jaemmons

Andy, No, I did mean "revocable". If the waiver was irrevocable, then it would need to be made before the participant becomes eligible under any plan of the employer. Also, if properly executed, these employees would be excluded from all plan testing and deductibility computation. A revocable waiver has the opposite effect, but the timing of these waivers may give rise to a nonqualified CODA. In any case, both types of waivers must be made before the beginning of the plan year in which they will accrue a benefit. Sorry for the confusion.

The waiver must be applied for within 2 1/2 mos following the plan year end. In addition, there is a limit on these waivers to 3 out of every 15 consecutive years. In general, the waiver is amortized over 5 years, but may be extended to 10 if the IRS permits the application of extension (IRC 412(e)). I would have the ER file for a waiver now for the next plan year. It doesn't eliminate the necessity to satisfy 412, but it does spread out the time period for the contributing the prior funding deficiencies. However, given the way that the market has been lately, I don't believe trust earnings are going to help. Also, maybe the actuary should consider using an alternative funding method, for prospective plan years, which may lessen the burden.

When did the HCE waive participation? If it was before the beginning of the plan year and constitutes a revocable waiver, he/she is included in the general test as a "0" and his/her compensation is included in the 404 deduction limit. However, if the waiver was made at any time during the plan year, this can be considered a CODA, if his/her compensation is impacted by the waiver (i.e.-comp is increased by a similar amount as what would have been contributed.) In any case, for the waiver to be valid (you may want to refer to your plan document as to the timing of when waivers may be made) it should take place before the beginning of the plan year. Also, if the entity is an LLC or a partnership, the waiver would automatically constitute a CODA under Reg 1.401(k)-1(a)(6)(ii). If your plan document does not permit elective deferrals, you will have problems with having a nonqualified CODA within your PSP. In addition, is the $1 allocation set forth in your plan document?

For this specific plan, I agree that the T/H mins would be counted in determining whether or not the plan satisfies coverage, because it is not a "safe harbor" plan, as outlined in Reg.1.401(a)(4)-2. However, the group of employees to be included would depend upon whether or not the employer is electing to disaggregate and test the "otherwise excludable" ee's separately. In any event, the plan presumably would have to satisfy the avg. benefits test anyway, if the rate groups under the general test don't satifsy the ratio % test, based upon EBAR's, so the t/h mins would be included here anyway. However, for plans that wish to satisfy nondiscrim testing under Reg. 1.401(a)(4)-2, the plan must count those who receive t/h mins only as "not currently benefiting" and pass coverage testing, in order to illustrate that the formula is considered a "safe harbor" allocation formula. Since this is not one of those plans, then the rate group testing applies. I agree with Mr. Poje's comments, but the design of the plan's allocation formulas dictates how the plan passes coverage, with respect to those who receive t/h minimums only.

The "one monthers" would be treated as follows: 1) Ratio % test- mandatory disaggregation applies, so they would be included in the 401(k) coverage test, but since they do not meet the elig. requirements under the PS piece, they are excludable. 2) Avg Benefits Test- It depends on whether the employer wishes to carve out the "otherwise excludable" ee's (1 mos.). If they do, then avg benefit %'s are based upon only those plan participants who would have met the 21/1 yr statutory maximum, as of the plan's latest entry date. Here everyone who has met the 1 mos. requirement to defer but would not have met the 1 yr under IRC 410(a)(1)(A) is not included. If they do not "carve" out these participants, then ALL employees must be taken into account in determining the ABP's for the plan. Please keep in mind that you must test both groups separately. 3) General Test- Since you are testing for nondiscrimination with respect to the ER PS $'s, the EBARS are only determined for those nonexcludable ee's using the plans's 21/1 yr elig requirement. Even though the 1 mos are required to receive a T/H minimum, they are not included in the general test. However, if the rate groups do not pass the ratio % test, the determination of the Avg Benefits test is based upon the calcs in #2 above. I don't agree with Tom Poje, regarding T/H minimums. It depends upon whether the plan is designed to satisfy one of the safe harbor allocation methods under Reg. 1.401(a)(4)-2 or is demonstrating non discrimination testing under Reg 1.401(a)(4)-8 and whether or not the plan is using the ratio % test or avg benefits test to satisfy coverage. Just because someone is receiving a T/H min does not necessarily mean that they are "benefiting" under the plan.

I believe you do have an ASG under the "B-Org" group rules under IRC 414(m)(2)(B). Since Entity 3 is incorporated and does not qualify as a professional service corporation, there cannot be an "A-Org" group ASG, since they do not qualify as an FSO under these rules. However, an insurance corporation is considered a "designated service field" under the Proposed Regs of 1.414(m)-2(f)(2). Since an FSO under the "B-Org" rules that is a corporation does not have to be a PC, they would qualify as an FSO. In addition, Entity 1 and 2 look like they meet both the ownership and service receipts tests to qualify as a "B-Org". Therefore, from the facts given, I believe you do have an ASG.

If you want some assurance, you could apply to the IRS on Form 5300 for a determination, based upon all of the facts and circumstances of the situation, of whether a partial plan term occurred or not. These occurrences are not cut and dry and the reasons surrounding why these employees were laid off will play an intrical part in the determination. Normally, if the layoffs affected between 20% and 30% of the overall plan participation, the IRS may see this as a partial plan termination, but like I said before, you may want to submit to them for a letter, in case it gets brought up during another audit.

I would agree with you. "Earned income" is net earnings from self employment (which would included the depreciation expense if it is attributable to the trade or business)which is used in determining self employment taxes, reduced by contributions made on their behalf to the plan (including "salary" deferrals) and 1/2 the self employment tax. Most, if not all, plan document definitions of compensation refer to earned income for self employed individuals, as defined in IRC 401©(2). Since deferrals are not a deductible expense to the trade or business, but an individual adjustment to gross income on their respective 1040, they are not included in the determination of "earned income" for plan purposes. If the depreciation expense is used in determining the owner-employee's SE tax, then no adjustment would be necessary since it has already been taken into account for determining net earnings from self-employment.

My first question is whether or not you are using an individually designed doc. (IDP) for this plan. The LRM's released with respect to the GUST restatement of prototype plans, explicitly precluded prototypes from having these arrangements. Therefore, I am assuming you are using an IDP. Since the allocation formula is uniform to all of those covered in the one company, you will pass 401(a)(4) testing using allocation rates (contrib/414(s) comp)), if you satisfy 410(B). You MUST satisfy coverage before you can move to the general test and since there is only ONE rate group (all HCE's are receiving an allocation of 5% or 0%), if you demonstrate compliance with coverage, you will automatically pass the general test.

Under IRC 408(p) it refers to compensation as defined in IRC 6051(a) with pretax contributions to 401(k)'s, 457, SARSEP's and 403(B) added in. There are no references to adding back IRC 125 deductions, so I would say that $20,000 is the comp amount to be used.

Multiple ER plans can also be established by companies that have a business relationship or common ownership, but do not satisfy the related employer definition of IRC 414(b)or ©, as is the case here. The guidelines for multiple employer plans are set forth in Code Section 413©. In addition, you cannot sponsor a multiple er plan under a prototype document, so you may have to restate onto a custom drafted plan doc if you are currently using a prototype.