John Feldt ERPA CPC QPA

And for the DB plan, you can require 1,000 hours, but not a last day. So if the participant is: participating both plans (DB and DC) works 1,000 hours in the plan year terminates before the last day of the plan year the document states the TH minimum is provided in the DC plan the DB plan states participants in both plans will receive the TH in the DC plan the DC plan states participants in both plans get 5% of pay top heavy, but requires they be there on the last day Is the last day requirement for the 5% top heavy overridden due to the combo arrangement, or Is the TH minimum not needed due to the last day requirement (TH is satisfied without 5% of pay), or Is the top heavy provided in the DB plan for that final year of participation? Again, one must look carefully at how the documents are worded.

Under that same Q&A, can the plan that offers a lump sum and allows payments in cash or in-kind be amended to eliminate the "in-kind" payment option?

See Derrin's post on the Q&A column here at http://benefitslink.com/m/qa.cgi?db=qa_who_is_employer&n=294 Some excerpts: Question 294: Can an individual employer make a $12,000 retirement plan contribution for a domestic employee? The employer does NOT have any trade or business. He is actually an 87 year-old retired gentleman. Answer: Yes, he can make a $12,000 contribution. He can contribute more if he wants. But the issue is somewhat more complex. You don’t have to have a trade or business to be an employer. As an employer, can he sponsor a plan covering the domestic employee? Yes. There is nothing that limits plan sponsorship to trades or businesses. Any employer can sponsor a qualified plan. Can the gentleman deduct his contributions? No. They are personal expenses, just as the domestic’s salary is a personal, nondeductible expense. So, is there a problem with the gentleman sponsoring a plan? Yes. Not only does he face making the contribution without receiving a deduction, he is also subject to a 10% nondeductible contribution penalty under Code §4972. The problem is that the nondeductible contribution penalty is forever. You’ve heard of the gift that keeps on giving. This would be the gift that you keep paying for, for the rest of your life. You have to repay the penalty ever year until you can deduct the contribution, which the gentleman will never be able to do. Is there an alternative which allows him to avoid the 10% penalty? Yes. Code §4972(c )(6) allows him to set up a SIMPLE 401(k) or a SIMPLE IRA for the employee. Contributions to the SIMPLE will not be subject to the penalty tax.

Maybe they could offer the exams once every 5 years instead, now that the 5-year IDP restatement cycle is removed from their task list.

If you set it up to begin on December 31, and only the owner will have compensation (year-end bonus) paid that day from which a deferral can be made, then I think you have a problem for that plan year ending December 31. Assuming you have some NHCEs that would have been eligible to defer if they had also received wages on December 31.

Can a nonprofit maintain both a SIMPLE IRA and a 457(b) plan in the same year?

If you determine that a disqualifying issue has occurred, inform the employer of the issue, the consequences, and the options for correction.

No, not if you apply the actual earnings on their accounts. But yes, if you use the DOL rate. How much actual earnings difference is there?

I think it can, if you have actual rates, use actual earnings rates. Otherwise look at Revenue Procedure 2013-12, Section 6.02(5)(a) where I think it says in cases where using an actual rate of return is either not available or the cost to determine the actual rate of return would exceed the difference - those situations allow you to use the DOL VFCP calculator rates.

I think their sister document, PPD, has language like that. Hmm, I wonder where they got the idea. I talked to Robert and he is aware of this.

Perhaps the plan document could be written to say that if the plan intends to utilize the safe harbor top-heavy exemption, that any allocation of forfeitures would be applied as an ACP-free discretionary match following all the rules that apply for an ACP-free discretionary match. And the basic plan document could say that this allocation could be applied regardless of whether or not the adoption agreement itself even provides for such a match.

This is an old thread, but there was some discussion about this last week at IRS DC Q&A session. Isn't there a requirement that a tax-qualified profit sharing plan must be a deferred compensation plan, so the accounts are not just readily accessible to be withdrawn as soon as the funds are contributed? If that's a requirement, would a vesting schedule be enough to still allow a low age like 21 to be utilized as the criteria for in-service eligibility? Any other thoughts on this out there?

EPCRS has a few options for allocating the QNEC to reduce the number of NHCEs with small balances, although it is only of small help. Revenue Procedure 2013-12, Appendix B, section 2.01(1)(b)(iv)(B)(1): ... The contribution made under paragraph (1)(b)(iv)(A) is allocated to the account balances of those individuals who were either (I) the eligible employees for the year of the failure who were nonhighly compensated employees for that year or (II) the eligible employees for the year of the failure who were nonhighly compensated employees for that year and who also are nonhighly compensated employees for the year of correction. Alternatively, the contribution is allocated to account balances of eligible employees described in (I) or (II) of the preceding sentence, except that the allocation is made only to the account balances of those employees who are employees on a date during the year of the correction that is no later than the date of correction. Regardless of which of these four options (described in the two preceding sentences) the Plan Sponsor selects...

Run the 401(a)(4) test. Just giving 3% or 5% is not a guarantee of passing the test. If you want any HCE to get more than 9%, you'll have to give more (profit sharing gateway) to the all the NHCEs (except those you can carve out under the OEE rule, if any) in order to satisfy the minimum gateway, the lesser of 1/3 the highest HCE rate or 5%. But 401(a)(4) might require you to allocate more than that, depending on your demographics.

