Blinky the 3-eyed Fish

Exception to what? That example would not leave a funding deficiency.

Try Notice 98-1. Note my answer before assumes the plan will disaggregate the otherwise excludables again this year. If not, read the notice for more information.

They can use the disaggregated figure.

I don't see any problem with allocating the money as a QNEC as long as the document says the contribution can come from that source.

Merlin, why do you say it's a multiple employer plan? They are after all an ASG and therefore related entities.

It doesn't matter how the plan failed to satisfy the minimum funding requirements, only that they failed. So, yes, there is an excise tax on the funding deficiency.

Do the normal cost and amortization bases need to be prorated for a short plan year of an ongoing plan similar to the provisions of Rev. Rul 79-237 for terminated plans? Would your answer change for a participant with compensation at the 401(a)(17) limit, whose compensation is already being prorated (in effect a double proration)?

Jaemmons, so you are saying that in a community property state you could have a married individual that owns 41% of two companies and that would constitute a controlled group?

If you are preparing the 5500 on an accrual basis, you would need to file. If it's on a cash basis, you do not.

Jaemmons, I have never heard of anything like your example with the mother and father. For controlled group purposes it would mean completely different treatment of owners based on whether they were married or not. Do you have any cites or experience on which you base your logic?

Even if you have a controlled group, it is very likely that the other members of the controlled group would have to adopt the plan in order for their employees to be in the plan. I am sure there are some documents with language that would automatically cover all employees of a controlled group, but I can't recall seeing one. That being said, I assume the two companies adopted the plan and, therefore, you DO have a multiple employer plan.

I have discovered that for a vast majority of the participants, like 98%, the stipulation that you cannot impute permitted disparity on the safe harbor contribution piece has no effect on the end result for each participant compared with a non-safe harbor 401(k) plan. If anyone disagrees or wants to see an example, I will post one.

If a plan has 100 or more participants as of the beginning of the plan year, it is considered a large plan and must be audited. BUT if the participant count does not exceed 120 and never did at the beginning of any year, the plan can still be considered a small plan. Now, once the plan goes over the 120 participant count at a beginning of the year, they can only be considered a small plan if the count drops below 100. However, they still can consider themselves a large plan if the count remains at 80 or above. (But as you point out, who would do that?) So, in your case, I am assuming your 84 count is at the beginning of the year. Therefore, they can file as a small plan (or a large plan if they choose).

I know that for small plans for plan years beginning in 2002 the maximum deductible contribution amount is not less than the unfunded current liability amount. However, benefit increases for HCE's resulting from plan amendments cannot be considered until 2 years after the later or adoption or their effective date. So, if a plan does not reference the increased 415 and 401(a)(17) limits due to EGTRRA and requires an amendment to the plan to reference those new limits, does this count as an amendment for these purposes? I am thinking the 415 limit increase would not count as an amendment because it's the limit that's increased, not the benefit. Retroactively increasing the 401(a)(17) limit, however, does seem like a benefit increase. Any thoughts or guidance out there?

Yes.

Maverick is correct.

I just viewed Caddyshack again, and they thought they had a dirty pool, but it just turned out to be a candy bar.

Rcline, there are situations where it does not work for an age-weighted plan either.

Sure, and while he's at it he can file the 5500, restate his own plan for GUST and adopt the appropriate EGTRRA amendments. Increasing the amount and keeping the same ratio does not necessarily yield the same result.

Andy, I think there is an argument for including compensation of a 401(k) plan participant that did not defer nor otherwise receive an allocation. I, however, cannot see any arguing whether or not to include the compensation of a person receiving a top heavy minimum. An example to illustrate this would be a top heavy plan where the owner deferred and no profit sharing contribution is given. You could easily have a case where you had required top heavy minimum contributions that would not be deductible under the no-count-comp argument.

Yes, compensation from anyone who benefits from any portion of the plan can be used to calculate the deduction limit.

I have an additional question relating to plan terminations. Below is the section of the plan document that describes the asset allocation process in case the plan assets are not sufficient to satisfy the benefit liabilities. Note below in (a)(5) the document specifically describes benefits guaranteed by the PBGC. If the plan is not covered by the PBGC, does this subcategory apply to the allocation? I believe that this is just poor document drafting and that the provisions of RR 80-229 would still govern the distribution. In other words, applying the PBGC priority category 4044(a)(4)(A) would still apply even if the plan is not covered by the PBGC. "(a) Priority Of Payment: If the Trust Fund cannot provide such costs in full, it will be allocated in the following order of priority, with allocations within the last category for which assets are available being made in proportion to the costs within that category for each Participant: (1) benefits accrued for Participants from Employee contributions; (2) costs for Participants who have been receiving benefits or who have been eligible to receive Normal Retirement Benefits in accordance with Section 5.1 for more than three years as of the date of termination; (3) costs for Participants who have been receiving benefits or who have been eligible to receive Normal Retirement Benefits in accordance with Section 5.1 for less than three years as of the date of termination; (4) costs for Participants who were eligible to receive early retirement benefits as of the date of termination; (5) costs for all other benefits insured by the Pension Benefit Guaranty Corporation; and (6) costs for any other benefits. (B) Discrimination Not Permitted: If the allocation made under paragraphs (a)(5) and (a)(6) above results in discrimination in favor of Participants who are officers, shareholders, or Highly Compensated Employees, then the assets allocated under paragraph (a)(5) and paragraph (a)(6) will be reallocated to avoid such discrimination. All amounts allocated under this paragraph shall be nonforfeitable, to the extent Fund assets are sufficient. After allocation, the Employer will determine whether to make lump sum payments of the Actuarial Equivalent of benefits from the Trust Fund or whether to purchase immediate or deferred annuities from an insurance company in whatever amounts the monies so allocated will provide. If the Trust Fund has sufficient assets to cover the cost of all Accrued Benefits and full settlement of all such benefits is made by lump sum payments of the Actuarial Equivalent of benefits or through the purchase of a group annuity contract or individual annuity contracts, then any balance remaining in the Trust Fund will be refunded to the Employer."

The $500,000 cap does not apply for purposes of satisfying the bonding requirements to avoid a small plan audit. I have found that more of the insurance carriers are adjusting to the new requirements, although they were, and some still are, slow to do so.

Thanks, Mike. I was going to advise the client to "stick it to the little guy", but now I will reconsider.

Yes. By the way, they are not terminated, so they are not inactive participants. Also consider for the plan year beginning in 2002 these part-time participants will need to receive the minimum allocation to satisfy the gateway requirements, not just the top heavy minimum.