Gary

I have a husband and wife who fully own two companies. One company sponsors a safe harbor 401k plan and the other company sponsors a DBP. The husband and wife receive compensation from both companies and their one employee only receives compensation from the company that sponsors the 401k plan. In performing the non discrimination testing it appears to me that the husband and wife should have their compensation combined for ND testing. So for example if one of them accrues a DB accrual of $5,000 in the plan's first year and the owner earned $100,000 from each company then it seems for ND testing the accrual rate is 2.5% (5,000/200,000) as opposed to 5% (5,000/100,000). Is that correct? Of course the DBP plan formula can be based on compensation from the one company. Thanks.

I would have thought the SOA would have the table you are searching for.

I am new in the field of 401k plan administration and want to get some explanation of a couple of things. We'll assume that the plan has a 401k feature and a profit sharing plan feature. 1. If a plan is NOT self directed and all plan money is in one trust account, not segregated, then my understanding is that the recordkeeping is allocated for each participant based on the overall return of the trust fund, including taking into account transactions. Therefore the account balances for all participants must be computed based on total plan assets by the plan adminstrators and the bank or trust custodian does not play a role in this matter. Is this basically correct? 2. If alternatively, a plan is self directed then my understanding is that each participant must have a segregated account that is determined presumably by the custodian (i.e. Schwab, Fidelity, etc.). And thus it would seem that the plan administrators (if not Schwab, Fidelity, etc.) would not be required to perform record keeping, other than perhaps determine which amounts are vested, since there are segregated accounts. Or perhaps they are sub accounts within the one master trust account. Is this basically correct? Thanks.

A husband and wife are only participants in their 100% owned company DB plan. They are terminating the plan and each have a lump sum value worht $50,000. Scenario 1 - say plan is invested in one piece of real estate worth $50,000 and cash in the amount of $50,000. Can one of the participants receive an in-kind distribution of the real estate? Can the real estate be directly rolled into an IRA account that accepts such an investment? Scenario 2 - plan owns a piece of real estate worth $100,000 and no other assets. Can the real estate be rolled into each aprticipant's IRA account where each has 50% ownership of real estate? The questions above are regarding the legality. Of course the plan will have to provide for the above as well. Thanks.

Yes it is a C corp where the owner took 50k in w-2 and wants to defer 20.5k (over age 50) in connection with that w-2. And since he did not withhold it at the time the w-2 was paid the issue is: Can he make a subsequent deferral up to the due date of tax return? One pension attorney says "yes', but it doesn't really seem right to me. Thanks.

Registered User Group: Registered Posts: 481 Joined: 23-October 98 Member No.: 521 A one participant corporation has a 401k plan. Their fiscal and plan year end are 1/31/07. The owner/participant took compensation of $50,000 all taken in January 2007. The owner now wants to make a 401k deferral for the 1/31/07 plan year end that would thus be a reduction to his income for the 2007 individual income tax return for this individual. My understanding is that the elective deferral should have been made by Feb 15, 2007 to be applied to the 1/31/07 plan year. A pension attorney says that in this case the owner/participant can wait until the due date of his corporate return (with extensions) of 10/15/07 to make the 401k deferral to the plan since it is for the owner. As opposed to a common law employee. Does anyone know the correct answer and know where the authority on this matter is (i.e. code, reg, etc.)? I believe for an unincorporated self employed person (using Schedule C of 1040 for business) he would have up until the time of his tax return is due; this works nicely because we are dealing with the same one return, that being the 1040 so that makes some logical sense. But I don't know that such a liberty is allowed for a incorporated business as discussed above. Thanks.

THIS IS POSTED IN THE 401(K) FORUM!!! - BLINKY A one participant corporation has a 401k plan. Their fiscal and plan year end are 1/31/07. The owner/participant took compensation of $50,000 all taken in January 2007. The owner now wants to make a 401k deferral for the 1/31/07 plan year end that would thus be a reduction to his income for the 2007 individual income tax return for this individual. My understanding is that the elective deferral should have been made by Feb 15, 2007 to be applied to the 1/31/07 plan year. A pension attorney says that in this case the owner/participant can wait until the due date of his corporate return (with extensions) of 10/15/07 to make the 401k deferral to the plan since it is for the owner. As opposed to a common law employee. Does anyone know the correct answer and know where the authority on this matter is (i.e. code, reg, etc.)? I believe for an unincorporated self employed person (using Schedule C of 1040 for business) he would have up until the time of his tax return is due; this works nicely because we are dealing with the same one return, that being the 1040 so that makes some logical sense. But I don't know that such a liberty is allowed for a incorporated business as discussed above. Thanks.

