John Feldt ERPA CPC QPA

So this does not become a benefit right or feature that needs testing, when ten years later, the HCE is the only one who has this?

Perhaps this boils down to the definition of the "first plan year" under 416. If you argue that for purposes of 416, the 2011 year is truly the "first plan year", then the plan could be considered as not top heavy in 2012. On the other hand, if you argue that 2012 is truly the "first plan year" because no funds had been deposited to mark the beginning of the plan's trust yet for 2011, then the plan could be considered as top heavy in 2012. I don't see any guidance to this specific issue. Would I be able to stand in front of an auditor and say 2012 is not top heavy and keep a straight face? Maybe, but I would rather discuss the situation with the client and see if they think it may be worth getting a legal opinion, but definitely let them decide the route to take here. Either way chosen, it works out mathematically: 6 / 2 = 3, as proof of this: 2 x 3 = 6 0 / 0 = 59.9, because 59.9 x 0 = 0 (not top heavy) 0 / 0 = 60, because 60 x 0 = 0 (top heavy)

I do not disagree.

No later than the last age in the actuarial chart? Maybe FAPInJax meant there is no maximum age, but left out the "no"?

I doubt the IRS would approve a basic document to have language in it that allows an allocation condition to the gateway. I seriously doubt ASC would write it that way too. That does not mean you can allocate any extra PS above the gateway however, because that would be a profit sharing allocation, which you stated has a 1000 hour requirement. Put each person in their own class and remove the allocation conditions. When each person is in their own class, you could still choose to not allocate PS to those with under 1000 hours and/or are employed on the last day as long as all the nondiscrimination tests and coverage is met.

Very useful, yes - thanks!

Okay. I should also add that any steps taken should not further the plan's operational error. For example, a document I am looking at does not default the plan into "test mode" for ADP purposes if the employer merely fails to give the SH notice. The document indicates that the employer can utilize EPCRS, including SCP, VCP etc. to fix any errors. Thus, it could be another operational error if the plan forged ahead, ran an ADP test, and just made refunds to the HCEs. In this document, the only way that could be correct would be if the employer, decided that was how EPCRS would have it fixed for that year. The actions to fix must also align with the document. edit to say: Aw, PensionPro beat me to making that point.

Maybe the punishment is the mere payment to the IRS for the VCP application. Calendar year plan. Suppose the first payroll of the year is on January 31. The employer hands out the notice on the 2nd of January, just 29 days before that first payroll - yes it's too late anyway, regardless. What is the harm in asking the IRS under VCP to allow the plan to be considered as safe harbor for testing purposes for that year? Certainly they could say, "no way, Jose, we won't agree to the fix you presented here." But it seems reasonable to at least ask, and that certainly does not mean you must ADP test, perhaps they will agree with some other way to give the plan its fix for the year.

First, a minor point: the SH notice deadline is, according to the regulations, due within a reasonable period of time before the first day of the plan year. The IRS will not question a notice provided at least 30 days and no more than 90 days before the beginning of the plan year, but I have not personally seen them try to challenge a notice given 25 days before the beginning of the plan year. As long as the plan's written language itself did not require the 30 days, you have no operational error for giving the notice with less than 30 days to go, but you do fall outside the "we're definitely safe" zone, into the "I wonder what an IRS agent may think of this" zone. No big deal here. Now to the real question: What if you have the language in the document but you didn't give the notice? You have an operational error. What does the plan say in it to fix operational errors? I'd bet it might mention the EPCRS program. Anyway, the plan has failed to act in accordance with its terms. If you discover this problem just a few days after the beginning of the plan year, and if the employer is otherwise eligible for self-correction (has procedures and has reliance on the document language), then perhaps the employer could argue that this is self-correctable by merely giving the notice right away. If so, then document the error, document the steps taken to "fix" it and when it was fixed, and document the procedural change so it can be prevented from happening again. If the employer does not think SCP is the way to go here, then they could submit a VCP application with their mea culpa and offer to the IRS something they think the IRS might agree with, almost anything can be tried here, and you won't know what they will truly accept until you show them all of the facts and explain the circumstances to them. Maybe the worst option is for the employer to do nothing about it and play Russian roulette with the plan.

I would agree. If something happens that subjects the participant to require a gateway (such as a 3% SH allocation, or a top heavy minimum allocation, or a forfeiture allocation), then the gateway minimum for this participant should not be offset by the cash balance accruals that are credited to the other NHCEs.

