John Feldt ERPA CPC QPA

Thanks Carol, appreciate the link - that is very helpful! The interesting section, to me, are the three vesting schedules they list (just an excerpt here): We have included three safe harbor vesting schedules that we have determined, with advice from the Office of Chief Counsel, would satisfy the pre-1974 Code vesting requirements. It seems likely that the vesting schedules of most governmental plans are at least as favorable to participants as at least one of the safe harbor schedules. The safe harbor vesting schedules are: 15-year cliff vesting schedule: The plan provides that a participant is fUlly vested after 15 years of creditable service (service can be based on years of employment, years of participation, or other creditable years of service). 20-year graded vesting schedule: The plan provides that a participant is fully vested based on a graded vesting schedule of 5 to 20 years of creditable service (service can be based on years of employment, years of participation, or other creditable years of service). 20-year cliff vesting schedule for qualified public safety employees: The plan provides that a participant is fully vested after 20 years of creditable service (service can be based on years of employment, years of participation, or other creditable years of service). This safe harbor would be available only with respect to the vesting schedule applicable to a group in which substantially all of the participants are qualified public safety employees (within the meaning of Section 72(t)(10)(8)).

Congratulations! Based on your facts, you can certainly exclude the SH for those under 21/1, but allow deferrals immediately. If an owner's kid (or any HCE) gets into the under 21/1 group, you could have a ADP testing issue if they defer.

Here's the 2010 Q&A, bottom of page 10: Question: Must a safe harbor 401(k) plan that is top-heavy and provides for “split eligibility" (safe harbor contributions are made only to the “upper group" (participants who have attained age 21 and have completed one year of service) and not to the “lower group" (participants with less than one year of service and under age 21)) provide a top-heavy minimum allocation to the lower group's non-key participants employed on the last day of the plan year? IRS response: If the safe harbor contribution is not provided to ALL eligible NHCs then the entire plan is subject to the top heavy rules. So if the plan is top heavy, all non-key employees must get the top heavy minimum allocation, not just the NHCs whoa re in the "lower group." However, the safe harbor contribution provided to the "upper group" is counted toward determining if the top heavy minimum contribution liability is satisfied. Kevin C - it seems that we agree then. This Q&A doesn't say the TH exemption is blown if some HCE non-keys are not getting SH. I'd like to see another post from the toolkit.

Is ERISAtoolkit's conclusion reached based on the text in Rev. Ruling 2004-13? In situation 4, we have a 401(k) plan with safe harbor contributions that satisfy 401(k)(12). The plan covers all employees, HCEs and NHCEs. Only deferrals and SH, no forfeitures. Is there a reference to non-key employees in there to make the plan fail to be top heavy exempt? It doesn't seem to say that a plan fails to be TH exempt if any HCE excluded from SH is also non-key. Perhaps we compare the under 21/1 group with the over 21/1 group. Say the under 21/1 group is like the HCEs who are excluded from SH. The over 21/1 group is analogous to those employees who are getting the SH. You're saying those excluded from SH are all key, then no problem, you can still be TH exempt. If that is so, then in situation 4, if all of the employees under 21/1 are key, then it would be TH exempt. Did the IRS fail to mention that possibility in the Rev Ruling? For example, suppose only an owner's child is in the under 21/1 group. edit: typo

No, under the "maybe" provisions, assuming a "maybe" notice was given timely before the beginning of the plan year, the plan does not actually become safe harbor until the supplemental notice is later provided saying the employer WILL contribute for the plan year (notifying participants of this at least 30 days before the last day of the plan year). However, the employer needs to be careful regarding plan amendments during the year, it could prevent the plan from opting into safe harbor for the plan year.

As long as the benefits are definitely determinable, the combined plan passes 401(a)(4) and 401(a)(26), the most likely item that could stop you from defining their benefits by name would be the coverage test. If the combined plan passed 410(b) by using the 70% ratio percent test, then the IRS generally should not have a problem with naming names for including them in the plan. If you happened to only pick the youngest employees to be covered, then another federal agency might have a problem with what is being done, but I don't think that disqualifies the plan. If you have a gateway contribution in the DC plan, you can only offset that gateway by the testing value of the DB benefits for those NHCEs who are benefiting under the DB plan.

