ERISAnut

Earned Income is subject to FICA and FUTA of 12.4% and 2.9%, respectively, for self-employed individuals. Good luck trying to claim this as earned income.

When you add this to the fact the the court's decision was only applicable to that particular case and should not serve as precedent in any other case, this is the one I continue to go with. The key for this to work, however, is for the actual "election" of the amount to be deferred must be made before the end of the taxable year. Sign a statement and have it notarized if you have to, but prove that your election was actually made (but the dollar amount not yet determined until the actual compensation figures have been calculated). In the absence of this proof, the IRS auditor gets pissed because he is thinking your decision to defer was actually made after the end of the year; and you lose your case in court by an interpretation of 30 day administrative requirement (that also references the ASAP provision of the DOL). A simple document detailing that an irrevocable decision to defer a definitely determinable amount once your compensation has been calculated would have likely gotten a different decision.

We would have to disagree on this one. I would normally take the approach of maintaining prototype status. I think the amendment that you are proposing would take the plan out of prototype status by creating separate class allocations. Also, I do stand by the my comment (but would admit that it would depend on the level of contributions being provided to these lower paid employees). I would not agree with any notion of directing large contributions to the a few lower paid people to get the test to pass. Also, the point that Tom Poje pointed out that they are likely failing the gateway into cross-testing. There may be an amendment to increase this group to pass the gateway. Realize that nothing I say is absolute. They are all things to consider with a set of "facts and circumstances". We've all performed corrective amendments and have even written such amendments (unauthorized practice in law). These are thought process which must be considered when determining how to be correct. For the reasons mentioned, I think it is better to amend to bring employees into the formula already in place than to create an entirely different formula.

You're not. Your only providing the TH minimum to those participants who were employed on the last day of the plan year. This issue is that the plan formula is providing contribution to only those employees who worked at least 1000 hours AND were employed on the last day. The plan formula fails 410(b). When performing the general test, you are now bringing in the TH minimums that were given to only those participants who were employed on the last day, but failed to work 1000 hour (since they didn't otherwise receive the TH minimum).

Since there is no cash received from the distribution, there will be no 20% withholding. As for the Distribution of the Life Insurance Policy, the participant should receive a 1099-R for the fair market value of the entire policy. Of coarse, a portion of this fair market value would represent Table 2001 Income (P.S. 58 Costs). He would have 60 days to rollover the "taxable" portion of the policy. As for whether he will receive one 1099-R or two, I don't know. I presume that could be represented on only 1 but have never seen it done that way. Generally, a 1099-R would be produced based on the distribution code in box 7 where all distributions subject to the same code would be on a single 1099-R. The $80,000 rollover would be coded "G" for rollover. This other 1099-R may have a code of 1,2 or 7 depending on the age of the participant. It will also have the P.S 58 Costs box completed.

4) There were some participants who were employed on the last day who worked less than 1000 hours that were excluded from this allocation. However, because of the top-heavy requirements received a top heavy minimum allocation of 3%. You've got it pretty much nailed down. One part that I realized I left out after reading your summary is that the entrance requirements for the 401k are much more lenient than the profit sharing and thus the number of people brought in for the top heavy minimum is fairly large. Additionally their ages in relation to everyone else makes that 3% more valuable and increasing it makes more of a difference when using accrual factors. So, it's my hope to piggyback off the ability to simply increase the TH minimum contribution rather than amend plan to bring in people for 2 years when it shouldn't be necessary to go through this next year or even raising the base percentage which actually doesn't help me based upon the company census. So that's my question...can I influence the 401(a)(4) testing by increasing the TH percentage rather than amending the plan. And, if so, is it capped? Could I theoretically go higher than that 8% base allocation figure? I see where you are going and will try to answer the questions listed below. Going higher on the 8% base allocation figure? This is an option provided the formula is discretionary. If increasing the base percentage to only those who meet the last day-1000 hours requirement will help pass, the you certainly have the ability to do that without violating the "definitely determinable formula rule). As for increasing the TH percentage for those employees who receive only the TH minimum. Won't work for a couple of reasons. 1) It is no longer a top heavy requirement and would itself become an additional allocation formula to a unique group of people; who happen to be lower compensated due to the fact that they haven't even worked 1000 hours during the year. This is majorly aggressive and would to more harm that good. This amendment, instead, may be written to require only last day of employment as a requirement to receive the allocation. As stated in my last post, make sure the amendment is written to apply only to the year being corrected. Didn't mean to confuse the issue (due to a temporary brain-cramp). If you are mapped to a prototype plan, you should make sure the plan hadn't elected the fail safe provisions which automatically brings in additional employees in order to pass 410(b) by use of the Coverage Ratio Test. I feel bad that I actually misquoted the BRF corrective amendment for this scenario.

