Mike Preston

A bit harsh in that last paragraph, if you ask me. I think the consensus opinion is that different assumptions are not allowed, but if they were, I see nothing wrong with the plan sponsor making a choice that it perceives is in its best interest. That might very well lead to lower lump sums. If it is legal, it can hardly be described as abusive. And, yes, if the lump sums are significantly reduced the logical consequence may very well be more annuity purchases. Perhaps the goal isn't to reduce costs but to encourage lifetime benefits.

ATA: Never heard of a legit argument for establishing basis. Lou: Do you have a cite other than the non-deductible excise tax can be eliminated by making the election in 4972(c )(7)?

I believe that the members are treated as partners.

What part of "is a partnership for federal tax purposes" is unclear?

Yes it is. It does.

The annuitant is not the owner.

I'd show 1,000,000 in assets and 10,000 in liabilities and show the net as 990,000. If the form allows. If all it asks is net assets then 990,000 it is.

Pre-PPA (a/k/a GUST) documents frequently allowed forfeitures to be used as SHNE contributions. As noted, MOST PPA documents now restrict the use of forfeitures to fund SHNEc's. I would guess that those that don't have the SHNEc restriction constitute a mistake on the part of the IRS. Every PPA document I've seen, of course, has the QNEC requirement that they can only come from monies which are 100% vested when contributed to the plan. What is interesting is that the PPA documents I've seen draw a fine line distinction between the two prohibitions. QNEC's and QMAC's specifically state the requirement that they can only come from monies which are 100% vested when contributed to the plan. SHNEc's don't have that specific language. Instead, the restriction is specific to forfeitures. I acknowledge that forfeitures are precluded by document language from being used to fund SHCEc's. However, Tom's original question is whether the general prohibition on use of forfeitures to fund SHNEc's carries over to a similar prohibition on the use of a QRP's suspense account to fund the SHNEc's. And nothing in the language of the PPA document I've looked at makes that connection. Whatever happened to the general rule that "if it isn't prohibited, you can do it"? I lean strongly toward being able to use QRP suspense account funds. I note that the use of a SH 401(k) document as a QRP is somewhat internally contradictory. I suppose there are some documents that provide for some sort of dribble out of the QRP suspense account. But most I've seen are worried about having so much in the QRP suspense account that emptying it within 7 years is a real concern. As such, with participants bumping up against the 415 limits, why would you want a 401(k) provision at all?

... or during 2016.

I don't know why you think that would be an unexpected result. Seems like the natural result of a PC owned by 1 person being an adopting employer.

I'm confused. I thought the IRS' requirement related to the "100% vested when contributed" was with respect to QNEC's, not S-H contributions.

Just 404a7.

408(p) has to do with Simple's, not SEP's.

Rob, your example is spot on. Couple of comments re: misunderstandings. 1) Almost everybody confuses the ABT with the ABPT. It is almost always clear, in context, which they mean so I have long ago given up explaining the difference every time the confusion arises. Sigh. It is confused, in part, by the way the IRS uses the terms. The ABPT is a numeric test that results in PASS or FAIL and revolves around 70%. We all know how to do the calcs. The ABT is a test that incorporates 2 parts: the reasonable classification test and the ABPT. You have to pass BOTH to pass the ABT. Stated another way, passing the ABPT is a necessary but not sufficient component of satisfying the ABT. To make things thoroughly confusing the IRS says that, when testing rate groups, you are deemed to satisfy the reasonable classification test so in this case, passing the ABPT is both a necessary and sufficient requirement. Frequently an ABT isn't even required (note in your example your coverage ratio for both plans exceeds 70%) so the only time you would need to satisfy the ABT is for rate group analysis. In that case, people refer to either one and they would be right either way (see above comments re: necessary and sufficient). 'Nuff said. 2) "if you aggregate for coverage (ABT) you need to aggregate for ADP." Just to clarify: the use of the parenthetical "(ABT)" is misleading. Yes, I agree if you aggregate for coverage you need to aggregate for ADP. But it is irrelevant whether you test your aggregated group at the 70% threshold or at the lower threshold one can use if the "plan" satisfies the ABT. And, as pointed out before, the ABT includes the ABPT and the ABPT is always performed by aggregating all plans of the employer and this aggregation for ABPT purposes does not in any way cause anything to be aggregated involuntarily.

