John Feldt ERPA CPC QPA

If you need to amend the plan under 1.401(a)(4)-11(g) to bring in one or more NHCEs for the nonelective, retroactively for the prior plan year, the regulations allow you to do so up until 9.5 months after the end of that plan year.

NHCE? Seems okay under -11(g).

2% cash balance is NOT 2% x 5-year avg comp payable as a life annuity at NRA.

With a DB/DC combo tested plan, for many reasons, not just top heavy, having each person in their own class in the DC plan can save your plan's design many times. That takes care of having to give a terminee more than the top heavy minimum when you don't want to provide extra, but it also allows you to give a terminee (or anyone) more when you need to for 401(a)(4) purposes. Also look at what's used in the DB plan for accruing a benefit and consider how the design will fare under 401(a)(26) when terminations occur. In addition, if you want to use the persent value of the DB accruals as an offset for a portion of the gateway, consider the notion that you can't apply conditions for the gateway minimum, so watch out for the DC allocation if the NHCE did not accrue a benefit in the DB plan that plan year.

"has anyone ever heard of getting VCP blessing for correcting less than all years" Yes, but no blessing on the older years, sort of. I worked with a case where the plan had failed to add back in the section 125 deferral elections for compensation purposes starting in the 1990s when they started a 125 plan. This occurrred all the way up until just a few years ago. The plan was submitted under VCP and they explained to the Service that they simply did not have records available to determined if any benefits were due for years prior to 1999 because records were not available. The Service approved the application, but first they required the plan sponsor add a caveat that basically said if any employee comes forward with pre-1999 information such that their benefits could be corrected, that the plan sponsor would make such correction for those employees.

The contributions are not aggregated for 415, so no impact there. If the 401(k) plan's definition of "compensation" is affected by a 457(b) deferral, then that perhaps could impact things.

Exceptions duly noted.

Correct, the Gold memo indicates that a document written to exclude primarily full time staff from the plan (thus covering primarily short-service employees) violates the "spirit" of the regulations. I think the Carol Gold memo is indicating that the mathematical tests used and dictated by Treasury Regulation 1.401(a)(4)-1(a) are sometimes not applicable even though it says "This section sets forth the exclusive rules ..." and that instead, Treasury Regulation 1.401(a)(4)-1(c )(2) can override such exclusive mathematical rules as it says "The provisions of [401(a)(4)] must be interpreted in a reasonable manner ..." Now I would have thought that the mathematics of an exclusive rule was not subject to any interpretation (unless perhaps it's 'new math' being used), but 1.401(a)(4)-1(c )(2) is written right in there. Maybe we just call it the "gotcha" clause.

Yes, based on your responses, my guess would be that the discretionary match will need to be ACP tested. You can always check with the document provider for their opinion since they've written the actual provisions of the plan itself.

You stated that no participant will be allocated a discretionary match greater than 4% of such partcipant's compensation. That's one piece of the requirements to avoid the ACP test. Most of the other pieces are in the plan's document. Does the plan limit the amount of deferrals that will be considered for the additional match to 6% of compensation? Does this discretionary match have any allocation conditions? Or more accurately, is there any way that an HCE could end up with a higher match than any NHCE if both deferred the same percent of pay? Does the document spell out whether or not the plan will test the match using current or prior year testing, or does it say "safe harbor - no testing"?

Many laws passed by the government, such as ERISA, are not applied to the lords and ladies and other noblemen of the government, but instead meant only to help the wee people outside the castle walls.

Under 401(a)(4), the compensation required for testing benefits is defined in 1.401(a)(4)-3(e), but the plan's definition can differ for purposes of accruing benefits.

It depends on the demographics. As a larger plan, I assume, it may not have problems passing, but you'll have to run the test to know for certain. Closed for 5 years - probably still okay for coverage and 401(a)(26). If this is a smaller plan, those issues would probably have already affected the plan.

They'll need to provide an advance 204(h) notice with an explanation of the magnittude of reduction. 15 days advance notice for under 100 participants, 45 days for 100 and up. I think this type of accrual might cause the plan to change from its nice old "safe harbor - no testing needed" accrual formula and cause the accruals to be general-tested under 401(a)(4). This is because the averaging period now used will no longer end on the date of determination for the accrual of benefits. How will benefits be provided to new entrants? What will be used for their average compensation?

We have had some luck with pointing out things like this in the cover letter filed with the IRS Determination Letter request, explaining that if the Service believes that the issue warrants a VCP application that we'd like to do that. In a couple of cases in particular we noticed an older DB document had what appeared to be a translation problem with the formula itself which was fixed later when the plan was restated. In those cases the agents did not ask the sponsor to go VCP. In another case, with an unsigned interim amendment from an older takeover document, the IRS did respond by asking that the sponsor submit VCP. If you're plan problem is a missed restatement for a pre-approved document (since it was not signed) they will likely apply the fee schedule found in Rev Proc 2013-12 section 14.04.

The reviewing agent will certainly ask for a signed plan document, so I'd suggest that they look with their vendors to see if anyone kept a signed copy. If the document you submitted was truly never signed, does the client have a signed document that is up-to-date and is signed? If so, you need to send in the correct document to replace the unsigned version. If they don't have an up-to-date document, your fees are listed on page 74 of Rev Proc 2013-12 in section 14.04, but perhaps you could contact the agent and ask that the plan file under VCP regarding the unsigned plan issue.

