QNPG

AndyH, at the risk of asking a silly question... does your situation meet the exception mentioned in 1.410(b)-(5)(d)(7)(ii)?"(ii) Exception. Paragraph (d)(7)(i) of this section does not apply if early retirement benefits with average actuarial reductions described in that paragraph are currently available, within the meaning of §1.401(a)(4)–4(b), under plans in the testing group to a percentage of nonhighly compensated employees that is at least 70 percent of the percentage of highly compensated employees to whom these benefits are currently available." No, that is what I meant by "(which does not apply to my situation)". The percentage for purposes of this exception is well below 70%. This is why my situation is not common - there needs to be both heavy early retirement subsidies restricted by age and class exclusions. I think you wrote "which does apply to my situation". Either way, its a difficult topic. Sorry I couldn't be of some help.

I'm no expert either but after reading the Regs, I am of the opinion that if any of the employees involved is an HCE, then unless you satisfy the exception below, my answer would be yes to question #1. (ii) Exception. Paragraph (d)(7)(i) of this section does not apply if early retirement benefits with average actuarial reductions described in that paragraph are currently available, within the meaning of §1.401(a)(4)–4(b), under plans in the testing group to a percentage of nonhighly compensated employees that is at least 70 percent of the percentage of highly compensated employees to whom these benefits are currently available. I enjoy the research but this was a tough one!

AndyH, at the risk of asking a silly question... does your situation meet the exception mentioned in 1.410(b)-(5)(d)(7)(ii)? "(ii) Exception. Paragraph (d)(7)(i) of this section does not apply if early retirement benefits with average actuarial reductions described in that paragraph are currently available, within the meaning of §1.401(a)(4)–4(b), under plans in the testing group to a percentage of nonhighly compensated employees that is at least 70 percent of the percentage of highly compensated employees to whom these benefits are currently available."

I agree with ESOPguy. Definitely a BRF issue.

Excerpt from the ERISA Outline: Chapter 1A - Important Definitions - Part 1 (K) Key EE definition: -------------------------------------------------------------------------------- "There is a maximum number of officers that are treated as key employees. The maximum is 10% of the number of employees or 3, whichever is greater. However, no more than 50 officers are treated as key employees, even if the 10% cap is greater than 50. IRC §414(q)(5)(A). The number of officers taken into account under the 10% rule is determined by disregarding the employees excluded for purposes of the top paid group test under the highly compensated employee definition. IRC §416(i)(1)(A), last sentence. For a description of these excluded employees, see Part A.2.c. of the highly compensated employee definition in this chapter. If the 10% number is not a whole number, the limit is increased to the next whole number. Treas. Reg. §1.416-1, T-14. For example, 10% of 43 employees is 4.3, so the limit on the number of officers is 5. 2.b.1) What if the number of officers exceeds the limit? If there are more officers who satisfy the rule described in 2.a. above, the officers are ranked by compensation to determine which ones are key employees. For example, if the limit on the number of officers is 3, but there are 5 officers who earn more than the compensation requirement, the top 3 paid officers would be treated as the key employees. 2.b.1)a) Doesn’t matter whether officer also satisfies another key employee test. The ranking of officers by compensation is done without regard to whether any of the officers also satisfies one of the other key employee tests. For example, suppose there are 6 officers who satisfy the compensation requirement, but the limit on the number of officers is 4. The officers are ranked as follows, in descending order of compensation:>" Hope this helps.

Would the IRS - if ever presented the opportunity - view this arrangement as a CODA?

Rcline46, I agree with your statement. It has been my experience that the IRS likes to see all interim amendments and major legislative updates such as the GUST and EGTRRA restatements signed individually.

Agree. No formal notice is required to term a DC plan; however, it is good practice to inform the employees any way. If you are going to submit a plan upon termination for a DL, make sure you post a notice to interested parties notifying them of the submission. I am assuming that you are speaking hypothetically about the safe harbor feature being in a plan. If the plan does in fact have a safe harbor feature, you would of course be required to give a notice of cessation 30 days prior to the effective date of the removal.

I hope I made my answer clear - if I didn't - I apologize. Simple IRA would allow deferrals but would knock out participation in a qualified plan as well, right? That's why I didn't suggest looking into that.

A plan may add a safe harbor feature to an existing 401k plan as of the first day the Plan Year - not mid-year. Thereafter, the employer can wait until 30 days before the end of the succeeding plan years to decide whether or not to make a safe harbor non-elective contribution, if the following notice requirements have been met: 1) employees receive notice within reasonable period before the beginning of the plan year of the possibility of a safe harbor contribution, and 2) a second notice is provided at least 30 days before the end of the plan year that the employer has decided to make or not make the safe harbor non-elective contribution. If the plan is using prior year testing, the plan document should be amended to reflect current year testing in years that the ADP/ACP safe harbor is not utilized. This should also happen prior to the year in which it is effective and can be the same amendment.

You cannot defer to a SEP IRA - deferrals are not permitted. If she is a participant in the SEP sponsored by the other employer, they're making a contribution on her behalf based on a % of her compensation. The following link may be useful to you: http://www.irs.gov/retirement/article/0,,id=111419,00.html#5

For plan years where the ADP/ACP safe harbor is removed, the plan is required to be tested using the Current Year testing method. The NHCE ADR/ACR would be determined using current year %s.

I think the answer is yes only if you have a new plan for that year where the 401k feature starts on the same date. Not sure about the 6-month ADP/ACP extention.

lol, darn!

