Kevin C

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.

It looks like your attempted 204(h) notice did not satisy the content requirements because it did not list the effective date of the amendment.

Notice 2009-9 also agrees with you. http://www.irs.gov/pub/irs-drop/n-09-09.pdf

You need to allocate the match according to the plan document. If the plan fails ACP, then they can either do refunds or a QNEC/QMAC. Is the plan passing ADP? If yes, by how much? If your document allows it, have you tried testing with other definitions of compensation? Sometimes testing using 415 compensation, but excluding deferrals can help.

We've used web based products from both CCH and RIA. They both offer a range of packages with different levels of content and price. You should be able to get a 30 day free trial from most of the web based services. http://hr.cch.com http://ria.thomsonreuters.com/leap

Our experience with audits has been the same. If they don't have sufficient bonding coverage, they are told to get it. A company selling fidelity bonds sent e-mails back in 2003 claiming the Snyder Farm Supply plan was forced to terminate because the company did not get a fidelity bond. I did an internet search at the time and found an article with more information on the case. I didn’t save the article, but did make notes about it in an e-mail. The company went out of business sometime before the DOL sued in Dec. 2000. The original DOL complaint did not seek plan termination. It sought removal of the Trustee/Plan Administrator and the naming of an independent Trustee. The plan was audited in 1998 and asked about their “no” response to the bond question on their 95-97 5500’s. The DOL gave them a chance to take care of it, but apparently they refused.

rcline46, Can you name a case where someone was fined or jailed for not having a fidelity bond? I tried a search on our reference service. All I could find were some where the new court appointed fiduciary was instructed to purchase a fidelity bond. It's been a few years, but I have been told by a couple of different ERISA attorneys that there is no provision for a penalty if a fiduciary does not have the required bond. Has that changed recently?

Sieve, I don't follow how 1.414(s)-1(d)(3)(iii) {Employees taken into account} gets you to -11(g), but -11(g) certainly looks a lot better than VCP.

I don't think that whether it has been funded makes a difference. The problem is that the SH match as defined in the document does not comply with the SH rules because the compensation definition fails the 414(s) test. You can use a different definition of compensation for deferrals than you do for the match.

Sieve, How about if the HCE's are above the compensation limit without counting the bonuses? 1.414(s)-1(d)(3)(ii)(A) says total compensation used in the test may not exceed the annual compensation limit of section 401(a)(17). pixmax, If you are failing the 414(s) compensation test, you are right there is a problem. The safe harbor rules require that the compensation used to determine the SH contribution satisfy section 414(s). The SH rules also require the SH match provisions to be adopted before the first day of the plan year and remain in effect for the entire year. In looking at Rev. Proc 2008-50, I doubt your problem would be considered an operational failure because you should be following the terms of the plan. Self correction is only available for operational failures. Even if it is an operational failure, I think the correction would need to be done through a plan amendment. Correction by amendment in SCP is limited to only certain areas listed in the Rev. Proc. I don't see any of them that looks like it would apply here. That leaves VCP. I wonder how the IRS would react to a VCP filing with a proposed correction method of a retroactive amendment changing the compensation definition to something that satisfies 414(s)? I would expect them to insist that the correction does not reduce anyone's match.

For 1: Use compensation from 1/1 - 12/31 since they became participants on 1/1/08. You can exclude compensation before they become a participant. You can not exclude compensation while a participant, but before they enroll. For 2: Look at the plan's final section 415 regulations amendment. There may not be a separate amendment for it. Our GUST document provider included the final 415 regulations provisions in their 2007 interim amendment. The final regs give you the option of counting as compensation vacation and sick pay received after termination of employment if it meets certain requirements. The amendment will say whether or not it counts as compensation.

For a terminating plan, I would consider the document provider's information more helpful. But, in most cases, I would be more interested in the amendment they provide for terminating plans than a list. The IRS's 2007 cumulative list does not consider guidance published after 10/1/07 and statutory provisions first effective in 2008 for which there is no guidance on the 2007 cumulative list. However, terminating plans must include all law changes in effect at the time of termination. It is possible that a terminating plan would need to amend for something that is not listed on the most recently published cumulative list. Peter, is the 2008 cumulative list out yet?

Sorry, I should have pointed you to section 19.02.

Have you looked through Section 19 of Rev. Proc. 2007-44? If the change in normal form is the only change they made to the adoption agreement, they might still fall under the 6 year cycle for the current cycle. Section 19.03 addresses temporary eligibility for the 6 year cycle. Did they sign a form 8905? An intended adopter also gets the 6 year cycle.

I noticed the same thing on amended filings and filings for terminated plans. My guess is that freeerisa is just not showing the entries for those boxes. They get their information from the DOL database. I don't see why they would change anything.

I agree there was no severance from employment because they are still employed by the plan sponsor. Under the 401(k) regs, "Employer" includes all members of the controlled group or affiliated service group. That may affect whether you have an alternative defined contribution plan that would prevent you from distributing to these participants on plan termination. If you meet the fewer than 2% exception in 1.401(k)-1(d)(4), then distributions could be paid. But, that would require basically all of the participants to be without a plan until at least 12 months following the plan termination. Also, there are some types of plans listed at the end of (4) that are not treated as an alternative defined contribution plan. The 410(b) testing for these plans already considers the entire controlled group. Terminating the plan may (or may not)cause the other plan's 410(b) testing to fail. You will have to run the test to see. If you have to make participants from the terminated plan eligible in the other plan to pass 410(b), it will probably prevent distributions from the terminated plan.

EGTRRA modified the same desk rule for plan years beginning after 12/31/2001. You may find 1.401(k)-1(d)(1) & (2) helpful. There should be something about this in the plan document, or in the good faith EGTRRA amendment if the plan has not yet been restated for EGTRRA. Our good faith EGTRRA amendments allowed a choice of applying the new rules or keeping the old ones. What does the plan document say? Who was the plan sponsor before the sale? Who is the plan sponsor after the sale?

It depends on what the plan document says. If the SH provisions are in the plan document on 1/1/2009, you can not amend the SH provisions during the year. They can make the change for 2010. The same restriction is in 1.401(m)-3(f)(1) for the ACP SH. If the SH provisions are not in the document on 1/1/2009 because a conditional SH notice was sent, this will be an interesting discussion.

The compensation limit is prorated if there is a short plan year. The 415 dollar limit is prorated if there is a short limitation year. But note that it is not clear if the initial limitation year can start before the establishment of the company.

How does the plan document define the "limitation year"? What provisions are in the final section 415 regulations amendment? It's likely you will find that the correction method you quoted is no longer applicable.

PAL, The language in your document may affect things, but the basic issues are: 1: Operational failure. The plan provisions likely say the full SH contributions are required to be deposited before they were actually deposited. If that is the case, it helps. You will need to read Rev. Proc. 2008-50. Hopefully, you are eligible for the self correction program, SCP. The Rev. Proc. includes sample correction methods. 2. Does the late deposit adversely affect the plan’s SH status? Would they fail ADP/ACP if they apply? 3. 415 concerns. The final deposit is likely beyond the last date that it can be counted as 2007 annual additions. If you use a correction program in Rev. Proc 2008-50, this shouldn’t be an issue.

Sorry, but no compensation also means no catch-up.