Alf

I think Disco Stu is correct that no 401(a)(4) test is needed if everyone has the ability to reach each performance level necessary for the match. But why would you need it after hearing the suggestion by Medusa. That's a brilliant way to accomplish exactly what you want to do, if you can relate the performance measure to a bonus or other payment.

DOL regulation 2550.404c-1 (a)(1), (d)(1), and (d)(2) say that a plan that meets 404c will have protection, but I can't think of anything that states it the way you want - that you don't have protection if you don't follow the rules - but that follows, doesn't it?

We also go by the date of the check because that is the date the loan starts for interest accrual in our case. It sounds like the date the loan starts (and interest accrual begins) should be the date the 5 year period begins, whenever that is in the case of your legal documentation.

I agree with you that the arrangement is suspect, but based on the assumptions, it has to be ok, doesn't it? I would get the representations you mentioned in writing for your file and ask the client (in writing) to advise you if any of the facts change. Good luck.

Technically, the determination letter review just relates to the document. The audit will go much farther into the administration of the plan and the auditor needs the documentation, etc. in order to get up to speed on the plan provisions. We had a hard time getting the IRS to scale down their request in our audit, but they eventually did. It seemed that initially the IRS wanted us to try and get everything they asked for, but when we later found out (and documented to the IRS) that some of it was impossible or unreasonably burdensome to get, they allowed us to provide as much as we could get. It wasn't enough for us to just say that it was burdensome, without trying to comply.

I am not sure what "employment year" means, but I assume that it is the same as the term anniversary year. As wise as DK's grandfather was, my grandmother's neighbor's second cousin always used to say that you can't go wrong by giving the participants the benefit of the doubt. As far as I can tell, the whole point of the transition rules in the regulations is to make sure that the participants are not harmed in any way by the switch, so can't you follow the spirit of the regulations and give them a year of credit if they would have gotten it as if the old plan didn't change and give them another year of vesting credit if they earn it under the new plan for the same period?

You can set up a nonqualified plan for any reason, but the answer depends on what you consider a "non-key" group. The determination of whether a nonqualified plan benefits a select group of management or highly compensated group is based on the facts and circumstances of each case and the DOL rulings and caselaw are all over the map as far as what type of employees qualify, but your characterization of these people as non-key makes it sound like they won't qualify. You should gather the compensation and job responsibility information of all of your employees and talk with your tax lawyer to find out for sure. An excess benefit plan can only be used for amounts that exceed section 415, not the 402 limit of $10,500, so it won't work either.

Great point by W. Myer, so the answer is probably no, but I can think of a few situtations where a former employee may not be entitled to receive a distribution (same desk rule or the employer has not adopted the safe harbor hardship standards).

I don't think anyone would argue that the notice somehow amended the plan, so the added (k) feature shouldn't have to be made effective 1/1. The question sounds like whether the plan meets the safe harbor requirements or not. Since there is no guidance on correction for violations of the safe harbor notice rules, you have some flexibility to take a reasonable approach. As far as the safe harbor notice content requirement, I would argue that as long as the safe harbor notice was accurate for the period in which the plan wants to be safe harbor, you met the content requirement. If you sent the notice out during the required period before 4/1/2000, you should be fine on the timing requirement. From what I have heard, the IRS correction for failing any of the safe harbor rules (including the notice requirement) is to use traditional testing and correction rules, so that is what you are faced with if you decide that the notice requirements were not met.

I agree that this is an example of the same-desk rule, once removed. Technically, whenever any of these employees get reassigned to a different job or line of business or terminate employment with the purchaser's purchaser, they should be eligible to take a distribution, shouldn't they? This example of having to make individual determinations and track former employees through a number of successor employers shows, once again, how stupid the same-desk rule is.

I have had the same experience as RCK. We were warned by our lawyers that the IRS might give us problems about our filing that was made beyond the one year period, but we received a favorable letter no questions asked.

I have always thought of it as a fiduciary issue. I think that the plan fiduciaries have a responsibility to go after the distributee to recover the excess distribution, even if that means a lawsuit (for large amounts).

I have never done it, but the correction is a contribution regardless of whether it is made to replace earnings or for some other reason, isn't it? Just because you make a contribution to make up for earnings that were missed doesn't make the money earnings.

I understand that every different rate of match is a benefit, right, or feature under the 401(a)(4) regulations, so wouldn't each group of people at each level of deferrals have to satisfy the 401(a)(4) testing requirements?

Wouldn't this cause the initial notice to have failed the content requirement because it didn't accurately describe the contributions that,as it turns out, were available under the plan for the year. I worry about your proposal because the only guidance we have on changing the contribution formula in a safe harbor plan is if you use the two notice approach.

Also, can someone clarify the reporting of the loss on an excess deferral? From the above posts, it sounds like the 1099 for the year of deferral shows the gross amount deferred, but the employee only received the net amount because the distribution of the excess deferral has to be adjusted for losses, right? Then, the employees tax return for the year of distribution has to report the loss. But how is the loss reported to the employee? Can a 1099 report a negative amount, and is it that simple?

Is it a safe harbor 401(k) plan? If not, there shouldn't be any notice requirement. Of course, the amendment cannot be made retroactively. If it is a 401(k) safe harbor, other rules probably apply to limit your ability to make the change with or without notice.

I don't think that an allocation would be required under law, so it depends on the terms of the plan. If the plan had a last day of year or one year of service requirement for participants to receive an allocation, the employees wouldn't be entitled to a contribution.

The key to this approach is that the plan provision first has to be a disqualifying defect (unless my memory is wrong). Then the disqualifying defect must be integral, doesn't it? If you had a 415 definition of comp that is no longer permitted under the code, you should be able to change to another definition. There is no authority I can think of for this position, except that if all of the requirements for retroactive amendments under 401(B) are met, it isn't prohibited.

Assuming the plan states that participants can defer "compensation," I don't think that the deferrals are allowed. They would violate the terms of every plan that I have seen. However, I would include the person in the ADP test because they were eligible to defer under the terms of the plan and therefore benefits for purposes of the ADP test.

We have always moved it immediately since we switched to daily valuation. Forfeitures in our plan occur when a participant takes a distribution, so that is when we move the money and use that account to offset employer contributions.

Yes. Excess deferrals are not included in the tests. First, the plan without the excess just tests the contributions made to that plan and the compensation paid by that employer. The plan with the excess deferral just tests the contributions that are not in excess of the limit and the compensation paid by that employer. There is not the same issue as there is with two plans and one employer, but the result is the same.

If the plan is subject to the QJSA rules, spousal consent should be required for a loan of any amount, shouldn't it. The $5,000 exception is only measured in terms of account balances at the time of a distribution/withdrawal, not the amount of the distribution/withdrawal.

JPCMPLS - What amount have you reported on the 5330s that you have filed? It the prohibited-transactions that is subject to the excise tax the amount of the late deposit or only the "interest" that would have applied to the loan of the funds as BSWIFT mentioned earlier?

In a non-safe harbor plan, after-tax contributions are included in the ACP test with matches. If the requirements cited by Phillip are met, you should get an ACP pass for the match AND the after-tax. If the after-tax wasn't included in the match calculation so that it didn't meet those rules, the after-tax would have to pass ACP by itself and it would fail on the facts you mentioned.