John Feldt ERPA CPC QPA

It could. Suppose the participant quits early in the year, the 5% is funded, then entirely paid out. Later, but before accruals kick in for the DB plan, suppose the DB plan is frozen because the employer now has a cash problem. Now the plans are not required to be tested together and the combined-plan top heavy minimum does not apply (no DB accruals). If cash is really a problem now, and the employer wants to take advantage of the safe harbor top heavy exemption to avoid the top heavy minimum now available in the DC -only plan, they can't do that, because they already contributed or allocated an amount that was not safe harbor, so the DC plan is on the hook for the top heavy minimum. Probably not a bid deal if they're 3% SH anyway, or if they're realy strpped for cash they exit SH anyway. As far as the obligation, that would depend on the plan's terms. If you have each person as their own rate class for allocations, and if the terminee is an NHCE, then you're okay.

A service provider is used for the multi-decrement larger plans. Generally, though, you're right that a contribution recommendation is provided which may be lower than the full allowable contribution.

If the owner/sole proprietor wants $52,000 as Roth, the deferral limit only allows $17,500 as Roth. Employer contributions are subject to deduction limits, thus the after-tax employee contribution (an amount separate from the deferral) can get them $52,000 Roth (after converting the after-tax contribution).

You can enable the iterative calculation if you wish to avoid entering a number over and over. I'm sure a lot of enrolled actuaries use Excel for handling sole prop DB plans.

Depends on what the plan requires they must do to again become a partcipant, but if they do re-enter, then yes, assuming they are a non-highly who is benefitting, they must get the gateway based on whatever definition of compensation that is applicable, which presumably would include compensation after their rehire and/or their re-entry date.

In an S Corp or C Corp, they are considered as shareholders by the IRS, not partners. Thus, the K-1 provides dividend information, not partner earnings, and none of that is counted as compensation for retirement plan purposes. In an LLC, the determination is made based on how the LLC has elected to be taxed. If they elect to be taxed as a corporation, then see above. Otherwise, if a partnership or sole prop, then yes, the K-1 is used, with adjustments, to get your net earnings from self-employments which can be used for reitrement plan purposes. edit: typo

Just a few potential considerations: Without all of the year end data, do you know for certain the gateway will only be 5%? In a DB/DC combo, the gateway (it tested together) may be up to 7.5% of compensation. Sometimes additional amounts are needed above that to actually pass 401(a)(4). If you have a small plan, early contributions could cause trouble related to the combined-pan deduction limit, especially if the owners/HCEs start to have their contributions made early too, just FYI. Are the DC plan's investments participant-directed, and if so, does this early contribution create a right or feature issue because the employer provided contributions to some employees at one time, but not to the others eligible employees at that same time?

If your plan is a PS only plan, adding deferral 3-1-2015, then no problem. Otherwise, I think the 401(k) regulations state that the provisions must be in place prior to the beginning of the plan year, and remain in place for the entire plan year. (not just for a portion of the plan year). Your suggesting that starting March 1 will somehow satisfy the "entire plan year" requirement. I am not convinced that it would satisfy that. I will have to look further.

I think the after-tax concept would be the most helpful for an owner-only plan (no employees) where the owner has net earned income of say about $60,000. They can contribute a deferral of $23,000 and then contributed an after-tax contribution to get the rest of the way to the 415 limit. The deduction limit would limit any pre-tax employer contribution to a low amount (25% of 415 comp or NESE), whereas the after-tax employee contribution is not a deduction so it's not held down by the 25% deduction limitation. Compensation still needs to be high enough as the 100% of compensation 415 limit still applies.

Not allowed in a SIMPLE.

Unless you have other provisions tied to the NRA, like allocation condition waivers as an example, or a mandatory distribution at NRA, or an in-service condition based on reaching NRA, then reaching the normal retirement age is only a vesting item. Although it might serve as the testing age for 401(a)(4) purposes, depending on the situation. If the plan has old money purchase pension accounts, the plan should probably not have a normal retirement age under age 62, but that's a facts and circumstances issue. If you have DB/DC combo-tested plans, I would recommend having the same NRA in both plans to avoid having to possibly test this BRF issue. Most DB plans do not take the risk of having the NRA under age 62, again, facts and circumstances. Early retirement is the same as described above, other than the facts and circumstances issue for pension plans. It's not a facts and circumstances issue if the ERA is below age 62 in a pension plan.

415 compensation, and the 415 limit based on compensation is based on reasonable compensation for services provided to the employer. Are they receiving reasonable compensation for such services provided? They can be paid, sure, but if zero is the reasonable amount, then 100% of zero is their maximum allocation. If you are the TPA, this question likely needs to be discussed and answered by the client and/or their CPA.

