austin3515

Not so fast... I think what you will find in the regs is that the TWB exception applies only if the sole reason they did not get a contribution was because they terminated employment, provided they worked less than 501 hours. I'm not sure what you've described fits the bill in that regard. I.e., in your scenario the real reason they;re not getting the contribution is because the owner sold the company. Who knows, maybe it does, but I'd check that one twice before excluding every NHCE.

Mike, per your request I am re-upping one week later. LEt me know what you think!

Absolutely. The 3% safe harbor is practically a foregone conclusion for a new comparability plan, because it counts towards the gateway, nondiscrimination testing, satisfies top heavy, and allows the HCE's to max 401(k).

Heard of it, but never seen it...

Remember, a loan is just another investment, and so would be included in the vested account balance.

Giving a true-up to HCE's only (or primarily) is a BRF issue. I wouldn't proceed without a determination letter including that language. Perhaps the attorney already has one. Please let us know if he/she does, as I would find this most interesting, because it does indeed come up quite often.

"or is it $2,000 (1/2 of $8,000 minus the $2,000 already outstanding?" After this loan, the participant will have a total account of $10,000, and loans of $4,000. Therefore, he/she will have just 40% of their account in loans, while the max is 50%. "Is it $3,000 (1/2 of 10,000 minus the $2,000 loan already outstanding), " After this loan, the participant will have a total account of $10,000, and loans of $5,000. Therefore, the participant obtains the maximum of 50%. And so, you see, the second formula is the correct formula.

What do you mean, this isn't your full time job??? You can count on follow-up... I hope others chime as well though

"But at this point, the 2007 catchup is all gone, so the plan sponsor must send $5,000 out of the plan due to it being a 402g violation" But that's the whole point of my frustration: the regs indicate that it is NOT gone. See example 5, paragraph (v), which indicates that when determining available contributions for the remainder of the calendar year, the following formula applies (I pulled this from lengthier text): 401k-Max Less (YTD-401k Less "YTD Catch-Ups Used"**) PLUS Catch-Up-Max Less "YTD Catch-Ups Used"**. First and foremost, please tell me if you don't think the example says this. If you agree, then you should also agree that the expression above simplifies to: 401k-Max Less YTD 401(k) Plus Catch-Up-MAX which further simplifies to the participant can always contriubte the max in any calendar year without regard to failing the ADP test. Why do I say this? If you look at the first "YTD Catch-ups Used" you'll notice that it is subtracting a negative, and you are therefore ADDING it to the contributions available for the rest of the year. Note further that at the end of the expression you are "really" subtracting catch-ups used, and so the two terms cancel out, leaving behind what I indicated above. And so you see my conclusion is that there is a simple and basic math error in the final regulations. Again, PLEASE tell me I'm missing something...

REWRITTEN 3/31/07 Plan Year Participant defers $20,000 in September 2006, and nothing else in the Plan Year. Only $15,000 of deferrals are taken into account because $5,000 exceeded the 2006 statutory 402g limit. ADP Test fails for 3/31/07, requiring $5,000 in refunds, all reclassed as catch-ups. 3/31/08 Plan Year: Participant defers $20,500 in September 2007 (as mentioned above). Only $15,500 of deferrals are taken into account because $5,000 exceeded the 2007 statutory 402g limit. 3/31/08 ADP test fails, requiring $5,000 in refunds, all reclassed as catch-ups. Participant defers another $20,500 in September 2008

the dollar amount of deferrals that is taken into account as of 3/31/2008 in the ADP test is the full $20,500, not the $15,500. Why do you say that? The 402g was exceeded by $5,000, so I should only take the $15,500??? But regardless, the refund could still be the $5,000 even if you take the full $20,500 into account.

3/31/07 Plan Year: Participant defers $20,000 in September 2006, and nothing else in the Plan Year. ADP Test fails for 3/31/07, requiring $5,000 in refunds, all reclassed as catch-ups. Participant defers another $20,500 in September 2007, and so has deferred the max under 402(g) for 06 and 07. 3/31/08 Plan Year: Participant defers $20,500 in September 2007 (as mentioned above). 3/31/08 ADP test fails, requiring $5,000 in refunds, all reclassed as catch-ups. Participant defers another $20,500 in September 2008. So now (unless I screwed up) the participant defers the 402(g) max in 06, 07 and 08, despite failing the ADP test miserably in each year. Same circumstances with a calendar year plan, the HCE gets cash refunds of $5,000 in each year. I'd be doing a disservice NOT to switch to a 1/31 year end. PLEASE tell me I'm missing something!!!

Although I think the regulations are WRONG (as evidened by the fact that a failure in a fiscal year plan results in the HCE being able to max out his 402(g), while an HCE in a calendar year plan will NEVER have that opportunity), I concede that the regulations do in fact state as much. Although it is somewhat buried, in Example 5 of the 414v regs, the HCE who failed the test was able to contribute the full 402(g) limit, despite the fact that some of his contributions were reclassified as catch-ups.

