ETA Consulting LLC

Nope

There's never a hard-fast rule. You explained the 2 individuals own 100% of one company and 50% of another company. Who owns the other 50%? Are they related, in any way, to any of the owners? Is there a 'right to first refusal' or some other restriction on the sale of that 50% in favor of the any owner? This is just for the Controlled Group determination. Affiliated Service Groups have a different standard that involve performances of services for the other company or their clients. Good Luck!

You actually can. The issue becomes how the auto enrollment election actually becomes a deferral. Prior to the law passing to allow the auto enrollment, a 401(k) deferral had to be based on an election of the participant; and still is. The rule provided that as long as advanced notice was given to the 'eligible' employee stating that 'if they do nothing, this amount will be deducted', the employees failure to act would be deemed as their election. There is nothing in the code limiting this application to a one time event for each employee. The only requirement is that an appropriate amount of time is given to each employee to either elect out or to change their percentage. There is also a provision that states it "may" be used for employees who are already eligible; and not merely limited to those employees becoming eligible to defer for the first time. These are all in Section 401(k) of the Code. Good Luck!

Thanks, David. By any chance would you have a citation for the applicable authority? IRC Section 411(a)(11) Good Luck!

It appears as if you have Compensation for Plan purposes of $240K since only 'earned income' from the tool and die shop would be used for plan purposes. Even if both companies were included in the plan, Compensation would still be $240K (Calculated at $240K plus Zero). Don't ask me why, but I was served up 'cold' by a room full of actuaries at the ASPPA Annual Conference last year for questioning why Compensation wouldn't net the negative against the positive You should ensure the plan passes 410(b) by including the owner (i.e. 100% of HCEs) while excluding all employees from the auto garage. Good Luck!

I understand the argument, but don't necessarily agree with that. A loan offset is, by definition, a taxable distribution. It still boils down to who is the taxable distribution to. It appears to be just as consistent in saying the taxable distribution is to whomever's balance is being offset. So, when the beneficiary inherits the account, the offset will become a taxable distribution to her (or he/she can actually roll it over either to an inherited IRA or traditional IRA if the spouse). They can, however, disclaim the entire account (presumably to the participant's estate), but I just don't see where you could cherry pick different assets to different beneficiaries. I do see the argument, though, and am much appreciative. I would've never found it Good Luck!

Who is the Employer sponsoring the SEP and Who is the Employer Sponsoring the 403(b)? Each year, the employer "MAY" fund contributions to Traditional IRA accounts through a "Simplified Employee Pension (SEP)" arrangement. Notice, this isn't like a qualified plan where you have a plan whether or not it is funded. So, were contributions being made to the SEP each year? If a hospital offers both a SEP and a 403(b), then they are actually separate employers for 415 limit purposes. A 403(b) is treated as 'controlled by the participant' and would be aggregated with other qualified plans (or SEPs) sponsored by companies owned by that participant. It may not be a problem, but we need more facts. Good Luck!

I would like to see a cite for this. The loan is still a plan asset that is inherited by the designated beneficiary in the same manner as other assets in the plan. The designated beneficiary would have the option of disclaiming the "entire" account. Do we have a cite for this?

So, where does that leave us since the Top Hat Plans are exempt from ERISA?

The provision, as amended, would allow every participant a distribution of those balance at age 55. This amended couldn't be taken away. So, there is consistency there; it's just several employees are already 55. I don't think this crosses the line of BRF. The plan provision currently and effectively provides everyone the right to a distribution at age 55. The fact that it does not provide everyone a effective right to a current distribution isn't a problem Good Luck!

That is a good question. Each person being in their own class would appear to satisfy the definite determinable formula when an otherwise uniform allocation is made across all participants. Typically, this provides for a straight coverage ratio test with everyone being considered in one rate group (since it is a uniform allocation formula). But, when you actually test contributions to a plan on a contribution basis and impute disparity, you may arrive at a different result since the test is perform on compensation with respect to the Taxable Wage Base and not the integration level in the plan (at least from what I remember). So, I am not sure if your approach would actually pass the test; or if you're solely relying on the fact that the entire formula was uniform (regardless of the language in the plan placing each participant in their own allocation class). So, I don't know. Barring some requirement that a uniform allocation formula actually be written that way in a plan in order to be considered a uniform formula under the permitted disparity rules, it would appear as if testing may actually be required. Good Luck!

I wrote it poorly. I was saying ignore the concept of excluding the balances attributable to catch-up and just use the balance that is there. We're on the same page

They can be rolled over into inherited IRAs, but not regular IRAs since neither is the surviving spouse. The individual who is less than 18 may have benefits paid to their legal guardian (but only with respect to their inability to make such decisions on their own). For instance, I'd treat a 16 year old and an 18 year old the same; but will treat a 6 year old differently. Sure. In this Treasury Regulations were written around 2000 (or early 2000's) to provide each beneficiary treated as a separate account with a separate election. This pertained to situations where the spouse was one of the beneficiaries and enjoyed rights that other beneficiaries did not have (e.g. ability to roll over or enjoy a delayed Required Beginning Date for the death distributions). The loan is a plan assets similiar to the other account balances. The taxability of the loan goes to the beneficiaries receiving the funds. Good Luck!

