Mike Preston

OK, how about answering the questions as posed? There is still time to set up a SEP for 2014, but let's ignore that now that you have clarified that you are looking at 2015. More questions/comments (in addition to re-answering the above questions this time paying attention to what was asked): 1) Please confirm that your current intention is to pay about $70,000 in comp REDUCED by whatever contribution you end up making to a PS plan (match or profit sharing). And that "profits" in excess of that amount will be distributed to owners as S-Corp dividends. If I understand the numbers as you have represented them, at the low end you have 200k each which would mean S-corp dividends of roughly $130k per person, PS Match of roughly 4% of the W-2 (estimated to be about 70k). The 70k would be reduced by whatever ends up going into the PS plan as a PS contribution. Assuming the numbers as above the contributions/deferrals would end up being: $18,000 deferral, $2,800 match and PS of up to $32,200. And, just for clarification, if the PS was $32,200 you would adjust the W-2 down by $32,200 resulting in W-2 of only about $38k (which, of course, would reduce the match to about $1,500. Have I got that right? 2) You are a fool if you think that there is nobody on your staff that will defer into a 401(k) given a safe-harbor match provision. Unless you are thinking of not telling them about the plan and that would be illegal. 3) Have you considered a plan that adjusts your employees' compensation "package" so that their "package" consists of two parts: W-2 comp and a fully vested profit sharing contribution? They don't pay payroll taxes (FICA, etc.) on the PS contribution so they save (as employees) the 7.65% FICA (at least) and you save that same 7.65% FICA, at least. 4) How wedded are you to paying W-2 that low? Have you checked with your accountant to ensure S-Corp dividends of $130k-$180k with W-2 of, at max, 70k (and if the above numbers work out), as low as $38k won't get you in trouble with the IRS, Social Security or both?

What are the circumstances that lead to five of your employees being listed with 1/1/xx as their hire dates? Are you open for business on 1/1? Were they really hired on 1/1?

Most probably, yes. It depends on a couple of things. 1) Is the "Railroad" plan governed by ERISA? It most likely is. As such, if your "awarded percentage" was communicated to the plan in the form of a DRO (Domestic Relations Order) and the plan sent back notification that the DRO was "qualified", then that can never be taken away from you unless the court changes its mind. 2) If the "Railroad" plan is not governed by ERISA then it would depend very much on plan language. Good luck!

Does 410(b)(6)© help you out?

What's your employee cost budget (maximum you are willing to spend)? In a perfect world, how much of your current income would you want to go into a plan? What is the high 3 year compensation average for the owners? Are the numbers above for 2015 or are you asking these questions with respect to 2014? Is the owner compensation flexible? That is, instead of $62k and $50k in the year in question, would you entertain a scenario where it is $100k and $12k in year one and then $12k and $100k in year two? Does your employee cost have to be the same percentage of pay or are you willing to have some employees get one amount and other employees get less?

1) Irrational arguments don't make the paranoid normal. 2) You would be right except for the fact that you are wrong. You have made two comments in this paragraph. The first one has some merit, albeit conventional wisdom is to avoid it because the IRS has said they will fight you on it (using the exclusion of those who are not employed at the end of the year while claiming that doing so means that those who are eligible constitute a reasonable classification). On this issue I personally agree with you but if it is used and your coverage percentage drops below 70%, then expect a fight if audited. The second one has been commented on frequently by the IRS. *IF* everybody is in their own rate group and *IF* somebody (anybody) is excluded from an allocation by virtue of the employer choosing to allocate zero to that person's rate group *THEN* the IRS will treat the plan as if it has the effect of naming employees by name. This is long settled, in the eyes of the IRS. It would take somebody taking the IRS to court and winning to change the IRS' position on this issue. 3) I can't disagree more strongly with your conclusion. If the plan sponsor selects the box that there is no minimum number of hours or last day requirement it does not in any way preclude the plan sponsor from implementing a specific minimum number of hours or a last day requirement as part of its decision making as to how to allocate a given year's allocation. As stated from the beginning, it has an effect on testing, but in no way is it forbidden. Glad you got what you wanted.

Boy, and I thought *Craig* was being paranoid.

What part of "since each person is in their own rate group" makes you think plan terms don't align with what you would want to see?

Getting paranoid, Craig? What in heaven's name would make you think that what you described is not allowed? Just because it makes the testing different doesn't in any way mean that it isn't allowed.

Q1: The second payment is due at the end of the payment interval elected (you have to know what the payment interval is in order to determine the annuity payment so the payment interval is a known item). The maximum payment interval is one year. Q2: See Q1

Can't resist: ROF,LMAO.

Hie thee to an accountancy message board.

