Kevin C

I think you have a serious problem with your loan policy.

It won't work. The distribution restriction on deferrals and SH that prevents in-service prior to age 59.5 is required to have a qualified CODA. 1.401(k)-1(d)(1). He will have to either terminate employment or terminate the plan (and not have another DC plan for at least 12 months following the distribution) before he can receive a distribution.

Andy, Loans should not be a problem. The benefit restrictions of section 436 are referenced in 401(a)(29). Look at 1.72(p)-1, Q&A 12.

It's Friday here, too, but wouldn't it take care of the problem if they make a PS contribution that is a little larger than the required TH minimum? When it is allocated, everyone eligible for the TH minimum gets 3% and the terms with >501 hours share in the remaining PS. For coverage, they only need to get a contribution, it wouldn't have to be the same % of pay as the others. It’s a standardized prototype, so they have an opinion letter that says they have a 401(a)(4) SH allocation.

Our EGTRRA volume submitter document allows the following choices for eligibility conditions on the SH contribution: The eligibility conditions applicable to salary deferrals. One year of service and age 21 with semi-annual entry dates. The eligibility conditions applicable to matching contributions. The eligibility conditions applicable to employer contributions. It also includes a note that you can not require more than one year of service. As you noted, you would have to amend before the beginning of next year and have the amendment effective on the first day of next year.

You are fortunate there are no other issues. The way my luck goes, I would have had coverage problems, too. If there are other 401(k) plans among the controlled group, make sure you take into account the special rules for HCEs eligible under more than one CODA of the employer. 1.401(k)-2(a)(3)(ii) and 1.401(m)-2(a)(3)(ii).

Will this work for documentation?

An ADP safe harbor plan is not allowed to amend the safe harbor provisions during the year. 1.401(k)-3(e)(1). The rules for permissible reduction or suspension of a SH match in 1.401(k)-3(g) require the plan to be subject to ADP/ACP testing for the entire year. There are similar rules in the 401(m) regs. As you suspected, the regs say that the formula change they want would subject the plan to ADP/ACP testing for the entire year.

I'd start with the PT issue. Unless the owner worked with an ERISA attorney when he did the transaction, it is very likely the sale of his interest in LLC#2 to the plan is a PT. The correction of the PT will include a reversal of the transaction. Owner needs to consult with an ERISA attorney. I'm not seeing a controlled group here. There are two parts to the brother-sister controlled group determination. Both parts have to apply before the two LLC's are a controlled group. One is that the same 5 or fewer persons own at least 80% of both entities. They have to own part of both entities to be one of the 5 or fewer persons. Ignoring the sale to the plan, the owner has 100% of LLC#1, but only 50% of LLC#2. The other part is that those 5 or fewer persons own more than 50% of both when you only consider identical ownership in each entity. From what you have described, the identical ownership would be 50%. Unless you rounded down, that would not be more than 50%. You might still have an affiliated service group, depending on what the LLC's do and what kind of relationship they have with each other.

For a calendar year plan, you are correct. The ADP refund is only reclassified as catch-up to the extent he has not already used up his catch-up limit for the year. Since he deferred $20,500, he used up his entire 2008 catch-up limit before the ADP test is run. It wouldn't hurt to double check that only $15,500 of his deferrals are included in the ADP test.

WRERA section 201©(2) allows a retroactive amendment to be adopted by the last day of the plan year starting on or after 1/1/2011 as long as the plan is operated as if the amendment were in effect during the 2009 calendar year. That should take care of any current plan provisions that are not consistent with the approach ResearchGirl describes.

Could "outside the plan" be referring to individual self directed brokerage accounts available as an investment option under the plan? You will probably have to talk to the broker if you want to find out what he means.

I see it as a 411(d)(6) issue. The RMD under the old rules is an optional form of benefit. I don't see any mention in WRERA section 201 of a 411(d)(6) exemption for an amendment to implement the 2009 RMD waiver. However, I won't be surprised if we end up with an exemption. I’m curious how everyone handled it when SBJPA changed the required beginning date for non 5% owners.

rcline46, Why would I want to fight them? I don't doubt their authority to write regulations.

