Belgarath

Nope - would have to be W-2. See Durando decision, as well as PLR 8716060. Probably other references as well...

I find that clients and their "advisors" often refuse to believe me when I tell them this. Refer them to ERISA 4041(e) if they do - that usually quiets them down!

Thank you, Carolyn. That's the same answer that a couple of us cameup with yesterday when discussing the problem. What we didn't resolve was the following - to get down to brass tacks, how do you include these people for the 70% test? 1. Do you exclude them altogether, even though they don't fall into a "statutorily excludable" category? In other words, do they fall into an "other" category which the nondiscrimination statutes didn't address, and you exclude them from both the numerator and the denominator? 2. Do you include them as eligible, but not benefitting since they do not receive a contribution? 3. Or, do you include them as eligible and as benefitting? Although #1 seems more reasonable from a common sense point of view, I'm just not sure how to approach this. I'd love to hear any opinions on this.

Right. They aren't eligible for EZ filing, unless they are spouses.

No rule that I'm aware of which specifically names these items, but it would be such an obvious violation of the fiduciary prudence rules that you might just as well surrender to the DOL in advance!

I found this thread interesting, as yesterday I was wrestling with the question as to whether to consider them "terminated" (with an asterisk) or not. It isn't merely an academic question - if they are actually terminated, subject, of course, to all subsequent reemployment rights under USERRA if they qualify, then they would also be eligible for a distribution. If they are NOT terminated, then it would be an impermissible distribution. The statute simply doesn't address these everyday administrative questions, so you are left to take your best guess at a proper interpretation. If you simply consider them terminated, like any other participant (until such time as they qualify for USERRA rights upon reemployment) then the issues generally become clearer - they are included in testing as applicable, they are eligible for a distribution, etc.) - but what about reallocating forfeitures? I would interpret this to be that no forfeiture occurs, since no break in service. Has anybody spoken with DOL/IRS officials about this issue? Any word on any guidance or opinion, either formal or informal?

Dave, I was clicking on the "new topic" button. I was in the general retirement plan section of the message boards, and couldn't post a "new topic." So I tried elsewhere, which evidently worked, although I have no idea how! So, could you kindly explain what is now the proper procedure if I wish to enter a new post under a particular area of the message boards? Thanks in advance.

I'm obviously doing something wrong. When I try to post a new thread, I get a reply "Sorry, you are not authorized," etc...... and it tells me to log in and enter my password. When I do, and try to start a thread, I get the same thing all over again. Never had this trouble before, but I'm completely hopeless as a computer user, so maybe someone can tell me how to use this new-fangled software to post a thread. Thanks!

Ok, and thanks much for the input.

Hi again - no, the proposed amendment wouldn't be for "10% of bonuses," although it has that net effect in this situation. (This isn't even a plan we administer, just doing a favor for an accountant, but it's a good question to get straight in my head anyway.) The amendment would be to remove the existing exclusion of bonuses in the plan definition of compensation, which would, in effect, increase the contribution for all participants IF the employer contributes the additional amount. But I can certainly see where this could backfire, if the employer kept the contribution amount the same, then it would be a cutback. I think this would be a lot cleaner in a Money Purchase plan. If you take the approach that it is ok as long as the additional amount is contributed, then I should think they'd want a very specific corporate resolution, increasing the contribution by the appropriate percentage for each affected participant. Any other thoughts on this?

Hi Mike - the employer would actually be increasing the contribution - so if he contributes 10% of pay, for example, it would give a higher allocation to any NHC who received a bonus. Wouldn't take anything away from anyone else. So the purpose is to pass, without including overtime and commissions - just the bonus. As far as standing alone, I believe, perhaps mistakenly, that it doesn't apply under (g)(3)(v)(B) if the correction is to conform to a safe harbor? What's your take on this? Thanks again.

Have a PS plan, that excludes bonuses, commissions, and overtime. Three separate "check" boxes in the adoption agreement. They fail the testing this year by excluding bonuses, but would pass if you include bonuses. The plan is silent on the correction method if you fail. Two schools of thought here. One is that you could do a retroactive amendment under 1.401(a)(4)-11(g) to include bonuses, you pass, end of problem. Another is that absent specific plan language, you would automatically have to "revert" to total compensation. And that therefore any retroactive amendment that would limit compensation at all, as with first method(because overtime and commissions would still be excluded) is a cutback and you can't do it. I'm leaning toward the first interpretation, which seems more reasonable, but I'd appreciate any thoughts on this. Thanks.!