Let's suppose you're entire deferrals for the PLAN YEAR ending 6/30/2012 where actually made between 7/1/2011 and 12/31/2011. In this event, an ADP failure would create a catchup amount in 2012 (reducing the amount that the HCE may defer during 2012). Now, let's suppose that a portion of the deferrals for the PLAN year ending 6/30/2012 were actually made between 1/1/2012 and 6/30/2012. In this event, catchups due to ADP failure would begin to apply to these deferrals (allowing for the participant to defer the full $22,500) for the 2012 calendar year. Good Luck!

Under both, the Employer Contributions are required and are not dependent on any HCE action. They'd used the earned income from self employment (net schedule C). We do know that for the SIMPLE IRA, the owner's earned income isn't reduced for the 'employer contribution' made to the account of that owner. For instance, in a qualified plan, if an owner with Net Schedule C income of $100K makes a 3K employer contribution to the plan, then his earned income will become $97K; making that $3K 3.09% of compensation. For a SIMPLE IRA, the income remains at $100K; so the 3K contribution would still be 3%. Good Luck!

It's really not a subjective process. There is a standard to apply when determining if the plan is top-heavy. Those rules are explicit and typically written in detail in your plan document. Once the plan is determined to be top heavy, then there is another set of rules pertaining to the Top Heavy Minimums that are required. When you bring the concept of catchup into the conversation; the question becomes exactly what are you trying to accomplish; and how do you think a catchup contribution impacts the determination as to whether the balances for key employees exceed 60% of all balances in the plan? I am not aware to top heavy being any different for an off calendar year than it would be for a calendar year; you're primarily looking at account balances on a single day when making the determination (and adding in inservice distributions and subtracting certain excluded amounts such as rollovers). Good Luck!

I would just use the account balance at year end and ignore the catch-up. Good Luck!

Yep. Being a plan asset, it is used to benefit the participants of the plan. This was common prior to the Auto Rollover rules; and even common today in certain instances. The plan's document should support whatever you do. When the check was cut, a 1099 R was issued. You would have to assume that the appropriate taxes were paid; as a failure to recognize the income would trigger a letter from the Underpayments team at the IRS. Typically, these amounts are so small (which is likely why the checks were never negotiated by the Participant). Even the IRA vehicles don't want the auto rollovers of account with $2 (or any insignificant amount). There's some flexibility here. Good Luck!

This is a good one. I, personally, do not believe the QDRO rules apply to Top Hat Plans as they are not funded by a trust (and, therefore, the anti assignment rules of section 401(a)(13) do not apply). We know if it were a traditional IRA, then the rules of 408(d)(6) would allow a tax-free transfer of assets to the spouse pursuant to a divorce decree; so no QDRO as the IRA is not a trust. I do believe the amounts within the plan are 'valuable' assets with respect to the employees future receivable, but the fact the plan is unfunded (and the assets are, technically, assets of the employer until they are 'made available' or withdrawal by the participant), there would be no enforceable QDRO against this type of plan. I would stand corrected if wrong, but I don't see how this ties together given the unfunded status of the plan. Good Luck!

True. It's very, very limited. You can easily request it under VCP, but SCP doesn't provide much flexibility.

First, I'd do it in a DC plan. Let's say for argument purposes that the race horse wins the Triple Crown and goes on the win 100 races in a row. We're talking billions. We're also talking reversion of assets on plan termination due to the 415 limits on the amounts that can be paid out. You won't have that problem in a DC plan where only your contribution amounts are limited; not your payouts. All assets must be valued at least annually. You have some prohibited transaction considerations. If I have a DC plan and uses the funds to purchase a horse, when I take my personal MasterCard and purchases horse feed, I just made a contribution to my plan. There's just too much potential for prohibited transactions. I think they should do it, but it's not my call Good Luck!

Under SCP, you are limited to all NHCEs (with only those prescribed exclusions). Your only alternative is to submit through VCP to ask the IRS for a smaller group (i.e. calculate the one to one QNEC as a one to one QMAC in order to prevent from opening many accounts with small balances. SCP doesn't provide that much flexibilty in limiting the population of employees receiving the one to one correction. Good Luck!

Well, the plan should've given an opportunity to cure by the end of the month following the month in which the payment was missed. Not having done that, technically, does not delay the taxable event. If the participant has a distributable event, then the taxable loan becomes an offset that is eligible for the 60 day rollover. There would be no deemed distribution since there is a distributable event. You may file for an extention under VCP (which may be appropriate since the participant wasn't given an opportunity to cure). Good Luck!

If the 403(b) had been subject to ERISA, a 'written plan' would've been required. This has been an ERISA rule since 1974 (the year ERISA was passed). However, the actual annuity contract funding the 403(b) should have written language regarding spousal rights. "We only pay named beneficiaries" sounds good, but is not necessarily the correct approach. "We will follow the terms of the contract, except where the contract contains provisions that are not allowed within the Regulations" would sound more appropriate. So, actually read the contract. 403(b) accounts have always had their rules written within the contracts; even prior to the recent legislations that 403(b) plans be written. It is worth mentioning, however, that if the employer was a church, the spousal rules would not apply nor would the plan be subject to ERISA. For this purpose, I won't digress into whether the church elected ERISA. Good Luck!

You may have some other nuances to contend with (i.e. employee does not consent, Form 5498 issued reflecting the contribution). Depending on who received the contribution (i.e. if all employees receive the contribution), then realizing there is nothing to preclude the employer from having a SEP and a qualified plan within the same year may help. The only provision is that the SeP should be written to a SEP adoption agreement (as opposed to the IRS Form). Some flexibility here depending on the fact pattern. Good Luck!