Under this post's facts, especially consider whether or not the plan is truly safe harbor. According to the original post, the supplemental notice was given 30 days before the end of the year saying that the plan will NOT provide the 3% SH contribution. Thus, no notice was actually required since the sponsor decided not to make the plan safe harbor for the year by making the contribution. So, if the plan is not safe harbor (no 3% contribution), I see no reason for the plan to be restricted from certain amendments.

Yes.

Some legal authority thus recognizes that as married, and there would be documentation to support that. If the local law only requires a verbal statement from an individual saying they married so someone else (although that's unlikely to actually be the extent of the law), then the plan administrator could certainly obtain this verbal statement to document that for their records.

The deadline to make the nonelective safe harbor contribution is 12 months after the end of the plan year. If the plan year end was 9/30/2012, they have until 9/30/2013 to put the contribution into the plan before it is considered late (ignoring the deduction issue here). So, unless the plan's document spells out something else, they do not really appear to be late in making those contributions just yet. The "missed earnings" are technically not really missed yet either then, since the deposit deadline has not been missed. That makes the contribution being made for the missed earnings into a potential poroblem. It's really just a contribution now, not missed earnings. So, does the plan spell out how employer contributions are to be allocated (maybe each person is in their own allocation rate group)?

Thank you - yes, that's it: T.R. 1.401(a)(4)-9©(1): "If each of the component plans of a plan satisfies all of the requirements of sections 401(a)(4) and 410(b) as if it were a separate plan, then the plan is treated as satisfying 401(a)(4)."

If they find a significant error in an audit, they will ask you enter into Audit Cap under the assumption that the employer wants to maintain the plan's tax-qualified status. If they find an insignificant error, you should be allowed to self correct. Under Audit Cap, the fact that an error occurred means the IRS will calculate something I think they call the "maximum payment amount". With this maximum amount in mind, they look at the seriousness of the error and determine what they think an appropriate sanction should be. They then propose an amount that the employer pays them as a sanction, in addition to any costs needed to fix the plan itself. This negotiation will likely require the entire plan error be fixed in order for the plan to remain qualified. You should be able to negotiate the initial proposed sanction to a lower amount, depending on how generously they had already lowered the amount. The "maximum payment amount" is generally the tax that would have been paid if the vested benefits in the plan were included in the participant's current income, the plan's earnings were taxable for the last 3 years, and the employer contributions to the plan were not allowable as deductible contributions for those same 3 years. Does that help?

If they find a qualification defect, they can only go baack 3 years for purposes of determining the maximum penalty and sanction - calculated based on the numbers from those last 3 years. But to determine if the plan has an error, there is no limitation. They could ask for proof that the plan was originally qualified when it was first established, or ask for a copy of the plan's original opinion letter or determination letter.

You ask after they accept the job.

Suppose you restructure a safe harbor profit sharing plan for testing purposes. Also suppose the plan excludes HCEs from receiving safe harbor contributions (to minimize the required contribution in a bad year). The owner and most other HCEs are in component plan A: the benefits-tested group with enough of the youngest NHCEs to pass the ratio percent test. The nonelective portion is tested for nondiscrimination by cross-testing and by imputing disparity on the regular PS nonelective allocations (can't impute with the SH amounts). The owner's son however, is in the component plan B: the contributions-tested group with all the rest of the NHCEs where the intnet is that they all receive a total nonelective allocation of 5% of pay (5% PS for the son and 3% SH plus 2% PS for the others). The owner's son's wages are not over the taxable wage base. If component plan A imputes disparity, then imputing disparity in component plan B results in a 10% allocation rate for the son and 7% for the NHCEs (fail). Assuming there is no other integrated plan sponsored by the employer and assuming the son is not a self-employed individual, when imputing disparity, must the entire plan impute disparity, or could just one component plan impute disparity and not the other? How do you read 1.401(a)(4)-7(d)(2) for this?

