imchipbrown

Lou S. Digging through more of my provider's communications, I see they acknowledge the IRS position you referred to in post #2. Gold star! Everyone, see the Note (last paragraph below). The forfeitures will leave the plan through payment of plan expenses the employer might have paid itself, or be reallocated in some way which will perhaps be subject to vesting again. Tom, couldn't the reallocation blow the Top-Heavy free pass? The IRS stance makes zero sense to me. From my document provider's communique: Forfeitures and Safe Harbor Plans Section 6.03(d) of the Basic Plan Document was modified from the EGTRRA version so that forfeitures cannot be used to fund safe harbor contributions. The IRS has long had the opinion that qualified nonelective contributions and qualified matching contributions allocations may not be funded with forfeiture allocations. Our EGTRRA document was approved without the restriction; however, for PPA the IRS is generally requiring all vendors to include the prohibition. (d) Disposition of Forfeitures. Amounts forfeited from a Participant's Account shall be used to restore forfeitures or reduce Company contributions (or reallocate as Company contributions) made pursuant to Article 4, or to pay reasonable Plan expenses to the extent specified in the Adoption Agreement. Effective for Plan Years beginning after the adoption of the 2010 Cumulative List (IRS Notice 2010-90) restatement, forfeitures cannot be used as Qualified Non-Elective Contributions, Qualified Matching Contributions, Elective Deferrals, or ADP test safe harbor contributions (Code section 401(k)(12)). Any such disposition of forfeitures from a Participant's a ccount shall be made no later than the end of the Plan Year following the Plan Year during which the forfeiture occurred. Note that we generally recommend making the restatement of safe harbor plans prospective to the extent possible to help ensure no modifications are made to the safe harbor plans mid-year. This change lends another reason to restate prospectively - to delay the prohibition on using forfeitures for safe harbor contributions.

To clarify the discussion, this is a PPA-approved NS Prototype. Trying to wrap my head around the IRS position, is it because the employer isn't feeling the full burden of the Safe Harbor commitment?

Roughly sixty employee company, half of the eligible are deferring, 50% of first 5% match, bad ADP and ACP but not close to being Top Heavy. A Plan is going to start Safe Harbor Matching in 2015 (Enhanced Formula). I'm designating that Pre-2015 matching accounts (non-safe harbor) remain subject to vesting. Forfeitures may happen after 1/1/2015 in these prior accounts. If the amount of forfeitures is greater than Plan expenses, it would be great if they could be used to fund (reduce) some of the Safe Harbor Match. The document we use is from one of the big providers and an adoption agreement provision is "Forfeitures will be used in the following manner:" (check box) "Any permissible method (restore forfeitures, reduce Company contributions (or reallocate as Company contributions) made pursuant to Article 4 or to pay Plan expenses)". In response to a query of whether the forfeitures could fund part of the Safe Harbor Match, the document provider said: "There is nothing in the plan document that specifically prevents forfeitures to be used to fund safe harbor contributions but the IRS has noted verbally that they do not agree with that position and will be providing clarification in future regulations. At this point it is a plan by plan decision on if they want to proceed with using forfeitures to fund safe harbor contributions." I'd prefer to a) reduce (fund) the Safe Harbor contribution by the forfeitures, b) If plan expenses could soak them up, I'd like pay then, or c) allocate to those deferring in some proportion Any experiences anyone would like to share?

On a case by case basis, I'm eliminating the ERA and moving NRA to the former ERA.

In the olden days, I used to draft documents with a Normal Retirement age of 65 and 5 (or 10) and Early Retirement age of 55 and 10. During EGTRRA restatement days, I began moving Normal Retirement Ages down to 59 1/2 for a lot of DC Plans. Now I'm starting PPA restatements and am wondering why I'm defining an Early Retirement Age as a different (lower) age. The document appears to only grant "early retirees" some accelerated vesting. I'm leaning towards a 59.5 retirement age as both Normal and Early - no distinction. No real question here. Just looking for some feedback.

Thanks David.

A client is past retirement age, under age 70 1/2 and still working. He's the only employee and participant in his profit-sharing plan. He's dithering about whether to make a contribution or use the money "to cut some trees". I was thinking, why not make a contribution and get the deduction (he has the cash and a tax liability), then take an in-service distribution? The plan allows in-service after reaching retirement age.

