ERISAnut

Yes, Benefits, Rights, & Features. This structure has been designed to ensure the plan passes this test as they provide the lower rate of matching contributions to those with incomes above $40,000. Unless you have a substantial number of HCEs for the year with incomes less than $40,000, you should be fine. Also, you have to ensure a high enough percentage of individuals below $40,000 actually receive the 100% matching in order to for the rate to be valid. This is a 'bottom up' type feature designed to boost ACP percentages of the lower paid in order to help the test. It's a creative design that should work. I wouldn't imagine you would have a problem.

True. As a rule of thumb, you should consider any rollover as taking on the characteristics of the plan the funds are being rolled into. This is a general rule of thumb. Limited exceptions include rollovers into Governmental 457(b) plans, and direct rollovers into inherited IRAs.

Nothing. Each attorney submitting to the IRS includes provisions that would be appealing to prospective clients. I do not think Corbel is the only document with such provision. I would not be surprised if ASCi's new prototypes have the provision as well, since they are likely to mirror the FDP document.

There would normally be a provision for additional discretionary matching (that satisfies the ACP safe harbor) that is done in addition to the Basic Safe Harbor Matching. The idea of increasing the actual Safe Harbor Matching during the year is an ABSOLUTE NO-GO. The problem is that the notice that would have been provided by 30 days prior to the beginning of the plan year did not reflect the increased match. If it had, it may have induced those who have failed to contribute to contribute by now. So, you cannot change after the notice of the amount that will be provided has been issued. Hope this helps.

If the plan allows, an employee may make an irrevocable election not to participate in any plan of the employer (present or future). Once this election is made, such individuals will be excluded (by class). They will not benefit and will be counted as non-benefiting for 410(b). They will not be includable in any ADP/ACP tests as these only test employees who are eligible. They will be non-excludable for coverage (410(b) and 401(a)(4)) but are ineligible employees for all other tests. Hope this helps.

Keep in mind that you are looking at a two part equation for self correction and mistake of fact issues. 1) Is the error significant in nature and 2) is the correction done timely after the error occured. Mistake of fact situations have always been an area of little guidance from the IRS. However, they exist because the employer can perform the correct operation, but peform it on erroneous data. This will always happen. But, you still have to consider the two fundamental issues when deciding on your course of action. Not sure this draws a definite line, but that is the apparent thinking behind the information you are referencing.

Okay, Sieve is on point with this. You have to understand the difference between a two-step process and a four-step process. Under the two step process, you 1) begin integrating immediately and cease the integration at the maximum level and 2) allocate the remaining contribution prorata. Under the four step process, you 1) Allocate 3% on base compensation (up to the $230,000 limit for 2008), 2) allocate 3% only on the excess ($128,000 in 2008 assuming the TWB as the integration level), 3) allocate 2.7% on compensation plus excess compensation and 4) prorata on the remaining amounts. Under the example above,you cannot integrate at a level that exceeds your base. PS. There is nothing in the Step 1 formula that states that it is provided only to the non-keys. You added this yourself. Under a four step formula, everyone gets the 3% because the actual profit sharing allocation is being designed to meet the top heavy requirement as it gets allocated to everyone.

Cannot provide what doesn't exist. The written terms of the plan will explicitly state the series of events surrounding the request. If it states as soon as administratively feasible, that may be a full payroll cycle; meaning you cannot make the request the day before receiving the check and expect to halt the deduction. That should be all you need, as the system is already built to honor an employees request to halt deductions at any time during the year; even if they state that such employee may not start back up until the first day of the following election period. Give that a try, you should be fine.

Sure you can. The important issue here is that a hardship is deemed to exist for the purchase of a primary residence. For the second step, determining whether a distribution from the plan is necessary in order to satisfy the hardship would be based on whether the participant can 'fully' meet the need through an outside lending source. From there, you are allowed to accept a statement from the participant attesting not to have such funds; provided that you do not have reliable information to the contrary. You do not have to go out of your way to actually prove or disprove. Hope this helps.

This type of thing should NEVER happen. Now that it did, you must ascertain whether it was properly completed as a direct rollover, or not. If so, then it is a non-issue. It appears that it was not, otherwise the IRS would have no basis for requesting taxes. The participant, in this event, has to make the argument to the IRS that he never had constructive receipt of the funds. The question becomes, then, how did he report this distribution on his taxes. Given more details on how the original 1099-R was coded. We're lost without an accurate fact pattern.

Yes, it is an elective deferral. You are allowed to defer up to 100%. Not sure if your pay is subject to FICA (the 7.65% employment tax). You may also want to consider the Roth Option, depending on your marginal tax rate. Doesn't make much sense to take an income tax deduction on contributions that would otherwise be subject to a low income tax rate. Hope this helps.