The document that relates to the account used to receive the contribution has to be executed before the funds are accepted by the financial institution. I've never really seen the first element of the eligibility for SCP satisfied: "To be eligible for SCP, the plan sponsor or administrator must have established practices and procedures..." Besides, it isn't *really* an Excess Contribution scenario because the document, as drafted, certainly allowed the contribution. This is, technically, a failure that is not contemplated under 2013-12 at all. But there is a quirk in the VCP procedure that mandates the employer to cop to an error of some sort (even if the employer has doubt as to how to describe the error) and then, and only then, will the IRS respond favorably to a VCP submission. So, I'm suggesting that the officially sanctioned method of fixing what has gone wrong is to call it an Excess Contribution and let the IRS bless whichever treatment you elect. There is an alternatively nuanced road you can go down. The correction for a Simple IRA (See Schedule 4) is amazing. It essentially is: File VCP, pay $250, promise not to again do whatever bad thing you did before. So, I see three courses of action for you: 1) SCP, withdraw the money from the SEP-IRA. Keep your fingers crossed that you aren't audited and if you are that this issue doesn't come up, or if it does that the IRS accepts your SC. 2) What I previously described, copping to whatever failure you think makes sense to cop to. 3) A VCP filing that doesn't use the Schedules, recognizing that the correction you are seeking is not available using the schedules but it nonetheless represents a reasonable alternative. Heck, there may be others! Good luck again.

"For purposes of section 401(a)(9), a 5-percent owner is an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70 1/2." Employee attains 70 1/2 in the 2015 calendar year. Plan year ending in 2015 is the plan year from 7/1/2014 through 6/30/2015. 416 gives no guidance as to how a 5-percent owner is determined "with respect to a plan year". I have chosen to interpret the meaning as if they wrote: "at any time during" rather than "with respect to". Hence, stock must be sold on or before 6/30/2014. Of your choices, I choose 1, although your explanation doesn't exactly reflect the reg.

HATFA is fine.

mbozek, never heard such a thing.

Very inventive. But you have to realize that there really is no debate. If you are audited the IRS will not take that position. The question you must answer is how much pain/aggravation/money you are willing to endure/spend to correct the problem. As it stands right now the IRS will disallow the $10,000 deduction in 2014. There is only one officially sanctioned method to correct the problem. A VCP submission of Appendix C, Part II, Schedule 3 of Revenue Procedure 2013-12 recognizing the amounts contributed were "Excess Employer Contributions" and propose a correction to either: 1) distribute the excess back to the employer (including earnings) along with a VCP filing fee of $250, or, 2) propose that the excess (including earnings) remain in the SEP along with a VCP filing fee of $250 plus 10% of the excess (including earnings). If you do the former you will lose the deduction for the amount contributed to the SEP (which you can replace by making a $10,000 additional employer contribution to your 401(k), assuming your 401(k) document doesn't preclude employer contributions). The problem is that you will most likely need to pay somebody to help you deal with 2013-12 and that expense will, unless you find some kind soul willing to take on the task at below market rates, no doubt seem very expensive to you. Good luck.

Quote: "Plan calls for paying the amount in the Bank's Liability Account as accounted for under GAAP." This means that the question needs to be put to a qualified accountant as to whether the Bank's Liability Account, as accounted for by the Bank, satisfies GAAP.

Why not? Personally, I like the 5:00pm working, 5:01pm retired concept which I believe holds water whether the employer is open for business after 5:00pm not not.

Too busy to talk long, but it also has to be allocated as of a date within the fiscal year.

Interesting as to what the fix would be, though. We know an 11(g) amendment can increase coverage, but what would be the practical effect of doing so? Let's say that you need to add 3 NHCE's to the "currently HCE only" plan to pass coverage. How much of a "benefit" do you sprinkle on the NHCE's? Wouldn't the normal fix be the average of the NHCE ADP? But the NHCE ADP doesn't exist because there aren't any NHCE's. Would 3% work?

Bill, precious few! Flyboy, to the best of my knowledge the instructions don't specifically mention an exception to the general rules that forces one into modified accrual for the purpose of determining whether a form is required to be filed. I explain the alternatives and let the client decide whether to file or not. That is, whether to adopt modified accrual or cash basis reporting.

The form can be filed on a cash basis or a modified accrual basis (where the only accrual is for the contribution). It would be a very unusual 1 person plan that used pure accrual. Whatever you first use you should continue to use.

You have to have some very strange circumstances for a PW plan to fail a4. Convince me.

I agree with what Belgarath described (1: that correcting the missed match seems inappropriate in some cases, but correcting the match is nonetheless required and 2: that correcting the missed deferrals is not required because of the short period exception. It sounds like others are saying that you have to correct both. If that is what they are saying I disagree.