rlb64

Employer contributes profit sharing contributions during a plan year into a holding account earning a return until the contributions are allocated at year end. If the plan allocates earnings on pre-funded employer contributions as employer contributions instead of ratably across assets, is the allocation an annual addition subject to 415?

As stated in a recent post, a plan may suspend the safe harbor 3% during the middle of a plan year, but the IRS requires the 401(a)(17) compensation limit be prorated for the period beginning with the first of the plan year through the suspension date. The plan may be suspended without terminating the plan. Suppose the plan is not terminated and the plan only offers safe harbor 3% non-elective contributions as the only employer contribution (prior to suspension). Why doesn't the plan have to comply with 401(a)(4) on an annual basis by recognizing all of the allocations as a % of total plan year compensation? Testing needs to be run on a plan year basis or a short plan year basis. But, is this really a short plan year?

Are tax-exempt 457(b) plans subject to the ERISA bond requirement?

But Ms HR Manager, I thought you said even though I'm a new employee I'm not excluded from making deferrals. Why are you making me wait? Well, even though you're not excluded, you're not included until the next quarter, or correction, I meant to say you "enter" next quarter. The IRS says I can call it not meeting entry. Even with qualified plans, you don't view someone as a participant until they met entry. Sure, the employee first meets eligibility age/service "conditions", but they aren't a participant until entry. Here it seems we have to call them participants immediately because doing anything else means they're excluded for some reason but not a real participant until entry. It would make more sense for the IRS to just simply say an employer may be given an allowance of several pay periods (or as soon as administratively feasible) to get deductions up and running (but not entry dates). Isn't there a DOL perspective to this?

I see the IRS responded to this at the October ASPPA conference. Any thoughts on balancing this against the announcement TAG stated as something to caution?

With the risk of oversimplying things, company adopts a 3% participant directed profit sharing for hourly employees and a 3% cash balance for salaried employees. Company must permissively aggregate both plans for 401a4. Would the participant direction among other benefits be considered a benefits rights and feature that must be tested? Would both plans need to be tested for BRF? What are the issues?

I realize this post is old, but I'd like to continue the discussion. The plan we have has a 3% safe harbor as an offset to the age weighted piece and the plan is top heavy. How can we rely on 1.401(a)(4)-8(b)(1)(iv)(D) as the way to avoid gateway minimum? We have an hce who is also a key getting bumped up to the 3% safe harbor (more than the age weighted allocation). We can't rely on (D)(1) in an age based only plan because someone will be less than 1% of pay in a hypothetical schedule test (it seems to me). So, we're left with (D)(2). In an age based plan, every participant is a separate age band,correct? The minimum allocation is 3% and applies to any employee. How do we pass this? I think I'm asking someone to help intepret this regulation in terms of an age weighted plan as opposed to an age based plan grouped in bands like the example in the regs provide.

I realize the law prohibits 401(a) 403(b) plan mergers, but why can't a 401(a) profit sharing only plan be amended to add a 403(b) plan feature and then have a 403(b) only plan merged into the amended 403(b) profit sharing plan?

Plan is on Corbel prototype document. Plan had no age/service requirement for eligibility, but is amended to add age 21/1 year of service. There was no special provision in the adoption agreement to grandfather employees. If a participant is under 21, does the amendment remove the employees eligibility until age 21 or is his initial entry preserved? If participant was part-time never working 1000 hours, does the amendment remove eligibility for the employee?

