Kevin C

The 5558 printed by the software we use doesn't exactly match the printed .pdf from the IRS website either. I don't think you will have any issues.

You might also want to look at ASC and Datair. Also, most document providers have adoption agreement format VS documents now. You should be able to have the same reliance on the opinion letter for a VS document that you do for a NS prototype. I say should because the VS will likely have some "other" choices that, if used, will make it necessary to submit for a determination letter. But, if you are restating from a prototype, you won't be using any of those "other" choices.

No, the 3% SHNEC provisions are part of the provisions that satisfy reg. 1.401(k)-3, so 1.401(k)-3(e)(1) prevents you from amending them during the year. We have proposed changes to the 401(k) & 401(m) regulations that allow a reduction or suspension of the SHNEC if there is a substantial business hardship, but you indicated that is not the case here. Do they want the change bad enough to do a short plan year?

To start with, I'm assuming this is not a SH match since there are rules in the 401(k) and 401(m) regulations for suspending or reducing a SH match mid-year. Section 411(d)(6) only protects benefits that accrue before the applicable amendment date [1.411(d)-3(b)(3)(ii)], so why would they be required to fund the match for the full year? If they amend to remove the match it can not be effective retroactively since that match has already accrued. But, that does not prevent them from stopping the match for the remainder of the year. Amend the plan to prospectively eliminate the match for the remainder of the year similar to what you would do if it were a SH match. The only difference is that the 30 day advanced notice is not required since it is not a SH match. They can't change the conditions for receiving the match after they have been met [1.411(d)-4 Q&A 1 (d)], but that isn't what is being discussed.

As John pointed out earlier, EGTRRA was effective for the first plan year beginning after 12/31/2001. That was during the GUST RAP which ended on 9/30/2003 for most pre-approved plans. Notice 2010-15 addresses the RAP for HEART in Section V. If you are using a pre-approved document, it is very likely the amendment was adopted at the sponsor level. The HEART amendment our document provider adopted at the sponsor level has the following language above the signature line: If your amendment has something similar, your HEART amendment was not late.

You can amend to exclude the HCE's from the 401(k). The 403(b) can exclude everyone eligible to defer in the 401(k) [see 1.403(b)-5(b)(4)(ii)(B)]. If the 401(k) has immediate eligibility for deferrals and no other exclusions, that would only be the HCE's. If the 401(k) has age and/or service requirements for deferrals, new employees must be eligible for the 403(b) until they are eligible to defer in the 401(k). For the employer contributions, the 403(b) will fail coverage, so I would expect you to be aggregating with the 401(k) for coverage and ACP testing. Another option might be to terminate the 401(k) and put everyone in a 403(b). This is one of those cases where it would be nice be able to merge a 401(k) into a 403(b), but unfortunately it can not be done. Freezing the 401(k) and putting everyone in a 403(b) would likely be cost prohibitive because both plans would need audits.

I had a similar filing with both Appendix F Schedule 1 and Schedule 2 processed a few months ago. The filing fee was the same as the Schedule 2 amount. In your case, it would be the $1,250.

If it turns out the participant wasn't really eligible for a hardship distribution, you should be able to correct under the EPCRS rules for overpayments. Part of the correction would be revising procedures to try to make sure it doesn't happen again.

Does the document say the participant is eligible for a distribution if he terminates employment due to becoming Disabled? Or, does it say he is eligible for a distribution after becoming Disabled? Disability is listed in 1.401(k)-1(d)(a)(i) as a distributable event, so if the document allows it, I suppose you could have an in-service distribution due to Disability.

I'd like to add a couple of other cautions about using the less than 20 hour per week exclusion starting 1/1/09. If you do a search, you should be able to find a few threads on the topic. 1) If any employee who could be excluded under the less than 20 hour per week exclusion is allowed to defer, then you can't use that exclusion for anyone. See 1.403(b)-5(b)(4)(i). This rule should also be included in your current document. We had this come up under IRS audit and were told this rule applies even if the person was allowed to defer by mistake. 2) The less than 20 hours per week rules are not consistent with the ERISA eligibility rules. If the 403(b) plan is covered by ERISA, you could be forced to include someone who could be excluded under the 403(b) regs. For example, someone who worked 1,000 hours in a prior year, but has been under 1,000 hours for the most recent couple of years.

