Belgarath

While I don't remember specifically which state, I do remember that. It comes up on occasion, and no one pays any attention to it.

I did the following for myself a while back, because I also have a hard time remembering what is what. Hope it may be of assistance, and hopefully it is correct! I make no warranties... There is a potential problem for COVERAGE using the Average Benefits Test, due to the requirements of 1.410(b)-4(b), and whether the IRS believes that having each person in their own group is tantamount to “enumerating by name.” If they believe this, then the ratio test must be passed, because the average benefits test for COVERAGE requires a “reasonable classification” – and enumerating by name or having the same effect is by definition not a reasonable classification. When we are talking about the nondiscrimination testing under 1.401(a)(4) for rate group testing, there is a crucial difference. To satisfy nondiscrimination testing using rate group testing, each rate group must satisfy either the ratio percentage test (70%) OR the average benefits test. When determining if the average benefits test passes for a rate group for NONDISCRIMINATION purposes under 1.401(a)(4), it is a two part test: A. The nondiscriminatory classification test, and B. The average benefits percentage test. To pass the nondiscriminatory classification test, the coverage ratio must be at least equal to the midpoint between the applicable safe harbor percentage and the unsafe harbor percentage. The “reasonable classification test” does NOT apply – under 1.401(a)(4)-2©(3)(ii), the nondiscriminatory classification test including the reasonable classification test is deemed satisfied if the ratio percentage test for the rate group satisfies the midpoint test. So the 1.410(b)-4(b) problem never enters into the nondiscrimination testing, ‘cause when you pass the midpoint, it is deemed satisfied.

A good reason. Thanks.

I don't understand your response - maybe I'm the one who is missing something. So, employee has a deferral election in place - pick a number - 5%. Employer, for whatever reason, doesn't withhold the 5% on vacation pay for January through June. July 1, the employee terminates. Error is just now discovered. Excerpt from the Rev. Proc. below. I don't see how, with an employee who terminated employment months ago, that you can satisfy the requirements to be allowed to use the 25% method? I guess what I'm saying is that it appears to me that this isn't available for terminated participants, as you can't can't institute "correct deferrals" (and I interpret that to mean ongoing actual deferrals) of the 5% that was elected. Thoughts? 03 Description of modifications to encourage the early correction of Employee Elective Deferral Failures. (1) Safe harbor correction method for Employee Elective Deferral Failures that do not exceed three months. This safe harbor correction method creates a rolling correction period for Employee Elective Deferral Failures that do not exceed three months. Under this safe harbor, no QNEC for the missed elective deferrals is required provided that the following conditions are satisfied: (a) correct deferrals begin no later than the earlier of (i) the first payment of compensation made on or after the three-month period that begins when the failure first occurred for the affected eligible employee or (ii) if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification; (b) notice of the failure that satisfies specified requirements in new section .05(9)© of Appendix A of Rev. Proc. 2013–12 is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and © corrective contributions to make up for any missed matching contributions are made in accordance with timing requirements under SCP for significant operational failures (described in section 9.02 of Rev. Proc. 2013–12) and are adjusted for Earnings. See section 9.04 of Rev. Proc. 2013–12. (2) Safe harbor correction method for Employee Elective Deferral Failures that extend beyond three months but do not extend beyond the SCP correction period for significant failures. This revenue procedure creates a safe harbor correction method for Employee Elective Deferral Failures if the period of failure exceeds three months (or the conditions for the safe harbor correction method described in section 3.02 or 3.03(1) are not met by the Plan Sponsor). This safe harbor correction would permit the Plan Sponsor to make a corrective contribution equal to 25% of the missed deferrals (25% QNEC) in lieu of the higher QNEC required in sections .05(2)(b) and .05(5)(a) of Appendix A and section .02(1)(B) of Appendix B to Rev. Proc. 2013–12. In order to use this safe harbor correction, the Plan Sponsor must satisfy the following conditions: (a) correct deferrals begin no later than the earlier of (i) the first payment of compensation made on or after the last day of the second plan year following the plan year in which the failure occurred or (ii) if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification; (b) notice of the failure that satisfies specified requirements in new section .05(9)© of Appendix A of Rev. Proc. 2013–12 is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and © corrective contributions (including the 25% QNEC and employer contributions to make up for any missed matching contributions) are made in accordance with timing requirements under SCP for significant operational failures (described in section 9.02 of Rev. Proc. 2013–12) and are adjusted for Earnings. See section 9.04 of Rev. Proc. 2013–12.

