QNPG

You're right which leads to the question, how does one differentiate a money purchase plan from a profit sharing plan (other than by designation in the plan document given that profit sharing plans no longer require profits Not sure if this is the obvious answer, but money purchase pension plans have a required contribution and are subject to Code Section 412 (minimum funding requirements). Profit sharing plans are not.

Sieve, thanks for the clarification. It was "3" and not "2". Hope everyone had a wonderful Easter Holiday.

Try: Treas. Reg. 1.401(a)(4)-11(d)(2)(iii), then 1.401(a)(4)-4. Hope this helps.

If the excess contributions or excess aggregate contributions are distributed after the first 2½ months of the correction period, the amount includible in income is taxable for the year in which the distribution is made. See Treas. Reg. §1.401(k)-2(b)(2)(vi)(A) and §1.401(m)-2(b)(2)(vi)(A). No difference for noncalendar year plans. When this tax rule applies, there is no special calculation for noncalendar year plans as there is for corrective distributions made in the first 2½ months of the correction period. The regulations prescribe a "leveling" method to determine which HCEs have excess contributions. The leveling method involves a two-step process for determine that amount to be distributed to each HCE who is an eligible employee for the plan year that the ADP failure occurred. This leveling method is explained in IRS Notice 97-2 and in Treas. Reg. §1.401(k)-2(b)(ii) and (iii).

Thanks, Tom. Happy Easter~!

Thanks, Tom. That makes total sense; however, that leaves me wondering what the terms of the plan say with regard to compesnation taken into consideration when an allocation formula is clearly established and there are no allocation requirements to receive it and the determination period is annual. Your personal opinion?

Considering that there is no allocation requirement (year of service or end of year requirement to receive the contribution) so long as they are employed and not excluded, they are entitled to receive the match based on the rate in which they made through out the year. The reason is because they have no allocation requirement, the determination period to consider the amount of comp to take into consideration is annually and they have already started to make contributions which establishes the allocation formula. They are required to make that match. This situation could be different if the determination period were payroll by payroll OR they hadn't started to make the match already throughout the plan year already (establishing the allocation formula). The match allocated to the participants for the plan year must be what the document says it will be. Generally, the plan document matching formula will reference annual compensation and deferrals. However, matches can be calculated based on payroll period compensation and deferrals, but the document must specifically say so. Calculating and depositing a match based on payroll periods is an administrative procedure, it does not, in any way, affect the amount of the match that the participants are entitled to at the end of the plan year - or whatever period the document states. In other words, matching on a period pay period basis must be in the plan document. Sorry!

If you subtract 12x from each side, you would actually get -6 = 0, not 0x because 12x - 12x = 0 Yep.

Since the determination period for compensation (seems) to be annually, and the allocation formula is already established, you would need to make the match based on full year comp at the end of the year. So, they could stop contributing now but true-up at year end. Double check that the document states that the determination period says annually. If it does not, then you may have a chance to stop it currently without having to true up at the year end.

AHhhh!! Ok, got it.

BRF takes into consideration the ratios of NHCEs and HCES. If there are no NHCEs, where is your test? I may be missing the entry about the employees - all I read is about the owner???

too funny!

Simplifying 3(4x + -2) = 12x Reorder the terms: 3(-2 + 4x) = 12x (-2 * 3 + 4x * 3) = 12x (-6 + 12x) = 12x Add '-12x' to each side of the equation. -6 + 12x + -12x = 12x + -12x Combine like terms: 12x + -12x = 0 -6 + 0 = 12x + -12x -6 = 12x + -12x Combine like terms: 12x + -12x = 0 -6 = 0 Solving -6 = 0 Couldn't find a variable to solve for. This equation is invalid, the left and right sides are not equal, therefore there is no solution.

After more careful consideration, I realized that no 401(a)(4) testing is required for a controlled group with the two vesting schedules described in the following reg as they're deemed to be equal: Please refer to §1.401(a)(4)-11.

Switching Group 1 to a 3-year cliff may still pose a problem at year three when all HCEs are 100% vested and all NHCEs are not. Definitely run BRF test at year three.

As of one week ago when I called to check on this, it was still delayed.

I agree with "not such a bad guy". My two cents.

ESOP guy, good question - one that the original post should answer. (not sure if you were asking me or the orignal post)

DMcGovern, this is true for a failure having to do with the allocation requirement being the reason of the failure, correct? This was a failure due to complete exclusion from eligibilty due the a determinable class such as "intern".

Try this Tres. Reg: 1.401(a)(4)-11(g). I think this is for what you are searching.

I am not sure which document you use, but in the Corbel document, there are specific provisions with regard to this type of coverage failure IF you use the fail-safe provisions. The correction will be to suspend the allocation conditions and expand the group of the "includible" Nonhighly Compensated Employees who are Participants by including the minimum number of Participants eligible to share in the contribution, beginning first with the "includible" Employees employed by the Employer on the last day of the Plan Year who have completed the greatest number of Hours of Service in the Plan Year, then the "includible" Employees who have completed the greatest number of Hours of Service during the Plan Year, and continuing to suspend the allocation conditions for each "includible" Employee who completed Hours of Service, from the greatest number of Hours of Service to the least, until the Plan satisfies the "ratio percentage test" for the Plan Year.

