ERISAnut

Your plan document will define (in exact terms) what an HCE is.

Each plan document will define the term being used to accurately describe what it is (regardless of what it is called). What is ends up being (regardless of what is is called) will determine how it is tested and treated by the plan. Hope this helps.

Well, you'll actually have to perform the NDCT and the Avg Benefits Test. Good luck on the NDCT with zero NHCEs. You may want to request Tom Poje take a look at this one. He's a CPC, that might mean something.

It appears as if you are in the TPA role and looking to find which amounts to use from a Form K-1. It would probably be a good idea to have your client pose this particular question to the CPA who prepared the K-1 (assuming it was a CPA). The key to determining the amount is to assess what portion constitutes "earnings from services rendered." This may be from any, all or none, of the guaranteed payments. So, the term guaranteed payment really tells you nothing. In practice, a partner may have earnings from services rendered, but then have amounts reduced by their distributed share of gains from the business. This will actually reduce earned income.

There seems to be a missing link. 410(b) is calculated using all non-excludable employees of the controlled group of employers. So, while the HCE is the only non-excludable employee (since he is not union) of one company, there appear to be other non-excludable employees of the other employer within the controlled group. This would render a plan that benefits one HCE and zero NHCEs. Appears to be a huge problem; a VCP one.

Sorry for being a Johnny-Come-Lately on this one but an important point to note: The algebraic calculation the Bird mentioned begins at Total Schedule C after it has been reduced for 1/2 the Self Employment Taxes. The point being made here is that if the Self Employed individual's total compensation is so high that it will remain above $230,000 after all reductions for 'employer contributions', the your calculation becomes one of simple math. Having a $500,000 starting point could leave the resulting 'earned income' at $300,000. This amount will be capped at $230,000. This would be different than having a starting point of $230,000; where ever dollar contributed now effectively reduces your excess compensation. This may save a ton of worry when the owners earned income is so far above $230,000 that the complex calculations are avoided. If your population is small, enter the comp amounts for owner and employees (without names and SSNs of course) and I can show you how to calculate.

If only that were true... http://benefitslink.com/boards/index.php?s...amp;hl=rollover I think it is interesting that a rule such as Reg 1.402A-1, Q&A 5(a) that has been implemented at the time the Roth 401(k) component was established is somehow determined to be subordinated by other rules referring to the ability to roll over any amounts from qualified plans to Roth IRAs. I am no longer with the DOL. However, in my current line of work, I haven't come across any financial institutions that have even contemplated a contrary opinion. This is interesting though, as I never even knew such debate existed.

The MAGI limit does not apply to rollovers from Designated Roth Accounts to Roth IRAs.

Okay, I think I totally blew parts of the question. The terms 402(g) testing and ER corrective contributions threw my mind into another area. While the correction you referenced allows corrections to be made to 402(g) limit (which is the area I refused to respond to in my last post) which does involves all plans the employee is a participant of; in the event such information in unavailable, then the only alternative is to rely on 401(a)(30) for the correction. Even though the employee makes out, it would not be double taxation because the excess is being funded by the employer. Fact Pattern: Employee was never a participant in another plan and was held out for 3 months. Deferred $15,000 to the plan for the 9 months he was permitted to defer. Employer corrective contribution limited to $500 (plus whatever match...). There is a non issue here. Fact Pattern Changes. Instead, the employee was a participant in the plan of another employer where he deferred $10,000. Employee was held out of new plan for first three months, but when allowed to enter, he deferred only $5,500. Unknown to the employer is the fact the employee was in a prior plan. Notice, the corrective contribution here is funded by the employer. It doesn't cause a 402(g) violation. It is a QNEC. The employee breaks away clean as the employer has no responsibility for ascertaining what happened in the plan of another employer. However, if such information was known by the employer (meaning the employee requested his deferrals be limited to $5,500 because of deferrals to another employer's plan) then the employer could limit. In any event, there is not double taxation. Notice here that the employee gets away clean by not disclosing the deferrals to the previous plan.

I think that in all instances, corrective contributions funded by the employer enters the plan as a QNEC. This would be the calculation of the missed opportunity to defer plus the calculated matching amounts. Even though the functionally used to determine the amounts are based on these 'other sources' the actual contributions funded by the employer are actually deposited into a QNEC source. This would render effectively allow them to be included in the ADP and/or ACP tests (since they are QNECs) without recalculating 402(g). Now, whether or not these amounts are needed when the employee as met is 402(g) limit is an area that I won't care to address.

Only to the extent the plan actually yeilds to such administrative election. If the plan specifically states such form of payment is available, then you must follow the plan. Sometimes, a play may state that such provision will be based on an administrative election of the employer (where the administrative election effectively becomes an extention of the document). Nothing is arbitrary. Hope this helps. Are you sure you are not a financial advisor?

I typically do not try to make responses to blow things up, but instead keep things simple. In this instance, I couldn't resist, so please excuse me. I think the intent of the 79% ownership is too obvious; being 80 minus 1. With this being the case, it opens the door of attributed ownership where the other 21% may get either excluded from consideration or attributed to the not-for-profit by a host of fact patterns that serve to assign the ownership to those who have authority to exercise certain 'power' associated with the ownership. So, on the surface, it appears that some genius may have calculated the ownership structure to avoid the controlled group rules.

LOL!!! They may both suck. Just appear to be an interesting scenario.

