Lou S.

Excellent question. I wish I had an excellent answer to give you. Did the plan add a subsidized ERA benefit at age 55 that might effect this? Can you treat it like a "wear-away" to avoid the anti-cut back rule on the TH Min benefit? That is greater of pre-amendment age 55 TH-minimum actuarially increased to age 62 or age 62 TH min with all TH service? Not sure if that is the correct way but that's probably how we would handle it.

I think it is probably a deduction issue under 404(h)(1)© which still limits the deduction to 25% of pay.

Thanks. Always fun to find out some quikry state law conflicts with federal law.

Ok so I have this client with some interesting technical questions that I'm not sure of the answers on. The 401(k) plan allows for in-service distributions at age 59 1/2 so a participant (of age) can elect an in-service rollover to an IRA. The questions I have are can they roll directly to ROTH-IRA now? I'm pretty sure that is now a simple yes under current law. If they do roll directly to ROTH-IRA, can they elect to defer the taxes to 2011 & 2012 as they can under conversions? or is it all taxable in 2010? If all taxable in 2010 under 1st option, can they roll directly to Traditional-IRA (in 2010) then convert to ROTH-IRA (also in 2010) and take advantage of the 2 year tax spread? On a somewhat related note, since the conversion limits no longer apply after 2009, does that mean there is a loophole in the contribution limits for ROTH-IRA contributons? Effectively you can make a non-deductible IRA contribution for 2009 (on say 4/15/2010) and the immediately (say on 4/15/2010) convert your "2009 non-deductible traditional IRA contribution" to a ROTH-IRA. And you could keep doing this annually until the law changes. Am I missing something?

Every group is different. Some employers get "better" results with the TPG some get "better" results without the TPG.

I would argue no since the "plan" never had any assets.

1. The salary deferral can not be mandatory. However the contributions you are refering to are commonly called Davis-Bacon contributions and are employer contributions not employee deferrals. If you chose to make employee deferrals they would be in addition to the prevailing wage contributions. 2. Yes 3. Yes 4. Sort of, it is usually mandated by the plan doc and the prevailing wage jobs it is attached to. But sometimes there are additional employer contributions that are sometimes offset by prevailing wage contributions.

If the plan allows for catch-ups than not only can you recharaterize, you must recharaterize.

6 to 9 months has been our recent experience.

It can be done if it is in the document. years ago we had a client in a balance forward plan that had a similar provision in the document because he was afriad his employees might leave and take their pension distribution to start up a business in competion with him.

Yes, but you'll be subject to nondiscrimination testing. You can elect prior year testing and effectively allow the HCEs to put in 5% of pay but that will probably limit you for 2010 unless you immediately amend to current year testing for 2010 and use that for at least 5 years. It is too late to add a safe-harbor for 2009 and you need at least 3 months of deferral.

I would say yes and SMM is required. I imagine everyone is in their own rate group so that when you fail it is easy to chose who gets more than the gateway to pass, no? An SMM will avoid that pesty situtaion where ees share info on contributions and one ee wants to know why Jill got 8% of pay but she only got 5% of pay when the SPD says that all NHCEs are in the same group.

I remember when cross-testing first became somewhat popular. At the time most practitioners said the IRS is going to kill this but much to the surprise of many of us not only did they not kill it they blessed it in the regs. If it goes away I'm sure some small plans will terminate but it's not like this is the first time IRS policy had impacted employer decisions.

It falls under a BRF failure. I'm not sure what the proper correction is though.

Anything is possible but we are proceeding with the assumption that they are due 12/31/09.

I hate partnerships. Just needed to say that to start. I've done some seaching but can find anything exactly on point so if this has been covered I'm sorry. We have a smallish partnership where several of the partners are approaching 70 1/2 for purposes of who is a 5% owner and what comp can be used for benefit pursposes how are "semi-retired" partners treated. That is the partner has no more capital interest and no more profits interest. They are recieving guaranteed payments over a somie time period. The payments are reported as ordinary income on a K-1. 1. Since they have no capital interest and no profit interest are they considered 0% partners for purposes of key, HCE and RMD? 2. They are working though limited hours but receiving large (6 figure) guarnteed payments, can all of that be used for plan purposes since it is considered earned income which looks like it meets the plans definition of includable compensation or is it a violation of the exclusive benfit rule, that is are the partners who are receiving only guarnateed payments considered employees of the partnership? I've read what looks like conflicting guidence in the code and frankly this isn't my area of expertise. I know what answer the client would like to hear, I'm just not sure it is the correct one. Any direction would be appreciated.