As a matter of curiosity only - why would you have a 401(k) if you have $100,000 in W-2, and wish to contribute exactly $25,000? I should think a SEP would be the better choice. Granted that you have no 5500 forms until your assets are high enough, the document/amendment/update requirements alone would seem to tip the scales in favor of the SEP. But perhaps the investment choices are better in the 401(k)? Just wondering...

Rev. Proc. 2015-28 provides the new reduced correction amount for certain Elective Deferral Failures that extend beyond 3 months, but are corrected within the SCP correction period. However, in order to take advantage of this, technically correct deferrals must begin no later than.... and this isn't possible for a terminated employee. So just soliciting opinions - would you go ahead and use the reduced 25% QNEC, or would you go with the "old" 50%? Very small amounts involved - employer didn't withhold on same vacation pay.

Hi Bird - believe me, I understand. If they had never applied for a Trust ID # I'd probably agree with you. But since there is one out there, the possibility exists that a cross-checking program will be instituted at some point, asking, "Where is your 5500 form?" Hence my extra caution. But that's just my paranoid work mentality. I don't actually think I'd be paranoid if everyone wasn't out to get me...

While I understand Bird's pragmatic and reasonable approach, I'll take the other side. Filing a 5500 for such a plan is so easy, that I'd go ahead and file just to keep it squeaky clean.

It depends. If there is NOT a controlled group/affiliated service group, then yes. If there IS a CG/ASG, then you will have to look at everything in much more detail, including all employees of both businesses, compensation limits, 415 limits, coverage/nondiscrimination, etc... - including whether the SEP is an IRS model SEP or not. Based purely upon the ownership percentages you give, barring some attribution, there shouldn't be a controlled group, but there might be an ASG, which has the same effect. Odds are good that if you do have an ASG, the answer will be no.

Is the plan set up for general testing with everyone in their own group? If so, the required nondiscrimination testing is based upon their Plan compensation, and not ownership, but as long as it passes the testing, I don't see any problem. I'll be honest - I've never heard of this "disguised dividend" argument, and I don't quite understand how it makes any sense - you can only use W-2 compensation for plan purposes, so an employer discretionary contribution that passes testing based upon that W-2 compensation seems fine - seems like quite a stretch to call that a "dividend." I'll be interested to see if anyone else has run across this. Seems a little paranoid to me.

Employer maintains a SIMPLE-IRA for 2015. Employer's fiscal year is 7/1 to 6/30. Wants to install a 401(k) plan for 2016, with an initial short year from 1/1/2016 to 6/30/2016 due to the SIMPLE-IRA plan being in place for 2105. Any thoughts on the following? 1. Deduction limit is based on fiscal year compensation, so Employer will need to be aware of this. 2. Deferral limits are calendar year anyway, so nothing out of the ordinary there for 2016. Same as always with off-calendar year plans. 3. Not sure yet if this will be safe harbor plan or not. If not safe harbor, then I believe for ADP/ACP testing purposes, since no calendar year ENDS in the short plan year, that compensation used for testing must be short plan year comp, and compensation limits under 401(a)(17) must be pro-rated. What if it is a safe harbor plan, with no ADP/ACP testing required? Is the compensation limit still required to be pro-rated if they wanted to do a profit sharing contribution? (I think it must be prorated, since compensation period is defined as plan year, and it is a short plan year) 4. Limitation year is full 7/1 to 6/30, so I don't think any pro-rating of 415 limits required. I should know better than to look at this stuff in the afternoon. Thanks for any thoughts!