Well, You can always make a contribution for a previous year while it would count against your deduction limit for the year actually deposited. Other items to beware of, however, this contribution will count as an annual addition in the year of funding as the deadline for having it considered against the 2006 415 limit has passed (I think it would have been 30 days after the tax filing deadline for that year). Assuming the owner maxed out each year (i.e. 2007 and 2008), it doesn't seem as if this can happen considering the 415 implications. I get the impression that you are a financial advisor and this is your client. Interesting, how easy you guys are to identify. I could be wrong, though.

"""I think""" we are looking at two distinct issues: 1) The deduction for 2006 was only available to the employer to the entent the contributions were actually funded by the appropriate deadline. This did not happen. Therefore, an amended return for that year to accurately reflect what did happen is in order. 2) Was the contribution discretionary. If so, then nothing else is required. However, if the contribution was mandatory, then it must be made to the plan; with the deduction being taken in the year it was actually made. Hope this helps.

He has until the extended tax filing deadline to actually fund the contribution; even though he may have sent in his tax forms already. Please provide more detail, as there may not be a problem.

Not much to be offered. It should be business as usual since these employees are not (Non-resident Aliens with no U.S. income). Hence, if the employer already has plans, these could count against coverage. In reality, these would likely be your highest paid employees; so a plan covering only them would likely fail 410(b) as a standalone. May be some issues with certain investments (such as employer securities). My exposure is very limited in this area. What are your major concerns?

Now, you can permissively aggregate the two plans without having to resort to the average benefits test. Not sure if that would help, but may be worth a try.

Not necessarily. If they never meet a one year service requirement due to early entry, they may be tested separately (which automatically passes). This separate testing would continue until they actually satisfy one year of service.

One interesting concept about breaking down equations is to not add concepts that were never discussed. I never made mention about how compensation is being defined. My mention was only regarding an interpretation of who is willing to make elective deferrals under the plan. My argument was explicitly focused on the deferral, and who has a right under the plan to make one. So, why a nose wiggle? If a plan administrator states that even though you receive a lagging paycheck, you are no longer eligible to defer because you are no longer an employee, how can that be construed as being arbitrary or capricious if consistently applied? Perhaps you missed that in your haste.

Interesting, Mike, I see you have come to understand that a position you have taken previously turned out to be false. If memory serves, you stated at the mere use of an average benefits test allowed exemption from the gateway requirement, which was not true. Now, to suggest that I am up to some type of trick is beneath me. I, unlike others, enjoy and opportunity to share a wealth of knowledge that inspire others to think about why things work they way they do and apply this reasoning to make their processes flow a little smoother. Apparently, there seems to be some other motive for certain individuals who seem to have their egos challenged with individuals break down situations into easily understood components and overcome these challenges through sound reasoning. This is one of the joys of being an educator. What is your objective? I notice that sometime questions are asked that go unanswered. Then, when I chime in to provide guidance, someone else comes in with the pure intent to antagonize. Well, if that is the case, then why not jump in an answer the question first; don't let it just sit there. Madison has an interesting issue attempting to calculate an integrated allocation formula in another post, why not give this a shot. Better yet, why not antagonize me on my answer there? Maybe its because your values are misaligned with a pure objective of providing a little understanding to seeming complex issues. Quite hilarious; but sad.

Madison, All of your thinking is correct. This becomes algebraic after a while. The after you add your comp to the excess for a total of $358,000, and then provide 5.7% on that amount, the additional $3,194 gets allocated to the base ($230,000) only. This additional 1.39% is added to the orgininal 5.7% base you did in the previous step. Your process is correct, but the logic that you are applying is missing a step. The step is that there is a reason for the allocation on the $358,000 being limited to 5.7%. I could have been 4% or any amount less than 5.7%. It could not, however, exceed 5.7% because that would exceed your integration level. Therefore, at that point, all additional profit sharing contributions must be applied only to the base of $230,000; not the base plus excess ($358,000). I know this is confusing, but when it clicks, you'll never forget it.

Sieve, The approach I am attempt to take is to look at the specific fact pattern to determine what series of events are taking place before issuing comments on everything that is possible. Sure, there are plans that benefit union and nonunion employees alike; and everyone with ERISA experience knows that these union and nonunion employees are subject to mandatory disaggregation for testing. I could futher load the post by stating that we are aware the the union exclusion is determined by those employees whose benefits are determined pursuant to collective bargaining in good faith, and the such union plans are exempted from the ACP test. We should also know that the mandatory disaggregation applies with respect to compensation received while within the respective class (whether union or not). You cannot aggregate within the final class for the year. But there appears to be another issue here; that is making the actual determination of whether he is truly union.

Here is the rule of thumb to apply to allieviate the concerns. The one consistent feature of 'earned income' is that it is subject to FICA. W-2 clearly satisfies this requirement, so it would be safe to say anyone can benefit on W-2. But I do agree that the inconsistency of the owner within an entity that is not taxed as a corporation presents questions. I wouldn't let that affect the operation of the plan and treat the individual as a W-2 employee (who is still HCE and Key).

Penalties aside, the contribution must be made and may not be deducted since it was not funded by the tax filing deadline (including extensions). The 2006 return should be amended, and the deduction may be taken in the year actually funded. I would argue that the client still has a SIMPLE IRA plan since this type of plan qualifies each year based on the requirements that must be met for such year (i.e. notice) I would fix and move on without making a mountain out of it. IRS auditors typically target what they categorize as 'flagrant' violations. When there is a mistake followed by an obvious effort in good faith to fix it, some auditors will look the other way if they can relate to the logic applied in fixing it. In the QP world, which SIMPLE IRAs escape, plans must qualify in both form and operation while abiding by the entire host of 401(a) rules. SIMPLE IRAs and SEPs, while tax advantaged, are IRAs in nature (after the deposits are made). I would use this mindset to move on.