OKay, but I think the language stating the intent to comply with 404(c ) could be just a one-time notice, so I think the SPD would satisfy that.

You can submit an incident to SunGard, I'm sure they will help you. Perhaps the "describe" line of the in-service section could have the age 62 restrictive language. It could say the age 62 restriction only applies to former pension accounts - I think that same language you place their will show up in the SPD unless you use a language override.

We've seen a few takover plans where the prior provider put in a cash balance credit equal to the present value of about 10% the 415 dollar limit using 5.5% interest but not to exceed the difference between the partipant's actual cash balance account and the present value of their full 415 limit at 5.5%. They even did something like that for the credit for the NHCEs based on the 0.50% of pay. Lots of PV calculations for no real gain. hArd for any participant to project their own potential benefits. I recommend using the approach described by Effen. Use your funding cushions to allow the higher deductions, then amend as needed near the end to handle any excess as 401(a)(4) testing would allow.

What?! You aren't actually Austin Powers? Sir Augustine Danger "Austin" Powers, International Man of Mystery?

I received one at the office on October 2. Then got another one at my home address on the 3rd.

If you have enrollment forms in place for all employees, including affirmative elections to defer zero by those not deferring, then you have the evidence you need to operationally say this automatic enrollment only applies to new entrants. The written plan language can say it applies to each participant that does not have an enrollment election in place. That should get you where you want to be. Watch out for rehires and watch out for resuming deferrals after the hardship suspension (if the suspension provision happens to apply in your plan). Check your plan language (or perhaps the enrollment form itself) regarding how old deferral elections are treated after such events.

If they cannot cite any specific provision that is in violation, then: I've shortened this quote based on the most recent response indicating that nothing in the plan changed.

No general test needed. See Treasury Regulation 1.401(a)(4)-2(b)(2)(i) and 1.401(a)(4)-2(b)(4)(vi). Treasury Regulation 1.401(a)(4)-2(b)(2)(i): Basically says a uniform percent is a safe harbor and a uniform dollar amount is a safe harbor. Treasury Regulation 1.401(a)(4)-2(b)(4)(vi): Basically alllows the greater of two or more safe harbor allocation formulas, or the sum of two or more allocation formulas as long as: they are the only allocation formulas, available on the same terms to all eligible employees (okay to exclude HCEs), and the top heavy minimum can overrides the allocation otherwise given if needed to meet TH even if only given to non-keys. By "safe harbor" above, they mean no discrimination test needed for the allocation of the employer contribution. It is not referring to the "safe harbor" 401(k) provisions for the 3% SH or the SH match used for avoiding ADP/ACP.

Plan sponsor decided (without service provider knowledge) to contribute the 3% safe harbor throughout the plan year. Safe harbor is based on full year's compensation, including wages prior to date of entry. For new entrants, the plan sponsor contributions made during the year were based only on wages paid after date of entry. After the plan year-end, the service provider calculates the full SH amount due. Plan sponsor contributes the remaining amount due well before the safe harbor contribution deadline (before the end of the plan year following the SH year). The plan sponsor feels that they short-changed the new entrants, so they want to contribute an amount to make up for "missed earnings" on their safe harbor contributions that were made after the end of the plan year. Since no contribution is actually late, is there any justification for a "corrective contribution" to be made to the plan as described?

Depends on the "test" you're talking about. If the plans had to be aggregated to pass the coverage test, then they have to be aggregated for 401(a)(4), so any differences in a benefit, right, or feature should also be tested under 401(a)(4).

Social Secuity tax and/or Medicare Taxes may still apply.

I didn't find the link, but if the plan can pass coverage without them, I think you'll need to find another way to exclude them, such as by job title or other classification perhaps based on that special project. If you can pass coverage using the 70% test, then you could exclude by name, but that would not be logistically practical. Otherwise, the temporary employee exclusion provision will only exclude them for a short time, meaning they will be eligible, even if they are a temp/part-time/seasonal employee, after they compete a year of service (2-years if the plan has a 2 years of service entry requirement).

Nothing is changed - the new document did not do something that is not allowed, like exclude certain employees retroactively (e.g. it excludes leased employees now)? It did not add a new safe harbor provision retroactively (e.g. safe harbor 3% now excludes HCEs)? Maybe something else more obscure in the changing of the basic document (if pre-approved plan)? Or, was the old document a GUST document and the new document is EGTRRA? If so, they're saying the EGTRA deadline was missed? I agree the new provider should point out the items that they believe are in violation.