Lou S.

I agree with Erisatoolkit. Also how soon after death was it paid? Within 2 1/2 months? Seems like it is for services provided to the company and unless specfically exculed somehow in the plan doc it would be comp for 415 purposes.

I think your problem is you are trying to apply logic to a DOL/IRS ruling. The answer is simply because the government agency says so.

I'm assuming it is a sole-proprietor since the PS contrib is 20% of $24K or 25% of $19.2K. Is the $24,000 comp before or after the PS contrib? If it is before you do have a problem with the $22K deferral because after reducing the $24K - $4.8K (even ignoring 1/2 SE tax) you only have $19.2K in comp but $22K in deferrals which is a problem since you are not allowed to defer more than 100% of pay even with the catch-up. If the $24K comp is actual pay (that is W-2 wages, or net self-employment income after all deductions) then I don't think you have a problem since the $5,500 catchup is excluded for your 415 testing and the actual deferral is less than 100% of pay. Though you have a deductibility issue if you are trying to deduct $26,8K against $24K of income and this is in fact a sole prop.

No the refunds count and will be in the in-service look back for 5 years. Why not do a QNEC to pass testing (or reduce refunds) and avoid top heavy for an additional year? Thanks. I realized that as soon as I posted. The company has been sold during 2010 and the key employees are no longer owners as of 7/1/10. I'm not clear on how a 2010 QNEC would keep them from being top heavy in 2011? Persumably a QNEC will be allocated to mostly to non-key employees and might change the TH ratio so it is no longer 60%. If the company has been sold though a QNEC might be a awfully hard sell at this point but if making say a 0.5% QNEC for 2010 will get them under 60% ratio that might be cheaper than making a 3% contribution in 2011 since I'm guessing at least one key has already deferred more than 3% for 2011.

No the refunds count and will be in the in-service look back for 5 years. Why not do a QNEC to pass testing (or reduce refunds) and avoid top heavy for an additional year?

Yes that would be accurate.

So no valuations then? I agree the plan sounds like a mess. I wouldn't touch it if they don't agree to go through an IRS correction program.

As for the Salary Deferrals for the Owner, it should be on the 1040 with all other Owner Contributions to the plan; Never on the Schedule C. I am not aware of any exception for the DB plan either. Hence, when an amount is funded, there should be a determination of what portion of the amount is attributable to that individual owner. He would take that deduction on the 1040 with all other "OWNER" contributions. A deferral should never be posted on the Schedule C for the Owner, but on the 1040 with any other contribution for the owner. Keep in mind that this is an issue when the entity is not taxed as a corporation. Good Luck! Again, thanks for the information. Final clarification - it was my impression that since a DB plan is not an individual account plan, the total contribution shouldn't be "artifically split" between owners and non-owners. Therefore, the total DB contribution should always be shown on the 1040 with no portion being shown on the Schedule C. Am I right on this? Thanks again, Rick My understanding is the owner's portion gets deducted on the 1040 and employes portion gets deducted on the schedule c. Determining the owners portion can be tricky though and is often the subject of debate as to how that gets allocated.

But it is quite common you have related matching contributions to excess contributions, especially in a per pay roll matching situation. As for the OPs question it is a good one. I don't know the answer but first, check the document to see if it is addressed and second what ever method you do use, document it for future consistancy. For what it is worth, I think gain/(loss) should be attributed to related forfeited match but I don't have a refereance for you, it just seems the most consistent with how other excess deferrals, contributions, aggregate contributions and annual additions are treated.

Thanks, much appreciated.

I was just coming to look at this because I have a near identical situation. I'd already found that section of the revenue procedue but your followup does help, thanks. T he question I have that the example in the rev proc that follows requires you subimt for DL when you correct by amendment. This is an SCP correction do you still need to submitt the for an individual DL even if this is an approved proto-type plan?