A couple of points I am going to present and would like either verification or difference of opinion if any exist. I'll try to keep things straight forward. Background Law firm has a 401k only plan for associate attorneys and a 401k, 401m and profit sharing plan for the partners and rank and file employees. Only NHCEs receive a 401m match. It is intended that the partners' plan passes without aggregation. We'll assume that the partners plan by itself is top heavy. 1. Regarding the ADP test, my understanding is that we include all non excludable employees in the company for the coverage ratio test, but only include the non excludable employees in the partners plan when performing the ADP test? 2. The partners plan passed the rate group non discrimination testing by means of the average benefit test. While the ABT is based on rates for all non excludable employees in order to test for the average benefit percentage portion of the test, it is still not deemed a required aggregation for purposes of providing top heavy allocations for the associates, thus associates would not be required to receive a TH allocation? 3. And finally, while the partners plan is being tested on a cross tested basis, the assoicates plan should not be required to receive a gateway minimum? The ABT uses cross testing for the associates plan as well of course. 4. To make a long story short, meeting coverage and/or non discrimination by means of the ABT does not warrant required aggregation as far as I can see? Otherwise it appears that the partners plan is being tested as a separate and distinct plan. Thank you.

My first observation is that you need to compute the present value of accrued benefits in the cash balance plan in order to determine top heaviness for the plan or plans combined.

The excel solution is beginning to make the most sense to me. And printing to Adobe sounds like a good idea as well. Thanks much. I will investigate that approach. Gary

Thanks for the responses. Since I am an actuary and this message board is my long-time stomping ground, I wanted to initiate communications here and then ultimately go to the 401k message board, if necessary. I like the idea of either excel communications or word document mail/merge. I presume it is easy to merge excel data into a word document. And I presume I can create a template of text in an excel spreadsheet (without having to mess with macros) that can access the excel data. Any suggestions as to how to most efficiently incorporate excel data into an excel template would be helpful. Thinking off the top of my head I might have to manually refer to the cells for each participant's data one at a time. Of course since my plans have generally less than 20 participants it isn't too big of a deal. Our firm does have Relius and I can tinker with it as well; though I don't think we have any reference manual for the software. Thanks

We have recently implemented some 401k/profit sharing plans for small employers (i.e. less than 25 employees). WHile I am able to perform non discrimination testing and account balance record keeping with the assistance of excel spreadsheets, I am curious to hear any suggestions as to what software or method to use for preparing client/participant statements of account balances? This can include using excel to do this too; which would even be preferred. Let's assume that the account balance and census data are maintained on excel spreadsheets and can be used as input data for the statements. Thanks for any ideas.

Thanks, makes most sense to me. I will check further and see if it is explicitly said in regs too.

Say we have a combined defined benefit/profit sharing/401k plan. The non discrimination tests are to be performed on the accrued to date basis. Regarding the minimum gateway,is the highest allocation for the HCEs based on the allocation under the accrued to date method or is that always based on the annual (current year) method? For example for a first year DB plan a 5% owner HCE (earning 100k) can have a DB benefit of $0 at the beginning of the year and an accrued benefit of $10,000 at the end of the year. And if he has 5 years of credited service at the end of the year his annual accrual is 10%, but his accrued to date accrual is 2% (10,000/5 divided by 100k) and thus the equivalent allocation differs greatly.

I have a 1 participant/owner 412i plan. The uncertainties in such a plan are: projected cash values of life insurance policies, and distribution option chosen (eg. insurance provided annuity, distribution of policy, lump sum) Of course we can't exceed 415 and we don't want a surplus upon distribution. Plan is funded 50% with annuity contract and 50% with life insurance contract to meet incidental death benefit requirement. Suggested plan document techniques (from a conceptual standpoint not from an exact language standpoint) include: Accrued benefit be equal to the benefit provided by the accumulated values (i.e. cash value and accumulated value of the two policies) at determination date. Of course the benefit differs based on the plan distribution. Normal retirement benefit equal to the benefit provided by the accumulated values at normal retirement. Death benefit equal to the life insurance proceeds plus the accumulated value of the annuity contract. Basically the intent of the above concepts it to ensure that the plan document mirrors how the plan operates. Curious if there are any other viewpoints out there.

Yes, I am aware of Q-9. In one sentence it says "When employer contributions do not exceed 6% ..., the combined limit of 404a7 does not apply to employer DC contributions" So in playing devil's advocate if 404a7 does not apply perhaps we revert to single employer limit. Maybe.... I certainly see your point that the limit is probably 100% CL. To take a step back are we in agreement that if only 401k deferrals are made to a DC plan then the DB limit is the 150% limit? So the thought was that perhaps paying less than 6% to DC swas analagous to 401k deferral only plan. Thanks.