Lou, It's not just that the contribution has gone up (which it has). It's that the amount we are being advised we owe the Plan participants has gone up substantially too because the actuary is saying that the participants must accrue their benefit faster under PPA. That's what we are questioning. P.S. I appreciate that this stuff is complicated and I appreciate the job the actuary has done. But, I just wanted to get a "second opinion" on his application of PPA. Thanks. As others have said, ask for an expalination from the actuary. Is this a small plan that has had a demographic change? Maybe the formula passed testing with the old demographics but they you got a bunch of new participants that made it diffcult to pass testing without a change in the formual? Without the facts it is all guess work. Also is it the monthly accrued benefits that have gone up or just the PVABs (single sum payout amounts)? Could be a spike due to the low interest rate environment and high 417(e) payouts.

Thanks. That was what I was hoping for. And yes I understand if any descretionary contribution goes to the 401(k) including forf. reallocation the T-H exepmtion is gone Thanks again for the quick respoces guys, really appreciate it from both. Have a great weekend. I'm off to get get my client a buch of docs and notices...

I agree PPA changed the funding rules not the accrual rules. Is it just that required contribution has gone up? That is possible depending on your pre-PPA funding method and probable given the market experience in 2008.

Thanks Andy, I really appreciate your responces here on the board but... Section 416(g)(4)(H) provides that the term "top-heavy plan" does not include a plan that consists solely of (1) a CODA that meets the requirements of §401(k)(12) and (2) matching contributions that meet the requirements of §401(m)(11). Revenue Ruling 2004-13, the IRS explains the exemption from the "top heavy" rules for a plan that consists solely of a safe harbor 401(k) arrangement. Unfortunately RR 2004-13 addresses a single plan and doesn't talk about a frozen DB. I know that odd as it sounds if the 401(k) plan was the only plan and the frozen DB didn't exist it is clear that the non-key HCE can get zero becuase the plan is deemed not T-H under 416(g)(4)(H)

Thanks. Sorry if my facts were unclear my mind is elsewhere today. I realize the frozen DB does not need a T-H min, the question I have is does the SH 401(k) get an automatic pass on the top-heavy expemption even though there will be employer contributions to the frozen DB plan, though no other contributions (other than deferrals and SHNE) to the 401(k)? That is can the company give just the 3% SHNE to the 4-NHCEs and nothing to the the non-key HCE and still be deemed to pass 416 or does the contribution to fund the DB shortfall blow the "no other employer contribution" requirement? Does the answer change if the contribution to the DB is more than the minimum required? The employer doesn't mind giving 3% to the NHCEs so his HCE can make a 401(k) contribution but he doesn't want to give another $4K to the HCE who wants the tax deduction and who he feels is already very well compensated. Does that make more sense?

A small company has an underfunded frozen DB and is thinking of add a 3% non-elective safe harbor 401(k) plan before 10/1. They are funding the frozen DB until it can be terminated at 100% but no new accruals. The aggregation group is T-H as is each plan on its own. The safe harbor 401(k) plan is planning on making only the 3% non-elective employer contribution to NHCEs only. Does this qualify for the top-heavy exemption? The plan has 1 highly compensated non-key employee (the one who wants the 401(k) this year) who would not receive a contribution under the exeption but would get about a $4K T-H min if the exemption does not apply. 401(k) plan will fail testing miserably w/o safe harbor. Not sure if this is better here or the 401(k) section. Any help would be much appreciated.

The plan sponsor will have significant responsibility, no matter what. It's his plan. I find it surprising that anyone would recommend against a DL filing. BTW, JFriedman, you stated that this dentist is your client. It may not be relevant to anyone reading here, but your post does not identify the nature of that relationship, and some responses may have assumed a particular relationship. Attorney, accountant, investment advisor, bookie, real estate agent, etc? (Not being nosy, just a comment.) We advise all of our clients to get a DL upon Plan termination, especially in light of the many required snap on amendments in recent years. That said I do explain to them that it is an expensive and lengthy process and is very a kin to "document insurance". That is you get the letter and the IRS is giving its blessing to the form of your documnet. The general rule of thumb I tell my clients when they as what would I do if it was my Plan is, I would sumbit if any one participant has a balance of $500K or more or if the Plan assets as a whole exceed $1M. I'd would also always request a letter if it was a plan with any non-vanilla options. If the assets are small though, I'm not sure the cost of submission out wieghs the benefit. More and more the DL process is becoming a voluntary audit as someelse noted. Years ago our DL apps would be aproved with just 1 or 2 minor questions and sometimes without even that. These days we often get a list of 15 to 20 questions they want answered at least half of which we have to point out were inculded and labled in the origial submission package and others that we usually only see upon Plan audit.

Roth-401(k) are still 401(k) and subject to the same withdrawal restrictions as traditional-401(k). The only difference is the taxation on distribution.

We have been giving the PPA min and max (with a warning if this might create 415 payout issues) and a "suggested" amount based on the pre-PPA funding method. However, we do mostly small plans so 9 out of 10 clients ignore our suggested amount and make the min because they had a bad year or the max because they want the deduction.