ETA Consulting LLC

Do you have a cite for this interpretation? 1.401(m)-2(B)(iii)(2) Correction through distribution—(i) General rule. This paragraph (b)(2) contains the rules for correction of excess aggregate contributions through a distribution from the plan. Correction through a distribution generally involves a 4-step process. First, the plan must determine, in accordance with paragraph (b)(2)(ii) of this section, the total amount of excess aggregate contributions that must be distributed under the plan. Second, the plan must apportion the total amount of excess aggregate contributions among the HCEs in accordance with paragraph (b)(2)(iii) of this section. Third, the plan must determine the income allocable to excess aggregate contributions in accordance with paragraph (b)(2)(iv) of this section. Finally, the plan must distribute the apportioned contributions, together with allocable income (or forfeit the apportioned matching contributions, if forfeitable) in accordance with paragraph (b)(2)(v) of this section. Paragraph (b)(2)(vi) of this section provides rules relating to the tax treatment of these distributions. Like Poje stated, there is flexibility. But, here's the cite.

At the end of the plan year for which the excess was contributed. Good Luck!

Not retroactively; never retroactively. The more interesting question worth exploring is to amend eligibility to add new employees (let's say) effective February 1, 2012 and then provide the safe harbor notice to the newly eligible employees before February 1st. This would appear to meet the safe harbor notice requirements and wouldn't appear to take anything away that was previously promised. That may work. But there would be more scrutiny required; as I'm only shooting from the hip. Good Luck!

No. When you restructure, you'd need a 70% coverage ratio for each component in order for it to work. You're only at 66.67% under your analysis. Good Luck!

You can; not that it's not plain crazy. You'd have to write out a detailed plan to ensure you account for everything when dealing withe the short plan year created for 1/1 - 2/28. You'd have another short plan year created when you ultimately change it back to a calendar year plan. No big deal when you have the additional energy to commit to the process. Good Luck!

The distributions will be taxed in the actual year received. The spouse should file for a waiver of the excise penalty for the missed RMD. Typically, I would not distribute earnings (as the amounts may be neglible with respect to the RMD amounts). That would be a judgement call. In addition to the spouse, the plan has an issue as it has failed to operate under it's written terms. Good Luck!

I would use VCP and Audit Cap interchangeably in this instance. Why? Because we know that the IRS and DOL do not share information on their audits. As illogical as it seems, when the DOL audits for Employee Rights issues and encounter tax issues that falls within the IRS's purview, they will not disclose this to the IRS. So, just because the IRS found it in audit cap doesn't mean the DOL will automatically know it; making it a voluntary disclosure to the DOL. Good Luck!

I'm hitting the "Like" button right now

I don't think the IRS is approving TB plans with the upcoming restatement. I'm not sure, but couldn't imagine there being many of those. MP plans are still popular with some small governments, even though you can write their formulas to a PS plan.

You could either correct as a 415 excess or a 402(g) excess. Either one would give you this effect. I'd say that if the "company" is going to fund an employer contribution of any amount, I'd offset this contribution and correct the partner outside of the plan. There are several approaches, as the rules aren't design to tax him twice. They just never anticipated someone with no income making a deferral (as the partner in a partnership seems to the be only situation where this is possible). Another approach to look at is to (like your already suggesting) offset both amounts on the 1040 of the individual partner. Good Luck!

I think you're reading too much into it. The SDBA is still an asset of the plan. If anything, it would be a Benefits, Rights, & Features issue; since this is tested to the single employer, there shouldn't be an issue. Good Luck!

The allocation of employer contributions should, generally, be a consistent percentage of each individuals compensation for the year of allocation. Allocation on a prior year's compensation may throw the consistency off (by relatively small amounts). It may be still worth correcting. Good Luck!

No. Typically, you'd know the consequences of illiquid assets in retirement plans going in; which should be considered before making the investment. <-This isn't intended as sarcasm, but merely to point that a need for liquidity should always be an attribute in the investment decisions (which can apply to assets with surrender charges just as well). Good Luck!