I hope this helps you, SoCal: Excerpt from ERISA outline: Fiduciary safe harbor available for rollovers under terminated DC plans. A regulation issued in conjunction with regulations on the termination of abandoned (or “orphan”) defined contribution plans creates a fiduciary safe harbor option when amounts are rolled over under a terminated defined contribution plan, even if the amount exceeds $5,000. See DOL Reg. §2550.404a-3, 71 F.R. 20820, 20828-20830, 20850-20853 (April 21, 2006). One of the conditions under the orphan plan regulation for winding up the affairs of the orphan plan requires the qualified termination administrator (QTA) rollover to an IRA (an inherited IRA, as described in IRC §402©(11), in the case of a non-spouse beneficiary) the benefits payable from the orphan plan to a participant or beneficiary who does not file a timely affirmative election with respect to the distribution. DOL Reg. §2550.404a-3 provides fiduciary relief with respect to the rollover of the funds to an IRA (or other account), along the lines of the fiduciary safe harbor under DOL Reg. §2550.404a-2 that applies to automatic rollovers under IRC §401(a)(31)(B) (see the discussion in Part D.8.b. of this section for more details). This fiduciary safe harbor is not limited to abandoned defined contribution plans. It also applies to any rollovers made from any terminated defined contribution plans with respect to participants or beneficiaries who fail to make an affirmative election with respect to a distribution. It does not matter whether the participant’s or beneficiary’s failure to make an election is merely due to unresponsiveness or because the whereabouts of the participant or beneficiary are not known. Like the fiduciary safe harbor under DOL Reg. §2550.404a-2, the safe harbor under DOL Reg. §2550.404a-3 deems the plan fiduciary to have satisfied the requirements of ERISA §404(a) with respect to both the selection of the IRA provider (or other account provider) and the investment of the distributed funds in such IRA or other account. Regulations permit “qualified termination administrator” to terminate and liquidate abandoned or orphan plans. Regulations issued by the DOL facilitate the termination of, and distribution of benefits from, defined contribution plans that have been abandoned by their sponsoring employers (“orphan plans”). See DOL Reg. §2578.1, Appendixes A through D to §2578.1, §2520.103-13, 71 F.R. 20820, 20828-20830, 20850-20853 (April 21, 2006). The DOL is concerned that the assets of these plans are diminished by ongoing administrative costs, rather than being paid to the participants and beneficiaries of the plan. The regulation allows certain financial institutions who hold plan assets to become “qualified termination administrators” (QTAs) of abandoned plans and proceed with termination and liquidation of the plan. The QTA is able to hire other service providers to carry out the termination. Both the QTA and the retained service providers may receive reasonable compensation from the assets of the orphan plan. A class exemption (PTE 2006-06), which is discussed in Section II, Part E.13., of Chapter 14, provides prohibited transaction relief with respect to fees paid to the QTA, its affiliates, and other service providers. Distributions from orphan plans will generally be rolled over to IRAs (unless the participant elects otherwise). Thus, in conjunction with these regulations, a regulation providing a fiduciary safe harbor for rollovers to IRAs (and to certain other bank accounts) is provided (DOL Reg. §2550.404a-3) (see 5. above). The fiduciary safe harbor goes beyond the safe harbor under §2550.404a-2, which generally applies only to automatic rollovers of mandatory distributions, pursuant to IRC §401(a)(31)(B), that do not exceed $5,000.

When you say the "trustee" has agreed to remain the sponsor of the plan, what exactly do you mean? Rev. Rul. 2008-45 provides that "The exclusive benefit rule of § 401(a) is violated if the sponsorship of a qualified retirement plan is transferred from an employer to an unrelated taxpayer and the transfer of the sponsorship of the plan is not in connection with a transfer of business assets, operations, or employees from the employer to the unrelated taxpayer". When the plan sponsor went out of business, shouldn't the plan have been terminated at that time?

Under IRC §415(h), for purposes of IRC §415 limitations, a parent-subsidiary group exists if the parent company owns more than 50% of the subsidiary company (rather than at least 80%). I think you may have the amounts switched in your sentence above (unless I'm confused!)

My experience has been with a larger firm where 900+ of the 2000 plans are SH and of those 900, more than half are 3% safe harbor due to new comparability profit sharing formula being used. Although we have to send a notice, it is pretty much the same information from year to hear (in the notice) so not much changes except for the limits. HOWEVER, the amendment to the plan, at least for us, is not that easy. I wouldn't recommend to any one to amend a document without thoroughly reviewing each amendment and last restatement prior to preparing such a change. And then there's the signed copy back, etc... We wish it was that simple.