jquazza

1)- As long as you pass coverage, the only employees you will have in the ADP are those who benefit under the plan (eligible city 2 employees.) 2)- You only need to provide the SH contribution to the plan participants. City 1 employees are not participants.

Amending the plan eligibility retroactively to fix one participant account might end up costing the sponsor a pretty penny. What about other employees who were excluded from deferring but would have been eligible under the new eligibility provision? The sponosr would have to contribute a QNEC for all these folks, in the amount of the NHCEs or HCEs ADP average, depending on which category they belong (and if you have any HCE who gets a QNEC, you might have some nondiscrim issues as well.) Plus, they might be entitled to other contributions... It might be easier to just consider the participant ineligible for 2003 and treat her deferrals as ineligible contributions. Forfeit her balance and let the employer make her whole outside of the plan. That would actually be the IRS preferred method of correcting such operational failure, but not the employer, especially if you jump over into a new year, you have issues with W-2s etc... Some administrators actually process corrective distributions.

Yes, it can be done but the problem is you need to provide the SH notice with the correct formula at least 30 days before the plan year begins. It looks like you're a little late.

You're correct, the match will be capped at 5% of 200k or $10,000.

A sponsor has a safe harbor provision in the document with an enhanced match formula (100% of the first 4% deferred.) The SH notice provided to the participants last year said the company will match 100% up to 3%. Does the typo in the notice take them out of safe harbor status?

It's probably just a pricing issue with the provider.

On the instructions, under active participants, it says: This category does not include... A)...B) ... I think you just missed the does NOT include... which gets to prove that speed reading and pension matters don't go together well...

The key is is it such a problem for you to report them? If it is, then don't otherwise, you might as well include them. More than likely, you won't be bothered by the client because the participant who received a letter from the SSA contacts him 20 years from now, do you keep your clients that long? I would be worried about reporting all terminated participants with a D now, simply because they are terminated and don't have a balance anylonger. You should make sure beforehand they were reported with an A in the first place. Otherwise, you might be opening the door for someone to look at all the SSA and it can be costly if some participants were missed.

I agree with GoldTPA, and I might add that I disagree with you when it comes to mutual funds. They should be considered securities (The 5500 Preparer's Manual agrees with this as well.)

Tim, I agree with you and I prepared few 5500s for clients in the same situation. Guess what? I got a DOL letter for every single one of them. EBSA doesn't like getting a schedule I with nothing on it. It's nothing major, but forewarning the client might be advisable. In this particular case, since nothing was communicated to employees, you might argue that the company didn't have a plan in 02 and file 03 as the first return.

Don't ignore the missed filing, you're only delaying the inevitable. Filing under DFVC is indeed pretty cheap these days and I would go that route unless the penalty using the daily fee is cheaper.

We had a lot of plans in the same situation (in 2001 and 2002), all we did was annotate on the schedule A that the insurance company did not provide the data and we never heard anything back from the DOL (not even one of these computer generated letters.)

No, she isn't attributed any other ownership and I am aware of the former key exclusion for the top heavy ratio. Being a former key doesn't preclude her from getting a top heavy minimum contribution this year though.

I am having an argument with some coworkers, maybe I can find someone to settle this for me... A is a 1% owner with comp in excess of 150k. A is a key employee. A's wife, works for the company as well and earns 30K. She is a 1% owner by attribution, now, because her comp is under 150k, I do not consider her a key employee. Am I missing something here?

Also, the two companies might not be considered related employers for coverage and nondiscrimination because they don't meet the 80% common ownership rule and can be considered related for 415 (the ownership % drops down to 50%.

It seems you're confusing coverage and nondiscrimination. All the employees benefits from the 3% SH nonelective, so your plan passes coverage at 100%. Because of the additional PS contribution, you have to demonstrate nondiscrimination via the rate group testing method so you have to run your general nondiscrim test under 401(a)(4).

Blinky, I really meant nondiscriminatory classification test in my previous reply, not reasonable classification. My mistake.

Whewwf. You had me worried for a moment. So if I understand your issue correctly, you wouldn't consider an individual as benefiting for the reasonable classification test if his/her contribution rate was 0 even though he /she met the accrual requirements for the contribution. In which case I concur.

Taking the issue of reasonable classification aside, let's say your classification is reasonable (e.g. Attorneys who are not partners) and the employer decides not to contribute any money for that group this year, are you saying that I cannot use the ABT to demonstrate coverage and nondiscrimination?

Mike Preston said:

I really don't understand why the owner would care what the HCEs defer. If they max out on their deferrals, that's only going to hurt him in the tests (ADP and ABT.) And I agree, a contribution that is contingent on a participant making certain deferrals is a match.

Is someone getting remorse suddenly. Do you like the Bush ERSA plans or what? Until the IRS modifies 414(s) to look more like 415, I am totally ok. And the 3eyed-fish gets skinned, skimmed and skewered! Then thrown in the bouillabaise...

If you're writing this formula in the document, you running the risk of having to meet gateway minimums when (if) the plan becomes top heavy. Otherwise, I like it (I like it a lot! as my Australian buddy would say: It's a BeauOOt!)

Sure, you can include both sources on both the a(4) and the ABT.

He doesn't have a choice if he was to keep his plan in compliance. If he doesn't want to keep his plan in compliance, my suggestion is you fire him as a client, you really don't need that, because he will come back and blame you when the IRS catches up with him.