There is no such thing as a safe harbor match that is contingent solely upon the issuance of a participant notice being provided each year. If a plan is going to provide a safe harbor matching contribution to avoid the ADP test and presumably the ACP test, the safe harbor match provisions must be in place in writing before the beginning of the plan year and a notice must be provided a reasonable amount of time prior to the beginning of that plan year. Thus, as Tom also stated, for the plan to be a safe harbor match plan, some written plan document language or plan amendment language must say it is. A mere statement saying the plan might provide a safe harbor match - indicating no SH match occurs when no notice is provided, and a SH match is contributed if the employer provided the notice, should not be sufficient to satisfy the regulations as it places the safe harbor provisions outside of the written terms of the plan and into certain actions that are discretionary by the employer.

Yes, although not all of them must benefit at 0.50%. Under 401(a)(26), at least 40% must have "meaningful" benefits, that's where the 0.50% comes in. For larger plans it's just 50 employees instead of 40% of the population. For a small employer, if the only 2 employees meet the age and service rules, then at least 2 employees have to have meaningful benefits. In contrast, under 401(a)(4), as discussed in the posts above, we just look for anyone who is merely "benefitting" - which is any accrual. For 401(a)(26) we must count the number of NHCEs whose benefitting amounts are "meaningful". The IRS generally believes this means the participants need to get an accrual in the form of an annuity payable at the participant's normal retirement age of at least 0.50% of pay in order to be "meaningful". This is not a regulatory minimum, it is from internal IRS documents on what they think "meaningful" should be. Again, as before, the 0.50% is an annuity (the accrued benefit) as converted from the cash balance credit, not the actual lump sum cash balance credit itself. So, in the example given where a recent design provided a 2.20% pay credit in the cash balance plan, it turns out that this provided a meaningful benefit to 50% of the employees. edit: typo

Some examples and comments to clarify Lou and Tom's comments above, and to expand on this topic: In a recent design proposal, a 2.20% of pay hypothetical cash balance credit resulted in an average of only 0.57% of pay for this offset - the offset varies based on the plan's NHCE demographics. In another design, a 2.1% of pay cash balance credit to all the NHCEs except one, who was given a 40% of pay credit, resulted in an average offset of 3.2% of pay for the NHCEs (the one NHCE was the sibling of the 100% owner). So, for example, suppose your cash balance plan provides a hypothetical credit equal to 2.2% of annual pay for each NHCE with 1,000 hours in the plan year. The gateway is a percentage of pay as an allocation. Thus, the 2.2% of pay benefit must be converted into its equivalent accrued benefit using the plan's definition of actuarial equivalence, then converted into a lump sum value at the testing rate (do not impute disparity on this, per 1.401(a)(4)-9(b)(2)(v)(E)). I think there may be some that disagree about whether you must convert to the lump sum at the testing rate, but that's not the point here. This lump sum is divided by pay in order to get an equivalence DC-like allocation for gateway purposes. At this point you have each NHCE's individual equivalent value for their cash balance credit, let's say it ranges from 0.38% of pay to 0.73% of pay and the average is 0.57% of pay. You now have at least three options: A) Directly offset each NHCE by their individual equivalent values for their cash balance credit. This is based on the literal reading of Treasury Regulation 1.401(a)(4)-9(b)(v)(D)(1). This can result in a non-uniform DC allocation from 6.77% to 7.12% of pay, because each NHCE age produced a different offsetting value. Under this option, those not in the cash balance plan have no offset and those eligible in the cash balance plan who are receiving no cash balance accrual also have no offset. Employer's tend to prefer uniformity, so this method is rarely applied. B) Give each NHCE 7.50% in the DC plan. This is based on Treasury Regulation 1.401(a)(4)-9(b)(v)(D)(2). This may be easiest, and is probably fairly common. C) Average the equivalent values from the cash balance plan and offset all of the NHCEs who benefit in the cash balance plan. In Treasury Regulation 1.401(a)(4)-9(b)(v)(D)(3), it says "a plan is permitted to treat each NHCE who benefits under the defined benefit plan as having an equivalent normal allocation rate equal to the equivalent normal allocation rates under the defined benefit plan for all NHCEs benefitting under the plan." Thus, only those benefitting in the cash balance plan are offset. In this example, the resulting DC plan allocation is 6.93% of pay and the DB plan's 0.57% takes care of the rest, albeit the 0.57% is actually a pay credit of 2.2% of pay! Note: Suppose the DB plan did not have a 1000 hour accrual requirement, or suppose it only applied the 1000 hours as a requirement for HCEs (the largest benefit costs). If that was the case, then each NHCE can get the offset, resulting in a lower uniform allocation and perhaps 401(a)(26) will be a bit easier to pass, even if young NHCEs leave employment before working 1000 hours.

