John Feldt ERPA CPC QPA

From above: The QDRO says the "benefit goes to her beneficiary unless that's prohibited by the Plan" and "the Plan document is silent". This tells me the plan has no language that "prohibits the benefit from going to the AP's beneficiary" and that the terms of the QDRO apply, unless you know of something else, another rule, policy, or procedure that the plan has adopted to prohibit that.

That's how I would interpret it, but of course, that's not what the employer is looking for : (

Under Revenue Procedure 2013-12, in Appendix B, Section 2.01(1)(b)(iv)(B)(1), it states "the contribution ... is allocated to the account balances of ..." Later in that same paragraph, three more times it states "to the account balance(s)" Under this One-to-One correction method, could a plan sponsor allocate the QNEC only to eligible NHCEs that have account balances (meaning the Eligible NHCEs with a zero account are excluded)?

I that reference is Treasury Regulation 1.401-1(b)(1)(ii) "... The plan must provide a definite predetermined formula for allocating the contributions made to the plan..."

That has happened. From a prior employer I know of a case where the plan self-corrected the late deposits using the DOL calculator rates, but with no VFCP filing. When the DOL audited, they would not allow that rate, saying you only get to use that if you file VFCP. They required new calculations to use the actual rates or the highest rate. The plan had to put in something like an extra $125 of missed earnings. Yet I also know of several other instances where the DOL agent (different ones) accepted the use of the DOL rates even though no VFCP filing was done.

Sorry, I mean it will show all the contributions made in 2014.

Employer starts two new plans in 2014, DB and PS. They mistakenly think the DB plan is subject to PBGC coverage. Oops, they find their plan is not PBGC covered and 404(a)(7) applies. Eligible Payroll: $1,000,000 Total contributions, both plans combined: $400,000 PS contribution made during 2014: $100,000 DB contributions: $300,000 made during 2014: $280,000 (covers the MRC) made during 2015 for 2014: $20,000 Amount deducted on the 2014 business tax return: $400,000 (already filed). Recommendations? Can the employer make an election under 4972(c )(7) to avoid the 10% excise tax? Or is the excise tax avoided regardless of this election? Must the 2014 business tax returns be amended? Or does the deducted contribution carry forward into 2015 to count against the 2015 deduction limit? Schedule SB will show all contributions made during 2015. If the employer does not amend the business tax return for 2014, should the Schedule SB also include the $20,000 contribution made in 2015 but deducted on the 2014 tax return?

Thanks Belgarath and GMK - aware of the disqualification option, but they're not looking for that taxable solution just yet. Certainly a discussion of this will be included. I am curious what the IRS might be willing to negotiate for making this pass so it does not have a taxable solution. Certainly giving the QNEC to enough NHCEs to pass, picking those that are still around today who were there when the error occurred, etc. But just how willing would the IRS be to negotiate regarding the size of the QNEC?

Thanks, I will take a look and then see if Sal has anything on that.

Potential prospect is a controlled group, 2 employers each with a plan, plans started a couple years ago. ER 1 plan: safe harbor match, 60 eligibles total, 10 are HCEs, no profit sharing. ER 2 plan: non-safe harbor match. 450 NHCEs, no HCEs, no PS. Matching formula is the same structure as the match formula in plan 1. Can't aggregate a SH plan with a non-SH plan. Coverage for plan 1 is 10% Suggestions for passing coverage?

You might want to look at a PPD document. In the pre-approved basic document in the discretionary match section, it pretty much gives the employer the discretion to to pick and choose which employees get a match and how much to each. At least that's how it reads to me.

Depends on the document. Some documents require a January 1, 2002 retroactive effective date for the EGTRRA restatement with special effective dates for each change that occurred after that. Others simply require a current effective date and the document internally has hard-wired each of the required retroactive effective dates for the various provisions.

The plan's written document allows in-service at NRA for ALL accounts, and NRA is 55? If so, does that plan have an IRS D letter, an advisory letter, or an opinion letter? I would think the plan, assuming it's a tax-qualified plan, would also have language stating something like, "regardless of anything you might have seen written in this here plan elsewhere, there ain't no way any participant is gettin' an in-service distribution before age 59.5 from them elective deferrals, safe harbor, QNECS, or QMACs, unless the distribution is for hardship or disability, or if its a qualified reservist distribution of elective deferrals." Probably not worded exactly like that, but you get the idea.

