J Simmons

YES!

master, what's a regrad and why do you bold it? Who you calling grasshopper? What's your conclusion to the OP?

The gateway is not itself a nondiscrimination test, but a prerequisite in order to be able to show nondiscrimination through cross-testing.

Tripodi explains it thusly, EOB, Chapter 9, § IV.B.4.d.2)

Logical or not, the answer is 'yes.' The minimum gateway is required for all employees that receive any company contribution.

When you say immediately eligible on re-hire, that does not necessarily mean immediately re-enters. Some plans specify the re-hire yet has to wait until the next plan entry date (unless he resumed work on a plan re-entry date). Whenever his re-entry date is, that would be the date for the automatic enrollment feature to apply to him (in the absence of a plan provision to the contrary). If he had an election in place at the time his first stint being employed ended, I do not think you could resume deferrals on that election--unless the plan so specified.

The ACP excess is paid out to him in his capacity as and by reason of him being an HCE. He is entitled to the top-heavy minimum by virtue of his being a non-key. The ER can avoid the 'windfall' to the HCE by not making any match until the plan year has ended and the ACP test is run (which might require an amendment to the plan).

Hey, Austin, Treas Reg § 1.416-1, M-19 addresses matching contributions used to satisfy the top-heavy minimum, and it does not specify an answer to your questions. Also, I see nothing under Treas Regs § 1.401(m)-0 thru -5 about it. So I don't think you will have a definitive answer here. Keep in mind, the ACP test is protecting NHCEs, but the top-heavy minimum rules are protecting non-key employees. So while a re-allocation of part of an HCE's excesses might yet have the excess counting for some testing purposes, taking the top-heavy minimum away from a non-key employee leaves the top-heavy minimum yet unsatisfied. That's how I see it.

I do not see how a contribution taken away from the non-key can satisfy the top-heavy minimum. After the refund, where does that leave the non-key? Without contributions from the ER for the plan year that are equal to the top-heavy minimum. I do not see how forfeiture relieves the ER from making the top-heavy minimum contribution either. It is not the ER that gets the windfall from the forfeited benefits, but the other participants that would get it on the re-allocation.

I do not think that the fact that the failure of the ACP test, the non-key HCE being 0% vested, or the testing failure force out to him relieves the plan of making the top-heavy minimum for him if he was yet employed at the end of the year or the plan does not require that for top-heavy minimum contribution purposes.

Not really. You see, in the example of two partners, A and B, assessing all of the extra $20,000 to A's share of P's net profits belies the assertion that A+B, jointly as partners on behalf of P (the ER), made the decision. Rather, the fact all $20,000 is assessed against A's share only points up that B was not really involved in the decision, but A alone was. With a sole proprietorship, how does one make the decision for the ER? A alone makes that decision because she has no partners or other owners. How then does A make an ER decision rather than an EE decision, when A alone makes each type of decision? Here, A wears two hats, alternatively. One hat is as an ER, the other as an EE. Documentation is important. It would be detrimental for A to use a 401k elective deferral election form for more than the $16,500. A should instead sign a declaration, as sole proprietor of the ER, for the additional $20,000 contribution. Is it a fiction with respect to a sole proprietor doing so? Certainly, but it is one the IRS allows. Otherwise, it would have to limit sole proprietors to $16,500 per year, while partners and shareholder/EEs could do $49,000. To avoid this inequitable result, the IRS honors the fiction. However, the fiction is not necessary to override the inequity and does not apply to individual partners in a partnership. That is because partnership decisions are made per the partnership agreement and/or state statute. Typically, that involves a majority (or specified super majority) of the partners agreeing on behalf of the partnership as to how much it will make as an ER contribution to the profit sharing portion of the plan. If the surrounding circumstances and indicia point to the decision really being made by the individual partners, A deciding for an extra $20,000 and B deciding none, then that will be a disqualified CODA. One factor, in my opinion, would be the fact that it was 'no skin off of B's nose'. That is, B really did not participate as a partner in the decision of P to make the extra $20,000 contribution for A, because A alone bears that cost against her share of the net profits of P. That suggests that the real decision was an individual one made by A, not a partnership decision made by A+B.

I agree with this, and with QDROphile's assessment. They are consistent. The clear and convincing standard is something that has been reported by attendees at conferences where IRS officials have spoken, and there's supposedly a couple of informal letters from the IRS to someone about this, but I have not seen them or been able to obtain copies. Err on the side of not allowing the change unless the evidence is clear and convincing that he thought he was, during open enrollment before the plan year began, electing the lesser amount. The reason, do you want to put all EEs' cafeteria plan dollars at risk of being taxed just to accommodate one EE? Obviously, no. But that's what is at stake if the IRS audits and second guesses you. So if you conclude that there is clear and convincing evidence, have a well documented file of all the reasons, describing all the circumstances that led you to that conclusion and making the adjustment.

