John Feldt ERPA CPC QPA

Matching contributions are not included in determining the highest HCE rate of nonelective allocations for determining the gateway minimum. Thus, the gateway minimum is 3.34% of the plan's definition of compensation for nonelective allocation purposes. This is 1/3 of the highested nonelective allocation given to any HCE in the plan. If the highest HCE nonelective allocation was over 15%, then the 5% minimum gateway applies, but that is generally 5% of total compensation, not of plan-defined compensation. However, if no nonelective is allocated to an NHCE, then no gateway applies to them. For example, if the plan is top heavy and an employee quits before the last day, and your plan has each participant in their own allocation rate class, and if coverage can still pass the ratio percent test for the nonelective portion of the plan with this employee getting a zero, and if they are not getting any forfeiture allocated as a nonelective, then because no nonelective is allocated to them, no gateway applies. But any allocation at all to such NHCE thus triggers the full gateway requirement for them. Reminder, as I can tell you know, but perhaps for some other readers here, the gateway merely allows the plan to test the allocations as benefits payable as annuities at the testing age. Merely providing the gateway does not mean the plan actually passes the 401(a)(4) test.

If an employer makes a "mistake" and establishes a new qualified plan, that negates the SIMPLE, disallowing any contibutions made to that SIMPLE for the years in which both plans are maintained. The Q&A above does not mention this, but if the employer adopts a regular qualified plan, it should say that no contributions should be made to the SIMPLE and any contributions already made to the SIMPLE during the same year will have some corrective steps that need to be applied. See item 3 on this link:http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide and see this link: http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-Your-business-sponsors-another-qualified-plan

Pretty sure that document's checkbox for "100% vesting upon death" only applies to employees that separate service due to death, not just to participant death. Check with Robert Richter or someone at SunGard.

Seems unlikely that a document would truly allow full vesting. Suppose the employee terminated 3 decades ago, was 40% vested at that time, and dies now or reached normal retirement age now. Does the plan say anything about when forfeitures occur?

As long as you understand that "elect" means the written and executed (signed) adoption agreement for the plan had been properly marked with the checkbox that defines compensation as W-2 wages.

Once you get a feel for how this works, however, I agree that the Larry Deutsch Enterprises' Non-discrimination Testing Symposium is very much worth the cost to attend. It was exremely worthwhile for me anyway. Now with another portion of the cash balance regulations being finalized, I am considering attending another (so I can ask a bunch of questions).

If it's an individual plan with a Roth option, you can contribute deferrals as Roth and the employer dollars go in as pre-tax - then convert all of that thar account to Roth if you are so inclined. But if your compensation is so low that the employer pre-tax contribution is limited by the deduction limit, then that's where the after-tax contribution can help you. Assuming a future Congress won't tax Roth accounts, something like their promise to not tax social security.

The partnership must determine and approve the amount to allocate, not the individual participant. Same problem exists with a sole prop. The sole prop must determine the amount, not the participant. Has the IRS tried to make an actual case against this for any plans?

Possibly applicable citations: Internal Revenue Code Section 411(d)(3)(B), Treasury Regulation 1.411(d)-2(d), IRS Announcement 94-101, and Treasury Regulation 1.401-1(b).

Great, I can only imagine how this will affect their mortaility table. I don't see how they can decide to receive a W-2 or K-1. I'm of the understanding that you are either a partner in a partnership and thus the profits/losses are controlled/attributed by/to you (K-1 applies), or that you are an employee and the use of profits/losses are not controlled by employees. Regardless, each NHCE receiving any nonelective allocation is thus required to receive the gateway (unless they are under 21/1 and the OEE rule is applied). Because you have each person in their own rate group for allocations, they do not all have to max out even if other similar employees are maxing out. The plan could exclude the HCEs from the 3% SH nonelective. By doing this, if the plan is also not top heavy, you do not have to give the gateway to any employee who is not getting any nonelective allocation. If the non-equity partners are considered as NHCEs because the 20% TPG election being applied, perhaps removing the TPG election will help.

Of course, thanks. The 2-year idea was on my brain at the time of the post as we were proposing a 2-plan combo: profit sharing, not 401(k), with DB - both with a 2-year entry requirement.

Could even consider having a 2-year of service requirement with 1,000 hours per each year, if that helps. You'll have to have immediate vesting then of course.

So if the relationship could impair the fiduciary regarding the perfromance of their duties, that would be a fiduciary breach, even if it is not a PT?

Elective deferrals taken into account for purposes of calculating the enhanced match cannot exceed 6% of compensation. In your example above you have 7% of pay deferred gets the employee a match of 5% of pay. The 7% deferral exceeds 6%, so it is outside the parameters for an enhanced safe harbor matching formula.

In one of the big provider's PPA document, it states that the effective date of the plan's inability to apply forfeitures to offset the employer safe harbor contribution is the first day of the plan year following the plan year in which the initial PPA restatement is executed (since a SH plan can't be changed mid-year). The plan has an IRS advisory letter. So, for those calendar year plans restating in 2016 before May 1, this provision is not effective until 1-1-2017 according to that plan's document.

Not all brothers are complete strangers. We still play cards from time-to-time, just not as often anymore.

J Simmons, are you suggesting that the fiduciary of the plan is engaging in self-dealing by allowing his brother to receive compensation from the plan?

415 limits are tied to compensation, so yes, they require something in that column.

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?