OK, first, I apologize for the "may" crack, if it offended. I'm looking back over the thread and agree with Tom's 10 March 09 post (and Bill's 12 March 09 post) I find it hard to believe there are only two testing scenarios: the Plan's "3 months, next entry date" census, or the Code's "12 months, 1/1 or 7/1 entry date" census. I think anything in between if fair game. Not naming names or choosing employees, but picking a cutoff (alternative entry) date. (I think the Code's provision is to prescribe a maximum, not a one-and-only). I think if I could legally design a Plan's eligibility to match the testing method I want to use to test, I should be able use that method. I would exclude "all" hired after the cut-off date I pick. I would include all otherwise excludable participants hired before the cut-off date.

Also, it says "MAY" (not to be contrary)

There seems to be enough gray. I'm including a few "otherwise excludables". They're not mandatorily excluded. Maybe under a theory like permissive aggregation. Again, theoretical, not "as it is written in the document" (1). And for testing purposes, not to decide who to actually let in or exclude from participation. My perception is that the "otherwise excludable" provision is there to encourage liberal eligibility requirements without punishing the HCEs. I don't propose to pick and choose participants. I'm classifying based on hire dates. My actual testing cutoff can be one of the four actual entry dates of the written plan. Rhetorical question: Why do I have to assume something is prohibited unless it's specifically allowed? I think I'd rather ask forgiveness than permission here. (1) Plan document says "Excludable Nonhighly Compensated Employees. The Company may also, pursuant to applicable Treasury Regulations, exclude all Participants who have not met the minimum age and service requirements of Code section 410(a)(1)(A) before the first day of the seventh month of the Plan Year from consideration in determining whether the requirements of (document Section 5.02) are met."

I worked on one of those TIAA/CREF Money Purchase Plans. The client company referred to it as the "(a)" plan, as opposed to the "(b)" plan which was a 403(b) with (k) and (m) features. I remember my contact at TIAA/CREF was fairly knowledgeable, even producing an average benefits test to show the (k) and (m) passed coverage. David Raffin in No. Cal. Don't say you got his name from me Lots of fellows, H-1Bs and interns in and out of those plans.

Ok. I have a calendar year plan that allows deferrals after 3 months, entry on the first day of the quarters. I have a troublesome ADP, so I usually (for my client's HCE's benefit) exclude from ADP testing based on the thought pattern "we COULD have one year of service and semi-annual entry" and use this as the exclusion point (based on hire dates). So, about an 18 month period based on a 7/1 entry. This year, I have a census where I'd like to exclude employees after a certain date which is somewhat within the "1 year and semi-annual cutoff" date. Example, calendar year 2013 testing, I want to include employees hired up until 10/1/12 ( a 15 month period). Obviously, there's a NHCE deferring a ton that was hired after 6/30/12 but before 10/1/12. So I guess I can draw this arbitrary line?

Agreed. They're always unhappy.

Agreed, Tom. I don't think I can fail ADP testing before year end. The question is, does HCE take the full deduction (by virtue of his W-2 showing the entire deferral) in 2013 and then get taxed (by virtue of his 1099-R) for the excess in 2014? Seems pretty neat.

NHCE ADR is 5%, so HCE can defer 7% plus $5,500 catch-up. HCE has already deferred $22,500. Let's call his compensation $150,000. So, he's only allowed deferrals of $16,000. From what I read, I can not refund before year end. So, the question is, does the 2013 W-2 show Box 1 wages of $127,500 and Box 12 deferrals of $22,500? And then, in 2014 there's a Form 1099-R with the refund (plus earnings) of $6,500?

That hit the spot! Thanks PensionPro!

My confusion is that Section 318 seems to be addressing stock ownership. What is the "stock" of a sole proprietor? I see reference in Section 416(i) of "Key Employees" -> % owners -> non-corporations, but it seems to be in reference to top-heavy rules. Maybe I'm using too fine a toothed comb? Or I'm missing the proper reference material...

Mr. Plumber is a Sole Proprietor of a plumbing company which employs his 2 (adult) sons, his brother and his nephew, among other employees. Is there Section 318 attribution from father to sons, making sons HCEs? Any of the other relatives?