Yes

Pretty sure that is allowed. The Plan that the funds are coming from though would issue a 1099-R showing the the funds were rolled over to a ROTH source; they would be taxable (but not sbject to the 10% penalty). Similar to an in-plan ROTH conversion. However, I'm not 100% sure this can go Plan to Plan from pre-tax to ROTH. I know it can go directly to ROTH-IRA as described but there may be a prohibition on plan-to-plan in the pre-tax->roth rollover setting. Sometimes the IRS rules aren't always idential when going between different tax defered retirment vehicles.

Give out an SMM

Are you saying that in the very first example, the plan could make someone ineligible after they had been eligible and participating in the plan because of a stricter eligibility requirement? I understand them not being eligible if they are transferred to a division which isn't covered, but I thought they would not be able to tell a person who was 18 that they are no longer eligible because the plan decided to go to a stricter age 21 eligibility requirement. Yes you can do that, though in most cases the ee's are grandfathered into the plan to aviod the messy PR situation of telling someone they are now excluded but don't worry you'll be eligible again in 3 months. Also if to exclude enough people people with the amendment you can run into an unfortuante partial termination situation.

Yes depends on ownership. They may have one annual additions limit or they may have 2. See §415(g) and §415(h)

It has been a few years but in the past we have had success with the PBGC approving waivers of non-majority owners, with spousal consent of course. However, I would note in those cases the business was generally closing and the alternative to the waivers was more likely that the plan would have gone into a distress termination because the company (or individuals) did not have the funds availabe to fully fund owner benefits without significant hardship. So the PBGC decided accepting the waives was in their (and the Plan's) best interest I guess, especially since rank and file ees were getting full pay out. If the owners did have cash to fund the plan, as is often (though not always) the case with lawyers, they might have had a different view.

I'm a bit confused by your example. If the participant has $60,000 in cash and $5,000 in outstanding loan his total balance is $65,000. When you default the loan he still has $60,000 in cash but $0 in outstanding loan (for most practical purposes). If he then takes the remaining balance he would get the $60,000. Assuming it is the same taxable year he would get two 1099-Rs, one for the $60,000 (with whatever code applies) and one for $5,000 with code 1L or 7L as appropriate depending on age at default. Does this help? Of are you saying the participant only has $60,000 balance including the $5,000 loan in which case he would only have $55,000 in cash to start with?

Is the $21K current balance? Because there is a 12 month look back for highest outstanding balance. Just a thought that 12 months ago the $21K balance might have been $26K. I'd call the vendor and ask them to explain the difference. They could be correct, I have seen some strange results with paid off loans, but it's possible there is a bug in their limit calulations.

Most master texts will deliniate beneficiaries in the absense of a beneficiary designation form. Typically the executor of the estate would sign the documents.

Any deferrals from 1/1/10 - 2/28/10? Or any 2010 recharaterization on 2/28/10 test? It wasn't mentioned so I'll assume no. 2010 Catchup is 18,492.66 - 16,500.00 = $1,992.66 Amount tested in 2/28/11 ADP is $16,500 + 6,058.20 = 22,558.20 Up to $5,500 additional can be recahraterized as 2011 catchup if test is failing.

The loan is part of the participant's balance so I too agree fully with ESOP Guy.

We've done elctronic ones for so long now I'm not 100% sure but... 1) Local IRS office? they used to carry them anyway. 2) Not sure. In the past they took software generated forms. Did they change thier policy recently, say the last few years?

Well you learn something new every day. I thought for sure that would be a cut back in benefits but I guess not.

A reversion of excess assets is more common in an overfunded DB plan but in some cases it can happen in a DC plan - usually when there are forfietures than can't be allocated for some reason - like no compensation for employees. The excise tax is generally 50% of the reversion - though it can be reduced in certain cases with a qualified replacement plan though that doesn't appear to apply in your case (see IRC §4980). The reversion is also considered income to the Plan Sponsor and the Excise tax is reported on Form 5330 (more information can be found in the instructions to that form). Hope that helps.