Mike Preston

Brian, you are wrong. Sorry.

Lori, my take on this is that the associates plan is indeed subject to gateways if you go about it the way you have described. But I'm not sure it makes a whole lot of sense to do it that way. What is the downside associated with not aggregating the associates' plan? Well, it looks like the only way the combined plans were not top-heavy was by considering the associates plan as part of a permissive aggregation group. If you don't permissively aggregate the associates' plan then the other plan (or plans) appear to be top-heavy. Is that really a big deal? If the other plan (or plans) are cross-tested and subject to the gateway, you have very few people entitled to a top-heavy allocation in excess of the required gateway anyway. Yes, I can see where there might be some people who would not be entitled to the gateway, such as statutory excludibles, but is the provision of TH benefits to that group less expensive than the gateway for the associates? I also recognize that the vesting schedule might be an issue.

In order to permissively aggregate, the aggregation group is tested together under 410(b)/401(a)(4). When I said "all is well", I meant: "OK the plans aren't top-heavy." I did not mean to imply that, once aggregated and not top-heavy, the entire aggregation group is NOT subject to aggregation under 410(b)/401(a)(4). It is. And the gateway issues flow from there. Sorry for the confusion.

In the adoption agreement or in the plan document? I find it even is in the plan where it defines Final Average Compensation. Here's the language from our current document with respect to FAC: "If a Participant’s period of service with the Employer is less than three (3) consecutive years, Compensation is averaged on an annual basis over the Participant’s entire period of service." Here's the language on the regular compensation average: "If the Participant has less than the above number of consecutive years, Compensation shall be averaged over the total period of service. In no event shall Compensation be averaged over a period of less than three (3) consecutive Years of Service unless the Participant has less than three (3) Years of Service." Going back to my TRA document, it has the following language: "If a participant has not been an employee for the applicable period, the averaging period is his entire period of employment. " I'm pretty sure that you'll be able to find a cite in the LRM's.

Thanks, Tom. Good cite.

I'm just having trouble with T-7. My recollection is that this Q&A essentially says that if you permissively aggregate for TH purposes, the permissive aggregation group must satisfy 401(a)(4). If so, wouldn't it be subject to the gateway? The original post had the following phrase:"I understand that two plans can be permissively aggregated for top heavy testing, but that if the group is top heavy, only the plans that are required to be aggregated are actually considered top heavy. " I have never thought about things in precisely that way, but the statement appears to be accurate. I _think_ it is saying that you go through the following steps: 1) Test the required aggregation group. If not TH, nothing further to do. 2) If TH, then permissively aggregate another plan and test again. If not TH, all is well. 3) IF still TH, then forget about permissive aggregation because it didn't get you anything. The "undoing" of permissive aggregation gets you to the position where only the required aggregation group is subject to the TH provisions.

Usually. When on the phone, the person at the IRS asks for the Trustee's SSN "for identification purposes". I don't really understand why they need it, since nothing is done by the Trust under the SSN of the Trustee. But they seem to require it.

10% is too high in today's economy. Never heard of a loan fee being 50% of loan interest. Interesting concept. Can I be the administrator on all $50,000 loans? Or is there a cap?

Hold on there, Quickdraw. If the permissively aggregated plans are NOT top-heavy, do you think the associates plan is exempt from TH and gateway issues? I concur that if the permissively aggregated plans are top-heavy that it essentially makes no sense to permissively aggregate them. But if you do permissively aggregate them for TH, aren't they required to be aggregated for 10(b)/a(4)? Admittedly I haven't had one of these in a while and I may be misremembering things.

