Blinky the 3-eyed Fish

He's off until Monday. I sent him an email.

I would like to break it down a bit. 404(a)(7)© is as follows: © Paragraph Not To Apply In Certain Cases (i) Beneficiary Test This paragraph shall not have the effect of reducing the amount otherwise deductible under paragraphs (1), (2), and (3), if no employee is a beneficiary under more than 1 trust or under a trust and an annuity plan. (ii) Elective Deferrals. If, in connection with 1 or more defined contribution plans and 1 or more defined benefit plans, no amounts (other than elective deferrals (as defined in section 402(g)(3))) are contributed to any of the defined contribution plans for the taxable year, then subparagraph (A) shall not apply with respect to any of such defined contribution plans and defined benefit plans. (iii) Limitation- In the case of employer contributions to 1 or more defined contribution plans, this paragraph shall only apply to the extent that such contributions exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans. For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions to the extent attributable to employer contributions to such plans in such preceding taxable years. (iii) is the new section added by 803 of PPA. Clearly it states that 404(a)(7) doesn't apply when DC contributions do not exceed 6% of compensation paid to beneficiaries under the plans. Just like it doesn't apply when you don't have common participants. Now, in looking at Q&A 9, which I copied below for reference: Q-9. How does the combined limit of § 404(a)(7) apply when employer contributions to defined contribution plans (other than elective deferrals) do not exceed 6 percent of compensation of participants in those plans? A-9. When employer contributions to defined contribution plans (other than elective deferrals) do not exceed 6 percent of compensation of participants in those plans, the combined limit of § 404(a)(7) does not apply to any employer contributions to defined contribution plans. In such a case, the combined limit of 404(a)(7) i.e., the greater of 25 percent of compensation, or the contributions to the defined benefit plan or plans to the extent such contributions do not exceed the amount necessary to satisfy the minimum funding standard for the defined benefit plans, treating a contribution that does not exceed the unfunded current liability as an amount necessary to satisfy the minimum funding standard for each defined benefit plan) applies only to contributions to the defined benefit plans. I agree with lerieleech, that the answer is stating that 404(a)(7) doesn't apply to the DC contribution, yet the DB is limited. This is a completely incorrect interpretation in my opinion when the code is so clear. How are mistakes like this made? I have prepared many 2006 contribution results on the basis of keeping DC contributions under 6% and taking advantage of the 150% of CL deduction. I know my clients would win in tax court, but I certainly don't want them to go there. Rant over.

With a retirement age of 62, you would produce a higher maximum than with 65.

Well while I will acknowedge there is probably widespread noncompliance and it is doubtful the DOL would or should care too much since we are talking about the owner of the business, the reality is the deferrals must be deposited ASAP once income is known. The same timing rules apply to sole proprietors as do employees, it's just they are given the extra time to figure out their earned income. But once that point is reached, it's time to pony up.

Mjb, I didn't understand your post. Ted, the answer to your question lies in how you compute earned income for plan purposes. I fear if you are asking the question, you aren't considering factors such a 179 expenses, amongst other items.

I don't think I have heard that extreme an interpretation before if the plan is adopted before the effective date. The statutory language is "....resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2 years". I could certainly argue in your example the plan is effective 12:00 AM on 1/1/2003 and the 2 years ended the moment it became 12:00 AM on 1/1/2005. Where have you heard there is a 3 year wait in this instance?

No, it is a protected benefit.

The IRS has said repeatedly at conferences and I believe the Gray Book that the adoption of the plan counts as an amendment for 404(a)(1)(D)(ii) purposes. Thus the UCL is not available in years 1 or 2 and potentially year 3 depending on when the document is adopted. I am not sure I understand your example since if you can't fund the UCL, you don't have the same funding in year 2 if you could.

#3 For nondiscrimination purposes you count compensation with all related employers. Whether or not you would count it for plan purposes depends on how the document reads. Some docs will automatically count the compensation of all related employers; some docs require the related employer to adopt the plan. If the latter and you have NHCE's in C, you have general testing to do. #4 Count compensation for 415 with related employers.

In this situation you are not allocating the forfeiture against the SH match, rather you are reducing the deposit required of the employer. It meets the TH exemption.

After looking up the cite a better description is that it doesn't violate the age and service conditions. As for a reasonable classification, I don't know how you argue it's not being that you are applying it uniformly and objectively. See 1.410(a)-3(e)(1) example 6 to back up my first sentence. But as my last sentence said in my first post, this all could be moot (with a safe harbor formula and unit accrual).

Excluding people after x date is a reasonable classification. I don't have the cite handy but it's specific in the regs. You should continue to run the tests and once you reach failure, add back under an -11(g) amendment. If you have a safe harbor design in the DB plan it very well may work out for coverage testing that the ratio test and average benefit test yield the same results.

Of course I gave you the simplistic answer. If you are determining final figures, you really need an experienced person to determine the earned income to use for plan purposes.

If the LLC is taxed as a partnership, their net earned income is considered compensation for plan purposes and the CAN make 401(k) deferrals and receive employer contributions. If the LLC is taxed as a corporation (rare), they would have to take W-2 wages to make deferrals or receive contributions.

A DC plan wants to offer everyone the right to receive an in-service distribution but only for a limited period of time. Do you see this as a 411(d)(6) violation once the period ends? I can't find anything yet that makes me think this is allowable.

I am waiting for the guy with a $60 account balance to get nothing but a 1099 showing his $60 taxable distribution. The ensuing phone call should be interesting. What Bird said is correct, although it should be worked that in each instance the fee is paid from the account and not included in the taxable distribution amount. To do otherwise would be uncivilized.

Rcline, you are missing a "not" in your post. It is possible the LLC is taxed as a corporation and in such case the accountant is correct. It's highly unlikely though.

There is a very high probability the answer to this is yes.

An interesting question then in my mind is whether or not the plan is covered by the PBGC upon the payout of the two terminees, leaving the plan with no participants. One of the exceptions to PBGC coverage is a plan that covers only substantial owners. One could infer that a plan that doesn't have any non-substantial owners in the plan meets that exception. Of course I would request a coverage determination. Your original PT date is still void though because the people weren't paid out prior, but maybe you don't have to run through the PBGC PT hoops.

Note that switching available distribution dates is a protected benefit that must be preserved at the time of change. If considering a change you may want to make it applicable to prospective plan entrants for ease of adminstration BTW, you can legally set up a plan to hold money until normal retirement age. That's one reason they call them pension plans.

And now you have probable problems with the in-service distributions that were made. Oops.

I think you will find that the rate acceptable depends on the auditor.

I'd be wary that even VCP will offer a solution. You definitely want to submit anonomously if you go that route. I don't see a positive legitimate outcome here.

True, a catch-up is triggered if at the 415 limit, but it is also triggered by a failing ADP test. So, no voila, you were already there.

A plan rarely needs to file. If your new plan is an EGTRRA document and thus takes into account the items on the Cumulative List, you can choose to file, but you will be an off-cycle filer and at the bottom of the review list. Since you have retroactive reliance, I can't see too many reasons for not wanting to wait.