John Feldt ERPA CPC QPA

Here's how 404(a)(7) looks to me: If the Employer contribution made under the defined contribution plan exceeds 6% of eligible compensation, then 404(a)(7) kicks in. That makes the combined plan deduction limit 25% of eligible payroll but with the first 6% going into the DC plan ignored. Thus getting you to the maximum deduction of 31% of eligible compensation assuming something over 6% was the DC plan deductible contribution. If the DB contribution takes you over the 31%, then you have nondeductible contributions and the consequences that apply to making such a nondeductible contribution.

Is the Form 5305 your written SEP document? If so, the language in the Form 5305 states "When not to use Form 5305-SEP. Do not use this form if you: 1. Currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP."

Swiss National Bank Headline, The New York Times: Swiss National Bank to Adopt a Negative Interest Rate By David Jolly, December 18, 2014 PARIS — Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand. The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22. ...

Although not particularly related to the topic, there are some banks that charge negative interest rates (not in the US though that I know of anyway). http://www.nytimes.com/2014/12/19/business/switzerland-central-bank-interest-rate.html?_r=0 http://www.bbc.com/news/business-30528404

Quote from above: the first day the person was "fully dead" Immediately reminded me of Miracle Max (Billy Crystal) when he said "It just so happens that your friend here is only MOSTLY dead. There's a big difference between mostly dead and all dead." Not sure how that fits into the IRS view here, however.

Thanks for reminding me. Treasury Regulation 1.410(b)-2(f) "the terms 'acquisition' and 'disposition' refer to an asset or stock aquisition, merger, or other similar transaction involving a change of employer of the employees..." Also FWIW, I agree with the sorcerer. If, after the transaction, they also sell off B as well and then they set up a new plan (DB plan of course) for just those that now remain behind with Corp. A (the HCEs), then the IRS would address that from the podium (at least that's how they've answered that in the past).

410(b)(6)(C ) has a "you're okay for coverage" rule that applies for becoming or ceasing to be member of a controlled group and if the coverage under the plan is not significantly changed during the transition period. Selling assets, not stock? I don't see how that changes the controlled group.

Technically only the plan that covers just the HCEs fails. The submission would be regarding that plan's approach to the fix.

Thanks, I missed the point that Robert was terminated. The NRD of 55 and 10 applies to the portion of the accrued benefit that was accrued by the effective date of the NRD amendment (or if later, basically the date the amendment was executed). But be sure to take a careful reading of the document and the amendment. A) Solely based on the language you included above, it appears that you would calculate the accrued benefit that was earned at the time the plan was amended, using average compensation and service through that date. Since it does not appear that a "fresh-start" approach was used, preserve that benefit as a minimum and it's NRD is age 55. B) Now calculate Robert's benefit using the current formula which is a benefit payable at age 62 using current average compensation and all service. Looks like the participant should get the greater of the benefit from A) or B). If that's all the document says about the formula, then this looks like the amendment was a "wear-away" amendment. The "new" provisions of the plan eventually, with new accruals, would catch up in value to the old preserved minimum benefit and therafter exceed the old benefit in overall value, thus wearing it away.

Robert will have a portion of his benefit that is payable at 55 and another portion that is payable at 62. However, for valuation purposes, since the plan has no reduction for the age 55 ERB, the actuary could perhaps assume 100% retirement probability at age 55 for Robert anyway, and for those situated like Robert, thus making the data entry and calculations just a bit easier.

I agree that the 5% top heavy DC minimum applies, not 3%. If for some reason they aren't eligible for DC allocations, then you have a traditional DB annuity accrual of a 2% life annuity payable a NRD in the BD or in th cash balance plan (unless the plan language provides more than 2% as the TH minimim life annnuity). I would not worry about excluding by name unless the coverage test is less than 70% and you use the average benefits test to pass 410(b) instead of the 70% ratio percent test. The reasonable business classification only applies to passing coverage using the average benefits test. I also agree that it's better to exclude that group under the definitions for excluded employees - having a zero percent accrual group is not that helpful.

Are all of the employers of the controlled group actually participating employers in the plan? If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group. Suppose only 2 employers actually executed a participation agreement, adopting the plan for their employees. Also suppose the plan does not automatically make all employers of a controlled group into participating employers in the plan. If coverage passes when just these 2 employers are covered by the plan, then for 401(a)(4) you basically ignore the employees of those other employers who are not participating employers in the plan. edit: pesky typos

Look at Treasury Regulation 1.401(a)(4)-2(b)(2)(i). Is the allocation uniform?

If the PEO's plan document has language that does not allow the 401(k) plan assets of a withdrawing employer to be transferred to a new plan established by the withdrawing employer, then the employer perhaps should ask the PEO to kindly change that provision. Good luck with that! Maybe they do a SEP for the rest of the year, and then start up 401(k) twelve months after their employees get paid out from the PEO?

