Bird

Same here. I am utterly stunned by the reactions here.

Gut feel/vague recollection and some degree of reasoning... I think I remember doing amendments for GUST restatements that looked a lot like this language, because the IRS required them, but I also think I was told by our then-document provider that this didn't specifically authorize extra contributions; they just wanted the gateway language in the plan. I think the problem here is that it just says you have to meet the gateway, not how - you have the option to reduce HCE contributions to 9%. So it's not definitely determinable. By contrast, if you look at the top heavy language in any plan, I'm quite sure it will say something like (as ours do): This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because of: (i) the Participant's failure to complete 1,000 hours of service (or any equivalent provided in the Plan); (ii) the Participant's failure to make mandatory employee contributions to the Plan; or (iii) compensation less than a stated amount. So it's very specific about the effective override of the service requirement. The gateway language that we're discussing here doesn't say that. FWIW, our current Fort William document has this great language that says we can waive allocation requirements (last day/1000 hours) if a participant is getting another 'er contribution; that's in the basic plan document. The adoption agreement has a reference to the BPD "...for 'failsafe' rules regarding the gateway test." There is no definition of the gateway test that I can find.

I agree. If you have multiple people under the integration rate, then they all have the same allocation rate. But the others above would have different allocation rates, unless they happened to have the same comp. But I don't think that helps you... Correct, unless you can somehow rephrase what you mean by "classification." I don't find the statement "I find it to be reasonable that everyone who is over the wage base gets their stepped up contribution." to be a definition of a classification. Oh wait, if you are saying something like this: Participants who are A dollars over the wage base get X. Participants who are B dollars over the wage base get Y (etc) and the number of groups is under the max allowed, then at least you have what I would call classifications. But, if they are reasonable, I don't know. I think I vaguely recall an IRS person stating that compensation is a reasonable way to define a classification, but I'm not too confident in that. I chose to avoid the issue by not using prototypes.

I've always felt that you either have an integrated formula or you don't. I think you are saying there is only one class, and that class will get an allocation based on an integrated formula, but (IMO) that formula is totally arbitrary, and just because there is consistency in calculating it doesn't make it any less arbitrary. Therefore, everyone actually has their own allocation rate.

Well, I have to admit I'm not sure, but I don't see that language telling you how to meet the gateway, just that you have to do it. So no, I don't think that authorizes an increase just for those participants who otherwise wouldn't get 5%. That leaves reducing the HCEs to 9% or doing an -11(g) corrective amendment (which frankly is no big deal and I don't see why the attorney is challenging this).

Yes. My understanding is that it is returned "to the employer" and the sole prop simply doesn't get a deduction - no deduction/no tax on the return. From http://www.irs.gov/retirement/sponsor/arti...=157615,00.html Over contributions or excess amounts are treated differently based on how they occurred: 1) If they are due to elective deferrals, the excess amounts, adjusted for earnings, may be distributed to the affected participant, reported on Form 1099-R and are includible in gross income in the year of distribution. The affected participants must be notified that the corrective distribution is not eligible for favorable tax treatment (i.e., tax-free rollover). 2) If they are due to employer contributions, the excess amount, adjusted for earnings, may be distributed to the plan sponsor. The amount distributed is not includible in the gross income of the affected participant and the plan sponsor is not entitled to a deduction for the excess amount. The distribution is reported on Form 1099-R issued to the participant indicating the taxable amount as zero.

There are some inconsistencies in your postings; first you want to get rid of the 401(k) but now you want to keep it. So I'm not sure about the motivation for this. Long story short...I might set up a 401(k) and a SEP for a one person company, and then only to keep assets low in the "qualified" plan (the 401(k)) to avoid filing requirements as long as possible (no return required if assets are under $250K for a one-man plan). For virtually any other situation, it's very unlikely that splitting employee and employer money is going to simplify things and/or save money. Sounds like the tail is wagging the dog although I don't know enough about the case to say exactly why.

If both businesses are adopting employers, I'm not sure why you wouldn't net the profits. If you don't, then it would be pretty easy to manipulate income and have, say, $200,000 in one business, justifying a $50K contribution, and -$150,000 in the other, so you're then sheltering 100% of your net $50K profits. I think it boils down to what you're paying SE tax on. If you pay SE tax on $170K then that should be earned income for retirement plan purposes. That's just my own simplistic logic, without trying to parse code and regs, which I'm not sure hold the answer.