I was referring to rcline46's post. Tom answered your question. The IRS has stated at various conferences that they consider an amendment to change the testing method a discretionary amendment.

If you need it in writing,

What does Company A do? Attorney? Accountant? Widget manufacturer? Is Client now a common law employee of Company A under its new ownership? What type of services does Client perform for Company A now? Management functions, perhaps?

Does the surviving spouse have sufficient vested balance in her accounts to borrow enough to pay off the loan? If the surviving spouse is under 59.5, It may not be in her best interest to rollover the account into her account in the plan. Death benefits are not subject to the 10% early withdrawal penalty. If she rolls it over into the plan and then takes a distribution, it becomes subject to the penalty based on her age.

ERISA 103(a) gives the DOL the authority to require an independent audit report as part of the Form 5500 filing.

I'm reading it as only applying to 403(b)'s that are subject to ERISA. From the preamble to the proposed regs:

How they could have designed the plan is immaterial. What matters is how the code and regulations apply to the plan provisions they have. My position is that if you want the plan to be ADP and ACP safe harbor, then the HCE match provisions must satisfy the applicable rules of 1.401(k)-3 and 1.401(m)-3. That makes the HCE match part of the "provisions that satisfy the rules of this section", meaning 1.401(k)-3 and 1.401(m)-3. Part of those rules are the mid-year amendment restrictions in 1.401(k)-3(e) and 1.401(m)-3(f). One one hand you are saying these HCE match provisions satisfy the rules of 1.401(m)-3, but then you claim they can be SH without following the rules of that section, namely -3(f). I disagree. I would also point out that 1.401(k)-3 has rules regarding the HCE match, too.

The HCE match allocation is not required to satisfy 1.401(m)-3. But, if there is an HCE match allocation, it must satisfy the requirements of 1.401(m)-3, specifically -3(d), if you want the plan to satisfy the ACP safe harbor. 1.401(m)-3(a) starts off with "Matching contributions under a plan satisfy the ACP safe harbor provisions of section 401(m)(11) for a plan year if ...". Notice it does not say matching contributions for NHCE's... When you are looking at the top heavy exemption, you are saying the HCE match satisfies the ACP SH rules of 1.401(m)-3. But, when you look at the requirements for the ACP safe harbor, you don't want it to be subject to the ACP SH rules. I think you have to be consistent.

Sieve, I'll try. I read “this section” to mean “1.401(m)-3”. The SH match is described in 1.401(m)-3©. The other limitations on matching contributions, including the restrictions on the match received by HCE’s, are listed in 1.401(m)-3(d). I think that makes the SH match received by the HCE’s part of the provisions that satisfy the rules of 1.401(m)-3. -3(f)(1) above says you can not amend those provisions during the plan year. We are not talking about 401(m)(12) here, so to be TH exempt, the match would have to satisfy 401(m)(11). That means the match has to satisfy 1.401(m)-3. If you are amending the match mid-year, then that match does not satisfy 1.401(m)-3 because it does not satisfy -3(f)(1).

Sieve, I wouldn't want to argue that the match going to the HCE's is not part of the safe harbor. If it is not part of the SH, you can kiss your top heavy exemption goodbye. I will argue that when you include the HCE's in the SH contribution, it is still a SH contribution. Look at 1.401(k)-3©(7), Example 1:

I know this part did not directly relate to the original post, but I have to disagree. 1.401(k)-3(e)(1) prohibits amendments to the safe harbor provisions during the plan year. Also, the rules for suspension or reduction of SH match during the year require that the plan be amended to require that the plan satisfy the ADP test for the entire year using the current year testing method {1.401(k)-3(g)(1)(iv)}. Between the two, I don't see how you could eliminate a SH match mid-year for the HCE's and remain SH. ESP2, Unfortunately, the plan sponsor is in a difficult situation. The terms of the plan required the SH match contribution and they cannot amend to retroactively reduce a required contribution that a participant has already earned the right to receive. If they don't make the contribution, they have a qualification issue for not following the terms of the plan.