ETA Consulting LLC

I like the way you think. The way it would likely play out is that the written document would obviously not contain the limitation and it would, therefore, be done administratively; which is allowable. The issue, however, becomes that such administrative limit isn't done arbitrarily, but for purposes of helping the ADP test to pass. That would be a hard argument that you've administratively limited HCEs to Zero deferrals at the beginning of the plan year. Nonetheless, it helps to think in those terms in order to maintain a perspective of various vantage points to the same equation. I wouldn't try to make those arguments, but do try to understand them

You are correct. The QNEC may be split between the ADP and ACP test. The same is true for a QMAC. Of course, the other contingencies apply, but (to answer your question), you are allowed to split without double counting the same "Qualified Employer Contribution" amount to more than one test. Really, QNEC and QMAC is only a reference to how it the calculated, they are both Qualified Employer Contributions with stringent withdrawal restrictions (and immediate vesting) and are used the same way. Hope this helps.

I would say no, since the catchup is caused by a 415 limit excess which would make it as of 6/30/2011. My train of thought on this matter is (using examples): Suppose it were a safe harbor plan funding a 3% NEC for the off calendar year (for argument sake). 1) Between 7/1 and 12/31/2010, John could've deferred $22,000. 2) Also, Between 1/1/2011 and 6/30/2011, John could defer another $22,000. 3) Assuming his compensation is $245K during this time, he'd receive a SHNEC of $7,350. 4) John could now receive an additional Profit Sharing contribution of $8,650 for a total plan year allocation of $60,000. This breaks down as follows: 1) We know deferrals are limited by calendar year. The $22,000 in deferral produced a $5,500 catchup for the 2010 calendar year. 2) By the same regard, the additional $22,000 in deferrals produced another $5,500 catchup for the 2011 calendar year. 3) The SHNEC exempts him from the ADP test, even though he would normally have a whopping $33,000 in deferrals within the ADP test. This $33,000 is all that counts toward his $49,000 415 limit. The $7,350 plus additional $8,650 gets him the additional $16,000 to reach that limit. Notice year that it was the $22,000 deferral in step 1 that pushed the catchup back to 2010. Your question is basically can that 2010 deferral get counted as a 2011 catchup in addition to a $5,500 catchup that was deferred and counted in 2011. I would say no. Good Luck!

You referenced 401(a)(26) in your initial post; that is exactly what it is about. If you argue zero NHCEs are covered, then that would be 410(b) or 401(a)(4). Just the way I see it; not necessarily the way it ought to be

I think it's time for Benefitslink to take a note from Facebook and add a "Like" button; I'd definitely click it.

I feel your pain. Chance are you are calculating it correctly and the Table you are referencing is incorrect. I ended up indexing the factor from a preloaded chart where the user enters the age of the Participant and the age of the Spouse. I know it doesn't help, but just showing appreciation for what you are trying to do.

Anytime there is something that happened that shouldn't have, or something that didn't happen that should have, when there is no specific IRS or DOL guidance in dealing with the situation, you will likely receive conflicting advice. That's not necessarily a bad this; it's merely the nature of our industry. One thing is clear from your fact pattern is that the employer clearly honored its commitment to fund the contribution, but merely funded it to the incorrect plan. By strict interpretation of the plan language, the contribution must still be made to the Plan A. What you could do is a straight accounting of what would've been funded to Plan A had it been correctly funded and compare this amount to what was actually funded in Plan B. This would structure the problem. You would then face debate as to whether this is correctable under SCP, or whether VCP and VFCP program is necessary for the fix. You would make a decision of how best to proceed; looking at the viability of each alternative. For instance, a VCP filing outlining this and merging the plans would argubly place the plan in the exact same condition it would've been had everything happened correctly. VFCP may not be necessary, as the participants would be technically whole with respect to there entitlements under the plans. Good Luck!

Sure you can. A SEP is, technically, a traditional IRA. Don't confuse it with a SIMPLE IRA (where you cannot roll anything into it except another SIMPLE IRA). Good Luck!

You are right, but he auditor is right as well. You see, the IRS has stated "INFORMALLY" (I hate when they do that) on several occassions that they interpret 401(a)(26) to mean that you must benefit 40% of NHCEs, not 40% of all employees. That appears to be the substance of the debate you are having, and you both make valid arguments. If I were designing the plan, I would've at least written a small formula into the Cash Balance plan (equating to a significant benefit at NRA) for the NHCEs to avoid the entire argument. Good Luck on this one!

We're on the same page, that compensation for benefit purposes isn't necessarily compensation for testing purposes (depending on the terms of the document). Obviously, the individual will cease to participate upon becoming a member of an ineligible class. So, no deferrals are going to be made from compensation earned when they are no longer eligible to defer. Typically, documents allow for testing on any definition of compensation that satisfies 414(s); which was my point. The reference to union vs. non-union brought in a different set of rules (e.g. you cannot use compensation earned while a union employee in a test for non-union employees; and vice versa). We are on the same page.

