austin3515

Aha! I see why I screwed everyone up so much! I should have said "when I amend the plan today to INCLUDE bonus" Sorry everyone!!

Hopefully the employees will "just trust you." Some do, some don't. I cant imagine any of my clients signing on for that. The more out of left field the suggestion, the more they get turned off. Plus what do you do in 15 years when the "old plan" has hardly any employees left? Start a 3rd plan?

That was my initial ignorant assumption - your persuasive argument convinced me I was wrong :)

Now your confusing me! For additional exclusions you had me convinced that I had to wait until 1/1? Do you think I need to wait 30 days to make the definition of comp MORE generous? I didn't think so. I can;t tell what you think because you seem to be referring to excluding comp.

As a recap of where this thing started and ended: 1) I initially wnated to amend to EXCLUDE compensation items. Tom made a great point that excluding compensation items is a not-so-thinly-veiled method of reducing the safe harbor contribution. Thus, I am now planning on making the change effective 1/1/19. 2) You indicated that I could not make any change to the definition of compensation during the year which I indicated was not correct. For example, if a plan currently excludes bonus compensation or overtime I can amend the plan during the year to include those items of compensation because adding compensation would be the opposite of a reduction in benefits. I suppose there should be a caveat hear about doing this in the final 3 months of a safe harbor match plan, but I'll ignore that for now (reference the listing of prohibited changes for what I mean). 3) But now when I amend the plan today to exclude bonus from the definition of compensation (which I can do) the question is a) when can it be effective, and b) do I need to redistribute the safe harbor notice? In my opinion the answer is that it can be effective the very next pay-date and no new safe harbor notice is required (an SMM of course is required). Why? I only need to issue the new notice and provide 30 days advance notice for a change to required content in the safe harbor notice. Call me crazy but it seems we all agree that the definition of compensation is not required content. I think your position is that because the SH Notice requires you to cross-reference Compensation in the SPD that this makes the definition of compensation required content. I think that is the issue, and I simply disagree. The required content is the reference to the SPD. The obvious point of redistributing the notice is that you would have different wording in the notice. In my scenario, there is no change in the language of the notice (and thus it need not be redistributed). If there is something else behind our different conclusions do let me know!

You avoid the 30 day advance notice requirement (and you only need to deliver an SMM, not a full SPD).

Well that's not true, I am only barred from a reduction in benefits. I can amend to add compensation. This is just not the same thing as a definition of compensation nor is it materially different from saying "you can make contributions from your Plan Compensation." Obviously you can;t describe a deferral program without a sentence like that. That doesn;t mean the definition of comp is required content because it clearly is not. This of course is only relevant when deciding the timing/need of a new Safe HArbor Notice, and how quickly this enhancement can be effective.

I think one thing that is very relevant and often doesn't get the attention it deserves - how do you explain this to the employees??

I don;t think that's right, the regs say you can cross-reference the SPD for the definition of comp. So yes, you have to describe what comp is eligible, just not in the notice itself. Tom, I agree with you. But what is surprising is that they didn't just say excluding comp items is the same as a reduction in benefits. I'm doing it 1/1/19. Thanks!

Do we all agree that based on IRS Notice 2016-16, I can amend the Plan to exclude certain items of compensation? I will send out an SMM at least 30 days in advance, but because the definition of comp is not required safe harbor notice content I probably don't even need to do that. Agreed?

HEre is my question. Since the timing of the payment no longer affects what year the distribution is taxed in, and if I have a fax confirmation that I send the refunds on March 13th or even 14th, and it was just processing time on the recordkeeper's side, does anyone really think the IRS is going to hold my feet to the fire on this, all for a 10% excise tax that is the result of administrative processing times??? I can't see it. Now if I fax it over on March 16th, I'm doing the excise tax return, no doubt about it.

Well, if it were me I would have run the report for the date range of the failure period and calculated the actual rate of return for each person. Best performing fund is a windfall for the participants and really punitive to the employer. I imagine there are some scenarios where there is a bit of sticker shock...

You are required to include this in the Average Benefits test for a4 testing. It's the nondiscriminatory classification portion of the AB Test that needs to be passed by treating the other excluded participants as not benefiting. The devil her is in the details. IF each plan passes at 70% coverage ratio, then you're all good. But if below 70% and there is no reasonable business classification for the exclusions, then you're out for Average Benefits FOR COVERAGE. So that's why some have asked "on what basis are you excluding people?" From 1.416.-1T(1)(b): All plans maintained by the employers in which a key employee participates, and certain other plans, must then be aggregated (the required aggregation group). So having a balance would not trigger aggregation. Listen, you are asking all of the right questions, but if you're diving into this with these sorts of question I would strongly recommend you get some external assistance. I recently got back into skiing, and you're on the double black diamond as a strong intermediate. I assume you are working with an actuary? They might be a great resource for you. I know perhaps this will come off the wrong way, but I honestly am trying to give you good advice even if it's tough to hear.

Of course we all know that the rule is you cannot use it unless you use the VFCP program. But as is clear from these discussions, everyone does it anyway, and to no negative consequence I might add. Client missed a deposit and sends it in a few weeks late? I just bang out a quck DOL calc and send them the roster. My God that happens all the time. My questions are a) how do you determine the rate of return? I thought the alternatives were a) calculate the individuals rate of return (Which, OMG...) or use the best performing fund (which OMG OMG!!!). b) What are you charging for all of this work on a $125 problem?

I was only providing a nice write-up on what SpiritRider was referring too. Thanks Carol!!

https://www.napa-net.org/news/technical-competence/case-of-the-week/case-of-the-week-403b-aggregation-rules-for-annual-additions/

I use it all the time, VFCP or not. I only do VFCP in really significant situations.

Now we’re talkin! Thanks for sharing this!

I guess all we disagree is whether passage is implied by the OP.

Not at all. But it also needs to satisfy 415, max deductible, it can't allow contributions from severance, and probably 45 other requirements. That is to say, stating the plan has to nondiscrimination is stating the obvious. Edit: AND there is no nonelective in the other plan, so clearly the non-elective will pass nondiscrimination without taking into account the other plan.

OP said 2nd plan passes coverage on its own, and the first is SH Match for all. But good point!

TH Aggregation is only required of all plans that cover at least one key employee. Because of the last paragraph, this design should work because it is not part of the required aggregation group. Neat! PS I assume you meant to say "HCEs and NHCEs" (not HCHEs). 416(g)(4)(H) (H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirements The term "top-heavy plan" shall not include a plan which consists solely of— (i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and (ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met. If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).

So let me get this straight. A 501c3 sponsors a 403b plan. the executive director contributes $24,000 to that plan. We set up a 401a PS plan and contribute an additional $54,000 in that plan (and of course enough to pass nondiscrimination for the ees). Total of $78,000 of additions for the employer and this complies with 415? OMG!!!

I'm definitely more conservative on something like this. Not worth it for me personally to advise anything that might go against the DOL's public comments.

Ha, MSmith beat me to the punch :) But I guess I get the extra brownie points for including the Q&A itself!