Kevin C

If you are talking about 2008, you are stuck with what the plan says your testing method is. The IRS takes the position that changing testing methods is a discretionary amendment so it must be adopted by the end of the plan year. I don't see anything in the regulations that would prevent you from doing this for 2009. The plan document may be what determines whether or not you can do it. If you are using a volume submitter or prototype document, you will be limited by the allowable choices written into the document. Our EGTRRA VS document allows coverage of union employees, but does not have any way to elect a different ADP/ACP testing method for the union portion of the plan. You can make other changes to a VS if you submit for a determination letter, but is the change worth the effort? If you have an individually designed document, the ERISA attorney who wrote it should be able to help you. Anyone else have an opinion?

The rollover of a distribution from a 403(b) into a qualified plan is fine as long as the receiving plan allows it. What you can't do is merge a 403(b) and a qualified plan, or transfer assets between them.

Look at the terms of the plan. It will have language that says how the contribution amounts are determined; discretionary in this case. Then it will have more language that spells out what happens to the amount contributed. If they deposited it, it has been contributed. As BeckyMiller mentions, the plan is required to have a definite allocation method for contributions. They have to follow the terms of the plan. As QDRO mentioned, failure to follow the terms of the plan is a qualification issue.

With UNRELATED employers, I think your answer is yes, that Plan A can reclassify deferrals as catch-up, as long as his catch-up limit under Plan A is not already used up. First, the individual deferring $20,500 between the two unrelated employers' plans doesn't cause catch-ups in either plan. From the preamble to the 414(v) regs: Then, look at Since you have unrelated employers, the catch-ups under Plan B would not be catch-ups with respect to Plan A. The Participant would have to hit some limit under Plan A before he has catch-ups under Plan A. Note, if A & B are RELATED employers, catch-ups would be determined by treating all of their plans as a single plan. In that case, your answer would be no.

The $1700 results from investment gain on plan assets. That makes it plan assets. Using plan assets to benefit the TPA or the Employer sounds like a prohibited transaction to me. The plan's assets are used to pay benefits and to pay reasonable administrative fees. What you are describing doesn't fit either category. I think your answer is to allocate it as an investment gain. Allocating it to the entire plan sounds reasonable. Edit: Peter posted while I was typing. Consulting with an ERISA attorney is a very good idea.

Our admin fees are not cheap. When the administration fees are a large percentage of the total annual contributions to the plan, is the plan really worth it? There are other options available and a 401(k) is not always the best choice. I talked to the manager of a small company a while back. They could not afford any employer contributions. He polled the 5 employees and the estimated total annual deferrals would have been between less than $5,000. Most of that was the $3,500 the manager intended to defer. Are you saying I should have put them into a 401(k) plan?

John, This deals with a different governmental exemption, but it might help. I found a reference that helped lead me to it in PLR 9152026, 9/27/1991.

No, If you exclude rollovers from the cashout determination, you still have to do the automatic rollover if the distribution is more than $1,000. From Notice 2005-5:

Have you looked at 1.401(k)-2©(4)?

We've been debating the rules, not a penny. Am I happy with the design? Actually, no. You have an age 50+ owner that doesn't want to put any employer contributions in the plan and does not want to contribute more than $5,500 of his own money. He needs an IRA, not a 401(k). Why incur the expenses of setting up and administering a 401(k) plan if you have no intention of using it?

Tom and Austin, Your arguments presume that an age 50 participant subject to a 0% deferral limit is a catch-up eligible participant. Even Sal, in the quote trying to counter the argument that a 0% limit doesn't work, admits that the participant is not eligible to defer, except for catch-up. That means he would not satisfy the wording of the definition of "catch-up eligible". If the definition of "catch-up eligible" means what it says, then they are not catch-up eligible. You have to be catch-up eligible before you can contribute catch-up contributions. It all boils down to interpretation of the regulations. I don't feel comfortable in using a plan design that requires an interpretation of a regulation that appears to me to be contrary to the plain wording of the regulation. Others have other interpretations of the regulations. Our chosen field is full of areas where not everyone agrees. This is one of those areas.

I was thinking the safe side would be to suggest the owner elect to defer $5,500 for the year and not use a plan imposed limit. Then, let the PS allocation and the 415 limit trigger the catch-up.