In my mind, this is essentially the same issue as Tom and I discussed a short while ago, although it's still not quite clear to me yet. See following link. http://benefitslink.com/boards/index.php?s...short+plan+year If your document is a prototype document, typically, you would amend by restating the adoption agreement by completing the 401k sections and inserting a special 401k effective date. The question is, does the special 401(k) effective date establish a short plan year for the 401k components of the plan or is it simply to define 401(k) eligibility per participant? The ERISA outline book has several discussions on short plan year issues for 401(k) testing. If there is a short plan year, the administrator may use compensation during the short year OR the administrator may elect to use compensation for the calendar year ending in the plan year per new IRS reg section 1.401(k)-6. If short year compensation is used, then the comp limit is prorated. If there is not a short plan year, then we wouldn't have the opportunity to use only compensation during a short year (unless the document excludes pre-participation compensation). It also explains that a plan may avoid short plan year issues altogether by adopting a retroactive 401(k) effective date back to the beginning of the plan year, even though deferrals do not physically begin until the 401(k) amendment or document is executed. Of course, the 401(k) component is a disaggregated component. If there is a short plan year, clearly the coverage test would only be run based on census data during the short year and you would disregard any prior terms. This would be the case regardless of whether you elected to use full calendar year compensation. The adoption agreement may allow the plan sponsor to include or exclude pre-participation compensation, but there wouldn't be any pre-participation compensation if there is a short plan year. If there is not a short plan year, then the question is when the employees are considered eligible. If the effective date of the 401(k) is retroactive back to the beginning of the plan year, then you would include any prior terminated "participants" as though they were benefiting even though they didn't physically have the opportunity to contribute the deferrals. If the special 401k effective date determines everyone's date of entry (but not via short plan year), then this implies all nonexcludable "participants" were nonbenefiting for part of the year, similar to excluding a certain class of employees and then including during the plan year as an eligibile class of participants. Presumably, we would just rely on "daily" coverage testing as opposed to plan year testing to pass coverage (prior to adding the 401k and then on or after adding the 401(k). You would use full plan year compensation if the plan does not exclude pre-participation compensation. You would use the partial year compensation if pre-participation compensation is excluded. (I believe this is document driven and not elective as it isn't a 414(s) election.) If it is not a short plan year, regardless of whether pre-participation compensation is excluded, you would not prorate the comp limit. The short plan year treatment issue is still a concern to me because a plan sponsor can avoid prorating the comp limit by simply having a full 12 month "overall" plan year and exclude pre-participation compensation. The question as to whether a special 401(k) effective date establishes a short plan year applies to all 401(k) components of the plan, including match and safe harbor contributions. A short plan year would require us to prorate the comp limit for match or safe harbor nonelective as prototype documents do not typically allow the plan sponsor to specifically elect 12 months compensation for match and safe harbor NE in the event of a short plan year.

Well, this plan is a safe harbor plan only, so not top heavy. However, the top heavy rules do allow us to calculate top heavy min based on short plan year gross compensation. Say the plan added a discretionary match on 7/1 per payroll. Why would we need to use full 12 months comp or do we? Tom, are you familiar with the Corbel prototype and how to interpret it?

Ok, let's assume this document excludes compensation prior to entry. If we had chosen a 7/1 plan effective date, clearly there is no pre-participation compensation and we would cut the comp limit in half. However, what you're saying is that simply by choosing a 1/1 plan effective date, the calculation of the safe harbor is exactly the same for everyone except we double the comp limit. This seems to get around the spirit of the law. Why doesn't the 401k special effective date establish a short plan year on the 401(k) components of the plan including safe harbor?

Employer adopted 401(k) and safe harbor on Corbel adoption agreement with a special effective date of 7/1/09. Plan itself has a 1/1/08 retroactive plan effective date, is there a short plan year from 7/1/09 through 12/31/09. IN other words, are we prorating the 401a17 compensation limit (in half) for the half year the participants are eligible to calculate the safe harbor contributions?

Ok, but at what point, if ever, are rehires starting over at rehire date? For example, suppose this person was hired on 7/19/05 and termed 12/28/05, but rehired 4/28/08.

