Kevin C

The reference you are looking for is probably the definition of "plan" in 1.401(k)-6. It sends you other places, but basically ends up saying the aggregation/disaggregation used for 410(b) testing determines what the "plan" is for ADP/ACP testing. If you are testing the otherwise excludables separately and want the targeted QNEC to only go to members of that group, I agree the document would have to say that. If it doesn't, you should still be able to use the targeted QNEC, but may have to give the QNEC to some non-excludables if that is what the document says.

If the document says the HCE's get the SH and he doesn't contribute for himself, the failure to follow the terms of the plan is a qualification issue. Since he is beyond the time period for his 3% SH to count as a 2010 annual addition [1.415©-1(a)(6)(B)], I would look to EPCRS for a correction. You are still in the time window to correct significant operational failures under SCP with a corrective contribution, assuming he hasn't been notified of an audit. I don't know if a VCP filing would give you any other options. For 2012, it needs to be amended by 12/31 so that he doesn't get the SH. Otherwise, he will have the same problem for another year. Unless the document says otherwise, failing to send out the SH notice doesn't affect whether the SH is due for the year. Our VS document does have an option for the conditional 3% SH where delivery of the notice controls whether the plan is SH for the year.

http://www.irs.gov/pub/irs-wd/1147032.pdf In request 3, they cite the rules prohibiting pre-funding of the match and say the excess assets can not be used towards a SH match or even a regular match. It also mentions that this rule does not apply to forfeitures. Does your plan use the 3% SH or the match? The prefunding restriction they cite only applies to the match.

That shows he/she is a highly compensated former employee for 2012. If you do the same for the 2011 determination year, the answer changes because he/she did not have a separation year in 2010, as long as services were provided in 2011.

11.401(d)(1)-1 looks a lot like the non-bank trustee requirements for IRA's. I tried looking it up on our reference site and I get a message that it can not find that regulation. Considering that regulation is from 1962, is it still in effect? I did find the following in a regulations preamble published 12/19/1995:

Before you can roll it into a qualified plan, it must be an eligible rollover distribution. It must also come from a qualified plan. That makes it unlikely a US plan could accept a rollover from a foreign plan.

Unless you are talking about a newly established company, yes, it is too late for a 2011 calendar year SH plan. The initial plan year must be at least 3 months. For a PS plan effective 1/1/2011, the CODA must be added at least 3 months before the end of the year. See 1.401(k)-3(e)(2). At this point, they can do PS or regular 401(k) for 2011 and add the SH 1/1/2012. Or, they can set a SH plan up using a non-calendar year. For example 11/1 - 10/31.

It's too late to change the 3% SH for the current year. The document will say who gets it and you can't change that mid-year. But, for next year you can sort of get there. Amend the plan before the end of this year, effective next year so that HCE's don't receive the 3% SH and the PS allocation is a new comparability allocation with each person in their own allocation group. The Employer sets the PS contribution levels, not the individual shareholders. Then, on a case by case basis, the Employer decides which HCE's get a 3% contribution. Make sure you check the document for how the PS contribution amounts are declared. Our VS document requires a resolution specifying the contribution amounts for each allocation group.

You will also want to look at the plan's final 415 reg amendment. That language sounds like the old version. The newer language will probably reference EPCRS.

Yes, but whether or not you get the $375 rate will depend on who processes the filing. The last one I did, the agent insisted the $375 fee only applied if the VCP filing was done before the end of the remedial amendment period. Yes, I have that in writing. She insisted we send the rest of half the normal filing fee, or she would return the filing as rejected. I previously filed a couple of VCP filings where the plan had not been amended since the 80's that were processed for the $375 fee. She said the other agents made a mistake. Hopefully, you won't get the same agent out of Austin, TX. I would send it in with $375. If they want more, they will tell you.

We are seeing the same range for DC plans. And, that is using the smaller CPA firms. The large firms are much higher. Even when you include the cost of another plan document and extra administration costs for two plans, it is still a lot less expensive to have two plans.

If they didn't restate or take action to be eligible for the 6 year pre-approved cycle by 1/31/2011, I wouldn't worry about a determination letter. They would be a late amender, so not having a determination letter would be the least of their problems. The only good news is that VCP covers late amendments.

A PTIN is needed if you prepare Form 5330. The exempt list is in Notice 2011-6.

I think you had it right the first time. They only qualify for the 6 year cycle if they are 1) a prior adopter, 2) a new adopter, 3) an intended adopter, or 4) the adopter of a replacement plan. Among other things, 1) requires the adoption of a pre-approved document prior to the start of the current 6 year cycle. 2) requires the adoption of a pre-approved or interim pre-approved document prior to the end of the employer's 5 year cycle. 3) requires Form 8905 signed before the end of the employer's 5 year cycle. The section you highlighted says that if the current generation pre-approved document is available, you should adopt it instead of using Form 8905. Since it then says you will be considered new adopter, I take that to mean it must be adopted by the end of the 5 year cycle, 1/31/2011 in your case, as required to be a new adopter. 4) requires the timely adoption of a pre-approved plan. Timely in that case should be by the end of the 5 year cycle. All 4 of those require either the adoption of a pre-approved document, interim pre-approved document or signing Form 8905 by the end of the 5 year cycle. Hopefully one of those happened. If not, I would suggest VCP. Example 17 looks close to the situation you describe.

