ERISAnut

Hate to muddy the water, and am actually interested in the answer you find. But one distinction (I think) that is very important to make is between a Registered Investment Advisor (RIA) and an Investment Advisor Representative (IAR). The RIA is typically the employer (company) who hires the IAR (individual).

The plan's investment policy will typically answer all these. The investments allowed for the plan's participants must be made available on a non-discriminatory basis. Therefore, you allow Real Estate for one (especially an HCE), you are better served allowing it for all. In all instance, you have to remain aware that the real estate purchased will be an asset of the trust. Trust assets must be valued at least annually. Everything legal is not practical.

There is no such reg. This is purely an issue of the particular plan's loan policy. 72(p) doesn't engage in whether the employee is terminated or not.

Always is. Sometimes you will have a prototype document with such language (stating either way with respect to 'gains' or 'gains or losses'); and many times in interpretation is not clear. You will find that you are in a arena where there is no right or wrong, but merely a consistent interpretation (in good faith) of the plans terms. One important thing to continue to realize is that it is typically the adopting employer (as plan sponsor) who is authorized to make the interpretation of their plan. The funny thing is, two different plan sponsors on the same prototype may actually arrive at different conclusions of what a particular term means for their plan. This is perfectly okay; and accounted for through case law. Each plan would typically have language stating that the plan sponsor is reponsible for interpreting the plan. This effectively says that even though their interpretation may not be the best one, it is still valid provided that it is not 'arbitrary and capricious'. Now, when such language is not stated in the document (making the plan sponsor the authority for interpreting the document) then all hell can break loose as the door is left open for employees to argue for the best interpretation (regardless of what is deemed most reasonable and consistent by the employer). It took me a long time to accept this.

Sieve, I see your point and would enhance my formula to state that I would consider only deferrals that do not exceed 4% of salary. In my haste, I did not account for the possibility of someone deferring 10% while only receiving a 2% match. So, for effective availability, you would have a combination of 50% (for anyone deferring at or above 4%) and 0% (for any who defers, but at a rate below 4%) distributed over HCE and NHCE. The issue would arise if a large number of NHCEs defer below 4%. It would not get helped if an NHCE defers at 10% (as I improperly concluded above). So, the current availability will pass but the effect of that availability will be diminished by NHCEs deferring, but at rates below 4%. This would encompass all the rules to effectively address Coverage, ACP, and BRF.

J Simmons, I understand what you are getting at. Let me state it a little differently to address your question. For minimum coverage, I would state that the NHCE is benefiting because (at least as some point during the year) he has a opportunity to defer and receive a matching contribution for that deferral. I would say this because the opportunity to defer at 4% is there and is the only requirement for receiving a match. Hence, deferring at 3% would be the equivalent of not deferring when it comes to a match allocation. You still benefit. BUT, what does that do to BRF. It puts a strain on it. Contrary to your statement at a matching contribution capped at 2% is a BRF, I think EACH RATE OF MATCH is a BRF. The issue is defining "RATE OF MATCH". It is simple, dollars of matching contributions divided by dollars of deferrals. It is this rate that becomes effectively discriminatory when a huge number of employees 1) Defer into the plan and 2) Defer at less than 4%. This has the potential of failing both ACP and the effective availability of a nondiscriminatory rate of match. Notice that this issue taps into an area that has never been anticipated by the IRS; however, is not impermissible as long as tested correctly. This issue comes down to agreeing on a definition of 'RATE OF MATCH'. If an agreement is made that regardless of compensation, the rate of match is calculated as match/deferrals; then the effective rate made available over the entire class of employees can be calculated and tested, which can become an important fact within a facts and circumstances tests. Look at it, if everyone defers at 4%, then it's not a problem. If no NHCE defers, then ACP fails. If all NHCEs defer, but defer at only 3%, then all "HELL" breaks loose. You fail ACP and BRF.

The individual can take the after-tax portion in cash and rollover the pre-tax portion to the IRA (assuming it is a brokerage account). The one interesting thing to note is that the brokerage company has no way of knowing the tax status of the funds being rolled into the IRA (and therefore has no responsibility for tracking the basis). The idea of the brokerage firm stating what amounts they prefer is not reasonable. It is the taxpayer that continues to track their after-tax basis using the Form 8606. Not sure if some particular set of facts are not included. For what it is worth, hope this helps.

This is purely and interpretational issue and you should refer directly to the plan document. I am shooting from the hip on this one but remember that the code is written to state that you distribute 'gain' but does state 'gains or losses'. Too lazy to look it up, but remember crossing this bridge. The plan document may have it written either way.