Yes, he's an HCE and he deferred the entire $22,000 in July 2010. I think what was confusing me is how part of his July 2010 deferral could be reclassified as catch-up as of a date in the prior plan year, but be counted in the ADP test in the current plan year. But, since we are talking about IRS regulations, it doesn't have to make any sense. I think I'm finally getting what you are saying. So, part of his July deferral counts as the $1,600 ADP triggered catch-up at 2/28/10. It ends up being counted in ADP testing for PYE 2/28/11 because it was actually deferred in PYE 2/28/11 and ADP triggered catch-ups are not excluded from the ADP test. The $1,600 is catch-up, so it doesn't count against his 2010 402(g) limit. His other $20,400 of deferrals from the same check are $16,500 of regular deferrals and the remaining $3,900 of catch-up is triggered by the 402(g) limit. The PYE 2/28/11 ADP test counts his $16,500 plus the $1,600 ADP triggered catch-up, or $18,100. That result works better than having him limited to $20,400 of deferrals for 2010 because of the timing of his deferrals.

I don't think I'm missing that. At 2/28/2010 when the ADP test is done, he has not used any of his 2010 catch-up, so the $1,600 gets reclassified as catch-up. That makes his remaining catch-up limit $3,900. The issue is how you apply examples 5 & 6 of 1.414(v)-1(h) to his deferrals for the rest of the calendar year. Does the timing of his deferrals prevent him from deferring the full $22,000 for the calendar year? The answer depends on how you interpret the regulations. It appears to me that the system uses one interpretation when it checks the 402(g) limit and the opposite interpretation when it is doing the ADP test.

I would answer no, they can't do that. The plan provision saying who receives the SH contribution is part of the provisions that satisfy 1.401(k)-3, so you can't amend that provision during the year. Here is a prior discussion: http://benefitslink.com/boards/index.php?showtopic=41518

I realize that it's possible to have more than $16,500 in a fiscal year ADP test, I just don't think it happens in this particular case. This person deferred $22,000 from a single bonus check and did not defer anything else during the plan year. He can only defer that much if $5,500 of his deferrals are treated as catch-up and therefore excluded from the ADP test. The software is saying he did not exceed 402(g), but is counting $18,100 in the ADP test. To me, those two results are inconsistent. I wanted to make sure I'm not missing something before I contact the software people.

justatester, I think a literal reading of the regulations gets the result you describe. The interesting part is that if he had spread his deferrals out so that he deferred at least $1,600 in the early part of 2010, the regs are clear that he could still defer $22,000 for the 2010 calendar year. So, do the regs intend for someone who defers once a year in a fiscal year plan to not be able to defer the full $22,000 in this situation? Or, should he still be able to defer $22,000 despite the timing issues? Either way, I don't see how the software we use is correct in counting $18,100 in the ADP test. Either he could defer $22,000 and $16,500 counts in the ADP test or he could only defer $20,400 and $16,500 counts in the ADP test. Am I missing something?

The only way he could defer $22,000 in July 2010 is if $5,500 of that is treated as catch-up. If he had deferred $2,000 in January and $20,000 in July, the catch-up Regs get you there. Basically, you treat the January 2010 deferral as part of the 2010 catch-up. But, if $5,500 of his 2010 deferrals are catch-up, why would you count part of the catch-up in the ADP test?

