Lou S.

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.

I think the answer to my question is no - you can't do what I want but I thought I'd ask anyway. Plan fails the ADP and ACP test. The only participant due a refund is catch-up eligible and has not used any catch-up amounts prior to the ADP test for calendar year 2008. After running the ADP test the HCE needs an excess contribution refund of $3,000, but 100% of the refund is recharacterized as catch-up and no refund is made due or made by the plan. The plan also fails the ACP test and the HCE needs an excess aggregate contribution refund of $1,000 to correct the ACP testing failure. However, if 1% of the NHCE, ADP is shifted from the ADP test to the ACP test, the ACP test will pass but the ADP test will now have a larger refund due. Under these facts the HCE would now need refund of exactly $5,000 due to failed ADP after shift. Because the HCE had used no catch-up prior to the test 100% can be recharaterized as catchup. The Plan document allows for shifting, can this be done? It seems like gaming the system to me if it can be done but there are what I consider more abusive games (see cross testing and DB/DC combos) that can be played that are perfectly allowable under the code and regs.

You are correct. After 4/15 double taxation - deferral and reciept year. Gap period income was eliminated for 2008 plan years and later to conform to the elimination of GAP period income on excess contributions and excess aggragate contribuions.

My understanding is that reduction mid-year subjects you to testing. If the client changed for 2009 before notices were given out and said it would be 5% for 2009, you would be OK. You'll also be OK for 2010 if you keep this formula but even though you still have a more generous than required SH match you lose the SH exemption. It doesn't seem fair but I'm 99% sure that's how the rule works.

...doesn't mean that will be the IRS position. I agree with both you and Tom that it makes sense that the deferral is taxable in the year deferred but for some reason I was under the impression the IRS decided to treat all refunds as taxable in the year received for simplicity. I guess not, I'm glad we haven't process any excess deferrals yet. Oh and if there is a loss, which is very likely you won't have a 1099-R for it, just your letter to participant explaining the tax treatment, always fun to try to explain to the participant, their accountant, and HR department.

I'm pretty sure they added 402(g) refunds being taxable in the year distributed in a recent PPA technical corrections bill or in WRERA (if I got the accronym correct). If I can find the site I'll post. EDIT: I've found a few references to WRERA eliminating gap period income on 402(g) excess deferrals but I must say I have not found where it extends the tax treatment to the year distributed, instead of year deferred. I'll have to look a bit more I was pretty sure the excess deferrals got the same tretment as excess contributions but it would not surprise me if the IRS treats them diferrently.