Here's Q&A 20 from 1996, is this it? QUESTION #20 §415 - Other: Reflecting Investment Loss in Corrective Distributions If the section 415 annual addition rules are violated because of a reasonable error in determining the amount of elective deferrals that are permitted within the constraints of section 415, because of the allocation of forfeitures, because of a reasonable error in estimating a participant's compensation, or under other appropriate factors determined by the IRS, then a number of correction options become available under the section 415 regulations. One of these options is to distribute elective deferrals or after-tax employee contributions to the extent that the distribution would reduce the excess amounts in the participant's account pursuant to Reg. 1.415-6(b)(6)(iv). Prior to December 1994, the regulation stated that gains attributable to returned after-tax employee contributions would be counted as employee contributions if not distributed with the refunded contribution. The regulation did not state that this rule would apply to elective deferrals as well. Amendments to the regulation have now conformed the rule for elective deferrals to the rule for after-tax employee contributions. The language of the 415 regulation is slightly different from the language of the section 401(k) and (m) regulations relative to corrections of excess contributions and excess aggregate contributions. Those regulations specifically call for the adjustment of the excess to reflect both gains and losses, while the 415 regulation merely mentions "gains". Should refunds made under the auspices of the 415 rules be adjusted for losses? Also, is there a deadline for making the correction when using the 415 rule? RESPONSE It appears that there is no requirement to adjust for losses and it is unclear whether such an adjustment may be made. There is no regulatory deadline for making the 415 correction. The expectation is that the correction should be made within a reasonable time after it is discovered. For example, the Service would not look favorably on a full year's delay in getting the correction made.

Almost no. Only if the HCE's have already accrued a benefit will there be problems.

It is all in the wording, I suppose. I would call that a "1000 hour service requirement in a 12 month period with entry following completion of hours requirement", rather than a "1 year service requirement". But that is just me. ;-)

It is my understandng that an individual that waives participation in a 401k plan would be treated as a zero in the ADP test.

No. That individual is not a participant in the plan as of 12/31/2002.

KJohnson... nicest thing I've heard all day.

I'm saying that having a PS contribution made in a manner which violates the above mentioned regulation will disqualify your plan. PS contributions in 100% of the plans that I consult with are not in any way contingent upon or related to salary deferrals. The only contributions which are in any way contingent upon or related to salary deferrals are matching contributions.

You are right. But this is probably something that the client will see as a minor issue, but that all of the techies will see as something other than a minor issue. Depending on the amounts involved, the practical approach might be to consider the amounts deposited by the Plan Sponsor to be in anticipation of litigation and therefore not a contribution deductible under 404 and deductible instead under 162. Maybe an aggressive position, but one that if the dollars are small might be the best approach. Standard caveat as to engaging an attorney to guide the plan sponsor with respect to the choices to be made.

Disqualifying a plan isn't particularly relevant to you? In answer to your question, I try to keep plans qualified.

Sounds like they made a contribution to me.

All caps is considered shouting. All lower case is more difficult to read than using both lower case and upper case letters.

If they wouldn't have been in the plan anyway, and hence the reason they were excluded is not solely because they terminated with less than 501 hours, I don't think they go there.

Please don't shout. It actually discourages responses. You either need a bond for the full 5 million or you need an audit. There is no requirement to have the bond. But if there is not bond, there must be an audit.

This sounds like a trick question. How does one pay assets that don't exist? Overdraft protection?

Good point, Appleby and Derelict. I was reading a comment by RIA which highlighted the fact that the methods in the new Revenue Ruling were safe harbors but that other methods might still be acceptable and nterpreted that to mean the interest rates were also safe harbors, but that others might be acceptable: "Just as the distribution methods in Notice 89-25, Q&A 12 were intended to serve as safe harbors, i.e., as examples of substantially equal periodic payments, and not as the only distribution methods that satisfy the substantially equal payment exception, so apparently are the methods in Rev Rul 2002-62 intended to be safe harbors. The guidance in Rev Rul 2002-62 is intended to “modify” the provisions of Notice 89-25, Q&A 12, and provide the same methods, but with clarifications and elaborations"

GBurns: see 1.401(k)-1(e)(6). If you are correct in that you can label an employer contribution that is related to deferrals as something other than a match, the plan will be disqualified for predicating a contribution which is not a match on elective deferrals. I'm afraid that a match is a match, whether you would like to think otherwise or not.