Lou S.

I think you might have 410(b) issues on effective availability if too many NHCEs aren't contributing 5+% as they effectively don't have access to the match. Though I could be wrong in that analysis.

ESOP, you're preaching to the choir.

I found this thread http://benefitslink.com/boards/index.php?/topic/47056-rmd-change-in-ownership/ And the reference seems to indicate that the "plan year" may be important so the answer might actually be 1 - 6/30/14 since the "plan year" containing his 70.5 is runs from 7/1/14 - 6/30/15 and not the calendar year. So I'm confused. Be nice if the regs simply said, if you're not a 5% owner as of your 70th or 70.5th birth day, you're not a 5% owner for 401(a)(9). But I guess that would be too simple.

PYE = FYE = 6/30 EE attains age 70 on 8/xx/2014 EE attains age 70.5 on 2/xx/2015 RBD is 4/01/2016 First distribution year would be 2015 if RMD applies EE has owned 100% of stock in the past but sells all of his stock. EE continues on as an employee of the company. By what date must EE be a less than 5% owner to not have a required minimum distribution from the plan as a non-5% employee? 1 - 6/30/2014 (the last day of the prior fiscal year - so no ownership in the plan in PY 7/1/14 - 6/30/15; the plan year before he turns both age 70 and 70.5) 2 - 8/xx-1/2014 (the day before his 70th birthday) 3 - 12/31/2014 (the day before the 1st calendar distribution year) 4 - 2/xx-1/2015 (the day before he attains age 70.5) 5 - 3/31/2016 (the day before his RBD) 6 - some other date I haven't considered. I think the answer is 3 - the day before his 1st calendar distribution year but I'm not sure if the the Fiscal Year being 6/30 and not 12/31 changes that. Also I'm having trouble finding the specific citation in the 401(a)(9) regs which I'm about to go through again but if someone knows it off hand, thanks in advance.

I wouldn't have a problem if it grandfathered the existing employees and a new notice was prepared for any potential new hires. As you say the amendment only effects folks who don't yet work for the company and were not given the safe harbor notice. That said, I'm not sure the IRS would agree with my logic. Because you know the IRS sometimes ignores logic.

usually it is allocated in proportion to the normal cost at least that is the most common method I see

Here is a thought that may be crazy but what about doing a refund of deferral and earnings but call the deferral after tax basis since they were not deducted in 2014? The net effect is the taxable portion of the refund would simply be the gain/(loss).

Our termination amendment addresses it it that we prorate through date of termination for both 401(a)(17) and 415. Though if your plan year runs from 1/1/15 - date of distribution (5/31/15 in my example) I really don't see how you don't have a short plan year regardless or what your amendment says or doesn't on the issue. It is a different issue if you say terminate 6/30/14 but don't distribute until the say 1/31/15 of the following year (maybe you are waiting on a DL or having trouble tracking a few folks down) in that case I think you can get away with a full 12 month 401(a) (17) limit if your amendment is silent on the issue.

A good document or termination amendment should address what happens. That said if you have a a plan year that is short, then you have to prorate 415 and 401(a)(17) limits. So if the final distribution of the plan is May 31, 2105 you would have base testing, allocations and 415 limit on 5/12s of the limit unless you limited it to the date of termination which would could be earlier and smaller.

Unless there is a mistake of fact there are very few circumstances where funds can be returned to the employer. This doesn't sound like one of those times where the money can be returned. Is their a plan provision that calls for the funds to be forfeited somehow if testing fails? I'm not personally aware of such provision being allowable. If the plan fails testing, don't you generally have to raise NHCEs in order to pass rather than cut back HCEs? Unless I misunderstand the question and it is a failed ADP test and not failed 401(a)(4) test. In which case you probably have excess aggregate contributions to refund to the HCE which would simply be taxable along with any gains/losses to the HCE. Lastly, how do you satisfy prevailing wage rules if the employee's funds are returned to the employer? I don't do very much with PW plans but my understanding is the contributions are usually required for prevailing wage law jobs in lieu of additional cash compensation, generally to save on payroll taxes and such.

While I agree with this if they want to merge in t he assets as the OP suggests, it's quicker, easier & cheaper to just amend the existing plan than to start a new one and merge the old one in. Now if the old sponsor is terminating the plan and allowing rollovers, you have a whole different story as people can simple elect a rollover to the new plan, assuming it allows rollovers in.

If they want to merge in the assets and assume the history from the old plan is there any reason they don't just take over sponsorship of the existing 401(k) and continue it?

I agree with you.

Yes. I don't think auto-enrollment is one of the IRS pre-approved mid year amendments to SH plans. Though it probably should be.

I'm 99.9% sure that the IRS position at several conferences has been no pay, don't count them for any testing purposes. They use similar logic on the 401(k) test where you have a self-employed HCE owner with 0 comp for a year and the say exclude that person from the test. I'm not sure there is a citation in the code or regs I can point you to. Perhaps someone else has researched it more.

Was it previously included on the 2013 test? How have other similar participants HCE/NHCE been treated in the past? I think it could fall under 2013 or 2014; if you have a consistent method that is always followed that complies with 415 than you should be fine. Provided it also follow the plan document.

I do see why not. But that would be something that should probably be addressed by the loan policy as to source ordering priority for loans, or whether the participant can chose the source of loan.

If they have they are paying back to a ROTH source and they have a qualified distribution (more than 5 years and after 59.5) then the gains (including interest on a loan) are non-taxable.

No, you can't repay the IRA with a rollover from a qualified plan. You have to repay with after tax dollars. Otherwise you'd permanently be escaping taxation on the funds taken from the IRA which the IRS tends to frown upon.

No, top-heavy minimum is based on 415 compensation for the year. It is no different if a participant enters mid-year.

Might be dischrageble in bankruptcy but I think that would still likely disqualify the plan. If the if HCEs are planning on rolling any kind of substantial balance to an IRA, maybe try and use that as leverage? Though if there is no money, there's not much that can be done.

I'm far from an IRA expert but short of a private letter ruling I'm not sure what can be done.

Kevin, you rock.

Nothing from the IRS would prohibit him taking a partial distribution, only the Plan Terms.

I did not but I thought someone else gave and IRS position on the matter now that they are not ruling on "pre-approved" plans. I tried searching for the thread yesterday but I couldn't scare it up with the word combos I tried. Sorry.