Plan requires year of service w/ 1000 hours and computation period changes to plan years. Plan year is calendar year and we are using the Corbel prototype. Employee was hired 7/19/07, terminated 12/28/07 and worked 582 hours during this period. Employee was rehired 4/28/08 and worked 1000 hours by 12/31/08. He did not meet 1000 hours during period 7/19/07 through 7/18/08. Does this person meet a year of service on 4/27/09 or 12/31/08? Basic plan doc states that computation period shift to plan years unless prior service is disregarded under the break in service rules section. That section only relates to excluding prior years of service due to the rule of parity, but this person never earned a year of service to be disregarded under this section.

Ok, this makes sense. So, in summary, a plan may provide for safe harbor 3% and a safe harbor profit sharing allocation with an annual condition (such as 1000 hours of service during the plan year and employment on last day) will always satsify 401(a)(4) if the profit sharing allocation without regard to the safe harbor passes 410(b) ratio test or 401a4 average benefits test. If these fail, the plan is forced to run cross testing. Did I say this correctly?

This topic has come up in our office and so I'd like to reopen this discussion even though it's almost a year old. The ERISA outline book (older version) has a discussion on this topic under multiple formulas satisfying safe harbor nonelective contribution, referring to reg 1.401(a)(4)-2(b)(vi). Sal specifically describes the safe harbor 3% as a nonelective contribution the same as any other type of non-elective contribution and thus must be aggregated for 410(b) and 401(a)(4). It also suggests that if there is a condition on the profit sharing that causes one to receive SH and not PS, the multiple formulas do not satisfy the safe harbor for multiple formulas and must be general tested. I can understand ERISAnut's comment but I believe it should be caveated by stating the profit sharing allocation must be a straight % of pay. That is, I can see that if a plan has a straight % of pay profit sharing formula, running 410(b) on the profit sharing only has the same effect as running 401(a)(4) rate group testing on an allocation basis based on combined PS and SH allocations. The question is: is there any automatic comfort in passing 401(a)(4) if the profit sharing formula is a normal 5.7% integrated formula. Would imputed disparity allow us to have this comfort without running any tests? Tom suggests a safe harbor PS formula with an annual condition can possibly even force us into cross testing - can we come up with a small example that would demonstrate this?

Is it possible to amend a plan now to discontinue the safe harbor 3% non-elective for the calendar year 2009? In theory, a notice was handed out to participants on time, i.e., 12/1/08.

JanetM, Is it absolutely necessary to amend the allocation % to 0 or can the merger be effective by resolution only (disregarding the notice)?

Residual earnings came in as late as October. Accrued money purchase contribution not deposited yet.

Client merged money purchase plan into 401(k)/profit sharing plan on 9/1/07, the date the client changed recordkeepers. The prior recordkeeper forgot to prepare a final 5500 for the money purchase plan. Due date was 3/31. Does anyone know of any gray area here that will give us a due date of 7/31 - same as profit sharing plan? Or is the client stuck with paying late fees?

Employer plan provides deferrals and match after 6 months, no age requirement. Effective 2009, the employer wishes to offer a safe harbor match to participants who are not otherwise excludables but not require age 21. They also want to offer a less generous match to the otherwise excludables until they are eligible for the safe harbor match. Is this ok? To top it off, they currently offer a unique match formula: the greater of 100% of deferrals up to $20 (per pay) or 50% of deferrals up to 4% of pay. If they were to change to safe harbor, is it possible to ensure that noone's match is less than what the participant would have received under this current formula?

Plan year is calendar year. Is it absolutely too late to start a qualified auto enroll plan on 1/1 for an existing 401k plan?

Plans definition of compensation is W-2 pay. How does an employer withhold deferrals from noncash taxable income? For example, employer may give out gift cards as opposed to bonuses.

QDRO is for a 401(k) plan awarding the entire participant's account to the AP. The order gives AP the option to receive payment in cash or rollover consistent with plan terms. Nothing in the order forces immediate payment. QDRO has been reviewed and ready for payout. AP has asked us to keep the money in the plan. Since AP is not a participant, the AP needs to make an election, correct?