John Feldt ERPA CPC QPA

No, the accountant must have some other agenda, or mistakenly thinks the rate of return on the 401(k) accounts has some impact on the DB plan.

SIMPLE plans have an "exclusive plan" requirement. As I understand it, you can only have one SIMPLE and all members of the controlled group must be covered by that one plan.

Will the new plan be applying any of the prior service for purposes of benefits? If so, then perhaps you have a violation of Treasury Regulation 1.401(a)(4)-5.

If it was truly a certain only option, no life, is the calculation of such option subject to 417(e)?

After-tax contributions are not deferrals, so I believe their existence eliminates the top-heavy exemption.

Top heavy minimums. If it's a DB/DC combo with the TH minimum handled in the DC plan, then 5% of full plan year compensation is what you'll need to check for those non-key EEs participating in both plans.

And it must be the exclusive plan for the group

Sometimes you just get lucky like that!

Based on the requirements under IRC 416(g)(4)(H), I would conclude that the prevailing wage contributions would cause the plan to lose any top-heavy exemption it would otherwise normally have as a safe harbor plan. However, suppose the plan is safe harbor using the 3% nonelective, and it provides that the prevailing wage contributions are contributed as QNECs that offset the safe harbor. And further assume that no one receives any prevailing wage contribution exceeding 3% of compensation. -- I have not looked into this, but perhaps there you could try to argue that you end up with a plan that consists solely of deferrals and safe harbor -- I am not sure about this argument however.

Internal Revenue Code Section 416(g)(4)(H): (H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirements The term “top-heavy plan” shall not include a plan which consists solely of— (i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and (ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met. Employee after-tax contributions do not meet any of sections 401(k)(12), 401(k)(13), 401(m)(11), or 401(m)(12). Therefore, if employee after-tax contributions have been made for the plan year, then the requirement to consist "solely of" contributions that meet these sections, as noted in the Code, has not been met and the plan is not exempt from top-heavy. Meaning, an after-tax employee contribution appears to "kick them out of top heavy minimum exempt status". See also Revenue Ruling 2004-13, although it has no after-tax examples. https://www.irs.gov/irb/2004-07_IRB/ar11.html

auto enroll starts at 6% and IRS response was "Probably not, as not all NHCE might be able to participate at that rate" Really? Are you kidding me?

You can run an ACP test using all the match combined with the after-tax, or, you can ACP test just the matching that exceeds 4% of pay with all of the after-tax.

If in doubt, perhaps put in a enough dollars to remove your doubts. Give it to non-keys only, make sure the document allows the allocation.

Yes. Under a VCP application a negotiated amount was maybe a third of the usual 1-1 contribution. Some fairly extreme circumstances applied, including the employer's financial state at the time, which had to be proven with the reviewer.

You could look through Derrin's posts on this website under the Message Board Q&A Columns under Who's the Employer? Especially, Q&A 16, 21, 40, 102, 108, 216, and 276.

A DB plan currently passes 401(a)(26) easily (they're not top-heavy). The plan just now was frozen to new entrants and will freeze accruals for HCEs only. Thus it will only continue accruals only for the NHCEs that entered before the close date. It intends to stay closed and to not allow accruals for HCEs (including stopping accruals when a NHCE becomes an HCE later on). In many years, the number of non-excludable employees will dip below the 40%/50 EE threshold under 401(a)(26). The plan is not aggregated with any other plan for any purpose. Under the current rules, is there an exception for passing 401(a)(26) if the plan only has benefit accruals for NHCEs? What about the proposed rules? 401(a)(26)(B)(ii) has this: If employees described in section 410(b)(4)(B) are covered under a plan which meets the requirements of subparagraph (A) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets such requirements if (I) the benefits for such employees are provided under the same plan as benefits for other employees, (II) the benefits provided to such employees are not greater than comparable benefits provided to other employees under the plan, and (III) no highly compensated employee (within the meaning of section 414(q)) is included in the group of such employees for more than 1 year. and 1.401(a)(26)-1(b) has: (1) Plans that do not benefit any highly compensated employees. A plan, other than a frozen defined benefit plan as defined in § 1.401(a)(26)-2(b), satisfies section 401(a)(26) for a plan year if the plan is not a top-heavy plan under section 416 and the plan meets the following requirements: (i) The plan benefits no highly compensated employee or highly compensated former employee of the employer; and (ii) The plan is not aggregated with any other plan of the employer to enable the other plan to satisfy section 401(a)(4) or 410(b). The plan may, however, be aggregated with the employer's other plans for purposes of the average benefit percentage test in section 410(b)(2)(A)(ii).