Learn something new everyday. Thanks for sharing!

There are several conversations on the board about this topic and a few mixed opinions; however, the following seems to be the majority opinion: IRS Announcement 2007-59 provides that a plan will not fail to satisfy the requirements to be a § 401(k) safe harbor plan merely because of mid-year changes to: 1. implement a qualified Roth contribution program or 2. amend the hardship withdrawals to comply with PPA (allowing hardships if the primary beneficiary of the participant incurs a hardship). From the 2009 Annual ASPPA Conference: It is very common to want to restate a safe harbor takeover plan to our document mid-year. We are currently telling clients we cannot make any changes to a SH plan other than adding Roth and expanding hardships, until the beginning of the next plan year. If the change does not affect the CODA portion of the plan (i.e.. the 401 (k) deferrals and the safe harbor contribution) or if it is more generous, is it permissible to make the change mid year?. Examples: • add a profit sharing feature • change allocation conditions for the profit sharing formula to eliminate last day requirement • eliminate permitted disparity from a plan with a last day requirement • eliminate all distribution forms except for lump sum? • liberalize eligibility requirements or entry dates? A- IRS Announcement 2007-59 provides guidance only for mid-year changes to add a Roth deferral feature or hardship withdrawals. Comment was requested on whether additional guidance was needed with respect to other mid-year changes. To date, no further guidance has been issued. Current as of 3/29/2011 .

But, wouldn't the allocation of the forfeitures as a discretionary match (even if it satisfies the safe harbor conditions) still trigger the top heavy requirements? The additional discretionary matching contributions (allocation of the forfeitures as a disc match) would fall within the ACP safe harbor (within the ACP limts of course). So long as there are no other contributions outside of the ACP safe harbor such as "profit sharing" contributions which would be tested under 401(a)(4), the plan is still exempt from TH requirements. Hope this helps.

I'm assuming you are speaking of the basic safe harbor match where the formula is 100% of 3%, then 50% of the next 2% - The maximum safe harbor match that can be made on a $245k salary is $9,800. This would be true even if his deferrals were being matched per pay period. Because of his high salary, the cap of 100% of 4% would be reached early in the year.

According to this article, yes Roth contributions can be made to a simple 401k Plan. Using a Corbel document, you can choose to be a Simple 401k Plan and allow Roth contributions as well. http://financialducksinarow.com/1120/desig...k-or-roth-403b/ I'm looking for regulations or guidance to back it up.

Thanks, Tom. I appreciate your input.

I have a client who wants the following safe harbor formula: 300% of the first 1%, then 100% of the next 5%. With the ACP safe harbor requirement that the plan limit the actual match to no more than 4% of comp, is there anything wrong with stating the formula this way? I suggested they use the regular enhanced formula with an addt'l discretionary match but they insist on the formula stated above. Any thoughts?

Andy, the EOB agrees with you. Rev. Rul. 2003-85 reverses that ruling. (PLR 200212035 actually had reversed an earlier ruling, PLR 9839030, so Rev. Rul. 2003-85 apparently resolved an internal conflict at the IRS.) see below... Excerpt from EOB: "May the transfer to the replacement plan exceed 25% of the surplus and, if so, what are the tax consequences? IRC §4980(d)(2)(B)(i) "refers to 25% of the surplus being transferred to the replacement plan. Compare this to the benefit increase provision in §4980(d)(3)(A), which refers to at least 20% of the surplus being used to increase benefits. Does this mean the employer may transfer only 25% of the surplus to the replacement plan? In Rev. Rul. 2003-85, the IRS answers this question in the affirmative, thus allowing more than 25% of the surplus to be transferred under the conditions specified in IRC §4980(d). If IRC §4980(d) is satisfied, then only amounts actually reverted to the employer are subject to a 20% excise tax, rather than the normal 50% excise tax. 5.g.1) Statutory language had suggested a narrower rule; IRS private letter ruling position reversed by Rev. Rul. 2003-85. Note that IRC §4980(d)(2)(B)(i) refers to an amount “equal to” 25% of the surplus being transferred to the qualified replacement plan. In PLR 200212035, the IRS had ruled that if more than 25% of the surplus is transferred to a qualified replacement plan, the portion of the transfer that exceeds 25% of the total surplus is a reversion for income tax purposes, which is subject to the 20% excise tax under IRC §4980(d). "

Effen, you are right. I should have posted my findings. According to IRS Letter Ruling 200836034, June 11, 2008, ruling #1 and #2, if 100% of the surplus assets will be transferred to Plan Y and being an amount that is at least 25% of the amximum amount that Company A could receive as an pmployer reversion, the amount transferred will not be includible in Company A's gross income, no deduction willb e allowable with respect to thaat amount transferred, the amount will not be treated as an employer revision for purposes of Code Section 4980 and the amount transferred will not be subject to the excise tax under Code Section 4980. Please also see Rev Ruling 2003-85. Now, according to Private Letter Ruling 9839030, 9/25/1998, IRC Sec(s). 4980, and Private Letter Ruling 200227041, 7/05/2002, IRC Sec(s). 4980 - the rulings here are the exact opposite. I am very confused! Can someone please explain?

Found the answer but thanks any way.

Let's say that the total excess asset is $100,000 and that all of it was transferred to a qualified replacement plan. I understand that 25% is exempt from the 20% excise tax. How is the other 75% reported and treated? Any guidance would be greatly appreciated.