"I was not talking about the coverage test, though, which is where the reasonable business classification would apply. I was going for the 401(a)(4) test, not the coverage test." I was talking about the coverage test when I talked about a 33% coverage ratio. After that I switched to the 401(a)(4) test, more commonly known as the rate group test. That is the one that comes in at 14%, which you agreed with, so ...... "(2/8)/(1/2)" is what I think the 401(a)(4) test requires. As you noted, most of the time passing it the way you described satisfies the rules, so those that do it that way end up on their feet. No whacks or laps or push ups.

The reason I didn't respond to the initial post is that I didn't have the time to properly explain the misunderstandings and hoped somebody else would point them out. Once the misunderstandings are ironed out the issue being addressed is properly classified as "hyper-technical" and worthy of a complete airing whenever it arises. Let's skip the misunderstandings and go straight to the issue: Does inclusion of the associates' plan in the ABPT of 1.410(b)-5 trigger 416(g)(2)(A)(i)(II)? The short answer is no. The not-so-short answer is that this is such a hyper-technical issue that you can bank on needing to educate an IRS auditor who decides the answer should be yes. And that task is so potentially arduous (sometimes ending in "well, I guess you are just going to need to file for Tech Advice") that cautious (some would say overly conservative) advisors sometimes go through great lengths to "prove" the answer is "no." For example, some have been known to run the ABPT without the associates' plan, note that it "passes" and then declare "See, the ABPT passes without the associates' plan so there is no way to interpret the circumstances as invoking 416(g)(2)(A)(i)(II)". To those who do this sort of thing it bothers them not that the ABPT can't be run excluding the associates' plan because such a test isn't an ABPT. I don't know what it is, but it certainly isn't an ABPT because the ABPT *MUST* be run with all plans of the employer. In any event, I think there is a Gray Book answer that addresses this issue, I just don't have time to look for it.

I'm just not connecting your dots with an actual example. Can you say what you said using a simple example, say 3 participants in PS Plan (1 HCE 2 NHCE). 4 excluded non-excludable NHCE's (kind of reminds me of the actuarial funding method "individual aggregate"). I get a concentration percentage of 85%, a midpoint of 26.25% and a safe-harbor %-age of 31.25%. So, ABPT must pass. If it does, then the coverage %-age of 33.33% works (presuming it is a reasonable classification), because 33% exceeds 31.25%, otherwise it fails. Now turning to the rate group testing presume that only one of the 2 NHCE's is in the HCE's rate group. Is the rate group testing (1/2)/(1/1) = 50%, which passes? Or is it (1/7)/(1/1) = 14%, which fails? I've always thought it fails, but as I read your description it seems to imply that the correct %-age is 50%, which passes. Am I misinterpreting what you wrote?

Thought so.

I'm sorry you have such a difficult time directly addressing the issues raised. Perhaps you'll find somebody who can work with cryptic answers and who satisfies your quest at reading between the lines. But if they haven't asked the questions I asked and/or haven't insisted that you answer them, then you will be getting an analysis on partial information. If you want that, fine, but that doesn't meet my definition of looking for help. Rather, it is....oh, wait...better stop here. Just as a reading comprehension test, go back and see if you can even find the questions I asked where you failed to provide a minimally informative answer.

Yes.

Yes.

Huh?

90-49

You really don't want help, do you? Pretend I'm charging you my hourly rate. Wouldn't you want to minimize my time trying to "read between the lines"? Wouldn't you bend over backwards to try to answer every question I asked, in great detail? Oh, wait, you are trying to get something for nothing so it isn't important to minimize my time. Got it.

Civilized response: Please review and answer the questions as posed. Normal response: You are like many other small business owners who look at the cost for employees (the benefits provided to employees) as money not appreciated by the employee. Worse, you think that because you are liberal in your employment policies and provide some employee assistance through loans that you are entitled to something in return. You are. You gain employee loyalty. Which you have done admirably. All of which means precisely nothing when it comes to tax-incentives provided by Congress. All I see is that you are looking for a tax-incentive on $34,000 and you want that tax incentive because, well, just because. It doesn't work that way. Please review and answer the questions as posed. Also, try to clarify your examples with real numbers. I'm sure: "Yes, but to the point of balancing fica, futa, fed and state taxes on salary vs. the current salary and s-corp distributions above that for the same items." makes sense to you.