It may be in the Basic Plan Document. We know that the IRC Section is 401(k)(12). Interesting, that advisors typically know what they want to hear and will continue to push the issue. Remember, that doesn't make them "bad people", but they do get a lot of mis-information. Good Luck!

Doesn't look as if she'd be key employee for 2012 (what are we looking at, a 3% contribution). Question, is the owner giving up is ownership or is he merely terminating employment? Good Luck!

I'd keep the method consistent. The single life factor in the year following the year of death (2000); reduced by one each subsequent year. So, I'd use the "new 2000" factor and subtract by one. Good Luck!

No, he cannot. The hardship rules pertain to an immediate need where the individual must take all 'available' loans prior to receiving the hardship. When he defaults, he'll have the 10% early withdrawal penalty to contend with if he is not a age 59 1/2 or meet another exception. Remember, qualified higher education expenses aren't an exception to this penalty from qualified plans or 403(b)s, but are an exception from IRAs. Depending on the loan amount and the loan term, he may be able to try to structure a loan with payments spreaded out over 5 years. This will require detailed calculations on loan availability (again, depending on the loan amount and loan term of the current loan). Good Luck!

I would try to keep this as easy as possible. You can break the plan up into components. For instance, suppose that out of 20 employees there were 4 NHCEs that received less than the full amount. If you would pass the coverage ratio test after assuming these 4 were "NOT" benefiting, then no further testing would be required. It's basically component testing while each component passes 410(b). I agree with Lou on the Safe Harbor issue, but it's awfully close to a safe harbor formula. Just keep in mind that if you can break the plan down into components (where each component passes the coverage ratio test), then you've provided a simple solution to a simple problem. Good Luck!

What you are referring to is an accrual requirement. We know that after you meet initial eligibility, you may not impose an accrual requirement on 401(k) deferrals. After all, what would you do for a participant who defers early in the year and then fails to work 1000 hours during the year. Wouldn't make sense. Other than that, failing to meet an accrual requirement would not cause you to cease being a plan participant. You'd merely be a participant that fail to benefit under than plan for the year. This, of course, applies to sources other than 401(k) deferrals and employee after-tax. Based on this, your fact pattern doesn't appear to explain the entire story. Good Luck!

Benefitslink really needs a "like" button. Keep in mind that some FSA accounts allow you to spend everything prior to actually funding. Once you select your amount for the year, you can spend that entire amount on January 1st. This becomes very useful when you know you'll be leaving your employer early in the new year. You can maximize your election and have the procedure (i.e. lasik or braces) in early January for the full amount. When you leave the company, you're no longer there to make the payroll payments. This is a free-ride; that is paid by the other particpants' forfeitures into the plan. I imagine that some plans, however, require you to actually fund prior to reimbursement. Good Luck!

Well, we know that, technically, the excess is treated as a taxable distribution; and the participant is likely no eligible for a distribution from the plan. You would begin there; by treating it as a distribution that must be returned to the plan. Not sure how comfortable you'd be attempting to correct under SCP, but I wouldn't hesitate to fix under VCP if there is any discomfort with the correction you choose. Good Luck!

No. He must be severed from employment; not merely layed off. The sponsor should maintain accurate employment records that properly differentiates "layoff" and "termination". Good Luck!

It can, but may not be safe harbor; unless the classfication difference is between union & non-union. One or two employees in the category shouldn't cause a significant difference on the compensation ratio test. Suppose you had a company that covered the owner and salaried employees. Also suppose that all other employees where hourly for 1/2 of the year and then became salaried. While they would benefit under 410(b), their compensation would be only 1/2 of the entire year compensation. This would not qualify as a safe harbor exclusion to compensation. 414(s), however, does allow you to include compensation only for the period of eligibility. I always interpreted this to mean prior to the age/service and entry date eligibility. Good Luck!

Sure you can. You would ensure the formula (and who receives it) is clearly defined and also that the necessary non-discrimination tests are performed each year. Good Luck!

I have never subscribed to the idea that amounts from sources other than the non-vested source for which the forfeitures were made be redeposited in order to have the forfeitures restored. Good Luck!