Well, I think I'm amending all my plan's with ADP troubles to fiscal year-ends as soon as possible. Calendar Year Plans: Participant contributes $20,000. ADP Test fails, needing refunds of $1,800. Because participant is already maxed out, cash refunds are required. Off-Calendar Year Plan, 9/30/07 year end: Participant contributes 10,000 in September 2007. ADP test fails for 9/30/07, requiring refunds of $1,800, all of which are recharacterized as catch-ups. Based on what you're telling me, participant can now defer another $10,500, bringing his total deferrals to $20,500 for all of 2007, thereby using an additional $5,000 of catch-ups. So, participant was allowed to exceed ADP limit by $1,800 and 402g limit by $5,000. So now for the 9/30/08 Plan Year, participant has only the 10,500 deferred in the 4th quarter of 07, and the test fails again in 9/30/08, requiring "refunds" of $1,800. Most people agreed above that you could avoid the $1,800 refund by reclassifying as catch-ups. And now, once again, I can do a contribution in the 4th quarter of 08 equal to 20,500 to max. So I've completely circumvented the ADP test for two calendar years.

If deferrals are as follows: 1st Q 05 --- $3,400 2-4th Q 05 ---$14,600 1st Q 06 ---$ 3,500 And the ADP test failed in the 3/31/05 plan year, then we have another problem that no one has yet mentioned: The individual deferred $18,000 in 2005, which exceeds 402g by $4,000. But they had already exceeded the ADP limit by $1,900 in 2005. Therefore, the employees has 402(g) excess of $1,900. What say everyone else? I'm concerned that no one else mentioned this--am I missing something? I've been reducing my client's max 401(k) limits by the amount reclassified as catch-ups in this scenario. For for example, I would've told this client the max they can defer in 2005 is $16,100 ($18,000 - 1,900). To NOT do this completely negates the point of the ADP test. In other words, if every year they get to defer the full max, then really the only applicable limit is 402g. Looks like Buckaroo and I are on the same page...

Far as I know (outside of the document) there are the following deadlines for er contributions AND NO OTHERS: 404: due date of business tax return, including extensions (assumign deduction is in prior year). 415: 30 days after the 404 date. QNEC's in ADP/ACP: Last day of following plan year. So what's missing? 416 (top heavy) AND 401(a)(4)!! But perhaps, the lack of specificity works to our advantage - for example, if profit sharing is not made by due date for business return we have deduction problem, maybe a 415 problem, but perhaps not a 416 or 401(a)(4) problem. Not that its much consolation...

One plan one audit. All the rules discussed here are IRS and do not apply for purposes of applying the reporting requirements under ERISA.

Just to clarify, an auditor can GENERALLY accept referrals from anyone without concern. The question is whether they can compensate someone for those referrals - and they cannot. I use the phrase GENERALLY because the example we're discussing here I agree would be the exception--this type of arrangement does not pass the independence smell test, even if there is no money exchanging hands.

You can exclude any group of employees you want, as long as you pass coverage. And because union employees are excludable from coverage (as long as retirement benefits were the subject of good faith negotiations), you can always exclude union employees.

I did see that as well, regarding ASG's. Sounds like you were way ahead of me when these conversations began

At the time of the distribution.

Why do people want to do anyting they want to do? Maybe I'm crazy, but I thought it was an interesting idea...

I'm not sure why you are concluding that QSLOB's are not an alternative. If you have 5 separate companies, you oughta be able to have 5 separate QSLOB's. I'm not entirely familiar with the rules on being a QSLOB, but it's not exceedingly difficult to have QSLOB's.

I stand corrected: If you're willing to go through the QSLOB rigamarole (sp?) you can indeed run 5 tests in one plan. 1.414®-8. Separate application of section 410(b) © Coordination of section 401(a)(4) with section 410(b)--(1) General rule. For purposes of these regulations, the requirements of section 410(b) encompass the requirements of section 401(a)(4) (including,but not limited to, the permitted disparity rules of section 401(l), the actual deferral percentage test of section 401(k)(3), and the actual contribution percentage test of section 401(m)(2)). Therefore, if the requirements of section 410(b) are applied separately with respect to the employees of each qualified separate line of business of an employer for purposes of testing *ONE* or more plans of the employer for plan years that begin in a testing year, the requirements of section 401(a)(4) must also be applied separately with respect to the employees of the same qualified separate lines of business for purposes of testing the same plans for the same plan years. Furthermore, if section 401(a)(4) requires that a group of employees under the plan satisfy section 410(b) for purposes of satisfying section 401(a)(4), section 410(b) must be applied for this purpose in the same manner provided in paragraph (b) of this section. See, for example, §§1.401(a)(4)-2©(1) and 1.401(a)(4)-3©(1) (requiring each rate group of employees under a plan to satisfy section 410(b)), §1.401(a)(4)-4(b) (requiring the group of employees to whom each benefit, right, or feature is currently available under a plan to satisfy section 410(b)), and §1.401(a)(4)-9©(1) (requiring the group of employees included in each component plan into which a plan is restructured to satisfy section 410(b)). Thus, the group of employees must satisfy section 410(b)(5)(B) on an employer-wide basis in accordance with paragraph (b)(2) of this section and also must satisfy section 410(b) on a qualified-separate-line-of-business basis in accordance with paragraph (b)(3) of this section, in both cases as if the group of employees were the only employees benefiting under the plan.

I can assure you there are no soft-dollar arrangements. That is an explicity prohibitted practice. Auditors CANNOT accept ANY referral fees, commissions, or soft-dollar kinds of money at all as fees from any audit client (even if the monies are not related to the audit itself). As an example, a CPA could not sell investments to an audit client. It's fee for service only. If any of this is going on, they would lose their license to practice (if caught). I just can't imagine any large audit firms are doing this. Certainly not the big 4, or the "big 100" for that matter (whoever they might be).