This really challenges some issues that have never been anticipated by the IRS. My opinion is that some individuals intentionally seek to create instances where those areas are challenged. Look at it, what sane individual would recommend a matching formula that applies to only those individuals who contribute at a certain level. Better yet, to prescribe a formula of increasing the rate of matching contributions as the rate of deferrals increase. Certain issues (Please excuse the semantics as I am attempting to articulate the problems) In order to benefit for 401(m), you must be eligible to make after-tax contributions or receive a matching contribution (in the event you defer). Now, everyone will be considered 'benefiting' for ACP as they will be eligible for receiving a matching contribution if they defer at least 4%. However, would it not be fair to say that anyone who defers, but fails to receive a matching contribution is not benefiting for ACP (assuming no after-tax provision)? I think all would be considered benefiting under this example (even though the employees who deferred less than 4% failed to receive a matching contribution). I say this because they would have been "eligible" to receive a match had they deferred at the rate necessary in order to receive the match. Now, let's take it a step further into the realm of BRF. If we say that benefits, rights & features must be currently available and effectively available on a nondiscriminatory basis, the the current availability test passes since the formula is available to everyone under the terms of the plan. Everyone is eligible. But for effective availability, wouldn't it be appropriate to measure each individual (and determine the rate of match received at the overall rate of deferral). For instance, if HCE 1 deferred 10% of salary while receiving a matching contribution of 2%, then his rate of match is 20% of deferrals. If HCE 2 deferred 5% of salary and received 2% matching, then his rate of match is 40% of deferrals. Notice, the actual rate of match goes down at the higher rate of deferrals. The problem (for effective availability purposes) is that the NHCE who defers 3% of salary and didn't receive a match. His rate is 0% of deferrals. This is how I would test the provision. And then, I would run my ACP test with everyone included.

Sure, if the plan is written to allow it.

Yes. The 10% you are referring to is a limit on QNECs that can be used. If the plan document designates all employer matching as QMACs, then you are allowed to use all QMACs (and also any other QNECs not funded by the remaining 90% of the prevailing wage contributions). Hope this helps.

You should look at each rollover as taking on the characteristics of the plan it is being rolled into. So, the history of the funds go away. Of course, the exception would be the rollover of a death beneficiary who is not a spouse to an inherited IRA. But, in all other instances, the funds take on the characteristics of the new arrangement. With that said: You can roll over amounts from a traditional IRA into a Qualified Plan. You can also roll over amounts from a Qualified Plan to a traditional IRA. There's no continuous loop to account for. Hope this helps.

The rule being addressed here is not one of coverage (i.e. being considered as covered for 5500 purposes) but instead one of non-discrimination. Each formula, irrespective of any and all other formulas, must pass 410(b). So, in your question, if a person who has received a SHNEC is excluded from an Employer Nonelective contribution for whatever reason, that is fine as long as the Employer Nonelective Contribution passes 410(b) irrespective of any other allocations. This may be done without cross-testing; and would therefore make the gateway null and void. You will typically run into this when there is a Safe Harbor 401(k) will immediate eligibility and everyone receives the SHNEC; while the profit sharing component of the plan has a 21 & 1 (or even a 2 year of service) requirement.

You can amend a plan at any time to provide that all employees as of a certain date are eligible while employees hired on or after the date will have to meet the 21 and 1 requirements. So, anyone who is currently employed, and anyone who his subsequently hired between now and October 1, will become eligible for the plan. This provision will have a special effective date of "current date" at the time you amend the plan. Prior to that time, the provision of 21 & 1 would apply. Anyone who is currently employed will become a participant in the plan immediately (on the effective date of amendment). Also, any new hires up to October 1st will also enter the plan on their date of hire. The point you have to realize is that for the individuals who are currently employed (but have less than 21 & 1) will become participants in the plan on the effective date of the amendment. Normal testing rules will apply. There's no benefit, rights & features issue.

You are fine in each of these instances. It is true that SEP prototypes provided be fund companies may provide additional flexibility that the Form 5305-SEP from the IRS. Your step 2 appears to be overkill. There is nothing nondiscriminatory about funding the plan as long as the funding is uniform per the written terms of the arrangement. The IRS has issued Regs stating that a decreasing rate of contribution as salary increases is also deemed uniform. Also, there are no 411(d)(6) considerations for SEP plans. Each year, the employer funds the traditional IRAs of the employees under a SEP or they do not. Also, each year, the employer has until the SEP filing deadline (including extensions) to amend the plan for eligibility and any other criteria. I am actually trying to determine what issues you are referring to. Hope this helps.

If they were hired in 2008, then the 12 month period for determining the 1000 hours for eligibility will extend beyond January 1, 2009. Hence, they will not be eligible on the first day of the new year. You do bring up another interesting situation, though. Immediately eligibility simply means that a year of service is not required for eligibility. Most practitioners make the grave error of changing the plan's defininition of a year of service when the plan doesn't require a year of service for eligibility. In all instances, it is best to leave the definition of a year of service at a 12 month period.... 1000 hours. Do not change the definition merely because it is not required for eligibility. That would create a cutback issue as once an employee as attained a year of eligibility service under the plans definition, you cannot amend that away. I didn't make references to any elapsed time rules. The point is merely not to change the plans definition of a year of service merely because a year of service is not required for eligibility.

Design the plan to begin forfeiting employer contributions in order to correct 415. The most reasonable thing to do in operation is to not allocate more than $30,500 in employer contributions DURING the year; or actually make the full $15,500 deferral in the first month of the year. There is an entire fact pattern of events surrounding your case and what you are attempting to do, but the inconsistencies with the desired outcome and administrative feasibility is making your situation difficult. I would look to change the design, I would instead change the timing of the employer contributions. Is this a one-person plan covering only the owner?