For 2014, before they ran out of time in the year to have enough wages left to be paid in order to even make such an election, did the employee fill out a deferral election that said something like this? "I elect to defer from my compensation the largest possible amount for each calendar year as permitted under 402(g), including any catch-up deferral if applicable." If they made such an election, and they still had enough wages left to be paid in the year when they made that election, then the plan has a failure to follow the employee's written deferral election. See Revenue Procedure 2013-12 (probably a 50% QNEC by the employer for the missed deferral). Otherwise, HCE or NHCE, either way, if there's no concern about committing tax fraud, then why bother to even issue a Form W-2 in the first place, and why bother with getting written deferral elections in place prior to withholding such deferrals?

Even though it shows up on the final pay stub, isn't a portion of it attributed to each pay period? Meaning, if they quit during the year, wouldn't they would still have some portion of the $1,000 added to their W-2? Perhaps the withholding answer depends on another section in the plan document. Or, if the document says that for purposes of elective salary deferrals only, under a uniform nondiscriminatory policy, the employer can administratively exclude certain non-cash compensation or other irregular compensation, like I have seen in some PPA documents, then I would have to check with the employer.

You have written plan? The document probably spells out the requirement. Drawing up a new plan? Take a look at the new LRMs which will be applicable to the first set of pre-approved 403(b) plans, see page 19, number 29, at http://www.irs.gov/pub/irs-tege/403b_lrm0315_redlined.pdf Although this language is not likely in plans now, here's what the LRM says: The blank should be filled in with the plan section number corresponding to LRM 17. A plan may allow for reasonable administrative procedures for plan entry for making elective deferrals, including a reasonable period for providing a participant notice of the right to defer and a reasonable election period, provided that §1.403(b)-5(b)(2) of the Treasury Regulations is satisfied. A plan that provides notice of the right to defer no later than 30 days after commencement of employment, allows the participant to make an election up to 30 days after notice is provided, and provides that the participant’s election will be effective as soon as administratively practicable will be treated as having reasonable administrative procedures that do not cause the plan to fail to satisfy §1.403(b)-5(b)(2). So, it looks like there is some hope for at least up to two 30-day periods once those documents get approved by the IRS.

What if the ineligible class was "collectively bargained" and the employee had been part of a union that had bargained in good faith such that participation in this plan was not available for the union as part of their overall wage/benefits negotiations. The union employee gets promoted to a non-union management job. Would their union wages, which were bargained to not be available for treatment for this plan, nonetheless be included in the calculation for the top heavy minimum?

All or none. Except, anyone who is benefitting must be included. Reminder, if the ONLY reason they are not benefiting is because they fail to meet a condition (like hours or last day), then they can be excluded. For example, suppose a plan has an hours requirement to get a PS allocation. Employee terminates before meeting the hours requirement, they have under 500 hours, and they get no PS allocation: they can be excluded from the 410(b) test for the PS portion of the plan. All similar employees would have to be treated the same for 410(b). In contrast, suppose a plan has NO requirements for getting a PS allocation, but they have each person in their own rate group. Employee terminates and the employer allocates $0 to that group. Even if they have under 500 hours and they get no PS allocation: they can NOT excluded from the 410(b) test for the PS portion of the plan. Why? Because the sole reason they are not getting an allocation is NOT because they failed to reach the plan's conditions, instead it's because the employer decided they get zero. edited to add the cite: treasury regulation 1.410(b)-6(f)(vi): "it is applied with respect to all employees"

You might want to get paid in advance for the plan termination work. Recommend to explain (in writing) the problems, consequences, and provide your recommendation to file the plan under EPCRS so the eventual distributions will retain their tax-favored status as well if rolled over.

Without an amendment to exit safe harbor, the ADP/ACP test does not apply. Plan is still safe harbor, just not in compliance, although technically the safe harbor contribution is not due until 12 months after the end of the plan year, earlier if the SH was not an annual true-up. Sound like the employer stopped withholding deferrals from wages without the proper legal action allowing them to do so. These are operational defects which now jeopardize the plan's tax-favored status. Perhaps when they enter into bankruptcy they won't care about that either.

Did they exit safe harbor by amendment and also amend to remove the deferral option from the plan? The method suggested, to run ADP/ACP testing would apply then. Otherwise it's still a safe harbor plan (no ADP/ACP test), but is disqualified as Lou said. An EPCRS correction should be considered to bring back its tax-favored status. Where deferrals still withheld from paychecks?

GMK: Yes, very well articulationed.

Suppose the employee quit (fired) November 30, 2014 and had just turned in a deferral election form the day before for 2015. The get no "regular" paychecks after November 30. Also suppose their normal entry date would have been 1-1-2015. Then on February 14, 2015 their 2014 "commission" gets paid. Longer lag in time, but the same answer to the above question should also apply here too, right?

Maybe their class should receive an allocation of $1.00 each?