PensionPro

See following from the IRS: "Recently, we have received several Voluntary Correction Program submissions for 403(b) retirement plan failures that are currently ineligible for correction through VCP. Ineligible submissions include cases where: the plan’s written program did not satisfy the legal requirements under Code §403(b) and the 403(b) final regulations, or the plan failed to adopt a written plan program before December 31, 2009; or the plan failed to operate according to its written program’s terms. We will return all VCP submissions (including fees) containing ineligible failures. An employer sponsoring a 403(b) plan may currently use VCP to correct employer eligibility and demographic failures, and the operational failures listed in Revenue Procedure 2008-50 §5.02(2)(a). We are in the process of updating Revenue Procedure 2008-50 to expand EPCRS to include post-December 31, 2008 failures."

Pension Pro, is the employer contribution 50% of the NHCE ADP? For example if the plans NHCE ADP was 5%, then would the participant receive a 2.5% employer contribution of their income for the period they were not allowed to defer? Thanks The IRS recognizes various ways in which the make-up contribution to the employees may be calculated. One of the most common methods is 50% of the ADR of similary situated employees (HCEs or NHCEs) as you outlined. In lieu of calculating the ADR, an employer may deem the ADR to be 3% and make a fully vested contribution of 1.5%.

Elective contributions on behalf of key employees are taken into account in determining the minimum required contribution under section 416©(2). §1.416-1. M-20

Correction for a universal availability failure generally includes giving each excluded eligible employee the opportunity to participate. The organization must also make employer contributions to restore improperly excluded eligible employees’ lost opportunity to make salary deferrals. An organization’s failure to correct the error could result in the loss of favorable tax benefits for the plan and the employees. The correction is made under EPCRS, so the missed deferral opportunity is equal to 50% of the employee’s “missed deferral.”

A 403(b) plan is not considered an alternative DC plan for this purpose, so yes they can implement a 403(b) plan within 12 months of terminating a 401(k) plan.

The top heavy and/or PS contribution is in no way related to an employee actually making deferrals. If the individual is eligible for the PS contribution he or she needs to receive the PS contribution. It appears that the method of allocating the contribution takes care of the top heavy minimum in the first step.

Even though compensation for self-employeds is determined at the end of the year it is treated as having been consistently earned throughout the year. Your approach sounds reasonable to me.

Thanks for taking the time to clarify, it is much appreciated.

Just to make sure I understand ... a PR employee's contribution to a plan that is not qualified under the PR code is taxable in PR when contributed and those contributions are taxable under the US code when distributed? Surely I am missing something ...

Thanks AP, will check doc.

Is it permissible to limit HCE deferrals to help pass the ABPT not the ADP test?

sell the stock. Amount contributed to purchase stock is regarded as after tax contribution. Is VCP an option also? Apparently this problem is more common than one would think.

Teacher is on paid sabbatical for a semester. Can 401(k) deferrals be withheld from the leave pay?

The classification must be BOTH reasonable and non-discriminatory. It is non-discriminatory, but is it reasonable? CHC93 addresses the issue raised. Our firm is very conservative and will not cross paths with IRS informal pronouncements. Curious if there are any other perspectives or if the IRS has changed its views any.

Standalone non-TH cross-tested PSP requires 1000 hrs and last day for allocation purposes. Ratio percent is at 60%. Can the plan test for coverage under ABT or will they fail the reasonable classification test because 1000 hrs and last day are not objective business criteria? Thanks for any insight!

If an employee rolls over a SEP-IRA into the plan, and the SEP was maintained by the same employer that maintains the qualified plan, is that a related rollover, which must be included in the top heavy ratio? It would appear so, since SEPs are treated as defined contribution plans for top heavy purposes. See IRC §416(i)(6)(A). Courtesy of EOB.

Q-8: Will the 2011 change affect earned income? Yes, but only insignificantly. For 2011 only, the 164(f) deduction will be based on 59.6% of the Old Age portion of SE Tax. The deduction applicable to the Medicare portion of SE Tax will remain at 50%. The reason for this adjustment is that the 164(f) deduction is designed to mimic the employer’s share of FICA, which does not change for 2011. For example, suppose a self-employed individual has NESE of $155,000 and no SEHI or wages. In 2010, the individual’s SE Tax will be $17,394 and 164(f) deduction will be $8,697. In 2011, the individual’s SE Tax will be $15,258, thanks to the change of rates, but the 164(f) deduction will be $8,695. Thus, the 164(f) deduction is only $2 less than it would have been in the absence of the rate change, even though the individual is saving over $2,100 in SE Tax. http://www.relius.net/News/TechnicalUpdates.aspx?ID=557

Tom, after going through the math I came to the conclusion that while permissible component testing is not helpful in this case as you point out.

Thanks for the responses. Just wanted to make sure I could use the ABT to pass coverage in the component plans. Don't think I need an HCE in each of the components. Thanks, chc. I agree that if you are using ABT to pass 410(b) for the whole plan, the reasonable classification applies.

Cross-tested PS only plan fails a4 testing. Owner 50. Three employees ages 55, 63, 23. Need 2 ees with higher EBARs than the owner if all employees tested together. Can I restructure into component plans: A) owner, two employees ages 55 and 23 on benefits basis B) 63 year old employee on a contribution basis Thanks for any input!

This chart might help, the answer may be fairly easy to figure out. http://employerbook.hypermart.net/SampleChart.html

You should have a QDIA notice that specifies the default fund for each vendor. Also if no vendor is chosen then the default vendor. Here is one example: http://benefits.jhu.edu/documents/QDIANotice.pdf

Depends on the 'paperwork for new plan.' Based on the info you present the employee will enter the plan 1/1/12 and is not eligible in 2011. I am assuming the paperwork does not provide any special entry dates on the plan's effective or adoption dates. Also it would be a good idea to work with someone more familiar with qualified plan rules.

The hypothetical question in post # 3 was I think: If a DB plan covering all its non-excludible NHCEs and some of its non-excludible HCEs fails 401a26, is a corrective amendment benefitting only HCEs discriminatory?

Regs are not clear, plan doc might help.