austin3515

IRS Notice 2005-5 has the model amendment.

Pension in Paradies asks a great question. But assuming that's what they want to do, you also need to watch out for 401(a)(4), as Tom mentions. The way to do that is to make sure you pass the rate group test for the nonelective contributions. The way you test rate groups is to make sure that each satisfies "coverage." Remember, this is not the coverage test. Rate group testing uses coverage principles. First you'll want to disaggregate the plan into otherwise excludables and statutory employees. The Plan covering the otherwise excludibles should pass coverage and nondiscrimination by default because absent any new hire owners there won't be any HCE's. For the statutory participants, you'll want to run rate group testing. There are two rate groups, one is all statutory employee because they all got the SHNEC, so the coverage percentage is 100%, and the rate group passes. The second rate group includes only those employees receiving an allocation of forfeitures. The coverage test is performed as though the only people benefitting are those that got the forfeitures. If all you got was 3 % your not benefitting under the higher rate group. And so, if the resultant coverage percentage is at least 70%, you pass 401(a)(4). I won't get into using the Avg. Benefits Test to pass if this doesn't work out. I think it's a common misconception, so I'll point out that for purposes of Schedule T and coverage testing, all nonexcludables are benefitting under this Plan so coverage is automatically satisfied. When performing the ratio percentage test in this type of plan, your performing nondiscrimination testing.

I'm not convinced that it would disqualify the situation. The hardship still exists even when through a surrogate (i.e., she owes the father because of the hardship). As the distribution didn't exceed the need, I don't see any reason to get overly excited. In what context would it ever come up, anyway?

No, there's rules somewhere about "tracing" - i.e., you can trace the hardship to her father's loan and to the repayment of the father. I know it was discussed in more detail for loans for homes, when the loan came after the closing, but because of the traceability it was clear that the loan was for a home (and therefore the term could exceed 5 years). I bet the same rules would apply. Try a search on these boards for "tracing"

Unless the previous plan document, the SPD, and the past 20 years of administration say differently, in my humble opinion... I mean attorney's do make mistakes after all. Of course, it seems that you take this position with the understanding that the IRS may take issue with it. Does everyone agree that this is essentially the moral of the story?

Thanks!

Where did you get the 3,479 of 1/2 self employment? I tried to look it up but couldn't track it down.

But in all cases throught the VCP program? It sounds like the scriveners error argument is tossed out the window with IRS involvement?

I never read EPCRS to abolish the concept of scrivener's error. The scriverners error is just that - it is not an operational defect. To the extent that one existed, I see no barrier to arguing so.

So we're sying it's an excess catch-up contribution? Isn't that corrected like a 402(g)?

How could there be no refunds? We failed the ADP test, and the participant was at the 402(g) limit plus catch-ups? What's the point of the test if no refunds are necessary? At a minimum, the only question is whether or not it's an ADP refund or a 402(g) refund, and according to my cite, it's an ADP refund (i.e., plan year limits occur on last day of plan year, and calendar year based catch-ups occur on the day they were deferred. Because the $16,000 wasn't reached until well after 7/31/04 (right?) the ADP failure came first. Something's gotta go...

The letter essentially says that they took money away from you on the basis that your contributions exceeded the 15% limit of comp limit, but that in fact you did not exceed the 15% limit. The just made a mistake. But they're not going to fix it because the IRS won't let you? Don't believe them. The IRS has a whole program to correct mistakes like this (which do happen all the time). See IRS Revenue Procedure 2003-44 which is the IRS' correction programs.

Appleby, I think as Earl implied you turn to the eligibility requirements. IF employees meet the requirements they are in, no amendments necessary. I'm not sure why they'd be ineligible to maintain it when they have employees. Remember, this is just a 401(k) like any other (except that it has no employees, which is really not much of a difference).

You can set up one plan for each them. But beware if you ever hire any employees as this will totally mess everything up. Why not set up one new comparability plan, with each owner as their own allocation group? As there are no NHCE's you never worry about nondiscrimination and each owner does whatever the heck they want. Just make sure that when you declare the annual employer contributions it is a corporate action - not an individual election - if it is an individual election you have a "deemed CODA" which is very very bad. For example, all three owners should annually sign a Corporate Resolution indicating what each partners employer contriubtion would be. Of course the 401(k) portion of the Plan would be based on the owners election.

I change my answer based on what's below. The ADP failure came first, and you have yourself a genuine 402(g) excess (I think, anyway). This is from the 414(v) regulations. Everything I read in the ERISA Outline Book "deferrals as of Plan Year End" and never mentioned your scenario, which I think supports my revised conclusion. (3) Timing rules. For purposes of determining the maximum amount of permitted catch-up contributions for a catch-up eligible participant, the determination of whether an elective deferral is a catch-up contribution is made as of the last day of the plan year (or in the case of section 415, as of the last day of the limitation year), except that, with respect to elective deferrals in excess of an applicable limit that is tested on the basis of the taxable year or calendar year (e.g., the section 401(a)(30) limit on elective deferrals), the determination of whether such elective deferrals are treated as catch-up contributions is made at the time they are deferred.

The $16,000 came first, so you got nothing left to reclass. You need to send a check for the ADP refund. My understanding is that even if there were catc-ups left on the table for calendar 03, you couldn't use them, because 2003 is over and done with (despite the fact that this plan year covers part of 03).

It must be deducted from wages. They cannot write a check to the Plan. OF course, you still have a week to process one more check if it's really that important (assuming the Plan will allow up to a 100% w/holding-don't forget to gross up for SS Taxes)....

Just make sure that no matter what, they will come if they complete a 12 month period with at least 1,000 hours (generally 1st 12 months of employment or any subsequent plan year).

You're kidding! I wonder if this is more that they are trying to encourage people to use the program, because no one uses the VOLUNTARY program. Was there anything unusual about the filing? Was it several PT's for a large amount of money? I agree that it's tough to turn down the "suggestion" unless the letter makes it clear that it won't impact the audit selection process.

415 limits annual additions (including deferrals this time) to 100% of comp or $44K, whichever is less. In this case 100% of comp is less, so the total allowable annual additions is 17,500 (minus $16,000 equals PS of $1,500 or 8.571%). Or is the limit $20,500? (100% of comp plus $3,000)?

What's the 20% limit? Not something I've heard of before...

The match is till subject to the 25% of comp deduction limit. If you don't have the $112k of comp calculated above, there is no way to max out, whether you use match or PS.

It sounded like Poje was relying on 98-52 for his comments?

The main reason to use a match to max out is because if you have employees that don't defer, you don't have to make a contribution for them. Absent that motivating factor, there is no difference to you how you get to the $41,000.

No way. This is the most classic example of a PT you could ask for. The only way is to not charge the Plan for a commission. He cannot receive anything on account of this transaction.