It probably hinges on this exact language; do you care to post it? In any event, as noted, if this language does not trigger a gateway, then they could always do a corrective amendment. The attorney may be right but s/he doesn't appear to be giving the sponsor all of its options.

At the very very least you have an IDP without a DL, and I wouldn't use the modifier "simply" with that scenario. I am sure the IRS considers it (failure to restate) a document failure. I half remember pondering/researching this and while I don't remember a bright line, there is an overwhelming amount of guidance that pretty much says you have to restate within such-and-such time frame. And if you don't, then we have programs to bring you back into compliance. (Looking back on this thread, ETK's first response really answers/explains it nicely.)

Absolutely, yes. His 415 limit is, of course, $49,000, but "excess" money deductible but not allocable to him could be allocated to others, if desired.

I agree with Belgerath - taking a loan from the policy avoids the tax/cash flow problems, at least in the short run. In the long run, since you wind up with an extra $100,000 in the IRA in this example, you can take that out over a period of years and use the withdrawals to repay the loan. The money winds up being taxed but at least it is spread out. And don't forget that there should be accumulated PS-58 costs that can be recovered tax-free. Just throwing numbers around, if the policy is worth $100K, there might be $10k of accumulated PS-58s. So you borrow $90K and distribute the policy, now worth $10K, but it's tax-free.

Austin, yes, I think it's a contribution. But I'm curious - you're going to go ahead and let them reimburse, and then allocate it as a special contribution with an amendment? What happens when you inevitably have a terminated participant with $0 comp - you can't allocate a contribution to them? I could see doing this once, maybe, but not on an ongoing basis.

Wait a sec. From this PLR 200127031, you are concluding that it is ok for an employer to reimburse a DC plan for recordkeeping expenses that have been deducted from participants' accounts? I'm honestly not following; maybe it's me.

Rude and incorrect, wow. The reg cited is from 1963, before parity of self-employed individuals which came with TEFRA in 1982. I will not waste my time finding cites but I am sure that reg is superseded or otherwise inapplicable now. The IRS pub makes no mention of not allocating forfeitures to self-employeds, therefore there are no restrictions since that is the ultimate authority.

BTW it is Ft. William (no "s). Pet peeve #323.

I agree with what (I think) others are saying - UL us treated as term for this purpose; 25% limit. It isn't entirely logical (one could dump a lot of excess money into a UL policy so the "premium" is more than a similar while life policy) but that's the way it is.

The IRS pub is wrong and a distraction from this discussion.

Ft. William has the best customer support and their 5500, 1099 and doc software is great. If I were starting from scratch I would use their admin software too. I tried it last year and it had some quirks that I didn't like, but they were fantastic in helping me try to work through it...but at the end of the day, I couldn't just scrap the years and years of historical data on our old system and decided to stay with what we had. You think of all the people who had 862 hours one year, 1015 the next, and of course the cumulative 401(k) contributions for hardship purposes, and the manual work needed to make sure that stuff gets converted properly, and it's just too much time and an invitation for errors, at least for me.

I think there's a presumption in the response that the systematic withdrawals have been taken on or about the same day each year, if they were annual withdrawals. I'm not sure if they must be or not (a quick glance at the RR just sees references to "for each year") but I would look back to the date of the first withdrawal and make that the determining date. So...if the first withdrawal was taken on May 1, and the person turns 59 1/2 on July 1, then a withdrawal for that year would be required. If the first withdrawal was taken on Sept 1, and the person turns 59 1/2 on July 1, then a withdrawal for that year would NOT be required.

Some years ago we filed a late 1099-R and waited for a penalty letter and it never came.

If I get what you're talking about, it says if there is a change to "the information" you have to describe the change, so I'd think that description would have to include all of the required information on Fund B.

We got one or two of these maybe two years ago, I put it aside to think about it and it got buried. Uncovered it maybe a year or 18 months later and nothing had happened so I threw it out.

ASPPA members just got a GAC Alert on this and they linked to a recent IRS newsletter which supposedly shed light on it, but was more of the same about checking vs. commercial rates. Interestingly, the results of the IRS 401(k) survey show that 46% of plans use prime + 1%. I think there is safety in numbers on this one. Seriously, they just don't have enough to do if they're yammering about this.

My (ancient) notes on self-employment income indicate that unreimbursed partnership expenses paid and claimed by a partner should be subtracted. As far as gathering it, it's one of those things where you learn from experience if your client might have it and if you need to follow up and beg for it. You can put it in writing and ask for it all you want, but that's only for your own protection because most partners can't be bothered to provide such details unless you hound them.