Laura Harrington

I have been thinking about this all night and it seems I was looking at restructing in a vacuum and missing this application of it. So thank you for enlightening me! Unfortunately, we deal with a lot of small plans where the restructured plans couldn't pass coverage so we still have to do general testing on those plans. Have a great day!

I understand what you are saying (and we do this all the time in my practice or this exact situation), but in my opinion we are still doing the generaal test because we are showing that each rate group is satisfying coverage.

Yes. This arrangement does not satisfy the "Multiple Formula Rule" under the 401(a)(4) safe harbor because each formula is not available to the same group of NHCEs on the same terms (e.g. same accrual conditions).

The answer to this question depends on whether or not they actually are the same plan. You file one Form 5500 per plan. So if the 403(b) deferrals and the match are in one plan...one 5500. If they are two separate plans...two 5500s.

The wording on the Schedule C answers both of your questions. Line 1a: Check "Yes" or "No" to indicate where you are excluding a person from the remainder of this Part because they received only eligible indirect compensation.... Line 2, item (g): ......If none, enter -0-.

I disagree. You can have discretionary match in a safe harbor plan and still meet the top heavy exemption as long as the match satisfies the requirements for meeting the ACP safe harbor. IRC 416(g)(4)(H): NONDISCRIMINATION REQUIREMENTS. --The term "top-heavy plan" shall not include a plan which consists solely of -- 416(g)(4)(H)(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and 416(g)(4)(H)(ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met. If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection ©(2). 401(m)(11) and 401(m)(12) refer to the requirements for satisfying the ACP safe harbor.

Bruce, you are absolutely correct. Unless there are NHCEs also putting in after-tax (or there is a really generous match that gives the NHCEs a decent ACP average!) recharacterizing the excess contributions as after-tax is a moot point since the ACP test will then fail and the money will be returned anyway! As one of the previous posters said, this was more popular back in the time when after-tax contribution features were actually being utilized by employees.

If the plan allows for after-tax contributions in the first place (not necessarily the re-characterization of them) then can't people can do any percentages they want for either deferrals and/or after-tax (within plan/IRS limits of course)? For example, couldn't I do 10% 401(k) and 5% after tax even though I'm not gonna hit $16,500 with the 401(k)? And, for re-characterization, doesn't the plan have to allow participants to make them also before it's allowed? Yes, after-tax has to be allowed in the plan in order for recharacterization of excess deferrals to happen. And yes, unless there is some weird provision in the document an individual should be able to put in after-tax even if they haven't met the 402g limit on their pre-tax contributions.

1. May 401(k) plans allow this? Where in the code is this allowed? Yes. Recharacterizing excess contributions as after-tax contribution is an allowable correction for the ADP test. I've never seen it in a document personally, but it is allowable. See Treas. Reg. §1.401(k)-2(b)(3). 2. must the employee's after tax contributions be subject to the ACP test? Yes. 3. may after tax contributions only be made if the full pretax 402(g) salary deferral has been made, or may the employee designate any part of their salary deferral as after tax?? The designation comes after the ADP test has failed, not before. So the ADP test fails, the excess contributions are calculated using the leveling method. The plan can then allow the HCE to choose if the excess is to be distributed or reclassified as after-tax. 4. Are the after tax contributions subject to the 415© limitation? Yes. There are taxation issues of course since the money is being recharacterized as after-tax.

The labor organization may be the primary plan sponsor of the 401(k) plan, but I'm sure the employer has adopted into the plan.

48 views and no replies? No one wants to take a stab at this? Or is it because I'm an idiot and am missing something obvious?

