PensionPro

You can have a document that allows each employee to get a different contribution. You must demonstrate compliance with 401(a)(4) by performing the general test. I don't think your formula is one of the design-based safe harbors.

Neither state law nor the prenuptial agreement negates the IRC Sec. 318 attribution rules. A valid agreement may give the husband 100% ownership, but it still does not change the attribution rules of federal law.

An excerpt from the EOB: Caution: IRS has taken adverse position in an audit. We have been informed of an IRS audit on a defined benefit plan that counted service for years that the business owner’s wife performed services to the company but took no salary. The IRS took the position that the noncompensated years of service could not be counted, interpreting a noncompensated period of service to be a "gifting" of the services to the company and, thus, not "entitled to payment" within the meaning of the DOL regulations. This resulted in a disallowance of deductions for contributions to the pension plan that were based on what IRS felt was an overstated accrued benefit. The nondeductible contributions were also subject to excise taxes under IRC §4972.

How does the document define "year of service"? If 1000 hours, does she satisfy that requirement?

In similar situations, we have notified DOL that corrections have been made including the deposit, earnings, excise tax, 5330, etc. The VFCP was not used. According to the grapevine, the DOL will not audit/investigate the plan simply because the employer decided not to use VFCP.

Here is a prior discussion. http://benefitslink.com/boards/index.php?showtopic=32621

The plan language does not create a hard limit, it merely provides that excess contributions will be refunded. The employer has the option to create an annual plan limit for the HCEs if the document permits. As Tom points out, an automatic NHCE + 2 points will not work in all situations, for example where not all HCEs are deferring the limit will be higher than 2 points for deferring HCEs.

Your # 1 is the correct approach. The ADP test will be run with all of the deferrals. Unfortunately HCE1 will have a big refund.

Anybody have a cite for the practice of waiving eligibility requirements for employees employed on a certain day such as the plan effective date? (I realize the practice is common, and the IRS has been approving documents with those provisions for a long time).

What if the service requirement was only 6 months? Or the plan recognizes predecessor service that results in only the owner being eligible the first year? Would that still be considered discriminatory?

I don't disagree with your conclusion. I meant to cite IRC § 72(p)(2)(D). 72(p)(2)(D) RELATED EMPLOYERS AND RELATED PLANS. --For purposes of this paragraph -- (i) the rules of subsections (b), ©, and (m) of section 414 shall apply, and (ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan.

408(k)(3)© CONTRIBUTIONS MUST BEAR UNIFORM RELATIONSHIP TO TOTAL COMPENSATION. --For purposes of subparagraph (A), and except as provided in subparagraph (D), employer contributions, to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)) shall be considered discriminatory unless contributions thereto bear a uniform relationship to the compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension. 408(k)(3)(D) PERMITTED DISPARITY. --For purposes of subparagraph ©, the rules of section 401(l)(2) shall apply to contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)).

All plans of the employer are treated as a single plan to determine the nontaxable loan limit. "The employer" includes related employers. However, the DOL regulations do not aggregate plans in applying the adequate security rules. See IRC §72(p)(4), DOL Reg. §2550.408b-1(f).

Section 401(a)(9) must be satisfied even though the employee (or spouse, where applicable) fails to consent to the distribution.

EOB says treat USERRA-covered military service as service with employer to determine eligibility service and vesting service.

From EOB: 3.c.3)Suppose some of the lookback year's top paid group have terminated employment. Suppose that only 29 of the 60 shareholders who are employees in the current plan year were also part of the 32 most highly paid employees for the lookback year, because 3 of the top paid group members for the lookback year had left Law Firm C by the end of such year. In that case, only the 29 employees for the current plan year who were also included in the top paid group for the lookback year are HCEs for the current plan year. The other 50 employees (31 shareholders and 19 non-shareholders) are NHCs for the current plan year because they were not part of the top paid group for the lookback year, even though they had compensation above the compensation requirement in effect for such lookback year. As this example illustrates, we do not replace the 3 members of the lookback year’s top paid group who terminated by the end of that year with other lesser paid employees in order to treat 32 employees for the current plan year as HCEs.

Each professional needs to make their own determination how accurate they want to be. By the time you get to the count you would have completed your data checks, discrimination testing, reviews, etc. Not claiming that the participant count is a material component of the tax return, but there should be a good reason for not getting it right. Such as incomplete or inaccurate information provided by the client or their advisors. If it is okay to have an incorrect (or approximate) participant count for a 34 participant plan? How about a plan with 33? or 32? or 3? or 2? or 1?

The regs say that elective contributions of keys are treated as employer contributions. No exceptions are provided for excess contributions or excess deferrals. §1.416-1. Questions and answers on top-heavy plans M-20 Q. May elective contributions be treated as employer contributions for purposes of satisfying the minimum contribution or benefit requirement of section 416©(2)? A. Elective contributions on behalf of key employees are taken into account in determining the minimum required contribution under section 416©(2). However, elective contributions on behalf of employees other than key employees may not be treated as employer contributions for purposes of the minimum contribution or benefit requirement of section 416. See section 401(k)(4)© and the regulations thereunder. This Question and Answer is effective for plan years beginning after December 31, 1988.

Situations where the owners/key employees are compensated from PW plan assets for services performed in various other capacities. This kind of scenario is going to be rare, but it happens. One owner we worked with insisted he should be paid reasonable compensation from plan assets for wearing the trustee hat. Since the original post refers to a TPA, I assumed it is not a self-administered plan.

Yes, TPA fees can be paid from plan assets including from prevailing wage money. Only caution is prevailing wage funds should not be used to pay plan administrator/trustee fees/compensation for administrative expenses in providing fringe benefits if the PA/trustee are owners/officers .

One prior discussion: http://benefitslink.com/boards/index.php?showtopic=44923

May plans participate in the DFVCP if they have already received correspondence from the Department of Labor or the Internal Revenue Service? Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the Department of Labor of a failure to file a timely annual report under Title I of the Employee Retirement Security Act of 1974 (ERISA). IRS late-filer penalty letters will not disqualify a plan from participating in the DFVCP. A Department of Labor Notice of Intent to Assess a Penalty will always disqualify a plan.

Beginning with post-1998 plan years, SBJPA provided that instead of performing two separate restructured ADP tests, a plan may perform a single ADP test that compares the ADP for all eligible HCEs with the ADP for not otherwise excludable NHCEs. 401(k)(3)(F)Special rule for early participation – If an employer elects to apply section 410(b)(4)(B) in determining whether a cash or deferred arrangement meets the requirements of subparagraph (A)(i), the employer may, in determining whether the arrangement meets the requirements of subparagraph (A)(ii), exclude from consideration all eligible employees (other than highly compensated employees) who have not met the minimum age and service requirements of section 410(a)(1)(A). The special rule is found under 401(k) only, and not under 410(b). Hope that makes sense.

It can not be used for 410(b).

Maybe, just maybe, they are allowing 15 logistical days for the funds to be received and deposited by the participant. How do the institutions justify their policies when you ask them?