dmb

Andy, you nailed it. The plan fails as a cross tested plan and I am using a uniform allocation, but the plan fails the 70% coverage test.

I'm not sure if that answers my question. Sometimes i confuse myself when it comes non-discrimination testing. The plan passes the average benefits test, but i thought that if the plan doesn't pass the 70% coverage test, it needed to pass the average benefits test as well as the rate group test.

It is my understanding that if cross testing doesn't work a safe harbor allocation may be used. I have that situation, however, when i use a safe harbor allocation, the plan fails the 410(b) 70% coverage test (it fails that regardless of the allocation) and also fails the rate group (midpoint) test. I guess my question is if i'm using a safe harbor allocation does the plan have to pass the 401(b) 70% coverage test?? Thanks.

Thanks. The SIMPLE will end this year and the 401k will start in 2005, but you answered my question. Knowing the IRA wasn't a qualified plan, i was a little unsure about the SIMPLE 401k. Thanks again.

If a new 401(k) plan is being established where there was previously a SIMPLE plan, can vesting service prior to the effective date of the 401(k) plan be excluded or must service under the SIMPLE plan be counted?? Thanks.

An employee of an LLC (no ownership) is also a 100% owner of his own S-Corp. If the income of his S-Corp comes from the LLC, can it be used for the S-Corp's profit sharing plan??? Thanks.

That is correct and that is the issue, what comp to use for benefit calculations. An LLC taxed as a partnership should be paying W-2 comp to the members of the LLC. A CPA told me i could treat it as Guaranteed payments, someone else says they received a PLR for a similar situation that said they can use the W-2 comp as if it was a corp. I realize i can't rely on someone else's PLR, but just throwing that out there.

The LLC is being taxed as a partnership, i don't know what he's relying on to pay W-2 comp to the members of the LLC

A husband and wife are each 50% owners and the only "employees" of an LLC that sponsors a calendar year DB plan. The CPA sent me copies of the Form 1065 and K-1s to determine the compensation to use for benefits. The main problem (among others) is that there are "Salaries and Wages (other than to partners)" of over $200,000 that turns out was paid to the partners as W-2 compensation. There is nothing listed as "Guaranteed payments to partners". The K-1s show losses of less than $40,000 each. From what i understand, partners of an LLC should not receive W-2 compensation. What compensation should be used to calculate benefits?? Any advice would be appreciated. Thanks.

Our initial solution was the same as Blinky, but we did contact the ABCD. Thanks for the responses.

A client (one owner and one common law employee) has a calendar year DB plan effective 1/1/02. The 2002 work was completed on a timely basis based on a letter from the client stating that he made the required contribution (also on a timely basis). As an aside, this client has outstanding fees of almost $6,000 and we have not done any 2003 work since requesting the census and assets in January, 2004. We have found out that the client did not make the 2002 contribution at all, he has not been at his medical practice (he is on extended medical leave), his house is dark and mail is piled up. All that being said, what are my options with regard to funding and/or terminating the plan or our services?? Thanks.

Thanks for the response. Let me ask this then...a plan was effective 1/1/03. At that time there was one employer. As of 5/1/03 the employer formed a new entity which resulted in a controlled group. After realizing the situation, the ownership was changed so that the controlled group did not exist as of sometime in October, 2003. If the employees of the new entity all had dates of hire of no earlier than 5/1/03 could statutory exclusions be used to avoid covering the employees of the new entity?? By the way I am told that the plan does not have eligibility requirements. Thanks again.

The transitional rule of 410(b)(6)© refers to certain acquisitions or dispositions of a trade or business. Would the formation (as opposed to an acquistion) of new business be included in that classification??? Thanks.

Thanks Tom, but it actually looks like each HCE is set at the low end of the range.

I have a small X-tested PS plan. Two HCEs, 11 NHCEs. The Ebars for the two HCEs are approximately 8.0 and 5.0. Ebars for the NHCEs range from approximately 11.8 down to 2.4. The plan fails the F & C test for the highest HCE. If I use rate banding without specifying the bands, the plan passes. Basically, Relius reduces both HCEs' Ebars to the low rate of each band, but I'm having trouble figuring out how Relius determines the bands. I would appreciate any help/advice in determining bands and figuring out Relius. I've also seen some of the prior messages regarding rate banding in small plans and was wondering if feelings are still mostly against it in small plans. Thanks.

I'm sorry about the sketchy info, but I'm getting it second hand. My prospective client is a partner in several partnerships owning between 5% and 30% of the partnerships. The only other partner with earned income is a partnership that is a 1% partner. This 1% partnership is owned 20% by my client who receives passive income from this partnership, 20% by second individual who also receives passive income and 60% by a corporation which has earned income. My client is not associated with this corporation in any way besides the common ownership in the 1% partnership. Does this help?? I know it helps confuse me even more. Thanks for any help.

Thanks again for the responses, the 1% partner is another partnership (with no employees), does that mean that all partners of teh 1% partnership need to be considered in the DB???

Thanks again, but i now have more updated info. Apparently there is a 1% general partner that has earned income. Do you think that would change things. Thanks.

Thanks for the response, I have updated information: The Sole prop is a land developer. He is a parnter in a partnership where he is the only one earning income, the other partners are solely investors. I think I'm ok setting up a plan for his sole prop, but all opinions are appreciated. Thanks.

A potential client (sole prop) is interested in setting up a DB plan. He has no employees. He receives his earned income from various partnerships that being partnerships have other partners. Would these other partners need to be considered to determine if there is a controlled group before setting up a plan?? Thanks.

I'm probably more dense and more confused than Andy, but i was able to follow the exampes. I would just like some confirmation (or correction) that for an employee who will not be at their 415 limit, the minimum lump sum is still calculated using 417(e)(3) rates. Thanks.

My best guess would be it's a plan investment. I don't know the dollar amount. We're trying to find out the exact nature of the transaction.

This question has been passed through a few people so i only have a few facts. The sponsor of a DB plan has given plan money to a company that owns ATM machines. the ATM machines provide income to the owner based on the surcharges incurred by users of the ATM. Every month a check is written to the DB plan for its share of the surcharge fees. The plan sponsor has received a notice from the IRS saying they need to file form 990 for the past 3 years to report the Unrelated Business Income Tax. Is there a way to see this as something other than Unrelated Business Income?? Thanks.

I have a client who is 100% owner of two corps (A and B). I have been TPA for Corp A's X-tested PS plan for the past four years. While preparing the 9/30/04 contribution calculation I have been informed that there exists Corp B, which was formed in April of 2002 and said Corp B has a 401k plan. There are a few employees that work for both Corps, but i am told that the common employees do not participate in the 401k plan. There is one employee who worked for Corp A until June of 2002 and then moved to Corp B. I'm trying to figure out if i have issues for the 9/30/03 plan year. It sounds like i do. I thought there may be a two or three year grace period when a new controlled group issue arises, is that true?? Thanks.

Two companies, one owned 100% by a husband and one onwed 100% by his wife. Both companies have employees. The companies are not related (other than the husband/wife ownership). Is this considered a controlled group??