Lou S.

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.

Just a guess but sounds like a small plan that's being restated for EGTRRA that will likely have NHCEs in the near future and they are making it SH pre-emptively so it doesn't need to be amended later. Otherwise, SH seems a bit odd to me as well. Agree notice is required.

Exactly what I meant. Just poorly worded.

I'd agree with the others that 3% would be T-H min in this case. But if you are aggregating for 401(a)(4) are you going to have any gateway issue if they only get 3%?

So the mutual fund company was basically short changing the participants back in 2002 and the DOL's "reasonable approach" is to refuse the money? I like the company cashing the check (provided the amount like here is "small") or donating it to charity ideas better. But thanks for the offical DOL position, it is good to know for the future.

If you have a coverage failure you have to give a meaningful benefit to the participants you bring in to pass test for them to be considered benefiting for 401(a)(4) and 410(b). That is you can't just retroatively say OK now everyone is eligible for the match so we have 100% coverage, they acutally have to receive an allocation to be concidered benefiting.

If you are over 120 you are probably out of luck. A couple ideas is if you are within a few participanst of 120 that may or may not work. 1. Look for ditributions that were satrted in December of 07 but completing in January of 08. Consider filing an amended return for 2007 with those as payables and deem them paid out in December. Not the best idea and no sure it would fly by the IRS but it might work. 2. Look for 0% vested that weren't forfieted to make sure weren't accidently included in the 1/1/08 count. Barring that recomend an inexpensive auditor to the client.

OK, plan failed ADP test and made refunds from all roth-K source on 3/14/2009 for calander year 2008 test failure. Roth - Deferral to correct, $1,000 Loss on Roth Deferral, $200 Check to Participant $800 I get the 1099-R ($800 box 1, $0 box 2a, $1,000 box 5) reporting and that the participant has no taxable income on this distribution because it is 100% Roth-k with no gain. The question is can the participant claim the $200 loss on his/her 2009 tax return? I'm pretty sure the answer is yes they can but if anyone can point me to any specific IRS guidence confirming this I'd be very appreciative.

Thanks. That's what I thought. I'll just have to confirm our EGTRRA laguage is good to go and the cross reference with the DC reads correctly.

In the case where a DB and DC plan cover at least one key in both plans and the DB Plan is frozen, what is the DC TH minimum? I'm a bit confused by this but think the answer should be easy. Assume the DC plan is not a 401(k). Also assume all DB participants are also covered bythe DC plan. Is the TH min in the DC plan now - 0% if no contrbution is made. The highest alloaction rate to any key if key receives 0% - 3% 3% if any key receives 3% or more. 5% because there is a DB? Does the answer change if the DB is underfunded and the employer is making contributions to the DB Plan? I'm pretty sure the 5% no longer applies becuase the DB accruals are frozen which puts us back in the lessor of 3% or highest key rate world; does anybody disagree?

Somebody who has gone through this before may have more experience than me, but my understand is that you have to pay the excise tax and then request a refund when the waiver is approved. I know it sounds dumb but the IRS and PBGC aren't always the most logical entities.

Assuming there is no after tax basis or roth-k refund, $900.

Were the non-owner terms paid out? If not I would think you are still PBGC but once the last non-owner has been paid whether by lump-sum or annuity purchase, our experience is the PBGC is very good about giving a "no longer covered letter." On a related question we have a plan that has always covered just 2 substantial owners. One of the owners, brothers not that that really matters, has just bought out the other but both are still working. When does this plan become PBGC covered? Is the guy who sold out considered a substantial owner for a period of time after the stock sale? I seem to recall a 5-year look back. Am I dreaming or is this plan immediatley PBGC? If no one knows off hand I guess we'll request coverage determination from the PBGC.

You have a 415 excess. Correct through EPCRS.

Unless it is going to create a balckout period of more than 3 days, I'm not aware of any legaly required notices. That said, it is probably best practices to notify particpiants before the change and give them "adaquate" time to move their funds to a different investment than the one the trustee has chosen if they are not happy with the new investment. What represents "adaquate time" would probably vary with the size of plan and sophistication of the participants but I'd think 30 days would be a good guideline though if the trustee thinks the fund is really bad they might want to do it quicker to avoid large losses. Something like a suspected "Madoff type fund".

Don't let people write personal checks to the plan unless they are self-employed. I tell them it needs to run thorugh their payroll and be reflected on the W-2, then of they don't do that way it is their problem not mine. If you let the owner write a check when he/she wants then you have a problem when some non-owner comes in and wants to write a check to the plan and call it a deferral.

For #1 was he a key becuase he was a more than 5% owner at any time in 2008? If yes he'll be a key for 2009 but a former-key for 2010.

This is the answer the IRS gave at both the ASPPA (10/08) annual conference and LABC (1/09). The wording from my handout is - Once the employer contribution is made, the salary deferrals in excess of the 415 limit are reclassified to be catch-up contributions.

Yet another question about the safe-harbor non-elective contribution. Clearly at this point owners can't waive for 2008, at least not unde the rules as I understand them so the contribution due for 2008 has to be made, absent backruptcy along with plan termination where the IRS might have some pity for the client. And I think I've found this answer in at lest two threads in my search. You have the dual problems of following written Plan terms and 411 cut back issues. But can the plan be amended now for 2009 to elimiante the safe-harbor nonelective only for HCEs who are more than 5% owners? That is NHCEs and non-owner-HCEs still get the 3% contribution. Or at worst freeze the 3% contrib for owners through date of amendment but full year 3% for all others? Has anyone seen this before? Probably a better question for the IRS than here but thought I'd try to get some other opinions. I think the answer is no even though the alternative might be terminating the entire plan which just seems counter to good retirement policy. I know the IRS position is "well you should have done a maybe notice" but it is a bit late for that.

Split funding is currently dead under PPA (for min /max). There is a bit of a grey area though now with WRERA (I think this can in with WRERA) where you "add expenses to the TNC", the question becomes "what are expenses?" This came up at the LA Benefits conference in January and there wasn't really a clear answer from the IRS. It is anticipated that in technical corrections or regulations that expenses will be clarified to read "administrative expenses" but how that will relate to insurance is still a bit of a mystery to me. Like you we have very few DBs with insurance but this does have a big impact on the max deductible contribution for those plans.

Thanks. I knew I should have used the search function.