ERISAnut

Kevin C, What this is saying is that in order to shift, you must first correct the ADP test upon failure. Once done, you can shift any and all of those into the ACP test. Once shifted, the ADP test must continue to pass after the shift. Hopefully the shift will help the ACP test. But, Borrowing is different. Borrowing doesn't deal with the amounts, per se, but instead with percentages. So, once you distribute excess employee contribution to correct ADP, the resulting percentages in the test is deemed to pass. For instance: ADP Test: HCE Avg: 8% NHCE Avg: 5% After correction. HCE Avg: 7% NHCE Avg: 5% ACP test: HCE Avg: 1.5% NHCE Avg: .5% After Borrowing: HCE Avg: 4.5 NHCE Avg: 3.5% I get here by taking 3 from the HCE and 3 from the NHCE. The resulting ACP test after borrowing: HCE avg: 4.5 NHCE Avg: 3.5 The resulting ADP test after borrowing: HCE Avg: 4 NHCE Avg: 2 The both continue to pass. But you do not begin this step until you first corrected the ADP failure.

I agree. I do not see an operational violation either. The primary argument is the company changing the fiscal year end does not automatically change the plan, unless the plan is specific language referencing a term (i.e. fiscal year end) that the plan fails to define with a date. As far as Bird's argument, I would suggest we are looking for a reasonable interpretation (not necessarily a proper interpretation). A proper interpretation would imply a hard-fast right or wrong. A reasonable interpretation would mean that the plan is being operated pursuant to a reasonable (while maybe not the best) interpretation; but in no event arbitrary and capricious.

Yes, but only for the EMPLOYER contribution; not the salary deferrals. The salary deferrals are the only amounts subject to the universal availability requirements.

You may find this hard to believe, but 'shifting' is actually different from 'borrowing'. Shifting, as defined in the Code, would create this. Borrowing, as defined in the Regs, would allow you to work only with the resulting percentages after correction for ADP. Your software should handle this for you. Hope this points you in the right direction.

It is really a non issue until the time the plan is amended to 12/31, creating a short plan year. The key to realize here is the the "Fiscal Year End" is a term which is defined in the plan. This provision, itself, is typically an optional feature on the Adoption Agreement. Even if it is not, the adoption agreement defines that term (in this instance) as 6/30 of each year. The adoption agreement further defines the PYE to be the fiscal year end (as defined in the adoption agreement). Therefore, until such time as the adoption agreement is amended to change the fiscal year end from 6/30, the plan year end will remain at 6/30; regardless of what the true fiscal year end is. But, it is always best to keep this in mind. My angle is purely a document interpretation issue. In this instance, it is likely the responsibility of the Plan Administrator (typically the Employer as outlined in the terms of the plan) to interpret the provisions of the plan to ensure it is operated properly. Their interpretation does not have to be the MOST Reasonable, but must merely be reasonable and consistent (and not arbitrary and capricious). It may behoove them to simply amend to 12/31 with a short plan year and move on. Sieve jumped in ahead of me again. But, the added loop is that the document also defines Fiscal Year (an informational feature as well). So it defines the plan year based on it's definition of the fiscal year. So, I would otherwise agree, but the language in the document defining the fiscal year end changes things.

That was actually my first reaction as well; major questions.

Yes & Yes. You must follow the written terms of your plan.

This statement alone deserves very detailed attention in addressing your issues. A leased employee is an individual who: 1) Is NOT a common law of the receipient. 2) Is a common law employee of the leasing organization 3) Works on a substantially full time basis for a 12 months for the receipient Substantially full time basis is presumed to mean 1500 hours or 75% of the work schedules typically performed by actual employees. You may also reference Rev. Rul. 87-41 for the 20 factors when considering common-law employment. Now, an individual is not considered a leased employee of the receipient until the conditions above are met. This is despite the fact that he may have been a previous employee of the receipient. The determination in question is whether or not he is a 'leased employee' at any time during the current year. Until such time as he becomes a 'leased employee' he is considered as having a 'severence from employment' from the actual reciepient for qualified plan purposes, even though he may continue to work at the same desk with no 'separation from service'. The semantics here are important to understand when attempting to address all your issues as your document will typically use many of these terms.

Of course. The BPD is merely stating you may elect which option you want on the Adoption Agreement (or Salary Reduction Administration agreement if used in lieu of having this option on the Adoption Agreement).

The participant may actually have to file for a Private Letter Ruling on that one. Your question is whether it is possible to split the basis of the two amounts during a rollover. There are no (at least to my knowledge) rules addressing this specific issue. While it should appear reasonable, the issue becomes the actual distribution of amounts that are not RMDs. Since it is not an RMD, what makes it identifiable as a pre 87 amount as opposed to a post 86 amount. Also, what authority would provide the participant the option of choosing. You have a good question.

For starters, T Rowe is based out of Maryland and Vanguard is based out of Pennsylvania. For other details that would matter, the prospectus for each fund would likely be your best bet. You do not want to rely on strangers for investment advice; need the know whose ass to kick when they lead you wrong:-)

No. You would merely test on whether you met 21 & 1 or not. In the event you have employees who remain eligible (through grand-fathering the provision) but never reach 1 year of service in subsequent years, then they will be tested separately. However, the HCEs will be allowed to get tested with the 21 & 1 employees.