I'd like to clarify that my post above applies only in the situation where both years involved tested 410(b) by disaggregating the otherwise excludables, which is the situation in the OP. If only one of the years disaggregated the otherwise excludables, there are special rules that change the answer. See Chapter 11, Section XII, Part H.4 of the EOB. Those special rules apply if there are coverage or testing method changes between the years.

Another option would be to request a Technical Advice Memorandum on the issue. In the case we had with a similar problem, the agent would only give a very vague explanation of why she thought the failure was significant. She was also under pressure to close out this Form 5310 filing. We finally informed her we would request a TAM if the issue was not resolved satisfactorily and she backed down. Good luck.

If you have access to the current ERISA Outline Book, you can show the attorney Chapter 11, Section XII, Part D, 1.b.1. It says that if you use prior year testing and disaggregate the otherwise excludables for 410(b), you are comparing the statutory NHCE's from the prior year with the statutory HCE's in the current year. Since there were no statutory NHCE's for 2010, I think 1.401(k)-2(a)(1)(ii) says you pass the ADP test. In the regs, a combination of the definition of "Plan" in 1.401(k)-6 and the prior year testing parts of 1.401(k)-2 should get you there. If the "Plan" you are testing does not include the otherwise excludables, I don't see why you would consider prior year otherwise excludables since they were not eligible under this "Plan" in the prior year.

Unless you are talking about a one time irrevocable election as defined in 1.401(k)-1(a)(3)(v), you are likely to turn the entire plan, including the employer contributions into a CODA. That means the deferrals plus all employer contributions would be subject to the 402(g) limit.

I agree that statement is false. The announcement says those specific amendments do not violate the regulations. It does not say those are the only amendments that can be made. The discussion about tying the ability to amend to whether or not it would change information in the safe harbor notice comes from the 2010 DC Q&A session. The regulations say that provisions that satisfy the rules of 1.401(k)-3 or 1.401(m)-3 can not be amended mid year, except under the suspension provisions included in the regulations. If you twist this around to make it mean that nothing mentioned in the SH notice can be changed, then you can't even update the employer's address in the document if they move mid-year, since it is required to be on the notice. The regs and the Announcement are all the guidance we have. The IRS has been clear that they will not issue further guidance.

Since this distribution will be in the same year as the prior $5,000+ distribution, he has to be allowed to rollover this less than $200 distribution. A similar total for the year rule applies for withholding if he doesn't roll it over.

It sounds like you have notified them of their plan issues. Section 10.21 of Circular 230 also says you need to notify them of the consequences of noncompliance. If you haven't done that yet, you should. You might also want to contact the IRS Office of Professional Responsibility for advice. I don't know of any way you can get this plan terminated without the sponsor's cooperation. If the problem is that they can't afford to make the correction, they might be able to offset the owner's account to make the participants whole. If you search the DOL website for an April 7, 2010 news release regarding First State Development, you will see that method used. I recently helped with a case where the plan sponsor withdrew almost all of the plan assets. A participant complained to the DOL, so they got an audit. After the first DOL contact, their attorney sent them to us. They were able to repay the entire amount with interest and the DOL closed the investigation. We could have offset the owner's benefit, but that would have required a formal negotiation.

I would focus on the first sentence. "This is primarily a plan drafting issue." The allocation method is supposed to be spelled out in the document in sufficient detail. Another approach I've seen in documents is that a participant in more than one allocation group receives an allocation only from the group he is in where he would receive the highest percent of pay allocation. As noted in the Q&A response, If the document is not clear, the ERISA Plan Administrator has to interpret the document.

Another item to check is if the plan document will allow the contributions made by each participating employer to be allocated only to its employees. Our VS document allows this. That type of provision paired with a discretionary match should accomplish what you want.

In the news section today. PTIN is not required for enrollment. But, it is required if you work on any form not on the excluded list. http://benefitslink.com/src/irs/notice2011-91.pdf

What kind of document does the plan use? If it is a pre-approved document, you will need to amend either by modifying the choices on the adoption agreement or in a traditional VS document by substituting other pre-approved language. I don't think someone else's amendment will do you much good. If it is individually designed, the attorney should prepare the amendment. For a calendar year plan, suspending the SH match won't save much. With the required 30 day advanced notice to participants and the SH contribution required through the effective date, there is not much of the year left to save on the contribution. The rules for suspending the SH match during the year are in 1.401(k)-3(g).