jaemmons

Was the overfunding in excess of the 25% deduction limit?? If not, you may be able to retroactively amend the plan to provide for a pro rata increase in benefits to possibly absorb the excess. I agree with Kirk in that you cannot just declare a "mistake in fact" and forward a check back to the employer.

I thought that if the portion of the total vested account balance being used as security for the loan did not exceed the plan's cashout limit of $5k (assuming it has been amended to change to the $5k) then no spousal consent is required. Treasury Regulation 1.401(a)(20)- Q&A24 ...Spousal consent is not required if the plan or the participant is not subject to section 401(a)(11) at the time the accrued benefit is used as security, or if the total accrued benefit subject to the security is not in excess of the cash-out limit in effect under Sec. 1.411(a)-11T©(3)(ii)... If the participant does not take a loan in excess of $5k, no spousal consent would be required.

The failure to have the proper fiduciaries bonded will be reported to the PWBA/DOL on the Schedules H or I. So this would take care of "notifying" the DOL. I would just have the company contact their casualty insurance provider and have the two trustees ( whom I assume are also fiduciaries to the plan) bonded.

Unless I am missing something, all employers who are eligible to sponsor a 401(k) must perform adp testing. The only entity I might question would be a church plan, but I believe even those are subject to adp testing.

I agree. Although the plan administrator can be referenced by a title held within the company, the trustee(s) need to be named, either as an individual or as an entity which can serve in a trustee capacity (bank, financial institution, insurance company). State law generally dictates who can serve as a trustee, unless federal law supercedes it.

Yes. See IRC 416(i)(1)(B)(i) which references stock attribution under IRS 318.

Blinky, IRC 414(s) compensation is defined. Any alternative definition of comp must satsify 414(s)(3). I agree that the plan can allocate benefits based upon compensation earned for the member sponsoring the plan, but the plan has to satisfy the "de minimis" test under Treas Reg 1.414(s)-1(d)(3). The control group is the employer for all plan purposes, so to exclude comp earned from a nonparticipating member would be an alternative definition of comp which must be tested for nondiscrimination.

yes they are. If they are not, you would violate IRC 410(a) as the plan would be imposing an hours requirement greater than 1,000 (assuming the plan requires 1000 hours for eligibility, vesting and/or allocations).

Chris, Compensation is counted from all members of the control group as they are treated as one employer, regardless of whether they participate in the same plan or not. Nondiscrimination testing uses the plan's definition of IRC 414(s) compensation. Since IRC 414(B) applies to IRC 415©(3) which is the starting point for determining 414(s) compensation, you must count all compensation paid to all members of the controlled group, as if they were one employer, in order to ensure that the plan's definition of comp does not discriminate in favor of the HCE's. IRC 414(B) : ...For purposes of section 401, 408(k), 408(p), 410, 411, 415 and 416, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a), determined without regard to section 1563(a)(4) and (e)(3)©) shall be treated as employed by a single employer. Just because a member of the control group does not participate does not mean that you do not count the comp earned from their employ. I am sure there are plans which do so, but this would be a non safe harbor definition of comp which would require nondiscrmination testing.

Blinky, There is an assumption being made on my part that the match satisfies the safe harbor under 401m11. If this is the case, the plan consists solely of safe harbor contributions under 401k12 and 401m11 which would allow for the plan to be exempt from top heavy. If the matching contribution does not meet the safe harbor requirements under 401m11, the plan would be subject to top heavy determination and compliance.

Blinky, If this plan's matching formula satisfies the ACP safe harbors, then the plan is exempt from top heavy (as it is only providing safe harbor contributions under IRC 401(k)(12) and 401(m)(11)). This assumption is made based upon "doombuggy's" statement that the plan does not run adp/acp testing and make the 3% nonelective for adp safe harbor purposes. Also, I was stating that former key employees are still counted for any top heavy minimum allocation, as they are still nonkey's for this purpose. Their account balance however, is disregarded for top heavy concentration % determination purposes, unless they become a key ee in a future plan year.

IMO hours worked and compensation earned with all employers of a controlled group would be included for plan purposes regardless of whether or not they are a participating employer. Since the employer, by definition, is the controlled group, unless the plan somehow has language precluding recognition comp and hours of non participating employers (which you would need to test for discrimination under 414s), comp and hours count across the board.

If the match satisfies the ACP safe harbor, then you don't need to run top heavy as the plan is exempt from top heavy. However, for other plans which run across your situation, you are correct that the former key ee's account balance is disregarded for th determination, but they are still counted for th minimum allocations.

