Bird

I agree. This would apply to contributions for the last quarter as well, so someone could be eliminated from a 4th Q contribution by not being employed on Jan 14? Wow.

I believe that is correct. Less of a big deal than it might first seem...they owner could have a SEP with 3 year eligibility and no 401(k) at all. I've set up 401k-only plans for employees-only with immediate entry, with PS plans that covered the owners.

I thought I replied earlier but maybe forgot to post it - I agree that you don't have to use a safe harbor definition of comp. We always use a safe harbor definition, but in hindsight that decision was based on practical, not regulatory criteria. I took a quick look in our plan docs and barely read the reference. Sorry for any confusion...

comp for SH must be a safe harbor definition of compensation: (2) Safe harbor compensation defined. For purposes of this section, safe harbor compensation means compensation as defined in § 1.401(k)-6 (which incorporates the definition of compensation in § 1.414(s)-1); provided, however, that the rule in the last sentence of § 1.414(s)-1(d)(2)(iii) (which generally permits a definition of compensation to exclude all compensation in excess of a specified dollar amount) does not apply in determining the safe harbor compensation of NHCEs. Thus, for example, the plan may limit the period used to determine safe harbor compensation to the eligible employee's period of participation. Tom gave the appropriate reasoning, IMO.

Can't exclude bonus pay for NHCEs for SH.

I agree that you can amend a plan to discontinue participation (but stand by my statement - with emphasis added - "you can't retroactively change eligibility to remove someone that way.") I get a little - ok, totally - bogged down in the technicality of saying you retroactively amend as stated, and that that means that the person was in from 1/1 to 12/16 and then out upon signing of the amendment. I think you have, in fact, retroactively excluded him back to 1/1 or 7/1 or whatever date he entered. I think the signing date is a red herring; if the amendment says it is retroactive, then it is retroactive. I think, at least, you'd have to clarify the amendment to say "but if someone entered prior to the signing date of this amendment and would not have entered under the terms of the plan as amended, they are excluded as of the signing date." Or something like that. Maybe counting angels on the head of a pin.

Lack of experience and incompetence. Who is making these decisions and who is in a position to say "you cannot do that?"

There is a possibility that the companies are part of a controlled group, but since you said a minority owner was becoming the sole owner I figured that was not an issue. You could in fact merge the two old plans into the new one. Both sides have to agree on that and document it. Some folks seem to think it is never a good idea to merge because any problems from the old plans are transferred to the new plan, but as long as there are no other issues I think it would be appropriate here, and perhaps safer just in case there are controlled group problems that would make a termination problematic. Sorry but I have to say it kinda bugs me when I hear things like "I agree this isn't a formal merger of the plans, but more likely a dual termination and transfer of accounts into the new plan around March 1. The LLCs might be classified as a formal merger (I don't know the exact business details), but the plan is probably not classified as a merger." It is or it isn't. Somebody either knows or has to decide all this. If you are not in charge of plan admin then who is?

I agree, you can't retroactively change eligibility to remove someone that way. They are in now but haven't satisfied conditions to share in contributions so you might be able to change the formula, but testing would probably be tricky at best. In McGath v North Shore Auto, a plan's eligibility/entry dates were changed a couple of times, at the last minute, to exclude someone (using conditions that would not be allowable today but that's not actually relevant), but they had never entered.

If the companies won't exist then there is no payroll, so whatever you do with the old plans can be done when you/they get to it. I think it would be cleanest if they were term'd on Dec 31.

It's almost certainly in the adoption agreement, since it's generally going to be tied to the type of investments (pooled, probably daily-valued, or self-directed, probably annually valued). Something like this (from Ft. William): 3. Valuation Date Enter Valuation Date: a. [ ] Last day of Plan Year b. [ ] Last day of each Plan quarter c. [ ] Last day of each month d. [ ] Each business day e. [ ] Other: (Must be at least annually). NOTE: If H.2a.i or H.2a.iii (404© applies) is selected then Valuation Date must be at least quarterly.

Not to drag this on endlessly, but that calls for another warning - unless you are very careful, if you set up your own plan and then want to put the investments with Vanguard, they are likely to set up a whole new "plan" instead of just opening an account to hold the money in the plan. You have to pretty much assume that they will try to screw things up and be on your guard the whole time.

fwiw I don't have a problem with the question. There's knowing which button to push, and there might be a lot of people who know which button to push or even know of other buttons to push. Goods and services in our economy are exchanged at the rates which a willing buyer and a willing seller or provider agree, and generally, competition equalizes those prices.

