Mike Preston

Sure can. If the plan isn't part of a required aggregation group and it has no key employees that participate in it, then it isn't top-heavy.

There are no exceptions when dealing with a prototype. "Word-for-word" is reserved for discussing volume submitter plans, not prototype plans. A volume submitter plan can be modified and no longer satisfy the defintion of "word-for-word" but can still be accepted as a volume submitter plan by the IRS. Upon submission of a non-word-for-word document, the modifications are identified to the IRS and, if the IRS deems them non-substantial, then the submission is allowed to proceed on the basis of it being a volume submitter. If the IRS deems the changes to be something other than non-substantial they require that the submission proceed as if it were an individually designed plan.

In what circumstances can/may an IRA have post-tax monies?

I think KJohnson and I are saying the same thing... almost. I'm reading the regulation the same way he is. I'm just thinking that the IRS didn't really mean it that way! So, I'm leaning one way, and KJohnson is leaning (way over) the other way. I agree that this would be a fine question for the IRS at some point.

There is no question that they ARE taken into account for the gateway. None. The only question is whether a QNEC which is taken into account remains a QNEC. I'm leaning towards the conclusion that says since the k regulations were not updated at the same time that the a4 regulations were changed to reflect gateway requirements that the satisfaction of 1.401(k)-1(b)(5)(ii) is to be determined without recongition of the gateway requirements. But I don't think the specific question has been answered in the Grey Book or at an ASPA conference, although I haven't done an exhaustive search. It would seem incongruous to me to require a 7% gateway in the case where a QNEC was 2%. But I don't have anything hard and fast to hand my hat on. While it isn't much consolation, the only possible negative result is that the ADP test you thought you were curing remains uncured. To the extent you relied on the QNEC's in the a4 testing that isn't changed.

I know this doesn't answer the question, but what is the attorney basing the assumption on that it can't be done? If the attorney can't find that citation, isn't is ok to do it? You and I know that he or she won't be able to come up with a cite that says it can't be done.

This is always a point of confusion. This is because people frequently use 1/12th the monthly rates as annual rates. Or, conversely, 12 times the annual rate as monthly rates. That is usually not correct. There are some calculations where it is correct to do it that way, but most of the time it isn't. An example helps make this point clear. Using UP84 and 8.5%, the monthly rate at age 65 is 95.38289. 1/12th of this is 7.94857. The annual rate, however, is 8.40691. The difference is always (11/24) 0.458333 with respect to the annual rate; or if you want to use things multiplied by 12, the difference is always 5.5. The key is matching up what you are using as a rate against the actual payment being made. For example, you usually multiply a MONTHLY annuity amount by a MONTHLY annuity rate. $1,000/month times 95.38289 would give a present value of $95,382.89. However, if the benefit was $12,000/year, you would multiply $12,000 times 8.40691, which would give you a present value of $100,882.92. It is more expensive to provide an annual annuity because of two factors: 1) the full amount is being paid sooner, thereby reducing the amount of money available to earn interest; 2) the full amount is being paid sooner, thereby increasing the amount paid out assuming death does not take place in the first^H^H^H^H^H last month of the year. Combining both these factors yields the adjustment indicated above. OK, with that said, the rates that are used in age based formulas are all over the map. I've seen annual. I've seen monthly. I've even seen monthly divided by 12. The key is making sure that the rest of the equation "makes sense". Each is right if the rest of the equation properly takes into account the payment being considered.

I agree with you that the focus of the repeated amendments issue has been narrowed. I seem to recall that the issue was broached and that the IRS held the opinion at a conference or two that the issue was more broad than merely BR&F. But it was pointed out here that issue is clearly limited to BR&F and that has been my opinion since at least that date! If that is a change, so be it. Bottom line is that, for now anyway, the focus appears to be clearly limited to BR&F. So, if a plan is designed in such a way that it is anticipated an amendment will be required each year in order to satisfy amounts testing under -2 or -3, that appears to be ok.

Treat the person as a zero or use 414s comp that is the whole year. Any attempt to use an EBAR of infinity will probably violate 1.401(a)(4)-1©(2). Probably.

Invite whomever you are speaking to at the IRS or at the large financial institutions to "come on down" and educate us here on BenefitsLink. We are always willing to learn. Until then, we'll just stick with the boring old Internal Revenue Code. And until they are willing to do that, ask them whether they will put it in writing and accept liability if they are wrong.

Go to a lawyer and see if there are any options that exist among the owners such that one or more is a majority owner as that term is defined under the PBGC's rules. If so, even though they don't own, directly, 50% of the stock, they still may be able to fit within the confines of a standard termination.