I'm reviewing an ADP test for a fiscal year plan and have concerns about the amount of deferrals counted in the ADP test and for 402(g). 3/1 - 2/28 plan year. Owner age 50+, compensation well over $245,000. $22,000 of deferrals from bonus in July 2009, no other deferrals for calendar year 2009. $22,000 of deferrals from bonus in July 2010, no other deferrals for calendar year 2010. ADP test failed at 2/28/2010 and owner had $1,600 re-classified as catch-up. The valuation system is showing $3,900 of catch-ups for plan year ending 2/28/2011 and counting $18,100 of deferrals in the ADP test. The system also shows the participant did not exceed 402(g). I agree with the system's catch-up determination. It's the other two pieces that don't look consistent. If the participant did not exceed 402(g) for 2010, then any deferrals in excess of $16,500 are catch-up and are not included in the ADP test. If you take the approach that he used up $1,600 of his catch-up limit before making his deferral in July 2010, his maximum allowable deferrals would be $16,500 + the remaining $3,900 of catch-up for a total of $20,400. So, the $22,000 deferral would have exceeded 402(g). I don't see how you can count part of his July 2010 deferrals as the 2/28/2010 ADP triggered catch-up when determining 402(g), but not when you do the 2/28/2011 ADP test. Any opinions on how much of the deferrals count in the ADP test and whether or not he exceeded 402(g) for 2010? Here is a prior discussion on fiscal year catch-ups where Mike Preston mentions a difference of opinon on how to treat the ADP triggered catch-up in this situation. http://benefitslink.com/boards/index.php?showtopic=38597

The DOL investigtors I've dealt with haven't been concerned about the format as long as they get what they need. I generally copy each item and use a paperclip or binder clip. Then, I group things together if a requested item consists of multiple documents. From discussions with several investigators, most people who receive information requests make little or no effort to comply. When you actually comply with the request, it is a welcome change of pace for them.

I'll agree with the software's limit of total allocations of $22,304. First, to digress, if we are discussing 2010, the deferral amount is already set because the election had to be in place by 12/31/2010. Assuming we are discussing 2011 or a hypothetical, a PS contribution of $2,902 reduces the earned income to $19,402, which is the maximum deferrals that can be made for the year. 1.414(v)-1©(1) prevents total deferrals, including catch-up, from exceeding compensation. $2,902 + $19,402 = $22,304. I think $304 of PS and $22,000 in deferrals works, too. If the earned income before plan reductions is a little higher, the picture can change. The on-line EOB, Chapter 7, Section XVI, Part H 6.f.1 has an example with an age 50+ self employed single person plan where the owner's earned income after reducing by 1/2 SE, but before plan reductions is $30,000. The example says deferrals of $22,000 and PS of $6,000 for total allocations of $28,000 are ok even though it exceeds earned income of $24,000.

From a footnote to preamble for the 1996 final deposit regulations: http://benefitslink.com/erisaregs/403.html

Before you go with VCP, I would find out if the document provider adopted the HEART amendment on behalf of all adopting employers. If they didn't, I would ask why. If they did, the employer would only have needed to sign the amendment if they were selecting something other than a default option. That would make their amendment timely, just possibly not with the exact provisions they wanted. Our document provider's HEART amendment has the following at the end:

I think it would be ineligible for rollover, with a possible exception. Under 1.401(k)-1(d)(4), the "employer" is determined on the termination date. If you follow the cites listed for the definition, it includes members of a controlled group or affiliated service group. After A purchases B, It sounds like A & B would be a controlled group. If so, then A would be considered as the "employer" for B's plan. That would make plan B an alternative defined contribution plan of A. The exception would be if the owner of A does not participate in plan B for at least 12 months following the rollover. Then, the fewer than 2% exception in the regs would apply.

If the SHNEC is written into the document as a 3% contribution, 1.401(k)-3(e)(1) prevents you from amending to change it to 5% after the first day of the plan year. But, as Tom mentioned, it depends on what the document says. Our adoption agreement format VS document has a place to elect a SH non-elective contribution of a percent of compensation that must be at least 3%. In the base document, it says "The Employer has the discretion to increase the amount of the Safe Harbor Employer Contribution in excess of the percentage designated under AA §6C-2(b)." Since we have an opinion letter on the document, I would say that provision satisfies the SHNEC contribution requirement:

Would there be any 411(d)(6) issues with adding a new condition for receiving the distribution?

I think those of us in the small plan market have about the same experiences with clients. Some are very sharp and very involved in the administration of the plan. Others are busy earning a living and view the plan as something they hired us to take care of. The rest fall somewhere in between.