PensionPro

Maybe this helps, maybe not. Sec. 6.02(4) of Rev Proc 2008-50 states that corrective allocations and earnings come from employer contributions (or forfeitures) and that the normal rules of section 404 apply.

§1.410(b)-6. Excludable employees (d) Collectively bargained employees-- (1) General rule. A collectively bargained employee is an excludable employee with respect to a plan that benefits solely noncollectively bargained employees. If a plan (within the meaning of §1.410(b)-7(b)) benefits both collectively bargained employees and noncollectively bargained employees for a plan year, §1.410(b)-7©(4) provides that the portion of the plan that benefits the collectively bargained employees is treated as a separate plan from the portion of the plan that benefits the noncollectively bargained employees. Thus, a collectively bargained employee is always an excludable employee with respect to the mandatorily disaggregated portion of any plan that benefits noncollectively bargained employees.

Defined benefit feature and separate account feature. The defined benefit feature of an employee's benefit under a defined benefit plan and the separate account feature of an employee's benefit under a defined contribution plan are section 411(d)(6) protected benefits. Thus, for example, the elimination of the defined benefit feature of an employee's benefit under a defined benefit plan, through transfer of benefits from a defined benefit plan to a defined contribution plan or plans, will violate section 411(d)(6). § 1.411(d)-4 Q&A3(a)(2)

What is the authority for the 10% limit?

If the employee is not terminated and receiving pay, the employee is eligible to participate. If the employee is not terminated and not receiving pay, the employee is eligible to participate upon return to service. If the employee is terminated, treat the employee as you would any other terminated employee.

Yes, the earned income and W-2 amounts are aggregated.

Please read my post in the right context, there are no misquotes. I referred to a principle and used an example. Furthermore, my recommendation was to make the correction, not to disregard it. Let's not miss the forest for the trees.

Practically speaking, one of the principles outlined in RP 2008-50 for EPCRS is that if the amount involved is insignificant, and is smaller relative to the costs of processing and administration, the plan sponsor can disregard those corrections. For example, the plan sponsor is not required to make corrective distributions of $75 or less, or to seek recovery of overpayment of $100 or less. My approach would be to have the payroll service make adjustments (i.e. withhold the additional amounts) in 2011, communicate it to those affected, document the correction, and move on to bigger and better things.

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?