No, I don't think so. There isn't any notice requirement for a plan termination on non-pension plans. And as far as any notice specific to the discontinuance of the safe-harbor, even if you took the approach that you must do this for non-elective the same as for a matching safe-harbor, what would the consequences be? You're already dropping out of safe-harbor status for termination year, so it seems like a non-issue. FWIW. One other stray thought crossed my head - what about top heavy? If the plan isn't using 415 comp as a definition of comp, then the 3% might not be sufficient to satisfy top heavy. And since you are dropping out of safe-harbor status, then top heavy would apply.

I do agree with what I think you are saying, which is that the safe harbor nonelective contribution can be based only upon compensation up to the date of termination. However, I also think plan termination may bring up another problem: Since the safe harbor is only available if you have a full 12 month plan year, (unless a new plan, etc.) then I think you get thrown back into ADP/ACP testing for the year of termination.

Mike is right. Run!! Just as a side note - I'm only going from memory here, and don't have a citation, but I believe that in pre-92? years, an UNINCORPORATED PARTNER could actually make the deferral election up to the due date, including extensions, of the partnership return. I don't remember what piece of legislation or regulation changed this, but I absolutely agreew ith Mike that you can't do it now. Wait - I do have a citation - 1.401(k)-1(a)(6)(ii)(B). Perhaps this old rule is being remembered (and incorrectly, since it didn't apply to S-corps) by the advisor.

Actually, it is permissible in a profit sharing plan. See 1.401-1(B)(1)(ii).

Yes. See specifically 1.401(B)-1(a). Also Revenue Ruling 81-114.

To be honest, I never gave it a detailed reading. But I seem to recall that there was something about a limitation to 10% of the plan assets. Did you notice anything about this? With the numbers you give in your example, if it IS limited to 10%, then I don't think it would qualify. But you might want to double-check this.

And in addition, FWIW, you can take a loan for more than 50% up to a de minimis 10,000. For example, if your vested account balance is 12,000, then you can take a loan for up to 10,000. Watch out for this, however, as most PLAN documents I've seen don't allow this. For good reason, since it requires additional collateral, as you still can't use more than 50% of your vested account balance as collateral. But I have seen a few documents that allow it.

The separation from service must occur after age 55. Actually, the IRS has said that as long as the separation from service occurs during the calendar year in which you attain age 55, that this would qualify.

I would say it now becomes top heavy. I interpret the "solely" requirement quite literally, absent any additional IRS guidance.

Blinky - I understand your concern. The IRS was, at one time anyway, much concerned that this represented a CODA for self employed. We had a similar provision in our prototype. The IRS reviewer made us remove it. Said that their "prototype group" had determined that they would not allow this in prototypes, but would be ok in a Volume Submitter plan. I've since heard from another document provider who got through a provision similar to yours. Guess it just depends upon who was the reviewer assigned to your documents.

If it consists solely of the deferrals and safe harbor match, how are there forfeitures? I thought these had to be 100% vested in order to qualify as a safe harbor under 401(k)(12)?

I don't think so. We had some discussion of this a while back. It came up because of a plan termination on a DC plan, and the IRS reviewer said that the payment (made in the 3rd year) was not on account of termination of employment, but due to termination of plan, (which took place in the 4th year) and required 100% vesting. But for your question, I would not interpret this regulation to preclude use of the normal rules for crediting prior service in a DB plan. So I'd say that since he was partially vested when he terminated, he'd have his prior service recognized, subject to the rules to avoid duplication of benefits. He'd have to offered the opportunity to repay the distribution, and if he does, then prior service should be credited. It doesn't make sense to me to read the regulation to require duplication of benefits, which is what happens, I think, if you read the reg to override these requirements. What do you think? I'd be very interested to see what conclusion others reach, because we played badminton with this one for a while...

Interesting. I had always heard of "stepped up" benefits with regards to an estate tax situation, not a rollover. I'm only speculating here - guessing that this is perhaps a variable annuity, that has a death benefit equal to the highest value it previously attained - the type that sunk Allmerica... But if that's correct, which it probably isn't, then it seems quite odd that an annuity with this "death benefit" provision could qualify for IRA purposes as an annuity, with no life insurance element, yet not be considered "rolloverable." So I'm as baffled as you, but would love to hear the details once you get them.