Tom, "the EOB suggests it is possible" wouldn't bring me much comfort if I was preparing for an IRS audit on the plan. The regs say "The employee is eligible to make elective deferrals under an applicable employer plan (without regard to section 414(v) or this section)". It doesn't say "eligible employee under ..." If they wanted it to say that, they could have easily done so. But, in this case, I'm not sure it makes a difference. If an employee is limited under all circumstances to a maximum of 0% deferrals, how is that being eligible to make a CODA election? What cash are they able to elect to defer? Remember, the regs say without regard to catch-ups. Your reference to hardship brings up an interesting question. Is an age 50+ employee able to make catch-up contributions during the suspension period following a hardship distribution? I'm thinking that all deferrals, including catch-up are suspended. What do you think?

The 457 regulations would be a good source of additional information. Do you have more information about the plan sponsor? "Business" and "owner" are not terms that I normally associate with a governmental unit or a non-profit.

I don't think a plan imposed limit of $0 works. A catch-up eligible participant is someone who is eligible to make deferrals without regard to the catch-up. He would not be eligible for non-catch-up deferrals with a $0 limit. I agree with Bird. The owner can defer $5,500 and use the $49,000 PS allocation to make the deferrals catch-up. Then, later this year, I would be talking to them about adding a 3% safe harbor for 2010. Then he could max out deferrals and reduce the employer contribution needed for him to max out for the year.

What I mean is that if the TH minimum is $1,000, then allocate $1,050 as a PS contribution. The PS allocation gets adjusted so that the TH minimum is satisfied. It's still a PS allocation. There will be a little left over after making sure everyone eligible receives the TH minimum, so the two terms get a small PS contribution. There is no need for fail-safe provisions. Both of the terms are already eligible to receive the PS. All you have to do is make sure the PS contribution is large enough that the terms receive some of it. One cent may not work because there are two terms and rounding to consider. $1 would work, but then you would have the client complaining that the checks for the two terms were less than the postage needed to send their checks to them.

John, Take a look at the example in 1.411(d)-4, Q&A12. They change the NRA from 45 to 65/5 and eliminate in-service distributions prior to the new NRA.

John, Have you looked at Notice 2007-69? There was some 411(d)(6) relief for a change in NRA included in the regulations. If you take the approach that the SPD language has the effect of a plan amendment, you may still be able to change back to age 65/5.

Non-discrimination under 401(a)(4) isn't an issue because it is a standardized prototype. The IRS Opinion letter for the document says the allocation formula is a 401(a)(4) safe harbor allocation. The problem is coverage. A plan that is designed to automatically pass coverage actually fails coverage at a certain level of contribution. I see two choices. You can spend time trying to figure out if the apparent coverage failure jeopardizes the qualified status of the plan, or you can increase the PS contribution by a few $ and the problem goes away. Pick a number, $5, $10, $50, ... It doesn't really matter as long as the two terms with >501 hours receive an allocation. It seems like an easy choice to me.

The distributable event there is severance from employment, not the attainment of NRA.

You are looking at the top-heavy language. If the language in the Corbel document is similar to that in our documents, the top-heavy provisions override the regular allocation provisions to the extent needed for the TH minimums to be satisfied. Add a few more $ to the PS contribution and follow the terms of the plan. The two terms with >501 hours will get an allocation under the regular PS allocation. Then, you will pass the ratio percentage test.

Mike, I see the problem as he wants the only employer contribution to be the top-heavy minimum. The two who terminated with more than 501 hours share in the PS, but the funds contributed are used up for the TH minimum before they get an allocation.

Until I saw your example, I would have said a standardized plan would always satisfy the ratio percentage test. I don't know if you can use average benefits or not. You can't cross test for 401(a)(4) in a standardized prototype. Unless someone sees a problem with it, I think a small increase in your profit sharing contribution takes care of your problem. I just picked $50 out of the air. If they receive an allocation, they are benefiting for 410(b) purposes. Then you pass ratio percentage. There is an issue in the 401(a)(4) regs about when the TH minimum is treated as being available on the same terms as the regular PS contribution that can affect whether or not your PS allocation method is a 401(a)(4) SH. But, this is a standardized prototype, so you have the IRS's written opinion that your PS allocation is a 401(a)(4) safe harbor allocation. That's why I mentioned the opinion letter in my prior post.

Because NRA is not a distributable event for deferrals or SH accounts. Look at the distribution restrictions in the regulations.

You cannot cross test a standardized prototype. For GUST approved prototypes, cross testing was not even allowed in non-standardized prototypes. Standardized plans by design benefit all non-excludable employees. I don't know if you can use the average benefits test. But, your original post said it fails average benefits, too. Try adding $50 to the top heavy minimum and allocate it all as a PS contribution. Then run the ratio percentage test.