Given the additional facts, I believe you can go ahead and establish a 401(k) plan. However, both SIMPLE IRA's and SIMPLE 401(k)'s are limited to only what is required to be contributed by the employer. In other words, the employer cannot contribute more than the 3% match or 2% non elective contribution. No additional employer contributions can be made above these amounts. See IRC 408(p)(2)(A)(iv) and 401(k)(11)(B)(i)(III) Therefore, if the US er wants to contribute 10% to the ee, a 401(k) seems to be the only plan available to them.

Given the additional facts, I believe you can go ahead and establish a 401(k) plan. However, both SIMPLE IRA's and SIMPLE 401(k)'s are limited to only what is required to be contributed by the employer. In other words, the employer cannot contribute more than the 3% match or 2% non elective contribution. No additional employer contributions can be made above these amounts. See IRC 408(p)(2)(A)(iv) and 401(k)(11)(B)(i)(III) Therefore, if the US er wants to contribute 10% to the ee, a 401(k) seems to be the only plan available to them.

Technically you don't have a "solo401(k)" unless the German ee who is employed by the US subsidiary owns 100% of the US subsidiary. Otherwise you don't qualify as a "one participant" plan for IRS/DOL reporting and disclosure purposes. You don't have a controlled group of corporations, unless the German parent company also owns 80% or more of another US based subsidiary. If they do, you may not be able to establish a plan for this ee (especially is he/she is an HCE) without taking the other er(s) into account. Are there any other facts you are leaving out?

R.Butler, I believe you are on the right track. Under IRC 1563(e)(2) a partner who owns a 5% or more interest in a partnership is deemed to own, on a prorata basis, any stock owned by the partnership in a corporation. As such, any corporations owned by the individual partners need to be looked at also for controlling interests, since the stock owned in the Auto Dealersip by the partnership is generally treated as owned by each individual partner, subject to my previously mentioned ownership minimum.

Thank you to everyone who responded. However, this plan has a wrinkle I did not include. EE's can defer after immediately after DOH, but need to meet one yos and age 21 to receive a match and profit sharing. Since the plan is top heavy, I used the match (which is 100% up to 3% of comp) to apply towards th mins. However, there were 4 ee's who did not defer and do not have one year of service (are 21 though) and thus are not eligible for the match and profit sharing. Since they are eligible to defer they must receive a 3% top heavy. All other ee's receive the top heavy through the match, and receive an allocation of the cross-tested profit sharing. Also, the plan satisfies the gateway requirements. Since the four ee's who received a top heavy were not eligible for profit sharing (did not meet 1 yos) can I include their top heavy allocation in the general test? They can be statutorily excluded, but I need two of them to pass rate group testing. Do these additional facts change anyone's opinion. I included them in the 401a4 testing, since they did technically receive an allocation of employer nonmatching dollars, but does anyone disagree with this. thanks

Some of them are but some are not which is what is causing me some confusion.

Blinky.. Thank you for the correction. If the monies do sit in suspense, would they be considered a non-deductible contribution subject to the 10% excise tax under IRS 4972?

Plan has dual eligibility requirements which allow for deferral immediately but maintains a 21/1 for employer discretionary $'s. Plan is cross-tested. There are a handful of employees who must receive TH min since they were eligible to defer. As such, they are being given the minimum gateway (1/3 of highest HCE allocation %). Question: Can I include those who receive TH only in my EBAR testing, even though they are not yet eligible for the employer cross-tested contribution??

By "class-based" I mean that different groups of employees (not based upon age) receive different allocation rates. If I broke the plan into component plans, one for each allocation group, would I skirt the gateway? The groupings are based upon being an employee of the employer on a certain date. Not the usual groupings, which I am thinking would allow me to break the plan into components and test each separately for 401(a)(4). Any thoughts??

Since it is a pooled account, I don't see any reason which would prohibit the current deduction with the excess suspense being used in the following plan year.

If a sponsor of an ERISA 403b plan has an employer discretionary contribution which is class based, since it is subject to the nondiscrimination rules under IRC 401(a)(4), as referenced in IRC 403(B)(12), is it subject to the minimum gateway allocations also? IMO I would say yes, but I wanted to know if anyone has a contradictory opinion. thanks

RBeck, Is this an individual daily valued plan? If so, I didn't think you could hold suspense accounts, since most investment platforms will not hold unallocated funds, which would mean that there is either a reallocation of the 415 excess amounts, a return of employee deferrals and forfeiture of related match (if plan provides these features) or a combination of the two. However, if the plan is not an individual daily valued plan, I would say that the plan can take the deduction as it does not seem to violate 404 deductibility, even if it is sitting in a targeted suspense account for allocation the following plan year (assuming the employer will make a profit sharing contribution the following plan year).