austin3515

See IRS Notice 2005-5. Amendments are due the last day of the Plan Year ending after 3/28/05. So if your calendar year plan, you have until 12/31/05 to make the amendment. In my opinion, that means you have until 12/31/05 to make up your mind.

All contributions count so it does sound like your limited to people w/ less than 2 years. I'm not clear though on whether you imposed the 1,000 rule. Did you know that is not allowed for the top heavy minimum? You can have a last day rule though. With respect to the people who were shorted because of the definition of comp, the correction is to give them what they should have gotten (i.e., the difference) and adjust it for earnings. See the IRS correction program in 2003-44, which I think has a section on failing to provide the THM. I don't think your allowed to self-correct under the program if it's over a year old, which just means that the IRS can give you a hard time for not submitting the correction under the walk-in programs if the Plan was audited. It's obviously very expensive to do a submission to the IRS, so the sponsor will probably opt to self correct anyway.

There are some twists to it... 1) Watch out for top heavy, because the Plan won't be exempt. 2) Watch for HCE's with less than a year of service (i.e., owners, owners spouses, or owners kids), because you'll need to run ADP testing for portion of the Plan covering just the people with < 1 year. But otherwise yes...

You need to look at the definition of comp. 401(k) is definitely out, but my understanding is that with profit sharing it's a bit grayer. If you use W-2 comp, and this item isn't excluded (although I think it generally is, something about Sect. 83 property?), then it's a definite maybe... These post-"termination" payments are always an interesting topic!

I agree whole heartedly (absent a close call on an audit requirement). I think that the initial set-up fees that were discussed above were those of setting up the arranement for all future rollovers, i.e., a cost that will benefit participants for years to come. That would be difficult to charge to participants. How much would you charge? If the custodian has a "per account" set-up fee, than clearly that could be paid from the former participant's account balance.

Nice one mbozek! There's always something. I read through the long list of benefits specifically prohibitted, and none of the seemed remotely similar to this. This sounds like the kind of thing the IRS might like, I would think? IF the goal is to get American's to save more, this seems like a harmless way to encourage savings... Maybe a private letter ruling is in order? Kidding, of course...

LEarn something new every day... If you opt not to give the 3% SHNEC to all NHCE's, you've blown your top-heavy exemption. This might actually be a good thing, because although you need to use full year comp (instead of comp while a participant), at least you can use a vesting schedule...

The ruling is only 2 pages, and written in a very straight-forward manner... http://www.unclefed.com/Tax-Bulls/2004/rr04-13.pdf 1) Forfeitures = NO top heavy exemption... 2) The answers do not change at all regardless of whether the SH plan uses the 3% SHNEC or the SH Match.

If you remove the provision, or decrease the limit to $1,000, you need not worry about this stuff. Of course you will need to worry about growing participant counts and admin fees, potential audit requirements, etc. NEvertheless, my understanding is that at least in the short-term, many sponsors are taking this route.

DC Plan has J&S language and provides a few different forms of annuities as options. Right now we have to manually set up an excel template, unique for each client, to calculate the estimated annuity amounts for each option available. Obviously very time consuming. Is anyone aware of any software packages that will calculate this automatically (outside of Relius or some similar system)? What do other people do with this situation?

Keep in mind also that if you disaggregate into statutory and otherwise excludable employees, the otherwise excludables do not need to receive the gateway. See what your "topping off the tank" amendment says.

You don't need to give everyone the 3%. See my post above!!

The reason why not to trade in the SEP is because presumably he wants to earn a living on the income. LEt's assume then that money is from a qualified source, and the loan proceeds will be his initial capital investments. I guess the only qualification issue that arises is permanency, because in a PS plan you need to have ongoing contributions. As mbozek implies (I think) permancy is not an issue in a MP Plan, so that should be the plan type chosen, with the 0% contribution. I'm not sure whay he says to make the $20 after tax contribution, but I'm sure he has a good reason. So it sounds like as long as the rollover money truly is some qualified source that is eligible to rolled into a qualified plan, that this could in fact be done. I think it's a common question because new business owners always need capital, and a participant loan is a great way to access that capital. Of course in a loan situation you need to either borrow only 50%, or put up some sort of collateral.

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.