Kevin C

There is an anti-cutback rule exception that will help. A defined contribution plan can eliminate an optional form of payment if it continues to provide for a lump sum distribution that is otherwise identical to the optional form of payment being eliminated. See 1.411(d)-4, Q&A 2 (e). If the LS distribution is literally payable on the first MRD due date, but the annual installment is payable at any point during the year, it won't work. The LS timing has to be identical to the timing of the first installment under the optional form of payment being eliminated.

If they don't fit into any of the allowed exclusion categories, they must be allowed to contribute. If you don't give this group any communications about the plan, I think you have a problem with effective availability of the deferrals (see 1.403(b)-5(b)(2)). We had a recent IRS audit of a client's 403(b) plan where the agent said that anyone who was eligible but did not receive the enrollment package was improperly excluded from the plan. And, don't forget the all or nothing rule now in effect for the statutory exclusions. See 1.403(b)-5(b)(4). If they make a mistake and let one person defer who could be excluded under one of the stautory exclusion, they lose the ability to use that exclusion. You did not mention if this was an ERISA covered plan. It appears that an ERISA covered plan can not use the <20 hour per week exclusion. For those that are not competent and have guardians, I would expect the paperwork to go the guardian.

The housing allowance does not count as Section 415© compensation. See 1.415©-2(b) and note the phrase "to the extent that the amounts are includible in gross income ...". But, you are not required to use 415© compensation to allocate contributions. The compensation definition used to allocate contributions does not even have to satisfy 414(s). Discrimination testing must be performed using a compensation definition that satisfies 414(s). See 1.414(s)-1(a)(2). Section 415© compensation is a 414(s) safe harbor compensation definition, but there are other ways to satisfy 414(s). What definition of compensation does the plan use for determining contributions?

Take a look at Examples 5 & 6 in 1.414(v)-1(h). They both deal with non-calendar year plans. Here is a similar post: http://benefitslink.com/boards/index.php?showtopic=38597

The plan only stays SH for the final short year if the plan termination is in connection with a 410(b)(6)© transaction or the employer incurs a substantial business hardship. (1.401(k)-3(e)(4)). If they don't stay SH, the TH exemption is gone, too.

Rollover of what would have been 2009 DC plan RMD's came up in the Keeping Current session of the ASPPA annual conference. Derrin Watson mentioned that installment payments that included what would have been the 2009 RMD could be rolled over. I hadn't heard that before, so I looked it up when I got back to the office. The following is from Notice 2009-82. Maybe the comment on the IRS teleconference came from Notice 2009-82 instead of WRERA?

The terms of the plan determine who gets the SH match. The SH match is a required contribution, so the section 411(d)(6) anti-cutback rules prevent you from eliminating it retroactively. The rules for eliminating or reducing the SH match mid year are in 1.401(k)-3(g). Part of that is the 30 day advanced notice before the amendment becomes effective. Another part is that the plan becomes subject to ADP and ACP testing for the entire year. If you don't follow the rules in -3(g), then 1.401(k)-3(e)(1) prevents you from amending mid year. Is it worth being subject to ADP/ACP testing for the entire year to avoid matching HCE deferrals from 12/5 - 12/31? If not, I would suggest making the change effective 1/1/2010. I'm assuming this is a calendar year plan.

Do you realize that by arguing the matching contribution does not "satisfy the rules of this section" that you are also arguing that the plan does not satisfy the ACP safe harbor? Look at If the plan is to satisfy the ACP SH, then the match must satisfy the limitations on matching contributions of paragraph (d). Paragraph (d) has several restrictions that the match formula must satisfy. An ACP SH plan must also satisfy paragraph (f) which includes a prohibition of mid year amendments to plan provisions that satisfy the ACP SH regs. If you want the plan to be ACP SH, then the match formula must "satisfy the rules of this section" If you want to argue that the SH rules are harsh and illogical, I'll agree with you. But, the rules are what they are.

If they are thinking they won't report it on their 5500, they should take a look at this article. http://www.plansponsor.com/pi_type10/?RECORD_ID=41013 And don't forget the paid preparer penalties if they tell you to prepare the form 5500 without reporting the PT.

If all the participant is receiving in 2010 prior to April 1 is the amount that would have been the 2009 RMD, the payment would be the first of a series of substantially equal payments ... and not eligible for rollover. See 1.402©-2, Q&A 5. But, since it isn't a 2009 RMD, it should count towards satisfying the 2010 RMD. If the participant is receiving a distribution of the entire balance in 2010 before April 1, it should be eligible for rollover except for the portion that is the 2010 RMD.

