdraw the balance when it is worth just $3,000. So I just want to make sure everyone agrees that he will not be able to deduct $1,500 of LOSSES on his 1040 - or would he? Seems unfair that he would only get taxed if it made money...

ADP test includes ONLY people eligible to defer. As for a cite, I couldn't it find it, but this is a very basic concept. BTW, I'm assuming you want them in because most earn more than $100K, and so would help the test?

Tom, I would include him the ADP test, but I'm having a tough time tying that in to the question... I'm guessing including your example in the ADP test would lean towards accruing the match through the 4/22/09 payroll? I had a feeling there wouldn't be a clear-cut consensus on the issue... I feel comfortable that the a pay-DATE after the notice period ends is out (suggesting the final match pay-period is 4/15/09). For example, couldn't a participant elect to discontinue their 401(k) on 4/21/09? Because they certainly could discontinue their deferrals on 4/21/09 (under most docs anyway), I'm not sure I agree they accrue anything at all DURING the pay-period. I believe it only accrues on pay-day, when they actually have it withheld from pay. Certainly the DOL regs on plan assets would back me up! PS, the effective date of my amendment would be 4/17/09.

OK, so the SH Match discontinuance notice is sent out 3/18/09, and there are weekly payrolls. 30 days later is 4/17/09. There is a pay-date on 4/15/09 and 4/22/09. Which pay-date is the final pay-date for the SH Match? I vote for 4/15/09, because the 30 day period expires on 4/17/09, so it's OK to discontinue the match after tha date (i.e., to have no match on 4/22/09). So to confirm, any pay-dates after the 30 day period need not have any SH Match.

Just confirmed with Corbel that to continue with reliance you must solely amend the document to check/ucheck boxes and fill in permissible blanks.

To be more specific: In a non-standarized plan, could I amend the Plan under -11(g) to add in the lowest paid non-benefitting Participant?

OK, so I know there is no prohibition on having a -11(g) amendment add the lowest paid NHCE to the allocation first, and so on until coverage testing is passed. My question is, are there any additional restrictions for -11(g) amendments on prototypes in terms of reliance on the pre-approved document? Or would this be OK?

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.