Don't know if there is a corporate resolution, etc., authorizing this or not.

Just curious as to whether you commonly see this - I don't. Plan document names the Employer as Plan Administrator. Presumably, the Employer can designate anyone they wish to sign as Administrator on behalf of the Employer. Do you commonly see the CPA sign in this capacity, assuming so authorized by the Employer?

I'm like Bird - these numbers are WAY out of our league. So, speaking from a position of ignorance, and knowing nothing of the particular circumstances, is 105,000 on a 70 million dollar plan really necessarily out of line? I mean, (ignoring possible additional/better services) suppose they are getting the plan a return of even 1/8% higher than an "average" or better than average advisor? Wouldn't that more than make up the difference? Just curious.

If you have a pre-approved plan that permits it, seems like it would be hard for them to argue that it isn't permissible. I wonder if some other provider might have decided not to allow it in their own pre-approved documents not due to legal reasons, but for administrative convenience. Sometimes they have some plain vanilla options only because they want only cookie cutter plans, or they don't want to deal with the 414(s) testing, or they don't want their clients to screw up because they (the clients) didn't test, etc., etc...

I see no problem with it.

I'm not entirely certain I understand what you are asking. I agree that it is fine to exclude bonuses for purposes of a match, subject to passing 414(s) testing. Obviously, without passing the testing the opportunity exists for discrimination - pay HC's all on W-2, and pay NHC's 60% of their comp via bonus. Clearly discriminatory when you come to allocating a match.

Hmmm - can't recall ever having seen that up here in the frozen North, but then, I haven't looked. I'll have to keep my eye out. P.S. just googled it, and discovered it is Bourbon. Sadly, I simply can't force Bourbon past my tonsils, so I'll stick with the Scotch.

"Some" is a fluid standard. By that, I mean my level of benevolence and tolerance is directly proportional to the number of fluid ounces of The Macallan that I have lovingly sipped. Since my intake is drastically limited by the expense, my sympathy is limited to "some."

Thanks. Y'know, I actually do have some sympathy for the regulatory agencies, having to write regulations, procedures, come up with forms, etc., for all this stuff.

Assuming you are not an Applicable Large Employer (ALE) - just trying to confirm WHO must do the filings... If plan is insured, the insurance company prepares and files the 1095-B's. Do they also do the 1094-B transmittal, or must the employer do this? If under government sponsor (for CHIP, Medicare, Medicaid, etc.) or Health Insurance Marketplace, apparently they handle on a 1095-A, and with certain exceptions, on a 1095-B, and the employer doesn't have to do anything?. If self-insured, then the employer must file both the 1094-B and the 1095-B's, right? Thanks.

John's answer is far better and more complete than mine...

Actually, you've got that reversed. You can require a last day, but not a minimum hours requirement if you are employed on the last day. P.S. - for citation, see 1.416-1, M-10.

Yes, my apologies for the typo on the citation. Thanks for correcting that. Yeah, the reason I said there is debate on this issue is the first sentence. (B) Related Employers. Service with an employer is treated as service for certain related employers for the period during which the employers are related." Some read this to say that you only have to credit service that was service earned WHILE the businesses were related, and others interpret it that if the businesses are currently related, you must credit all service earned with any of those businesses, even if the businesses were not related while that service was earned. I lean toward the latter, but I certainly can see an argument for the former. Way back when as I was first doing some research on this issue - many, many years ago, I seem to recall that such luminaries as Derrin Watson and Sal Tripodi didn't necessarily agree - but that may have long since changed. An interesting question, regardless of which interpretation you favor.

I will also say that there are probably more of these that are "found" in files, properly dated, than anything else I can think of. I would never tell a client to do this, nor do I advocate it, but I must say that in a business that is rife with ridiculous requirements, requiring a signed election prior to the time income is known is mentally arthritic. Someday, when I'm elected dictator, this is the type of foolishness that the IRS will be prohibited from enforcing. (As dictator, I could abolish the IRS, but I'll need someone to collect my income for me!!)