401(k) plan with year ending 1/31/09. A catch-up eligible participant elected to defer $22,000 out of his 1/31/09 bonus check, but payroll messed up and did not withhold the deferrals. Because of the error, he had no deferrals withheld for the 2/1/2008 – 1/31/2009 plan year. He wants to defer $22,000 for calendar year 2009. The participant is the owner. There is no match. Rev. Proc. 2008-50, Appendix B, Section 2.02(1)(a)(ii)(B)(2) says So at this point in the determination, the missed deferral is $22,000.Then it goes on to say He hasn’t actually had any deferrals withheld for 2009 yet, so he should be able to defer $22,000 now. The correction would be deposited as a QNEC, not deferrals. If he does defer $22,000 this month, I’m not clear about whether that affects the correction. The correction method refers to a limit for the plan year. The correction is for the pye 1/31/2009, so deferrals now would not cause a plan year limit to be exceeded. If you add the 1/31/09 $22,000 missed deferrals to $22,000 deferred now, the total would exceed the 2009 402(g) limit. But, the time period for the 2009 402(g) limit covers portions of two different plan years. I see two possible interpretations: 1) The reduction is only done if a plan year limit is exceeded. That doesn’t happen here, so there is no reduction. His missed deferrals for the plan year are $22,000, so $11,000 plus lost earnings are deposited as a corrective QNEC for pye 1/31/09. He can also defer $22,000 this month. Or, 2) The phrase “(including the § 402(g) limit)” means you reduce the missed deferrals if the sum of the missed deferrals plus actual deferrals would cause any year’s 402(g) limit to be exceeded. $22,000 of deferrals this month reduces the missed 1/31/09 deferrals to zero and there is no correction to make. I'm leaning towards 2). Any opinions?

The match formula must satisfy the limitations of 1.401(m)-3(d) for the plan to be ACP SH. To me, that makes it part of the "provisions that satisfy the rules of this section" (section meaning 1.401(m)-3). So, I read it as saying you can't amend the match formula mid-year and stay safe harbor. You can eliminate the match effective at the beginning of next year. (h) only applies to amendments during the year.

ASPPA conferences and webcasts should count. ASPPA also gives CE credits for passing exams. I don't think those will count for ERPA credits. http://www.irs.gov/retirement/article/0,,id=185433,00.html The web page has a link to a list of approved CPE Sponsors.

ASPPA added ethics sessions to their conferences. I think other organizations did the same. ASPPA also has a recorded webcast session intended to provide 2 hours of ethics credits.

No, you have to offer pre-tax deferrals, too. http://www.irs.gov/retirement/article/0,,i...2956,00.html#13

That's not exactly what the timing rules say. The contribution must be made after the employee makes an election to defer. The contribution must be deposited after the earlier of 1) when the services are performed or 2) when the pay is currently available. That means no retroactive elections and no pre-funding of deferrals. Are the owners receiving W-2 compensation or do they have earned income?

The Plan's final 415 regulations amendment should address which items, if any, are included.

Sounds like it was not designated as a 2008 contribution, so it would be a 2009 contribution. I think the timing rules in 1.401(k)-1(a)(3)(iii) prevent reclassifying any of the deposit as salary deferrals.

K2, would your answer change if they have already filed their 2008 return and deducted the contribution? I don't know that to be the case, but given the time of year, it seems likely.

John, Did your client get this resolved? I'm curious about how it worked out. The agent in our client's audit is insisting that the all or nothing rule applied prior to 2009. Notice 89-23 lists it as part of a safe harbor, but also says you can comply using a reasonable good faith interpretation of the code. He told me today I can write up why I think all or nothing doesn't apply and they will consider it. I reminded him I e-mailed it to him several months ago. Apparently, he didn't read it and didn't remember getting it, even though he brought another attachment from the same e-mail to our meeting today. Did I mention how much I love audits?

You can, but are not required to, adjust corrective deposits for losses. See Rev. Proc. 2008-50, Section 6.02(4)(a).

John, It's Friday afternoon, so I may be a little slow. How is the participant a disqualified person if the account is self directed? I thought participants were not fiduciaries by virtue of directing the investment of their own account? (2550.404c-1(a)(1) & (2))

I found something that may help going forward. If you click on your user name next to "Logged in as:" on the upper left hand part of the page, it will open a "Viewing Profile" page. Click on the "Settings" tab. Scroll down to Moderation Options and one of the choices is to only add friends if you approve them. The default seems to be to allow friends without approval.

John, That's an interesting approach. But, since you are talking IRS, shouldn't you be looking at disqualified persons instead of party-in-interest? I don't see former employee listed as a category of disqualified persons. Rev. Proc. 2008-50 has a correction method for overpayments. It sounds like that may be how the TPA is correcting the overpayment failure.

It depends on the circumstances. If you are under (i), 30 days advanced notice will apply because the notice is part of paragraph (g). Paragraph (g) also includes amending the plan to require ADP/ACP testing using the current year method. If you are under (ii), the notice isn't required and the plan stays SH for the short final year.