I have an HCE and NHCE. Using prior year testing, for 2013 the HCE will be able to defer 7% of pay (NHCE % in 2012 plus 2%) plus $5,500 catch-up. Can I suggest that the HCE can defer more if (as employer) he's willing to contribute QNEC money for the NHCE? In other words, fail the ADP test by some amount you're willing to kick back in as QNEC? Does the QNEC even work with prior year testing, or is a switch to current year required?

Client has a fiscal year of 7/1/11 - 6/30/12. Allocation of discretionary match is based on deferrals for the calendar year ending in the fiscal year. Plan year is calendar. For the 2011 Plan Year, a match of $10,000 is reported on 2011 Form 5500, allocated on benefit statements as of 12/31/11 and deducted on 1120 for YE 6/30/12. It is discovered that the matching contribution check was never written. The only participants were three owners. So, the dedection looks bad. If the 1120 is amended, can the company still fund the 2011 contribution? Must it?

I've replied privately to Spencer with the name of my JH rep. Perhaps he/she will share the results with a follow-up.

OK Guys, My JH representative had a powwow with a colleague of his and they came up with an explanation of the lameness of their form (GP1595US). They highlighted that Section 3 should be interpreted to mean "Excess deferral and excess annual addition withdrawals (Box 2 Withdrawal reasons)" of "employer money types cannot be refunded to the plan participant". But a (Box 2) "Excess Contribution Withdrawal" of Employer money types will be refunded to the participant. Their Box 6 "Method of Payment" section also changed in that the "Pay to Participant" checkbox was removed. It's now implied, if no other box is checked. Really lame! I've attached a screenshot of Hancock's replyfor what it's worth. reply to inquiry.pdf

BG5150, So, you'd agree (with me, at least) that the vested ERMAT source should go back to the Participant? If so, do you use John Hancock? Do you have the magic words to get the refund to the Particiapnt?

Hi 12AX7 It is what I'm getting at, actually, If you know the magic words, I'd love to know them. I reviewed the form GP1595us with a JH rep, and was told they couldn't return ER MAT sources to the Participant. It could go to the Trustee, but then they wouldn't do the 1099 reporting if the Trustee endorsed the check to the participant. I've asked for a written explanation from my rep. (iii) above says Matching Contributions shall be distributed - guess it doesn't say to whom!

I have an ADP and ACP that are failing. In the ACP test, the HCEs with the with the highest dollar amounts of match are not the same ones that need "fixing" to pass the ADP test. So, their excess contribution amounts are NOT due to refunds of deferrals. One has an amount of Excess Match due to failure to take the compensation limitation into account, plus some more due to test failure. I assume I can forfeit the "failure" amount. Of the remaining amounts, I need to adjust this HCE plus one other to equalize their matching dollar amounts. (Step 2 in the ACP test fix). My document follows the regulation below. Treas. Reg. 1.401(m)-2(b)(2)(v) Excess Matching Contributions and Voluntary Contributions shall be corrected in the following order: (i) Voluntary Contributions not taken into account in determining Matching Contributions under Article 4 shall be distributed; (ii) any other Voluntary Contributions not described in clause (i) shall be distributed and their related Matching Contributions shall be forfeited to the extent that additional Matching Contributions are not made pursuant to Treas. Reg. section 1.401(a)(4)-11(g)(3)(vii)(B); and (iii) vested Matching Contributions shall be distributed and nonvested Matching Contributions forfeited. Amounts forfeited shall be used to restore forfeitures, reduce Company contributions (or reallocate as Company contributions) made pursuant to Article 4 or to pay Plan expenses. If the Plan does not correct excess contributions within 2-1/2 months, or such other time frame as may be prescribed by the Secretary of the Treasury, after the close of the Plan Year for which the excess contributions are made, the Employer will be liable for a 10% excise tax on the amount of the excess contributions to the extent provided in Code section 4979 So, here's the "problem". My custodian of the funds (John Hancock) doesn't have an option on their excess withdrawal request form for refund to participants of employer contributions. They only allow forfeiture, which goes against the document. Or, and here's the big possibility, I'm missing something. Any help would be appreciated.