If the accrued-to-date testing option is used, the "account balance" is tested: 1.401(a)(4)-8(b)(2). This worked very for this one plan since the plan was not cross-tested for the last 15 years (until last year). The target HCE is only 4 years older than the plan's one NHCE. This year, the spouse shows up on the census with low compendation and they want to know if the spouse should defer. I read 1.401(a)(4)-8(b)(2) to be the entire balance, not just the employer-provided nonelective. A high spouse deferral would not test well. Is it possible that the entire balance is used only for the average benefits testing and that just the employer-provided nonelective balance is used for the rate group testing if tested using the accrued-to-date method? I don't see it that way, but wanted to throw up the question. We'll test another way, suggest low spouse deferrals, or imply that higher spouse wages might help out. Any other ideas? Edit: After reviewing, I am instead convinced that the deferral and match balances are not part of the rate group testing when testing the nonelective. My misunderstanding there.

We keep a copy of our marriage certificate, birth certificates, and our kids birth certificates in a safe deposit box. I would hope that the local court records where you were married would easily be able to provide a copy of your certificate. For example: http://www.co.dallas.ia.us/index.aspx?page=729

If no "certificate" of marriage was available, we had fairly short list of acceptable alternative documentation, such as some type of court record, copy of court proceedings, or some other legal documentation that sufficiently proved marital status. When in doubt, we would have the employer make the final decision of whether or not thr proof was sufficient. I do not recall seeing an alternative actually in use for proof of marriage, normally that was for proof of date of birth.

When providing service to some larger plan soem years ago (10,000+ participant plans), we required proof of date of birth, proof of marriage, proof of date death, but the level of service being provided would be considered as outsourcing and is generally not the type of service that a typical service provider offers (a TPA). I think that with the small plans (under 100 lives), the employer typically has the burden of obtaining proof of date of birth, marriage and death.

To avoid estate taxes, which I believe was the case that got this to the supreme court, could a mother/daughter be considered "married"?

There have been cases where a "marriage" was disputed after a separation of the husband-wife when no actual divorce occurred, and then long after the separation (years, months, days, or hours after, who knows) one of the two gets married again while still legally married to the first spouse. The dispute here being over whether or not the two were still considered as married and/or whether or not the second "marriage" has any beneficiary rights as a "spouse" to and of the benefits in the plan. Of course this comes up when a lot of moola is at stake after the death of person who was double-married, and both "spouses" make a claim for the benefits. "Double-married?" . . . hmmm maybe that term will also be allowed to be considered as "married" now that the one man and one woman terminology has gone away?

But i think the total employee count can matter here. As my memory serves, I think the rule is not to cover "only", but to cover "primarily" - isn't it? So I think you can include some employees who are neither a management employee nor a highly compensated employee, as long as the plan "primarily" covers a select group of management or highly compensated employees. So, what is "primarily" then? Courts may differ here. Is it all management and HCEs plus a few other employees? Maybe, but as soon as it looks like the covered group is consisting of more non-HCE non-management employees, then the "primarily" requirement is certainly not met.

Can participants make pre-tax deferrals if the plan is not tax-qualified?

So, to get that exemption then, it must be for late deferral deposits, the excise tax must be contributed to the plan, the 5330 must go to the DOL with the VFCP application, and the excise tax must be under $100.

Same here. These code responses are very insignificant for 5500 filing purposes. However, unlike the voluntary 401(k) questionnaire where plan sponsors could simply mark any answer they wanted (just to finish the request without getting audited), the Form 5500 has this statement: Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules, statements and attachments, as well as the electronic version of this return/report if it is being filed electronically, and to the best of my knowledge and belief, it is true, correct and complete. If, upon examination/audit, the government agent begins to think that the Form 5500 questions were just filled in with something, anything, just to get the filing done, then you've likely got more trouble, not just a short closing comment made by the auditor to end the exam. So, it is best to get the best/correct answer in all questions at all times.