Will any participants elect an annuity form of payment? If the plan has to purchase any annuities, it seems likely that will use up some excess.

So unless you absolutely have to test these contributions on a benefits basis to pass, no gateway is necessary. If you find some other option to pass 401(a)(4) without the cross-testing, you reached your destination without taking the road through Tom's magical land.

Is the one person an HCE? Probably is, right, so then the fee applies: the small plan IRS-user fee exemption does not apply if the plan has no NHCEs. The 5300 user fee is actually $2,500 (it used to be $1,000 a while back). Why would you put a one person plan into a cash balance document? If the 1-person is a non-HCE then it depends on how old the plan is to determine whether or not it has to pay the user fee.

If the 401(k) plan is established, the SIMPLE gets in trouble and no more SIMPLE contributions can be made. The money going into the 401(k) plan is permitted, but no more can go into the SIMPLE. Here's the IRS fix it guide: http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-–-Your-business-sponsors-another-qualified-plan

And, does it matter if the owner and spouse are in a community property state, where the spouse is automatically considered to be a 50% owner of everying their spouse owns?

See attached, it now references all of c with d1 and d2 (3rd page, first full paragraph). fab2013-2.v2.pdf

Craig Hoffman pointed out yesterday that the relief leaves out c2 and c3, which are the disclosures required for potential plan-wide recordkeeping or annual plan administration fees (c2) and the potential inidividual fees that might be charged like distribution fees, loan fees, QDRO review, etc. (c3). So, the relief is either A) meaningless because the disclosures must be all provided together (remember, you can't use separate envelopes to disclose those fees without the invest fee disclosures and the comparative chart also being in that envelope), or B) the relief means everything other than the fees under c2 and c3 can be disclosed later and the DOL has now unlinked those fees from having to be disclosed in the same notice as the investment fees. Edit: due to a breaking news update: The DOL fixed this today, and I believe all of the disclosure pieces are now included.

Agree with Bird. Either very low paid 100 employees, a lot or part-timers, or a lot of turnover before becoming vested, or similar. Otherwise difficult for a 100 person plan with just one key employee to become TH in such a short time. Not sure how the employees would really know the plan is top heavy. $51,000 + $5,500 = $56,500

If you change the document selection in the Relius document so the match is calculated something like a per payroll calculation, and then re-run the document in the system to generate a new SPD, I think you will find that the new SPD now states that the match is calculated on a per payroll basis. I would hand out an SMM at least, and perhaps generate a new SPD for new enrollees.

If your EGTRRA Volume Submitter document has language that provides the practitioner with the authority to adopt certain amendments on behalf of the employer, then you should not need to have the employer also sign those interim amendments, although the IRS can always aks that they be signed by the employer if they feel it is necessary. As soon as the employer executes your volume submitter document, that action also adopts any practitioner amendments as well. However, if there are any provisions that the employer wants to adopt that differ from those selected in your practitioner interim amendments, then they will need to make the selection they want (or write up that language in some fashion) and an employer signature will be needed to adopt the amendment. You'll need to file both a schedule 1 and schedule 2 with the VCP application.

Everything plan-related, Yes. Yes. Yes. Not all TPAs are the same, though. Generally, the lowest cost provider will not likely provide all the services you describe, but it's not about cost here, it's about service. MOJO's suggestion to get references and ask questions is a good place to start. To help you find providers in your area, if you want, you could look at the ASPPA website under retirement plan pros, administrators/consultants, professional services directory. This link might get you there: http://www.asppa.org/sp/Custom-Apps/PSD-Search.aspx

If the plan has split eligibility and some NHCEs do not get SH, then the entire TH exemption is blown. When the TH exemption is blown, then yes, all non-keys must get the TH min including those under 21/1. But does it say the TH exemption is blown if some non-key HCEs are not getting a SH allocation?