Possible, yes. Limitations, yes. You'll need to have the note independently appraised annually. This might also trigger a larger ERISA bonding requirement. If this is a trustee's investment decision for pooled accounts of the Plan, then you need to make sure this is a 'prudent' investment for the Plan and its participants/beneficiaries. Part of that will need to take into account the likely liquidity needs of the Plan in order to make benefits payouts. Also, you'll need to take a look at how the note affects diversification of the investments. You'd need to vet this out to make sure that there is not too cozy of a connection between the restaurant operators and most anyone connected to the plan. You would not want to cause a prohibited transaction. UBTI should not be a problem if the note only calls for a fixed rate of interest, no extra kicker payable to the plan that is dependent on the financial fortunes of the restaurant. Available to everyone? I suppose from this you have a participant-directed investments program in your Plan. If so, is it broad enough to allow for this note being purchased? If not, are you first going to amend? Keep in mind, if this amendment is to accommodate the desires of an HCE, then you might be hampered by 1.401(a)(4)-5 about when you can amend out of allowing such types of investments, as the timings of the two amendments together might amount to discrimination. Stepping back for a moment, do you want the headaches that would go from other such investments that other participants/beneficiaries might locate and want to invest in? So, really, are publicly traded stocks, bonds and mutual funds all that limiting that the Plan really needs to invest in this note?

Yeah, kind of like Justice Potter Stewart describing obscenity, "I know it when I see it".

I'm jumping back into this a little late. Could you please explain how this works on the accounting side of things? Well, this is the fly in the ointment. Let's make an easy example. A and B each own 50% of P, and distributions of P's profits follows these ownership proportions. That's how P's partnership agreement reads. P has $200,000 net profits for the year, or $100,000 each. A max'es out at $16,500 her 402g limit (she's under 50 as of 12/31) into P's 401k plan. So A will have $83,500 distributable to her, while B chose no 401k elective deferrals and yet has $100,000 distributable to him. Suppose further that A would like another $20,000 of pre-tax benefit accrual into the profit sharing portion of the 401k plan. There are no other employees, and B is happy to oblige A so long as P's accountant will allocate all $20,000 of the cost as a hit against A's $83,500 share, and none against B's $100,000 share. If P's accountant okays that allocation (despite the partnership agreement, or per an addendum to it signed by both A and B), do you think that the IRS would find that makes the situation look like a nonqualified CODA exceeding the 402g limits? That is, would this allocation that lines all of the cost up against only A's $83,500 share suggest that there has really be a $36,500 401k elective deferral? rather than a $16,500 401k elective deferral and a $20,000 "profit sharing" contribution?

Thanks, Tom. It is helpful to know that as October approaches and for the calendar year plans, the 2011 safe harbor notice window opens.

Yes. No. However, if an HCE happens to be eligible for both A's and B's plans, then you must aggregate his elective deferrals and count the aggregate in the ADP/ACP testing of each plan. IRC § 401(k)(3)(A) and Treas. Reg. § 1.401(k)-2(a)(3)(ii).

I'm impressed that the EE both got married and had a baby in July! Off the top of my head, I thought that the parent being able to enroll mid-year was due to the addition of a dependent child. That is, a parent could 'piggy back' off of and become enrolled when a new dependent child is allowed to be enrolled mid-year. However, I do not think that you can piggy back an EE and child onto a spouse being allowed to enroll mid-year.

Some ERs that I advise find this more cumbersome to manage than the old fashioned way: paper SPDs and paper SMMs, and logging the names, addresses, methods and dates of delivery. Getting consents, dealing with those that want paper, having to deal with IT updates, etc.

The key word is offers. I see no problem as long as it is made clear in the 402f notice and otherwise that the EE may choose an IRA as to which you are the RIA or any other IRA for his or her rollover.

If so, then yes.

Hi, Gary, who is "he" and what relationship does "he" have to the plan? If the plan owns the R/E, but leases it out to a proprietor in which the plan does not have any interest (other than he's the tenant of the R/E) and the rent is a fixed amount (not dependent upon the profits/losses, or amount of either, of the restaurant business), then this should not be UBTI. That is because it is a fixed rate of return for the plan on its investment in the R/E. If the only relationship between the plan and the proprietor is the landlord-tenant relationship, then the proprietor is the one operating a business, not the plan. The plan is passively renting the R/E to the proprietor so that he can operate a business--for the plan, it is a passive investment with a fixed rate of return and should not engender UBTI. This permutation on the initial fact pattern would expose the plan to UBIT on its share of the profits/losses. Generally speaking, yes.

I don't have guidance to point you to, but I do not think that you can leave PHI on the person's home phone answering machine. That would assume that the person does not have a privacy interest in keeping the PHI from whomever he may be living, or has access to the voice mail. I do not think that is a correct assumption. I do not think that so leaving PHI is reasonable with the injunctive that the PHI be kept reasonably confidential. This is so because you can simply leave a message for the person to call back and leave a number for them to do so. Then on the call back, if the person identifies himself as such, you can then give him the PHI.

From my time as an in-house benefits manager, we gave preference to the insurance deductions (here, health and dental) over retirement savings. If we were wrong, I'd rather have to pay the $50 to correct the retirement contribution having not been made than having to pay for a $50,000 surgery that went uncovered because we allocated the deductions elsewhere first.

No. Partial termination is only a concept for vesting. To pass the minimum coverage test, the end of plan year employment rule might have to be relaxed to pick up some of those involved in the partial termination event that ended their employment, but that depends on how the first run of the minimum coverage test turns out. The difference is because the vesting rules apply to already accrued benefits, while the end of plan year employment rule applies to benefits to be accrued.