You are correct in your analysis; not if his retirement benefits are covered under the collective bargaining process.

No work-arounds. They are what they are. Assuming the company already exists and does not actually start-up after October 1st. Generally speaking, these rules are too easy to meet without needing extra exceptions. Hope this helps.

Well done! Just note, when you say 401(a), you mean 401(a)(4).

This is truly the bottom line. When we are dealing with client's, we cannot attempt to hold ourselves responsible for knowing what the IRS will say. Just lay it all out and let the client make an educated decision. Never make it your problem.

No, it doesn't. However, a full distribution is likely within 12 months after plan termination. This will likely be rolled into an IRA (where the distributions will be required to begin). As long as the distribution and rollover takes place after 12/31/2008, there will be no RMD from the IRA until 2010 (as the beginning balance for 2009 would have been $0).

In many instances, the higher rate may result in excessive earnings for a huge jump in the value of a particular investment. Anyone who knows the investment game understands that hind-sight is 20/20. So, you would not provide an excessive earnings rate in case a particular fund performed exceptionally well during the specific slow payment window; while providing an underpayment rate in the event the fund tanked during the window. This premise is to replace the damages to the plan for deposits that are not timely. However, it must guard against an un-reasonable windfall to the plan due to specific market timing issues. Because of these situations (that have actually occurred and have been documented with the DOL), the 'higher rate' is being challenged. Let's face it, an employer shouldn't be expected to pay $20,000 for a $100,000 deposit that was made two days late, just because a particular fund in the plan performed exceptionally well during that particular two day period. That would be the equivalent of picking the winning lottery number the day after the drawing (and claiming the prize). So, your risk manager should factor this into their decisions.

Yes, as long at it passes 410(b) and non-discrimination. Each formula under the plan should, generally, pass 410(b).

It is not that the IRS would require them to maintain a safe harbor 401(k), but merely maintain the plan. If the employer cannot fund the safe harbor, then they should consider a redesign to a traditional 401(k). As long as the contributions are recurring and substantial for a safe period (presumably 5 years), then he should be safe. I wouldn't begin to argue a plan for two years is okay under certain circumstances. SIMPLE IRAs and SEPs do not have the permancy issues. It appears as if someone may have sold this individual the wrong plan. I think the IRS will take a strong stance on the permancy issue. They can always amend to eliminate the safe harbor, but maintain the plan.

No. The rules are what they are. The only difference with the entity being a sole proprietor is how the 'earned income' of the owner is determined. Instead of W-2, you are using Schedule C (after it has been reduced by 1/2 the SE tax). In addition to this, the owner's 'earned income' if further reduced by the actual contributions made into the SEP (for the owner). For simplicity, we will assume 1 owner and no employees. Schedule C (after reduction for SE tax) is $230,000. The owner makes a contributon to the SEP of $46,000. His earned income is reduced from $230,000 to $184,000. That $46,000 contribution is actually 25% of the $184,000 in earned income of the owner. He is at his limit. Had the owner been incorporated with $230,000 of W-2, then the $46,000 contribution would amount to only 20% of his salary. Everything else for the SEP remains consistent, regardless of how the entity is taxed. Hope this helps address your question.

Typically, any non-profit may sponsor a 457(b) plan. Either it is a governmental 457(b) or a non-governmental 457(b) plan. The non-governmental 457(b) is commonly referred to as a top-hat plan. Now, the individual you spoke to may have been trying to state that they may not establish a 403(b) plan; which is restricted to public education institutions and 501©(3) charitable organizations. If they are stating that the charter school is not a public education institution, then it would make sense that they cannot establish a 403(b). Details are important. Unless I am missing something, this would be the only explanation that would make sense.

Sieve, I am with you on this one. I have always though of them as the same; similar to an apple being a fruit. I consider a PEO to be a leasing organization where the entire staff is being provided instead of just a few employees. But, inherently the same. I am curious to see what others may think.

Cannot sneak that one in. Top heavy is an issue if there are NHCE early entrants. There are many ways to deal with your situation, but Top Heavy implications should be considered since there is no free-ride.

Not necessarily. This is purely a facts and circumstances issue. Impossible to guess. Other material information would be viewed (profits of the company, for instance).

True, but Earl should provide a few more details on the NHCEs. Are there any employees other than the owner? You may draft the plan to state the one year service applies to only those employees hired after a certain date; everyone else is immediately eligible. If you're NHCE is hired AFTER 7/2/2008, then your entry date in the plan will not be until 1/1/2009. I am assuming the provision 'coincident with or next following' being used with the semi-annual entry date.