Beltane

I see nothing in the instructions that asks us not to include any blank pages in this filing. How are others preparing this form for clients, are you including all pages or only the page(s) associated with the tax? thanks

Thank you, I see my misinterpretation!

Sorry, I meant IRC 416(i)(1)©. Ignoring the compensation aggregation example under Treas. Reg. 1.416-1, Q & A T-20, it seems like D would not be a key or high employee if the IRC 414 attribution rules do not apply..? If only the P.C. adopts the plan, and D is only a 5% owner of the P.C. and ownership of the LLP is not aggregated via IRC 416(i)(1)© and the Treas. Reg mentioned, D would only be considered a 5% owner of the employer, thus not key or high, unless I am missing something ...

Ownership of P.C. A = 53% B = 32% C = 10% D = 5% [exactly] P.C. has employees. Ownership of LLP A,B,C and D each own 25% LLP has no employees nor pays wages, and probably never will. If P.C. adopts a standardized plan, must LLP be included as a controlled group member? If so, does that make D a key employee and an HCE? My thinking is Yes and Yes, because of the LLP ownership. If P.C. adopts a nonstandardized plan, the LLP would not have to be a plan sponsor. Thus, under IRC 416(i)©, would this prevent D from being considered a key and highly compensated employee? [iRC 414(q) refers to IRC 416(i) for applying the 5% rule].

No, there were no nonelective contributions made. If I understand your post [which is really appreciated!]: Failure of the SARSEP to meet the 50% rule has the effect of nullifying the existance of the SARSEP arrangement for 2005. Client will formally terminate sponsorship of the SARSEP and can establish the Safe Harbor 401(k) plan for the remainder of 2005. The 2005 402(g) limit, plus any catchups, is not reduced by the disallowed deferrals. The (proper adoption and administration of) a Safe Harbor 401(k) will deemed not to be top heavy for 2005 assuming the only employer contributions to the plan are the SH ADP matching contributions. Top Heavy status of the SARSEP is thus ignored for 2005, and future years assuming the SH requirements are followed. ?correct?

Client currently wishes to terminate SARSEP and establish a SH 401(k) for remainder of year. 5305A-SEP form in use, SARSEP will not meet the 50% participation requirement under IRC 408(k)(6)(ii). We would like to terminate sponsorship of the SARSEP [with notice and resolution] effective 7/15/05 and have the Safe Harbor 401(k) [using the match method] effective 8/1/05 in hopes of avoiding the concurrent plan problem of using the 5305A-SEP. The 2005 SARSEP contributions I understand will be, due to failing the 50% rule, default to the regular IRA rules for deductibility, etc. My questions: a) First, is my analysis above correct? b) Is the sponsor still required to make the top heavy contribution due to partial year sponsorship of the SEP, even though all the 2005 contributions are now deemed IRA contributions rather than SARSEP contributions? b1) Does the adoption of the Safe Harbor 401(k) eliminate the top heavy requirement for the year? [assume parallel participation] c) If 'b' is "yes", do we base the 3% on total 2005 compensation or only through the SARSEP's date of termination? d) If a top heavy contribution is required, can that contributatory requirement be made under the non-elective benefit structure of the (standardized) Safe Harbor plan? e) If 'd' is "yes", can we subject the top heavy contribution to the graded vesting schedule under the SH plan? [my inkling on this is no, since this would not provide the same contractual benefit as a top heavy contribution under the SARSEP-thus 'd' would probably be "no" also] f) If 'd' is "yes", The TH required amount I understand may not be reduced by the safe harbor match [iRS Notice 98-52]. What if we used the 3% nonelective safe harbor rather than the match? g) Assuming 'd' is "no", would it be advised to make the Safe Harbor plan with a non calendar plan year? The concurrance issue with the SARSEP is what's rattling my brain here. Also, would the SH 401(k) plan be considered a 'successor plan' to the SARSEP? The only definition I currently know of a 'successor plan' is under Treas. Reg. 1.401(k)-1(d)(3), which, if applied, would not treat a SARSEP as a successor plan, but this is the flip of that. I believe the SARSEP is not considered a 'plan', but don't have a site. thanks to any full or partial responders..