Ok, needs some opinions! I'm driving myself crazy trying to decide how to proceed. 1. Scenario #1: Calendar year plan with safe harbor nonelective feature. Amended out of safe harbor noneletive 8/31/2009 as allowed by the proposed regulations. Participants received an allocation of 3% of their compensation for the period 1/1/2009-8/31/2009. (The $245,000 compensation limit for 2009 was pro-rated for the safe harbor nonelective calculation to $163,333.32.). No other employer contributions allocated for the plan year. If I calculate the percentage of plan year compensation (1/1/2009-12/31/2009) that was allocated, participants have non-uniform percentages and would not satisfy the 401(a)(4) safe harbor. Does the plan need a 401(a)(4) test? Or for purposes of determining if the 401(a)(4) safe harbor was satisfied, do I only consider the percentage that was allocated based on compensation for the period 1/1/2009-8/31/2009, which would produce a uniform allocation? 2. Scenario #2: Same as above except there are profit sharing forfeitures as of 12/31/2009 that the document says are reallocated based on plan year (1/1/2009-12/31/2009) compensation. No accrual requirements on the forfeiture reallocation. The same participants who received the safe harbor nonelective will receive an allocation of approximately 1% of their plan year compensation due to the forfeitures. Does the plan satisfy the multiple formula safe harbor under 401(a)(4)? I say yes, if the answer to #1 was that when determining if the allocation of the safe harbor nonelective was uniform we only have to consider compensation from 1/1/2009-8/31/2009. 3. Scenario #3: Same as #2 except the safe harbor nonelective contribution is based on compensation paid for the plan year after the participant's date of entry. A non-highly compensated employee became a participant on 10/1/2009, so he did not receive an allocation of safe harbor nonelective. But he did receive an allocation of the profit sharing forfeitures. My thought is that in this scenario the multiple formula rule would not be satisfied because both allocations are not available to the same group of non-highly compensated employees. Any thoughts? Has anyone else dealt with similar situations? Thanks! Laura

Yes, the gateway must be satisfied on a plan basis, and not just a component basis if any of the components will be tested using accrual rates. We use this method of testing all the time. You might also see it referred to as restructuring. It is a very useful method for isolating the effect of a young HCE.

Hopefully what Bird said will work and you won't have to deal with this particular issue before Monday! But here is my two cents. I think the amount you get from the plan is direct compensation. The amount of your fees offest by the sub-Ta you receive is indirect compensation. As far as the custodian...I would contact them and say that they have to provide the data, otherwise you have to report them on the Schedule C as refusing to provide it. They don't have to provide the actual amount...it can be an estimate of the amount or the formula used to determine the compensation.

If the definition of compensation in the document is W-2 wages, then it should be included since it is reported on the W-2.

Laura: What if the Guaranteed Payment amount is positive, but Line 14, code A, which includes the guaranteed payment, is negative. Can they defer based on the Guaranteed Payment amount , even thought Line 14, code A is negative? The partner has to have earned income in order to defer. The guaranteed payments are already taken into account when determining the net earnings from self-employment on line 14, code A. So if the net earnings from self-employment is $0 or less then the partner does not have any earned income and therefore cannot defer. I know this is difficult for partners to swallow because they actually took home money during the year from their guaranteed payments. But earned income also takes into account the profit or loss of the business, so they have no compensation for the plan.

Line 14, code A. If the accountant followed the instructions, the guaranteed payments are taken into account when computing line 14, code A so you do not add them to that number to arrive at net earnings from self-employment. I assume this partner wants to make deferrals based on earned income for the prior year? Remember that he still had to have his deferral election in place before the compensation became available to him (i.e. the last day of the year).

(emphasis mine) The notice has to be exact. The document cannot not let the client decide each year how much to put in for safe harbor nonelective. Ther percentage has to be stated in the plan document and in the notice. The note I referred to in the documents I have seen means that you cannot put a number in the blank that is less than 3%.

Yes, I've seen a lot of prototype and volume submitter documents that have a blank line for filling in the safe harbor noneletive percentage with a note that it must be at least 3%.

I would say no based on the highlighted word below: Treas. Reg. 1.401(k)-1(d)(3)(iii)(B)(5): (5) Payments for burial or funeral expenses for the employee's deceased parent, spouse, children or dependents (as defined in section 152, and, for taxable years beginning on or after January 1, 2005, without regard to section 152(d)(1)(B)); or

You need to look to the plan document for the answer. You have to follow the allocation formula stated in the document.

You cannot directly transfer money from a 403(b) to a qualified plan. If the 403(b) is terminated the employee's can elect to rollover the distributed 403(b) money into the new 401(k) plan.

Yes.

For starters, if you want to aggregate the plans for coverage and nondiscrimination testing, they will need to have the same plan year end.