John Feldt ERPA CPC QPA

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.

Yes, a money purchase plan is a defined contribution plan subject to the minimum funding requirements of section 412 of the Code.

Good afternoon Mike. I suppose I misspoke?

The minimum contribution for the DB plan can be much less than the contributions actually being made to the DB plan, so be sure to watch out for this.

The DB minimum is, of course, deductible. I should have noted that. Look at Q&A 8 of Notice 2007-28: Q-8. How does the combined limit of § 404(a)(7) apply when employer contributions to defined contribution plans (other than elective deferrals) exceed 6 percent of compensation of participants in those plans? A-8. When employer contributions to defined contribution plans (other than elective deferrals) exceed 6 percent of compensation of participants in those plans, the amount of employer contributions to defined contribution plans to which the combined limit of § 404(a)(7) applies is equal to the amount of employer contributions for the plan year less 6 percent of compensation of participants in those plans. Thus, the combined limit of § 404(a)(7) (i.e., the greater of 25 percent of compensation, or the contributions to the defined benefit plan or plans to the extent such contributions do not exceed the amount necessary to satisfy the minimum funding standard for the defined benefit plans, treating a contribution that does not exceed the unfunded current liability as an amount necessary to satisfy the minimum funding standard for each defined benefit plan) applies to the total of employer contributions to defined benefit plans and employer contributions to defined contribution plans (other than elective deferrals), less 6 percent of compensation of participants in the defined contribution plans.

You can submit a question to Robert S. Kaufman (or search his existing list). He has a Q&A column on benefitslink dedicated to Railroad Retirement Benefits. http://benefitslink.com/modperl/qa.cgi?db=qa_railroad_retirement

Dear Johnny, The plan that you participate in has been approved by the IRS. The plan allows me, the employer, to decide on a person-by-person basis how much, if any, to allocate as profit sharing. The amounts are also tested, as required, for coverage under Internal Revenue Code Section 410(b) and for nondiscrimination under Internal Revenue Code Section 401(a)(4). In 2014, we decided that you would receive no contribution. Both tests pass, 410(b) and 401(a)(4). You can keep the stapler and the tape dispenser. Best regards, Employer edit: typo

You are correct that the average benefits test includes both plans. The concentration percentage is determined and your midpoint is set (both plans' data combined). When you test the rate groups for the plan that allows PS, you only consider the employees in that plan that you are testing. Thus, your NHCE denominator (for the numerator portion of the rate group test) will include all the NHCEs in that plan. Likewise, the HCE denominator (for the denominator portion of the rate group test) will include all the HCEs in that plan. With that, you now have a feel for how component plan testing might work.