Mike Preston

I'm afraid that the term "crossover" with respect to deferrals is not generally defined. Can you be a bit more specific as to what is confusing you?

ATA's design, of course, obviates the need for general testing completely, if the "greater of" concept fits your situation.

It is highly likely that they were misguided when they took the income as 1099. Your best advice to these folks is to get a competent accountant. But let's, for argument sake, stipulate to the fact that the 1099 income was legit. In that case, as long as there were no employees of the C-Corp, they could have set up a 401(k) for the year in question. But you can't set up a 401(k) retroactively, so unless you used the wrong tense in your question, there is no question that they CAN NOT do it now. If their tax return is on extension, the best they can do is a SEP.

I don't have time to look it up today, but accrued-to-date can base testing years on the same basis that is used to accrue benefits. Hence, if your design was (A) divided by (B) where (A) is a function of service, but (B) is a function of participation, you are stuck with one year as testing service. But if (B) is a function of YOS, your testing service should be YOS. Let me know if you need me to paw through the 401(a)(4) reg for confirmation of my recollection.

Tom, you never cease to amaze!

Not necessarily. Somebody who knows how the calculations work still has to verify that the 50% spent on life insurance is within the boundaries established by 74-307.

No.

I don't know how you can state that nothing was taken from the other participants if you indicated that forfeitures are added to employer contributions? I am not in favor of amending the plan (which requires submission). It would seem far easier to just treat it as a mistaken distribution to some extent and make the plan whole. You may have an allocation to re-run, though, to allocate the forfeiture properly. More issues: as to the first, does the plan use the DOL hours equivalency? If so, that person looks 100% vested to me. As to the third, does the plan use elapsed time? Is the drafting so sloppy that said third person was considered as working for 6 full years?

Kind of depends on the numbers and body counts involved. If your last response is a thoughtful one and not just a knee-jerk response (that is, that you have actually analyzed the terminations and you are convinced nobody could legitimately consider the circumstances to be a partial termination), then the plan sponsor has a choice: either make the plan whole (by either attempting to get repayments from the overpaid or ponying up the money without going through the hassle) or by amending the plan to conform to the actual administration. If the intent is to conform the plan to its operation an amendment and submission is required. If the plan sponsor wants to fix it without an amendment, at issue is whether the problem is deemed to be insignificant or not (that depends on the numbers and body counts). If not, then a filing under EPCRS is required to fix the plan. Sounds like the best place to start with be with ERISA counsel. After re-reading your message, I'm not entirely sure when the last three distributions took place. If you are saying that the last three distribution CYCLES have treated everybody as 100% vested when they shouldn't have been, then you are beyond the two year rule. If all three of what you are referring to were individual distributions that took place within the last year or two, you can correct even significant operational violations without a submission. Lots of facts to pin down.

It is an interesting question as to what a "rate of retirement" means at the ages between 62 and 65 in the situation you describe. In my opinion, what you are describing is that the retirement "rate" is always 100% at the earliest age eligible to retire under either the normal or early retirement provisions, which is what I would put on an attachment. I would then show an average age, either weighted by liability or not, as you choose (and further describe on said attachment).

Agreed. See the message from Austin.

Not in my opinion. It is reasonable to assume that since they previously published that language in 416, they knew of its existence. Therefore, the fact that it wasn't included in 414(q) means specifically that the rationale in 416 doesn't apply. IMNSHO.

Since it is only a "deemed" loan (no actual release of accrued benefit takes place), it is included in the assets on the 5500.

Let's start with one overriding principle: there is no such thing as an election to apply $X of the FSCOB or the PFB to cover quarterly contributions. There is, however, an election to apply $X of the FSCOB or the PFB to reduce the RMC. So, your question is modified to: "On January 1, 2010 election was made to apply $20,000 of the FSCOB to reduce the RMC. In July 2010, the valuation is performed and it is determined the 2010 MRC is $0. So, what happens to election?" Now is the language from the reg clear on what happens?

OK, I'll bite. I don't see how.

Go to maps.google.com, enter: swing or ballroom dancing Chicago and search. Then call the phone numbers listed in the three sites that pop up. Hope that helps.

You can not take a deduction for contributed, but unallocated monies. Hence, the deduction for the plan year that begins on 7/1/09 and ends of 12/31/09 is fine on the 7/1/09 through 6/30/10 fiscal year. The deduction for the contributions to the 1/1/10 through 12/31/10 year on the 7/1/09 through 6/30/10 fiscal year is limited to those contributions allocated as of 6/30/10. In most plans, that would mean zero profit sharing contributions and all of the deferrals made through 6/30/10. You might want to check the language of the ps plan, though, it is quite possible that some of the safe-harbor monies are, in fact, allocated as of a date other than the last day of the year. If that is the case, some of the profit sharing can be deducted as well, as long as if it is contributed by the due date of the tax return, of course.

Maybe I just misunderstood. Is the question strictly about the 4/15/2010 quarterly contribution? If so, then the solution is to try raising the deductible amount or getting the refund. You could consider using asset averaging to blunt the effect of the asset gain. I'm at a loss. You really should read the original post.

Jim, that isn't a "bit". No matter. I was focused on the wrong thing. As you note, if they are partners, then they are treated as employees for plan purposes. All is good. You are right. In my defense, if they are employees and being paid with a K-1 (and not partners) I assume you would agree with me that things are FUBARed. I think the IRS doesn't challenge these things because a partner has the "right" to sign things on behalf of the partnership. The problem comes, of course, if they don't all set up a single SEP. Separate SEP's will end up with "bad" (disqualified?) SEP's for all.

SoCal, your mind-reading powers exceed mine. Where did the OP indicate that it was an EOY valuation? All I got out of what was said was that the 2010 valuation wasn't done as of 4/15/2010 and that could certainly be the case if the valuation date were 1/1/2010. Calavera: The only guidance I'm aware of is Rev. Proc. 90-49. That works for a small minority of plans that find themselves in this position.

Perhaps I'm cynical today. I think the TPA is trying to avoid its own liability by thinking up a reason to encourage cooperation from the partnership. As has already been mentioned, it only takes one NHCE thrown into the offending defined benefit plan to cure the coverage/non-discrimination issues. It is much easier to do that if the partnership will share information with the TPA. I can't imagine a circumstance where the IRS would go after the partnership or the other PC's. This is the problem of the entity that adopted the defined benefit plan and any attempt to get to a different result is not likely to win on the merits, unless the facts are different from what is represented in this thread.

When confronted with this circumstance, I always ask the question: what if the check written to the participant falls into a black hole? If, for any reason (and surely we don't need to list the variious ways this has happened to each of us over the years, do we?), the check is not CASHED within a very short period of time, and especially if it becomes stale dated and has to be re-issued more than 6 months later, how do you explain this to a neophyte auditor who is claiming a PT took place? The trust checking account is just cheap insurance.

But this discussion is appreciative of your exhaustion! Completely agree.

I'm having a hard time understanding how anybody could possibly think that this structure would not be an affiliated service group. Who has suggested that it is NOT an ASG? Do you have it in writing?

If they are paid via anything other than W-2, then they aren't being treated as employees. And if they really are employees, the employer is in a world of hurt. Way too much to unwind simply, so suggest an ERISA lawyer. I wouldn't touch a 401(k) for this plan sponsor until they confirm that there are truly no employees (in which case those folks don't get to participate in the plan) or until they are paid as employees.