A cite isn't necessarily needed as you cannot prove a negative. The issue is that plan participation is not protected under 411(d)(6). Therefore, such a move would NOT be a prohibited cutback. Those without balances would not be participants at the beginning of the new year.

The foundation is already there within the code itself. The PLR, though only applicable to the taxpayer requesting it, seems to recite certain fundamentals that have been in operation for years. Let's look at it this way: Certain employees MAY be excluded from the plan by class without having an adverse impact on coverage. Among them are employees who are 1) Non US residents; and 2) Not US Citizens and 3) Not receiving compensation from a US source (meaning working outside of the US). Example, if a Canadian citizen working in North Dakota, but continues to live in Canada, he is not a safe exclusion since he is receiving income from a US Source (company located in ND). Your case is where the employee: 1) Is not a Resident; and 2) Is not a US Citizen; and 3) Is not working inside the US (but merely for a US subsidiary. There is nothing in the code precluding the inclusion of the employees for the US subsidiary within the plan. A prototype document may be used while 1) No electing to exclude Non-Resident Aliens and 2) Having the Subsidiary Sign on as a Co-Sponsor to the plan. As ridiculous and impractical as this sounds; it is business as usual from there. There is no integration with a plan under the Canadian Tax Rules as it is not recognized as a US plan (i.e. No Testing the plans for nondiscrimination or other rules). There are issues that come into play when those non-resident aliens actually receive distributions from the US plan. Then again, there a process in place for that. My question would be what the employer stands to gain from this.

Make an employer contribution. That should do it.

In your fact pattern, it is necessary for the employer to actually make contributions in excess of $30,500 to the participant's account (DURING) the plan year. Wow! Can happen, but very seldom does. In such event, the plan (based merely on plan language) could curtail the participant's deferral since the 415 limit is reached, or may continue to allow the deferral and correct the 415 failure under the terms of the plan. Regardless of the series of events (as there are hundreds of different scenarios possible) the language in the 401(k) plan will dictate exactly how these items are handled. The confusion comes into play (as it always does) when the mention of a NQ plan is made as if the 401(k) plan is somehow governed by the NQ. A NQ may be governed making whatever references to the 401(k) the employer chooses, but the 401(k) will always operate pursuant to it's own provisions. Hope this helps clarify a few things.

I'll try to address these by reference the number of the question and a short answer: 1) No. A SEP is treated as an IRA for all distribution purposes. If the employer isn't funding that employee (or former employee's) account for the year, the technically it doesn't exist. 2) No. Each year, the employer funds contributions to Traditional IRAs under a Simplified Employee Pension (SEP) arrangement. In such years that no funding is made, then there is no operational requirement (as in qualified plans). 3) Purely at the discretion of management. If such resolution were required, it would be in the language of the SEP agreement. 4) Not really, but an issue of good practice. Each business has a decision making structure. That structure precludes a janitor from making changes to the plan. The resolution merely documents that such decisions were made by the appropriate decision making authority. Not necessarily a technical requirement, but just good business. 5) No. The plan is the same. Each employee may chose, or you may go with a designated financial institution. Nothing would constitue a termination of one SEP and re-establishment of another. Even if it did, no big problem. A SEP may be amended up to the tax filing deadling (including extentions). There are not cutback issues (411(d)(6)) pertaining to SEPs. 6) Nothing is explicit in those answer books; but that is merely my assessment.

Answer to your first question is NO. You cannot have kickbacks. To your second, yes. You can have a plan provision restricting all loans to a maximum of $10,000 if you wanted to. $50,000 less the highest outstanding loan balance over the past 12 months. (Intentionally did not give details of 72(p) is order answer direct question.

You are combining different principles when instead you should dissect them for meaning. In your fact pattern, I am going to assume the individual has a high compensation and therefore the $46,000 limit applies for 415. With that said, deferrals to the plan are typically made during the year while the employer contributions (for that year) are actually deposited in the following year. So, an individual may defer $15,500. This amount may be broken down into pre-tax deferrals and Designated Roth Contributions in any percentage; but the total is limited to $15,500. This leaves $30,500 that may be contributed by the employer before reaching the 415 limit. Depending on the terms of the plan, the employer may curtail the additional contributions once the $46,000 limit is met; or continue to allocation (once again, depending on the terms of the plan). If the allocation per the terms of the plan exceeds the 415 limit, then you must correct using the correction method within the terms of the plan. Hope this helps.

Three things: In order for a SIMPLE IRA to be valid for 2009, you would have to meet the notice requirements for 60 days. If you do nothing, then you do not have a SIMPLE IRA. The exclusive plan rule is only with respect to "contributions" during the year; not whether the plan exists. So, no notice and no contributions means no SIMPLE IRA exclusive plan rule violation possible. While not technically required, it would be a good idea for the client to document the decision to terminate the simple in a Resolution or into the minutes of the company. Summary: Unlike qualified plans, these arrangements are terminated by doing nothing. However, a resolution (or written minutes) is a safe documentation of intent. Hope this helps.