Yes, it does not cover any employees other than the owner and spouse; so it is not subject to Title I of ERISA. You should be able to file a 5500 EZ. This will be the case without any rule stating that you cannot file a 5500 EZ for a plan covering only the owner (and spouse) if there is another plan of the company covering common law employees. Good Luck!

No, it's a CODA; Cash or Deferred Arrangement. If there was never any cash to be received if the deferral was not made, then a more appropriate question might be on what authority was the deferral actually made. For instance, if I elected to defer 10% of my salary and was due a $100 payroll. If I received no payroll, but the employer deposted $10 into my 401(k), then you've effectively made a 100% deferral (which arguably is not a deferral since I was never given the option to receive it in cash). I am merely making this point to say the lateness of the deposit is the least of the issues. You cannot defer until the actual payroll is made; so don't turn a payroll issue into a qualified plan issue. Good Luck!

C'mon Mr. Poje. You know union vs. non-union deals with a disaggregation issue that is mandatory; merely changing from an eligible class to an ineligible class (without mandatory disaggregation) wouldn't necessarily change the definition of compensation used for testing. That's not to say that your approach would be unreasonable (or eggregious), but merely saying that using the compensation for the entire year wouldn't hurt; even though it would provide a more favorable result on the test since there would be more compensation to the new HCE.

I don't know about that one. Given that deferrals were made at a time where all conditions for deferring were met, I do not believe a change should retroactively disqualify those deferrals. I would treat it the same as any other excludable class member. What would you do if the plan excluded hourly employees and a participant who deferred when from salaried to hourly mid year? I believe you would stop them from deferring immediately upon the status change. I respect that HCE determinations are made for the entire year, but that is for nondiscrimination purposes; not to retroactively revoke someone's rights to make elective deferrals. Just my take. Good Luck!

SCP would entail them putting the funds back in the plan; which was established that because it was a hardship it would be unlikely the particpant would replenish the funds. This is not even engaging in whether the error is eligible for correction under SCP (but assuming it is, how else would you make the account whole without having them replace the funds). Good Luck!

Well, you have an inservice distribution from a pension plan prior to age 62 (and Normal Retirement Age). Looks like a VCP would be in order; which by that time you would at least explain to the IRS that you've attempted to get the funds back from the recipient. I am not aware of any other alternatives. Good Luck!

The first step would be to attempt to place the funds back in the plan. Just a first step. The contengencies will begin from there. Good Luck!

I guess the main point is that you can do anything as long as it is pursuant to a 'definitely determinable' formula with respect to who receives it and how it will be allocated. When you do that, you would have to account for the service spanning rules and address whether someone who terminated and was rehired within 12 months was considered employed on the first day. These are the types of administrative complexities I have sought to avoid over my career, if for no other reason than the failures to account for a unanticipated always seem to burn you in the end. Just a thought. Good Luck!

The only way you could do that is to exclude them from being eligible to defer (and pass 410(b) with those exclusions). The only employees who are eligible to defer that may be excluded from the Safe Harbor Nonelective are HCEs and those employees who are less than 21 & 1. Good Luck!

You are 10000% correct. It's not a cake-walk. Tons of things can happen that create prohibited transactions and other violations. Typically, when these types of questions are asked from plan sponsors (especially one-person plans), the transactions ends of being for the primary purpose of benefiting the individual receiving the loan as opposed to providing a better investment return at a given risk level; which often leads to the problems. Sophisticated technical support is usually undervalued until the IRS comes in with a big charge; then you need someone to explain to you everything that went wrong :-)

He shouldn't need a fidelity bond because the plan is not subject to ERISA (one-person plan). Also, it is not a "plan loan" in the sense we are accustomed to hearing, but instead a "note" received from the borrower. In this context, you are not treating it as if it were a bond that is purchased from a Fortune 500 company (the thinking here is that it is merely a plan investment). You must make sure that the investment return is aligned with the risk and collateral (from an investment standard and not a "plan loan" standard). This is "part of" what prevents it from becoming a prohibited transaction. Maintaining the proper perspective is important. Hope this helps.

I would distribute the deferrals, but forfeit the earnings. To distribute the earnings would be for a non-participant to benefit from the plan. Good Luck!

It's not a participant loan, so section 72(p) doesn't apply; leaving you with the prohibited transaction rules. It's basically treated as an investment in the plan that should be for the primary purpose of providing the retirement benefits under the plan. If the investment return is worth it, and it doesn't constitute a prohibited transaction, then you're good to go; just have to watch out for the pitfalls. Good Luck

I think the plan would 'effectively' terminate due to no active participants after June 2012. The IRS could 'deem' a plan to have terminated at a date that is different from the date on the termination amendment. This would be based on relevant facts and circumstances that suggest the plan actually terminated June 2012, irrespective of the amendment stating a later date. Just think, supposed this happened and there were non-vested profit sharing balances. You see how this argument could be made. Good Luck!

The same desk rule is irrelevant. Either he is still employed or not. Selling ownership doesn't mean that you're no longer employed. So, unless he terminates employment (or meet some other requirement for inservice distributions from the plan), he would not be able to take a distribution. Good Luck!