I think most firms that provide administrative services for qualified retirement plans would either have electronic access to the EOB or they have a paper copy of the eight-volume book on a shelf (or both).

http://www.asppa.org/Resources/Publications/The-ERISA-Outline-Book

Okay. Amendments have deadlines and cost time and that costs $, which is why strongly prefer to get to the allocation solution desired without any need for an -11(g) amendment, but only for the plans as described in my post above. So, if the plan is NOT a 3% will SH, then keeping those conditions are fine, even if each person is in their own rate class. Might stil need -11g, but that is generally rare, as I think you mentioned.

If you have a 3% SHNEC (a will, not a maybe), and each person is in their own rate class for PS allocations, then having any allocation conditions is restrictive and they should be not be in the plan - they serve no purpose other than to make it look the way plans used to be set up long ago. edit: typos

Their normal retirement age (later of age 65 or the 5th anniversary), 1-1-2017, was not reached before they left employment (they resigned in 2014). Thus, they can only become 100% vested on 1-1-2017 IF they are employed at that time or rehired later, unless the plan has other provisions that would vest them earlier.

And, as noted by ETA, the ability to use the average benefits test for coverage purposes is likely determined by the terms of the plan document. Some plans have automatic failsafe language that steer plans to pass using the ratio percent test.

Again, this issue is only related to the 410(b) test for coverage. I am saying that if you have each person in their own rate group, and some folks get zero because the employer chose their rate group to be zero, then your coverage test for the 'plan' must pass using the 70% ratio percent test described in 1.410(b)-2(b)(2). Further, please note that I am saying that, in my personal opinion, any "reasonable classification" must be accomplished at the plan document level, and a document that says "each in your own class" is not based on any of the objective business criteria that you see listed in Treasury Regulation 1.410(b)-4(b). Thus, if you have each person in their own rate group, and the employer says "all hygienists get zero", then that still does not make it a reasonable business classification, and thus the ratio percent test is still needed for coverage and the plan cannot use the average benefits test for coverage. if the plan document listed "hygienists" as excluded from the plan, and if that is a reasonable business classification, then the plan could try to pass coverage using the average benefits test if it needed to do so.

For purposes of coverage testing, yes, that is correct. If you are not using the ratio percent test of 410(b), the average benefits percent test would require a reasonable classification.

Let me revise that a bit. Employer contribution at about $146,000 and about 84% to the owners.

kckid, how about this scenario: Is the other 49% owner your spouse? Asking this to determine if it's okay to give more benefits to one of you as this would help to keep the plan's efficiency higher. An efficient plan is merely an opinion, but I am generally talking about how much of the contributions end up with the owners as a percent of the total contributions, although other factors can affect this over a longer period of time, like vesting, etc. If your compensation is $78,000 instead of the amount you provided, would you be able to defend that as reasonable compensation? Asking because 415 limits are based on reasonable compensation. If yes for both of the above, suppose and your spouse could both make a 401(k) deferral election and put in $18,000 each. Also suppose you could put in an employer contribution of about $142,000, with $117,000 going to you and your spouse. (for the technical reader, these terms are used loosely here, just hoping to see if kckid has interest). That design, as described would be about 86% of the contribution (including your deferrals) going to you and your spouse. 86 cents on the dollar with 100% of the contribution deferred from current income tax as a current deduction. Be sure to understand that amounts paid later would be subject to income tax when paid out (but not subject FICA tax when paid out). Of course there are costs to administer - which are deductible business expenses. Would you consider a design like that if it was possible? edit: typos

Mike, I agree that getting an agent to agree regarding the lack of top heavy in the second plan can be difficult. Back to your example, I agree and say it is (1/7)/(1/1) = 14%, which fails, as you stated. I was not talking about the coverage test, though, which is where the reasonable business classification would apply. I was going for the 401(a)(4) test, not the coverage test. With that in mind, a different example is what I am getting at: Suppose you have 10 employees overall and 2 plans as well. Plan A covers only HCE#1 and 5 NHCEs, includes PS. Plan B covers only the others: HCE#2 (associate) and 3 NHCEs associates, but no PS. Coverage passes ratio percent for both plans for all purposes: A = (5/8)/(1/2) = 125% B = (3/8)/(1/2) = 75% Plan B provides no PS. Plan A does. Isn't plan A's PS portion tested as follows: Concentration percent = 80% (8/10), midpoint = 30% If A has 2 of its 5 NHCEs whose benefit rates are at or above HCE#1, then plan A's 401a4 test is (2/5)/(1/1) = 40%, not (2/8)/(1/2). And, if the average benefits test (all employees, both plans) is over 70%, then Plan A is okay, right? That's what I was hoping to get at. If there's something amiss, however, please give a sound whack on the wrist and I will run laps if needed (no push-ups please).

My response was without regard to any ADP testing. I will re-read your original post again and then go over your most recent post with that in mind.