I've seen a couple of cases where the bankrupt client wanted to fund the safe harbor for just the NHCEs from the HCE owner balances in the plan. This was submitted to the IRS and clearly explained in the submission and the IRS issued a Determination Letter allowing the action. If they had not accepted that, the other option being considered would have been to allow the HCE owner to distribute their balance, give enough of those proceeds to the employer, then attempt to fund the plan, but all the creditors in line for those funds would have turned that into a problem and the NHCEs in the plan still probably would not have received their 3% SH allocation.

Lou has it. Perhaps the first question is this: is a Solo-K actually the right plan for your needs? This answer you can likely get a straight answer at no cost from most TPA firms (after they review your complete situation). If a Solo-K is right, and you decide to take the "no thanks, -- I can do it myself" route, you will have some initial questions. The answers to these questions may raise more questions. Soon you may wonder if there are other questions that you also should be asking? So here are some of those questions, but it's merely a small, small sampling - this is not even the tip of the iceberg: When the IRS audits, will you have proper deferral elections on file that match up with the deferrals that were actually withheld? If you're a sole proprietor with no paychecks, how do you withhold deferrals and when do they get deposited? If you wrote a check to the plan instead of withholding from a paycheck, is that okay for a deferral, or is that only Roth, or neither? Will you be able to provide copies of each timely executed IRS-required interim amendment that the IRS auditor has on their checklist? Will you know which ones are not applicable to your plan (and why) so you can explain that to the auditor? When you say contributions will be made timely, what is the deadline for a deferral deposit vs. the deposit deadline for other contributions? What if your tax return filing deadline falls on a weekend or Federal Holiday - will that also extend your deadline to make the employer contributions? What constitutes a prohibited transaction? Do you have to file a different type of 5500 based on the assets you're invested in? Can the plan's investment in real estate have the property tax bill paid from your personal account? And can the renters of that property just write you a check and then you deposit the same amount into the plan later? If you need to fix some things on that property (the asset held by the plan), can you just do that work yourself and do you have to pay yourself any wages for that work? How does the W-2 get done then? What if you have "contract employees" (we hear that a lot) - are they employees or just contractors - does it matter who pays them, or who controls their work, or both? Does the plan need to have a fidelity bond, or is it exempt? Can your spouse also be covered by a Solo-K? What if it does cover your spouse and then you get divorced, does that change something about the plan? If so, when? What about the other businesses that you own, or other sole proprietorships you are involved in - does anything special need to be done to make sure that they are included (or not included) under the plan? If you're self-employed, how is the actual net earned income determined for getting to the deduction limit - how do deferrals and employer contributions affect that number - the same, or different? What about Roth - same or different? Can you do a Roth conversion in the plan, and if so how is that handled? What about this after-tax employee contribution thing - is that a deferral or an employer contribution (or neither)? When might that truly be something to consider for your plan? What if you make a mistake - are some mistakes fixable, not fixable, or are there specific ways these should be handled? What if you sell your company or buy another company - that won't affect the plan, will it? What are the proper steps to terminate the plan and what deadlines apply to the termination? If the plan assets upon termination are still under the 5500EZ filing threshold, does that mean no filing at all? How about the Form 1099R - what code(s) should apply and can it just be filed on regular paper from my printer? When the plan terminates, are there some special forms that need to be signed for the proper distribution to occur? All these and much, much more you can just ask here, or, perhaps you prefer to devote that time to your business to making a larger profit or to really anything other than this tedious stuff? Of course any answers you receive here have no reliance, some will be conflicting at times, and I'm pretty sure Dave Baker does not have an errors and omissions insurance policy that backs up the answers provided by this board, after all, it's just a message board. Well, an awesome one, for sure. Plus, if you do rely on just this message board or any other "free" advice, who will be watching out for you? For example, who will review your investment statements to ask what A, B, and C transactions really were, ask the right follow-up questions for you and then add notes and other information to your file for later when you get audited. Also, when a new law, new regulation, or perhaps some other obscure guidance is issued, who will be calling you or sending you an e-mail explaining the issue and perhaps even suggesting that you consider making a change to your plan to avoid the new X or Y tax, or so you can take advantage of rule Z? Shall we continue? Oh, look at the time. Let's just call it a night. Good night! (and Merry Christmas!) edit: there was a typo in there somewhere, and there's probably still some in there even after this edit.

Recommend they file the 5330 with no tax due.

Safe harbor plan, and the vesting schedule is going to be amended? Hmmm. Would some folks say this amendment should be adopted before the beginning of the plan year?

Yes, understood.

For the nonelective a4 testing, in 401(a)(4)-12, the definition of "employee" is an employee who benefits under the plan for the plan year.

After-tax voluntary employee contribuitions are aggregated with the other employer contributions and elective deferrals (but not catchup deferrals) for being limited by the 415 limit.

Not a prohibited transaction, but the distributions now lacked a distributable event, except for terminees and those eligible for in-service distributions. Look at Rev. Proc 2013-12 to see how a distribution gets corrected when paid out before it was eligible. Also, has the plan kept up with all its required amendments? Since assets are not paid out, the plan is ongoing, and thus has to keep its document language up-to-date for compliance purposes.

I've seen both occur, but again, these are rare and only stick out in memory because of how extreme these cases are: 1) the takeover of the plan where the prior low-fee actuary could not even explain how the system came up with the values, but that "it must be some entry-point programming affecting the numbers", and 2) the high-cost large-firm actuary that automatically charged a higher fee each year for 20 years until the client realized that other large firm actuaries with better experience and capabilities were charging perhaps 25% of that amount for those same services (they did not even ask their current actuary for an RFP when they realized that). Years ago, item #1 used to be the takeover from the prior low-fee actuary who did not realize that the schedule B had a balancing equation, and you would get a revised schedule B over and over until finally one was close enough to balancing that you simply had to accept it and move forward.