Well, that's a new one on me. Care to share with us a citation for your assertion that "the class of participants brought into the allocation by the corrective amendment must remain thoughout the end of 2006.."? I'm sorry. I was actually typing without thinking on that one. The rule I was quoting here applies to a corrective amendment to cure discriminatory availability of a benefit, right, or feature. I appologize for that. What I should've said was to be sure the corrective amendment to bring additional classes of employees in applies only to the year being corrected.

The $3500 you have coming to you must constitute earned income. Meaning, you cannot contribute an allowance you receive from your parents or a excess amount left over from financial aid to an IRA. It must be "income". You may be able to contribute this amount based on the anticipation you will have at least $3,500 in income for 2006. If you end up contributing to the IRA; but do not end up with such income, then the amount in excess of your income will need to be withdrawn from the IRA by April 15th 2007. Hope this helps.

Okay, I am beginning to see it but am still a little unclear on all that has transpired. I'll try to break your question down into the following facts: 1) Plan has a permitted disparity formula of 8% of base compensation plus 5.7% of excess compensation (with base compensation defined as the entire 401(a)(17) and not TWB). 2) This formula, even though provides higher percentages to higher paid, is deemed uniform by 401(l) and is subject to only the coverage ratio test. 3) Plan has a last day and 1000 hours requirement in order to receive an allocation under this formula. 4) There were some participants who were employed on the last day who worked less than 1000 hours that were excluded from this allocation. However, because of the top-heavy requirements received a top heavy minimum allocation of 3%. 5) You performed the general test (i.e. avg. benefits test, cross-testing, or other) by taking into account all contributions to be tested under whatever test was used; and continued to fail. If this is correct, the one option would be to determine the impact of an additional discretionary based allocation (since the 5.7% maximum excess has been reached) to determine the impact that would have on the test. For instance, how would the general test come out of the discretionary formula was 8.5% of base compensation plus 5.7% of excess compensation. Another option would be a corrective amendment to bring more participants into the allocation. If this is used, the class of participants brought into the allocation by the corrective amendment must remain throughout the end of 2006 (assuming that this is 2005 being tested). Also, such corrective amendment must by done by 9 1/2 months after year end (October 15th). Since this is an amendment, there is flexibility in determining how it will be done. This gets difficult without seeing the actual test, but this should provide a general guide; assuming I have the facts straight.

True. The part to be distinguished here is whether: 1) Small Company is still a separate employer who is a wholly owned subsidiary of Big Co; or 2) Whether Small Company dissolved into Big Co and is merely a division of Big Co. If Small Remains a separate employer (as under 1 above) then they will maintain their own EIN. However, if they dissolved into Big Co (as under 2) then they will merely be a division of Big Co and the documents would need to accurately reflect the arrangment.

Waiving participation for a higher salary? Sounds like a deemed CODA to me.

This becomes an issue of "effective availability" as opposed to "current availability." You can write a document to say anything (i.e. you may opt out of the plan). This is a current availability issue in that the option to participate has been given the participant opted out. But to write this language and then "require" an employee to opt out as a condition of employment would mean the plan is not "effectively available" to that employee. So, if you're going to endure all of this, why not simply have the plan written to exclude the employee you want to exclude? What is being accomplished by a mandatory waiver (except a misguided perception of security)?

1) This may not be necessary. If Small is still the employer, but merely a wholly owned subsidiary of Big Co. then Small may remain the sponsor. Just ensure that the document requires co-sponsor adoption for employees of other members in a related group get covered. 2) Same as above. They may be maintained and tested separately. They may also be maintained separately and permissively aggregated for testing purposes. There nothing magical about it once to keep an accurate perspective on who the employer (and related employers) are. Everything else is simple coverage tests.

I have amended for all types of events. The important thing to note is that the term "Safe Harbor" has different meanings for different sets of circumstances. For instance, a Safe Harbor Hardship Definition how includes Funeral Expenses where before it included only Education, Prevent Eviction or Foreclosure, Medical, Purchase of Primary Residence. A Safe Harbor 401(k) implies that the plan is meeting the requirements to be deemed to pass the ADP (and perhaps ACP) test. Taking this into account, what are we trying to accomplish?