I would do it.

We all have to be careful of discussing fees here due to concerns about price fixing/collusion. That said, you're partially right; the marginal cost of production probably isn't that high...but the fixed costs of maintaining a prototype, software, and just running a business can be high. And I definitely wouldn't call it "cookie cutter." There are all kinds of issues about accurately determining compensation, other businesses being involved, employees, etc. that can get you in deep trouble if you make things "too" automated. You could probably find someone to do if for somewhat less. For whatever it is worth, the service might be just as good or better - while there is definitely some correlation between price and service in our industry, I've never seen how the really expensive folks do stuff any better.

Mike Preston is 100% correct (of course!). Put another way, while you may be doing an allocation that happens to yield the results of a safe harbor formula, that formula is not in the document, so you have to general test. That should pass the general test, with the caveats noted.

Humor me for a moment...I've seen accountants do this and never quite understood what they were getting at. You're saying that if a company can make a $100K contribution, and $20K goes to employees and $80K goes to owners, and the tax rate is 45%, the calculation is: 100X.45 = 45000 that they would have paid in taxes, minus the 20000 that goes to employees, equals a $25000 "tax savings"? I guess that means something; maybe depends on the audience. I always preferred to think of it as: you can pay 45000 in taxes and keep 55000 in your pocket, that's 55%. Or you can put 100000 in the plan and get 80000. That's 80%. 80% is better than 55% (ignoring future taxation of course). And I (sometimes) break it down further, pointing out that there are inflection points - on the first 3% (SH), you (owner) get 60% (or whatever, I'm changing from the example), but that allows you to defer the maximum, and 100% of that is yours, then you can put in another 6% PS (maybe) that's 100% yours, then maybe the last tier of PS would be 80% or whatever. All the same stuff said a different way I think. fwiw

thanks

Is there an issue with setting up a plan for director's fees (paid on a 1099) when the individual also has W-2 pay from the same company? I don't think it's a problem but I have a faint recollection of prior discussions about it. There are no control group issues.

OK, glad to hear that others could self-direct if they wanted to. I'm still not sure why one partner would think that having another partner's name on a statement as trustee means anything significant; that's just the way it is done. I think this is all something that should be clarified at the investment company level. I wouldn't want to muck up my documents (basically what Fiduciary Guidance Counsel is asking) to satisfy someone's incorrect perception.

Maybe I wasn't clear but I was mostly concerned about the fact that you are effectively letting the owners self-direct and not letting the other participants self-direct. Or did I mis-read it? I'm not sure I fully understand the concerns that each partner has about "being responsible" for the decisions of the others. In my practice, I'd rather address those concerns, which I believe are phantom. I've heard that argument used, even by the IRS, to justify regulatory changes. But I don't remember them using it in this context. I could be wrong. I've never used the "one plan for each owner" design because I couldn't justify the fees involved, and/or didn't want to adjust my fees to make it possible. I'm not sure about the issue of delegating the responsibilities of the trustee. That doesn't sound totally unreasonable, but it's not something I would want to do and am not comfortable giving an opinion on it.

I'm not sure exactly what calculation you are doing, but when I do a proposal I usually include something that shows what percentage of the contributions the owners are getting, and I definitely include 401(k) in that. I suppose they could maybe do an IRA if they didn't have a plan, but I don't think it's my job to get into those details. As you note, for smaller companies, a TH contribution is probably required, so it's generally an all-or-nothing deal (i.e. a plan with employer contributions or no plan at all) so I think it is totally appropriate to include 401(k) contributions when you are looking at the "all" scenario.

I've heard of setting up separate plans so each partner could be trustee of his or her plan, with another plan for the employees...basically allowing self direction for the partners without saying it. I've never seen or heard of this arrangement within a single plan. It's not responsive to your question but I wouldn't do it this way at all.

The 60 day notice to terminate is definitely not in the Code. I'm not sure if it came from regs or if it is just something that they put in a publication, but as noted above, the fix for stating a new plan is just not to allow contributions to the SIMPLE. The notice timing doesn't worry me in the least.

The latest val date before the distribution is processed is 12/31/14. Maybe it's not done yet but there's no doubt that what should be used, when it is known. Forget about the 4 months in 2015 (or as discussed above, change the plan if you don't like it).