Agree. The 4th employee is fully vested due to having reached normal retirement age, thus your 3rd vested employee.

Correct, but there is one additional exception that might be useful here. If, in addition to the allocation of deferrals and safe harbor, there is an allocation toward an additional match - and that match is not a safe harbor match but meets the requirements to be ACP-free, then you are still exempt from top heavy. For example, an additional like this would be ACP-free: a fixed-required additional match that is uniform, its match rate does not climb as deferral rates increase, ignores deferrals over 6% of pay, and has no allocation conditions. This match can have a vesting schedule. Another example, a discretionary additional that is uniform, its match rate does not climb as deferral rates increase, ignores deferrals over 6% of pay, has no allocation conditions, and overall is not more than 4% of compensation. This match can have a vesting schedule.

See Rev. Rul. 2006-38. It looks to me that the 15% excise tax is determined by using the reasonable interest rate on the date of the failure and the reasonable interest rate in effect as of the first day of the plan year for each year thereafter, but it's base on simple interest, not the form of compound interest that the DOL calculator uses. This of course is not very practical to actually compute it this way, so I would think that probably 99.999% of all Form 5330 applications simply use the missed earnings amounts that were calculated for the actual correction, using those amounts and multiplying by the 15% excise tax rate for each year until fully corrected.

Can be allowed as early as age 59.5. Can be allowed at any age upon disability. Can also be allowed at any age for a military deemed severance distribution. These are only optional, so check your plan's document to see what it actually allows.

sorry - wrong post - removed!

Scenario 1. If the only allocations are deferrals and safe harbor, then the plan is exempt from top heavy for that plan year. If any other amount is allocated in the plan, even if from a forfeiture, you must do a top heavy test to determine if that plan year is top heavy. If it is top heavy, they need to provide any top heavy minimums and apply the top heavy vesting schedule. If no HCEs receive any nonelective allocations, such as profit sharing, then you will not need to run a 401(a)(4) test for the nonelective allocations. You don't have to test for discrimination among NHCEs, you only do that for testing discrimination in favor of HCEs. So if the owner's sibling is a NHCE, they can get a large profit sharing allocation and all of the other NHCEs can receive zero profit sharing, but just be aware that the PS amount will show up on the 5500 and the SAR. Scenario 2 Some or all HCEs can be excluded from safe harbor. Some of those HCEs might not be key employees. Regardless, if the plan only allocates deferrals and safe harbor, the plan is exempt from top heavy for that plan year.

The quote from EPCRS mentions violations under 72(p)(2)(B) and (C ). But if the loan is merely outside the plan's written loan policy, has it actually violated 72(p)(2)(B) or (C )? (B ) says the term can't exceed 5 years unless the loan is for a home. (C ) requires substantially level amortization of such loan (with payments not less frequently than quarterly) over the term of the loan. Suppose the loan gets entirely paid off now. Did the plan have an actual error? The loan is just over two weeks old.

A plan's loan policy had a limit of 5 years for participant loans. The vendor issued a loan a couple weeks ago for a 15-year primary residence loan. The plan sponsor does not want to adopt a new loan policy that allows for primary residence loans. The loan is not in default, the end of the cure period hasn't passed. One payment just occurred. Has an actual error occurred that would necessitate VCP? Could this be self-corrected by re-amortizing the loan now to not go outside 5 years or by having the participant pay off the loan now and borrow from outside the plan?

Then give the notice in order to comply with the Revenue Procedure. If they are owed no extra dollars, you have now complied the last requirement needed to qualify for the zero dollar QNEC. Assuming no match was also missed.