1) True, there is a transition period through the end of the year after the year the two companies entered "related group" status, provided each organization passed coverage prior to becoming related. 2)True, any time during the transition period, the companies can enter into the same plan and continue forward testing the population as a whole, thereby eliminating the need for the remainder of the transition period. 3) When the two plans are maintained separately, the ADP/ACP test for each plan is not valid until each plan passes 410(b) as a stand-alone plan. Hence, if either plan fails 410(b) when treating the participants under the other plan as non-benefiting, then aggregating the plans in order to pass 410(b) may be inevitable. This, would require all nondiscrimination testing to be done on an aggregate basis. However, if both plans pass 410(b) on their individual merits, then the ADP/ACP may be performed separately with respect to each plan. Or, they may decide to permissively aggregate for ADP/ACP provided they pass 410(b) while aggregating.

I don't like it either. The major issue here is that there is nothing in the IRC that provides for forfeiture upon termination of employment. The provision is 5 consecutive one-year breaks in service (or termination and cashout), in order to a forfeiture to occur. It is actually possible for a participant who has not terminated employment to incur 5 consecutive breaks in service (less than 501 hours during each year to 5 years). The most common way to incur 5 consecutive breaks in service is to terminate employment. Hence, the public gets confused by now associating termination of employment with forfeiture while it is merely a quicker way to lead toward forfeiture. I think we all agree on this. The major point of disgust here is that some practitioners (such as your insurance company in this case) hadn't figured it out yet. You normally wouldn't expect an employer to know this off hand, but a simple explanation to this would get them on board. Until the IRS steps in an enforce the rules that are there, these types of practices will continue.

It appears they would be vested any any accruals at 62 by virtue of the NRA of 62 being protected with respect to the participant; not the accrued benefit. But the idea of freezing the accruals until such point that such employee would have received an higher accrued benefit had he been subject to the benefit formula under the buyers plan would seem to be a separate issue. You would still have full vesting at 62, but that would not increase until either of the following: 1) the acturial equivalent of what would've been (the buyer's plan) exceeds what currently is (the seller's plan) 2) Post NRA accruals required by Statute exceeds the accrued benefit in the sellers plan I could be missing something, but I see them as possibly separate issues.

Do this.... Have five of your friends who are employed with separate companies request a copy of the SPD for their respective employer's retirement plans. Out of those five, count the ones whose plan administrator is different than the employer. All B.S. aside, the plan sponsor is already a fiduciary for many reasons, among them are the fact that they hire and appoint other fiduciaries under the plan. So, why would anyone else other than the employer be named as "Plan Administrator". Thousands, literally thousands, of documents that I have encountered seemed consistent with this mindset. No Shame, No Pity. Hence the reason for me mistakenly using these these two roles interchangeably.

This is a good one. 1) I agree that the Normal Retirement Age is a protected benefit for the employees of the sellers plan. 2) The current accrued benefit payable at age 62 is also a protected benefit of the employees in the sellers plan. 3) How the additional benefits accrue beyond what has already accrued it what seems to be happening. Using a calculation of age 65 and performing an actuarial equivalent calculation to determine if additional accruals are due to a participant whose NRA is 62 would not seem to violate the above rules. However complicated, I wouldn't suspect this is a problem.

That would be debatable as to whether or not the "window" in this case would prevent a cutback (for instance, lets assume the only employee to utilize this option during the period was an NHCE). I've heard of windows applying to subsidies, but not for optional forms of payment. I would argue that once a form of payment is made available with respect to a participant's account, then that form of payment may not be eliminated; even if the attempt is to make this form of payment available under a "window". But then again, this is debatable.

This gets very detailed and straddles a tight line. I'm thinking there is a 2.5 month rule that would serve to treat these amounts as includible, but only to the extent they would have been includible in compensation had the employee not severed. Based on this, I would say that these amounts are excludible from compensation; even if this transaction was done within 2.5 months after he severed employment.

I agree. An employer could make mandatory aftertax contributions to a DB plan a condition for employment. But to make someone opt out of the plan as a condition of employment would seem to constitute a failure to enforce the employees rights under the plan (without plan language defining an excludable group in which the employee is a member of). Reminds me of the good ol' days.

I remember the case with the sixth circuit. There were some details about the employer dissolving. Important to note that the IRS could still disqualify the plan, but that is another discussion. It was only the sixth circuit. I think is was Ohio.

Not sure what all the details are, but this should be determined by the definition of compensation being used (either Withholding Pay or W-2). If the plan defines includible compensation as Withholding Pay, then the car allowance would not be used. However, if the plan defines compensation as W-2, then the car allowance would be used. Since there is no cash, there will be no deferral (CODA), but the compensation that is used to calculating the employer contribution (or even the deferral limit) would be subject to the plans definition of includible comp.

I didn't catch your confusion until now. Sorry for using the plan sponsor and plan administrator out of context. But, every plan I ever set up, the employer sponsoring the plan was named as the plan administrator.