Lou S.

We have a 1 participant DB Plan that may be over funded by about $100K. The plan was underfunded so he delayed terminating but then had some good investment results along with getting older than age 65 and now the assets exceed the maximum lump sum limit. His 3 year high comp limit is only about $140K so unfortunately we are running into that cap on the lump sum. The question I have is can he payout 1-year worth of anuity benefits as taxable income and then roll out the rest to an IRA or does this violate the §415 limits? If he can't avoid the reversion, can he roll the excess to a qualified replacement plan and allocate to himself and avoid excise tax? He has never had any employees other than himself.

It is allowable and is done with small non-PBGC plans quite often. A lot things are done that don't seem right but the IRS allows them. Just follow the rules of the plan doc and make sure that it is nondicriminatory. In most cases we've dealt with the owner waived a portion of their benefit to make the plan whole but they didn't have to be that nice.

Sounds out of date. I think that was changed quite awhile ago. Perhaps as long ago as SBJPA.

I'm assuming you've always used prior year testing. If that is the case why don't you use option 3. Re run the ADP/ACP test for 2006 with deferral in ADP and qualified match in 2006 in ACP and use those only as your prior percentages for 2007. I'm not sure there is regulatory athourity for this though.

Check your document as to when participants enter the plan, but it sounds like full year comp is correct for the PS. We do this quite often for new plans.

Not sure if it is correct but any time an HCE took a taxable distribution (unless it was a required 401(a)(9) minimum) we reclassify part of the distribution as the refund and isses amended 1099-Rs. That way he/she escapes the 10% penalty if they are under 59 1/2.

Thanks. I've done a bit more digging since my initial post and I'm still a bit confused. Maybe I didn't state the conditions properly. In looking at Rev-Rul 2004-13, IRC 416(g)(4)(H) and IRC 401(k)(12) it would appear that if you have a safe-harbor 401(k) plan that gives the safe-harbor contribution to all NHCEs (no NHCE exclusions), but does not give the S-H to any HCE, and that is your only employer contribution for the year, then your plan is deemed "not top-heavy" under IRC 416(g)(4)(H) for that year and you do not have to give the "top up" T-H minimum to the non-key HCEs who are ineligible for the S-H contribuion becuase your plan statifies all requirements of IRC 401(k)(12)©. Assume all notices proper and timely. Am I reading the code wrong, or is it just wishful thinking on my part trying to save the client from making an addition contribution that they don't want to make?

If a safe harbor 401(k) plan that makes the 3% safe-harbor nonelective contribution for all NHCEs (HCE excluded) is also top-heavy, does the plan satisfy the T-H contribution requirement if they have non-key HCEs who are not receiving the 3% S-H contrib? They do not want to make any additional er contrib besides the 3% to all NHCEs.