Under PPA 2006 for the 2006 plan year. Plan has 2 participants. My understanding for a single employer DB plan is that the 404 limit is u p to 150% of current liability. My understanding for a DB plan and a stand alone 401k plan (no matches, etc.) is that the 150% current liability still applies. My understanding for a combined profit sharing, DB plan situation, the combined plan DB limit is the minimum up to 100% current liability (if greater than 25% of pay) and that a profit sharing contributes 8% of pay, subjects 2% of pay to an excise tax for 2006. Now here is where things get a little dicey for me. If we have a combined profit sharing, DB plan situation, and between 1% and 6% is contributed to the profit sharing plan then is the plan DB limit: the greater of minimum or 100% CL (assume greater than 25%) or since profit sharing contribution does not exceed 6% is the combined DB plan limit ignored and the single employer limit of 150% of CL applicable? Thanks.

I don't see why he can't continue accruing a gross benefit that is offset by his prior distribution(s).

Say a 1 HCE participant plan is a 412i plan with 50% of total premium for annuity policy and 50% for life policy. Say the participant has average compensation at the 415 limit of 180k and NRA is 62 and he will have 10 years of part at NRA. Therefore his 415 limit benefit is 180k. Lets say that the 415 lump sum at 62 based on benefit of 180k is $2,000,000. Now let's say the cash values reach $2 million by age 60. Even if the plan is frozen and no further premiums are made and the plan is converted to a traditional 412 plan, the cash values will still continue to increase by age 62, thus causing a surplus and excise taxes. So the point and question is: Once the 415 lump sum is reached, how can you avoid a surplus situation? Terminating the plan and distributing $2 million at age 60 would likely be in excess of the 415 lump sum limit (or at least let's assume that it is for this question). Thanks.

The plan provides for a year of credited service, but I was wondering if there was any statutory provision that would preclude from accruing a year of credited service in a 3 month plan year. Thanks.

A small company merges nto another small company. The new small company now adopts the plan and the first plan year is to be a short plan year from 4/1/07 to 6/30/07 with each subsequent plan year from 7/1 to 6/30. In order to receive a year of credited service the plan requires 500 hours during a plan year. As far as I can see, if the participant works 500 hours during 4/1/07 to 6/30/07 then the participant can recieve one year of credited service. Does anyone have concrete evidence indating otherwise? Thanks.

Then for tax deduction purposes the 5/31/08 (perhaps s/b 5/30/08) valuation (2nd plan year end) would be based on $0 assets for 404 purposes since no deduction for 5/31/06 tax year. And if a deduction of 200k can be accomodated based on $0 assets for the second plan year then I see no problem with a 200k deduction for the 5/31/07 tax year. The only quirky aspect is that the first plan year is 364 days and the second plan year is 366 days or more than a year. The second plan year s/ probably be from 5/31/07 to 5/30/08 and so on.

From your example, it appears that both the plan year and the tax year are the same. In any event, I don't bellieve they can deduct 200k based on your example for 5/31/07. The only way they can deduct 200k for 5/31/07 is if the first plan year supports such a large deduction, as opposed to using two plan years funding requirement to accomplish the 200k deduction.

Another way of putting it. For the DBPP I am using all past service (for eg. 10 years) since at plan inception past service is counted for the accrued benefit. So I am not using only the two years of participationin this case. For the DC plan I believe two years are appropriate since allocations have only been provided for the two years of plan participation. Basically, I am applying the princiapl that a DB plan can provide past service credit but a DC plan typically does not. Thanks.

A client of mine has a DC plan that has been in existance for one year and a DB plan tht has been in existance for one year. Since the DB plan never had any prior NHCEs they use all past service in the calculation of accrued benefits. For the second plan year we will be adding an NHCE. So the plan will have 2 HCEs and 1 NHCE for the 2nd plan year. In doing the non discrimination testing we will plan on using the accrued to date method for the DB plan. 1.401(a)(4)-9(b)(2)(iv) seems to indicate that the same measurement period must thus be used for the DC plan for consistency purposes. That is, I could not use the annual method for the DC plan if I use the accrued to date method for the DB plan. Is my understanding on that point correct? If so, then I will use the accrued to date method for the DC plan as well, which I presume will be based on the 2 HCEs account balance at the end of the first plan year plus the second year allocations divided over a measurement period of 2 years, since even though they may have worked ten years, there have been only two years of allocations. Is that correct? However, the DB plan can have ten years (i.e. all past service) in the measurement period since the accrued benefits are based on all past service. Thanks.