Okay, it makes sense now since you are on a standardized adoption agreement. When properly written, it does not leave the door open to 410(b) failure since all non-excludable employees of all employers within the related group are covered (be each employer inside the controlled or affiliate group completes a co-sponsor adoption page). An amendment from immediate eligibility (or any period less than 1 year of service) to provide for a more restrictive eligibility requirement (up to 1 year of service) would not constitute a failure of 410(b) in any way. Early entrants (meaning employees who are eligible for the plan but have not met the 21 & 1 requirements under 410(a)(1), would be able to get tested separately with respect to 410(b) and would all constitute NHCEs. Also, as an option, if there were the child or parent of an owner who was hired recently, then that individual could be tested with the employees who have actually met the 21 & 1 conditions. This rule exists primarily to circumvent any perceived issues with your situation. However, it's original intent is to remove any obstacles from employers deciding on whether to allow immediate entry into the plan, and encourage employers to do so. There aren't any coverage or cutback failure for amending, prospectively, to apply a more restrictive eligibility requirement (as long as it doesn't exceed 410(a)(1) thru 410(a)(4)). A little long winded, but I cannot imagine a situation where this would be a problem with coverage. Sieve jumped in ahead of me. Would be good to consider applying your provision to only those employees hired on or after the amendment date. This will avoid the need to analyze the amendment for 401(a)(4) on the amendment timing issue.

Could you be more specific on your question. Cannot determine a fact pattern. You are allowed to amend to change eligibility, since eligibility is not protected from cut-back. But, what exactly are we trying to accomplish.

However, she must repay only the amount contributed to her from the Profit Sharing Source of funds. The 401(k) and Safe Harbor portions has nothing to do with it. She would only refund the vested profit sharing portion.

You are correct, except that you do not have to amend. Also, the current year testing method is already in place, where the document states it to be the method used in the event the plan fails to satisfy the safe harbor. That's the way it works on the prototype plans.

Yes. Agreed.

First, you should re-verify the language in your document. Many attorneys have included a little known feature on their adoption agreements that state that if the plan is a safe harbor 401(k), the exclusions from compensation will apply only to the HCEs. After doing the reverification of the language, then you should test the plan using a compensation that satisfies 414(s) since you have failed to meet the safe harbor 401(k) requirements for the year. This type of thing should never happen in a safe harbor plan. Totally undermines the purpose of safe harbor when you do not use a safe harbor definition of compensation (as one of the objectives is to avoid the test). As for the compensation participants are eligible to defer on, the only requirement is that it must be reasonable. Base Pay has been ruled reasonable (even if it turns out to be discriminatory) by the IRS. However, this is only for determining comp that may be used for deferrals. The safe harbor employer contribution must be provided on 414(s), which is a different standard than 'reasonable'.

You can have as many Roth IRAs as you wish, but the combined limit when funding them will remain at $5,000 per year.

I wouldn't necessarily draw a link between the deposit to the trust being an operational error since it didn't necessarily violate any terms of the plan to do so. However, since it is a plan subject to the funding requirements, it is not subject to any discretion in the funding. In this instance, the employer overfunded, and probably should explore corrections that are used when plans are overfunded. The thing is, these are typically DB plans. If the argument for DB plans making a contribution that exceeds the "Normal Cost" (or whatever terminology they use) is treated as an operational failure, then I would run with it. But, if not, then I would explore the approach they use. I think the dominating attribute to apply to this correction should be a that it is a pension plan before it is a defined contribution plan (meaning, even though deposited made no one has earned a right to receive it).

Since when does making an employer contribution into a qualified plan trust an operational error. That amount, while unallocated, would appear protect from withdrawal by the employer; especially when the fact pattern suggests the employer has had a change of heart. It is one think to inadvertantly deposit $1 million dollars, and immediately correct the transaction when the documented decision (fact pattern) shows the intent was the deposit only $100,000. It is another thing to prefund the trust for the year and then change your mind. Suppose they were to get sued today, that $1 million dollars would be protected as it is in an ERISA protected trust. That same leverage would suggest they cannot arbitrarily remove these funds. But, a good option to consider; and I have not researched. This is a pension plan and the employees are entitled to only their accounts under the written plan. So, technically, this plan is overfunded (even though it is not a DB plan). If they were to terminate the plan, there would be a reversion of assets. The employer is tax-exempt, so would they therefore not be subject to the excise penalty. I am just throwing this stuff out there without any research, there may be tons of holes in this approach, but worth exploring the way the rules are written.

True, but that is the point. The payor must properly code the 1099-R, or they aren't doing their job correctly. It will be coded in a way to ensure the basis is contained within the IRA. You will need to have your financial advisor or company you are establishing the IRA with to guide the transactions. It is not complicated, but your particular set of circumstances may vary. They will also explore a direct rollover to a Roth IRA.

Well, it basically breaks down into two categories; criminal and civil. Fiduciary breach cases are typically civil in nature. Therefore, I can sue anyone I choose for any damages I suffer (regardless of whether or not they were a result of my own ignorance). Also, my case, since it is civil and not criminal, will be decided on the preponderance of the evidence and not decided on whether someone is negligible beyond a reasonable doubt. So, in this system we are speaking of, people tend to sue 'deep pockets' in civil court for any losses, damages, or pain they suffered. One of the main responsibilities of someone with deep pockets is to eliminate as many avenues for such suits to get filed against them. Therefore, it would not be responsible to presume that any reasoning is dominant; especially when someone just suffered a loss.

No, you will not. That portion will not be taxed again.

I agree with this; and with no caveats. I think it is perfectly stated. A simple case in point we can all relate to; if any employee were to choose to invest in a limited partnership offering inside a brokerage platform, then that would create an issue for the employer when having to value the plan at least once annually; especially when the valuation is more frequently than annually. This is merely supporting the argument that while the brokerage account is allowed, the employer still has a fiduciary responsibility to restrict the types of investments the brokerage account may offer the employee. Also, suppose the employer restricts the available brokerage account offereing to Brokerage X instead of Brokerage Y, this would be a fiduciary breach in the event Brokerage X is proven to be sub-par. These are just principles to reinforce what GBurns is stating.