If he is already over age 59.5, it might very well be that his highest 35-year average earnings for purposes of determining his social security benefit has been established from prior wages. Each year is adjusted for inflation. If his earnings now would be higher than some of his prior earnings (adjusted for inflation), then Gburns may be correct. Otherwise, deferring would not impact his social security benefit. Best to run it through the calculator.

What if the plan is changing multiple designated investment alternatives, perhaps changing all of them, then must a new chart be given before the change, or just as soon as reasonably possible after the change?

I think the IRS was hoping more plans would apply automatic enrollment features. The response was that a 50% QNEC for missing even a few deferrals seemed to onerous to bother trying for some employers. In this Revenue Procedure, the IRS is basically saying, "Oh really? Well, then by lowering the QNEC for automatic enrollment plans, we should see more of them. So, let's lower it and see what happens over the next 5 years." Revenue Procedure 2015-28, says this: The safe harbor correction method under section 3.02(1) of this revenue procedure is available only for plans with respect to failures that begin on or before December 31, 2020. At a later date, the Service will consider whether to extend the safe harbor correction method for failures that begin in later years. In deciding whether to extend the safe harbor correction method, the Service will take into account, among other relevant factors, the extent to which there is an increase in the number of plans implemented with automatic contribution features.

Okay. I will state some crazy opinions since it's getting late and I can't help myself. Based on the current rules, he will be eligible for all of Medicare regardless of how much he puts into that "fund" (assuming it even still exists when he becomes eligible). So I think the payment of Medicare taxes is a total throw away in this particular case. To me, that means the full 15.3% self-employed contribution should be examined. I think you are suggesting that an invested contribution of 15.3% per year (not 7.65%, because he is self-employed) of that deferral would result in a smaller social security benefit than the amount that the theoretical future structure of social security will provide as a benefit, even when considering the spouse as a higher earner and taking into account the family maximum limitations that would be imposed? Maybe. Especially if he is a baby boomer, then you're probably right. That generation will likely get every dollar promised under the program. Of course, that might be on the backs of the following generations of taxpayers. I know it is impossible to predict any future changes to the program, but it has changed, and will likely change again. The longer that this truly needed change gets delayed, the more drastic the cut in benefits will be for those following generations. I think his current age matters a lot in this decision. But regardless, I see no accurate prediction available here.

I agree. If they only wanted it to apply to initial affirmative elections, I think they would have to spell it out that way.

No. If it is a calendar year plan, they have now missed the deadline to hand out the SMM or SPD (a DOL requirement). If they did not tell the employees, then they have probably established some ill-will with their employees also. Recommend they get the SMM or SPD out to participants now. Whoever did the amendment should have been engaged to also provide the employer with an SMM or SPD to hand out to eligible employees.

Some would argue it's okay, others that it's not okay. The IRS has the authority to issue guidance on this (ever since the Treasury Department gave them that authority in November 2013). So, instead of having to go through a long arduous regulatory process, they can issue IRS announcements notices, revenue procedures, etc. on safe harbor plan mid-year amendments. Since that time, no official guidance has been issued by the IRS. Look at treasury regulations 1.401(k)-3 and see if you think that regulation is specifically prohibiting what the employer did with their amendment - is it in there? Also look at the 2012 ASPPA Annual Conference Q&A where the IRS national office gave some un-official responses to changes to safe harbor plans. In one Q&A, they said if a safe harbor plan is amended to expand eligibility, that's okay as long as the other participants are not affected. Not official guidance, of course, but perhaps that tells us their approach to their interpretation of 1.401(k)-3 (or maybe it does not).

Tom's point about passing the 40% 401(a)(26) test for minimum participation is correct. Perhaps before 1987(?) "Excess Only" plans existed?

If I understand correctly, income deferred into a 403b is exempt from both income and SE taxes. Am I correct? Yes. I assume he qualifies as a "minister of the Gospel" which means he is treated as self-employed for tax purposes. Because of that, he has no FICA/Medicare withholding. That means the election made to defer into the 403(b) plan is not subject to FICA/Medicare tax - the deferral directly reduces both his taxable income and reduces his SE tax that he pays. Thus, it will never be subject to FICA/Medicare until sometime when Congress changes the tax rules on this.

1.401(a)(4)-12 defines your options for testing under "Standard interest rate" and "Standard mortality table". Sometimes A) 8.5% with GAM71 Male gets you the results you want in a CB/DC combo, other times B) you're better off using 7.5% post IAM83 Female. If you are trying to get the largest offset value off of the cash balance plan accounts, then (B) above will give you larger PVABs for that offset. Using 7.5% for the pre-retirement testing assumption may even lower this further, but it could cause the rate groups to fail, so watch out for that. However, if your HCEs are a lot younger than your HCEs or your HCE benefit targets are not huge, you may be able to lower your minimum gateway from the 7.5% to 7% or 6% or even 5% by using the 8.5% GAM71 Male as your testing assumption. If you are designing a new cash balance plan, the choice of the interest rate and the actuarial equivalence definition will also have an impact.

A small 401(k) plan is written to provide a safe harbor match. If the employer provides no profit sharing and no forfeitures are allocated (or they are allocated as ACP-free match), the plan is top-heavy exempt. Suppose the plan is also written to partially exclude one sales person who is a Non-Highly Compensated Employee (not an owner and makes under $115,000). They are only excluded from the deferral and match portion of the plan. The plan easily passes coverage by covering the other 8 NHCEs. The employer wants the sales person to still get profit sharing in the years that they actually make a profit sharing contribution. However, in the years where no profit sharing is contributed, is the plan still top-heavy exempt (assume no forfeitures)?