Well, that is the default action. Look at it another way. Let's assume that they had wanted to make a $175,000 contribution and the result of that was that everybody received 4.85% of pay. Now, they come to you and say: "You know, this is the last year that the owner will receive any portion of the allocation, so we would like to increase what we deposited from $175,000 to $184,820. We have the money, and we really don't care whether it is deductible on our 1/31/2003 tax return - we'll just deduct the additional $9,820 on our 1/31/2004 tax return. We understand that when this additonal $9,820 is allocated to all participants they will get 4.91% of pay. We understand that the amount allocated in excess of $175,000 will be a Section 415 annual addition for the limitation year ending 1/31/2004. Is this all ok?" What would your answer be?

Isn't that the version that applies before 1/1/2002? How's this? (6) Exceptions In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account - (A) so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the greater of - (i) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a) and as adjusted under section 404(a)(12)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or (ii) the sum of - (I) the amount of contributions described in section 401(m)(4)(A), plus (II) the amount of contributions described in section 402(g)(3)(A), or (B) so much of the contributions to a simple retirement account (within the meaing of section 408(p)) or a simple plan (within the meaning of section 401(k)(11)) which are not deductible when contributed solely because such contributions are not made in connection witha trade or business of the employer. For purposes of subparagraph (A), the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (A). Subparagraph (B) shall not apply to contributions made on behalf of the employer or a member of the employer's family (as defined in section 447©(1)).

This is a case of crossed-up intentions. The fact is that they made a $175,000 contribution to the plan and that the allocation of that money was incorrectly calculated. Under the circumstances, any correction you choose to make will be less than ideal. On audit, the IRS would be justified in demanding that the $175,000 be allocated in accordance with the plan's terms, which means that the allocations to all participants other than the owner were actually too high. From a fairness perspective, most people do not want to lower the allocations to "everybody other than the owner" when re-doing an allocation, but in the absence of doing something "special" I think that is the technically correct result. In this case, maybe something "special" is an EPCRS filing? Maybe it is engaging an attorney to guide the client as to the best way to implement what they want.

If the plan is a 2003 plan then you are still in the RAP, aren't you? Are you saying this is a 401(k) plan? I would think the safe course of action is to apply for an LOD if you allowed people to defer before they were technically eligible to do so, but have amended the plan retroactively before the end of the year to provide for their entry. I'm not sure it is required, though, although it is an interesting fact pattern. Certainly wouldn't hurt to follow the EPRSC guidelines on what to do when a plan allows early participation. I do believe, without looking it up, that EPRSC does indeed require that the amendment be submitted.

At the risk of hijacking a technical thread in the name of sports, I certainly support your thoughts, Tom!!!!!

Thanks, mwyatt, that was exactly where the cite came from. The 242b2 elections (which I think all of us in the business at that point dealt with on a super-rush basis) were carved out exceptions to the newly minted 401a9 rules. Hence, the rule I'm talking about (at least 50% during life expectancy) was the rule you needed to follow in order to escape 401a9. Well, you can't do that now, so the regular rules of 401a9 apply and the rule that guppy mentions is a specific requirement of 401(a)(9)(A)(ii). There are some twists and turns there if the designated beneficiary of the 80-year old is the spouse and is more than 10 years younger. For example the new tables indicate that the applicable distribution period for a participant age 80 and a spouse beneficiary age 68 is 20.0 years. I therefore think that who the designated beneficiary of the 80 year old matters. If the designated beneficiary is not the spouse, then it appears the longest distribution period can be no longer than 18.7 years.

I was referring to 4972©(6), but I think 4972©(7) might do the same thing for the fact pattern identified. You would have to run the numbers to be sure.

Don't forget that 4972©(6) will generally excuse the situation you describe from the excise tax (although not from it being non-deductible in the first place).

Huh? What does one have to do with the other? I'm sooooo confused (normal state of affairs, per some people).

Been there. Done that. Issue them when you know about them. Never seen any late fees applied for being late. There was a period there where late fees for 1099's were the same as 5500's. Something like $25/day up to $15,000. Ridiculous. Now, the penalty is supposedly $50/form, but that can be waived if there is reasonable cause, and I'm pretty sure this would qualify as reasonable cause to anyone except the truly hard-hearted.

Sorry, Andy, but I don't think it is abusive at all. There is no difference between that and just having the percentage undefined and then following up a contribution for the year with an -11g amendment.

I don't recall the limitation you mention, but it doesn't seem like a bad one to implement voluntarily. The only restriction I'm aware of is that under 401(a)(9) a distribution pattern must be established that has the likelihood of paying more than 50% over the life expectancy. This is just a top-of-the-head recollection, though, so I invite others to confirm or refute.

The deduction limits are always based on compensation paid during the fiscal year, aren't they? Plan compensation has nothing to do with it, does it?

If the plan passes 410(b) because everybody benefits, you check the box and you are done. The Schedule T is asking about information regarding 410(b). It doesn't have anything to do with 401(a)(4).