Belgarath

Yes. See IRC 404(m).

Both pre-tax and Roth deferrals are subject to Social Security.

Thanks! I feel the cramp dissolving...

Thanks - that's precisely the potential interpretation that was concerning me. However, it seems unlikely that the IRS would quarrel with an interpretation that gives everyone a 3% nonelective contribution based upon full plan year comp, in spite of the fact that the 401k feature wasn't added until July 1?

I'm having a brain cramp - currently a straight PS only - no 401(k) feature. They want to add a 401k feature, with safe harbor nonelective as of, say, July 1. No problem with that. Question is this - the safe harbor feature isn't technically added until July 1. When calculating the 3% nonelective for 2016, they want to use full year compensation. Any problem with this?

You need to ignore the 3 people with losses, and don't try to "net" the negatives and the one positive. The one with the positive income will get the safe harbor contribution. The three with negative income will not. You could have three partners with 20 million in losses each, and one with a positive of $1,000, and the one with the positive $1,000 would be entitled to the safe harbor contribution.

Hey, thanks Tom. Hard to believe, but I just got a question on the deadlines for GUST and EGTRRA pre-approved plans, and I had blessedly blanked GUST out of my memory, so you saved me from having to look it up!

FWIW - I spoke to two different CPA's, who both agreed.

Shouldn't cause any problem. Very common to have two forms for the same year in such a situation. Note that I say "shouldn't." Impossible to guarantee that a change won't cause some sort of question. I can say that when I've done it, no problems/questions.

I think that is TAG's spreadsheet. P.S. - note how your result will change if you change ownership ever so slightly to give Mike 1% in Company A, and Bill 1% in Company B.

Also, consistent with the above interpretation, for 415 purposes, the plan termination date is March 31. See 1.415(j)-1(d)(3).

There are very few phrases I hate, in the context of qualified plans, more than, "I read an article..." - and it seems like I hear that from doctors more than anyone. I'm not sure what it is - they are very intelligent people, who do seem, as a class, to find more ways to self-destruct their plans than most other folks. Maybe it is because the majority of plans/people simply don't have enough money to even think about some of the crazy/risky investment stuff. I dunno...

Have you posed this question to the document provider? While I'm dubious that this would be a permissible option in the document, (in other words, possibly completed incorrectly) it could be possible that the IRS approved it - especially if there are certain overrides, etc. Are there any "overrides" such that "but if 'x' happens then 'y' election is no longer valid and 'z' applies to all participants" - or something along those lines?

Is this plan a pre-approved prototype/volume submitter? Or an IDP?

This seems redundant to me, but maybe I'm missing something? Base definitions. Plan defines comp as W-2. And of course as earned income for self-employed. Plan also specifically (separately) includes "taxable welfare benefits." Now, while I don't think this causes any harm, isn't it purely redundant? If it is a taxable welfare benefit for a W-2 employee, then it shows up on the W-2. If it is a sole prop, then it is earned income, which is what the plan uses anyway. Is there any good reason to have this as a separate inclusion that I'm missing?

Thanks.

Have you ever seen a plan with eligibility of "the earlier of 12 consecutive months of service, or 1,000 hours of service within any plan year." ???

I'm going from memory only without any research, so this opinion and a dollar will be worth a dollar. I seem to recall that under the disaggregation rules of 1.410(b)-7, there is disaggregation of the collectively bargained and non-collectively bargained portions of the plan. So I THINK you can exclude the union employees from the safe harbor portion without having that provision, in and of itself, blow your top heavy exemption.

You are welcome. P.S. - please note in #2, I mentioned if there is any "required" employer contribution. This is really the operative phrase - it is very possible that the plan provides for an employer DISCRETIONARY match, or profit sharing contribution, which under the terms of the plan would not be required. So if all deferrals were properly deposited, it is quite possible that no further contributions are required under the terms of the plan. Again, speaking in generalities here, as we don't have full information! Good luck.

I understand your concern, but first, take a step back and take a deep breath, and don't panic yet. There may not be anything whatsoever inappropriate or "shady" going on, but I know it is difficult for you to determine that when you are getting incomplete information and/or poor communication. We are all operating on fragmentary information here at best. 1. Assuming this was an asset sale, there is no requirement for the plan to be terminated when the assets were sold back in August. 2. Did you have any deferrals that were withheld prior to the sale that have not been deposited? If so, then yes, this is a violation (perhaps not intentional) and the former employer entity will be required to deposit them and pay interest. If there is any employer required contribution (safe harbor, match, etc.) that is due for the period prior to when you became employed by a new employer, then that amount will need to be contributed prior to the plan termination being completed. 3. Address your questions, IN WRITING, to the Plan Administrator (presumably your former employer.) See what you get. The fact that you are getting any communication at all tends to make me think there is nothing deliberately shady going on, but really no way to know that from this end. Hopefully you'll get appropriate answers and all will be cleared up to your satisfaction.

Thanks Tom - this is how we have interpreted it anyway, but nice to see the IRS agrees!!

Fairly typical scenario - employer sponsors a SEP for, say, 2015, then decides to change to a 401(k) for 2016. No problem there. When calculating top heavy, a SEP is included. My question involves determining when the SEP is "terminated" so that SEP balances no longer have to be included in the top-heavy determination. According to the IRS website re terminating a SEP: "To terminate a SEP, notify the SEP-IRA financial institution that you will no longer be contributing and that you want to terminate the contract or agreement. It is a good idea to notify your employees that you have discontinued the plan. You do not need to give any notice to the IRS that you have terminated the SEP." This brings up a couple of issues. First, assuming such notice is given, it seems that this would be considered a "plan termination distribution" - even though no actual "distribution" takes place, so you would have the 5-year addback. Agree/disagree? If no such notice is given, which I suspect is often the case (the employer simply stops making contributions to the SEP) it may not technically be "terminated" - but it also seems unreasonable to not consider it terminated. It still seems to me that it would be reasonable to use the 5-year addback and just consider it "terminated." Agree/disagree? There seems to be a lack of specific guidance here, so it seems like you have to determine what is reasonable and give it your best shot. I appreciate any and all thoughts.

The VFC program is used if you want to avoid paying the 20% excise tax, (and if you can satisfy the requirements of PTE 2002-51). Generally, I think the expense and hassle aren't worth it, and most people just do as you do - employer makes the contribution plus earnings, pays the excise tax, (which is usually small) and be done with it. I suspect the DOL is just doing this as part of some new initiative to make people aware of the program? I don't know...

I agree with Jpod, although obviously don't know. $900 seems like a strange number for something supposedly this old, also. I'd wait to see the letter, and see if it really is the IRS and what it is really all about.

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