Mike Preston

First things first. You asked that I answer only with respect to 410(B). I did that. Want to move to 401(a)(4)?

She does not need to wait and file an amended return. The "code" that will be on the 1099 will say that it was taxable in 2002 (you are correct that if the instructions aren't changed, the code will be "P"). Note that if the amount refunded was less than $100, it will be taxable in the year received.

You can terminate the 403(B) arrangement. If you do, then no new monies will be deposited. However, termination of the plan is not a distributable event, so there would be no ability to remove the monies and roll them into any other place.

If the property is not in his name at all (just in the other two), then I don't think it would satisfy the rules.

PS plans can be set up such that everybody can take in-service withdrawals of monies that are "seasoned". There are typically two options in the adoption agreements I've seen that allow this: a) all monies in the plan for more than 2 years; or b) any monies in the plan after a participant has 5 years of participation. Rather than modify the retirement age, I'd suggest the first option.

I'm not having any luck understanding what you are attempting to do. Couple of points. 1) You can't cut back anybody's benefit with an -11g amendment. If you are talking about "reddoing" the allocation such that some people's compensation goes up, while others stay the same, such that those that stay the same get less of the original dollars to be allocated, that is a cut back and can't be done. 2) Testing is independent of plan provisions, with the exception that an -11g amendment's effect must stand on its own as a non-discriminatory allocation.

For 410(B) purpuses, all are benefitting, so the ratio percentage is 100%. Something tells me there is going to be a followup question. Note that I believe the ratio percentage is determined as (11/11) / (2/2), not (5/5) / (2/2), just in case that is relevant to the followup.

I agree. Doesn't the plan easily pass the ABT, whereby the allocation to the 2 NHCE's and the 1 HCE can be tested on contributions as they will all be in the same rate group?

Who is to say I'm not?

Nah, it is just a source of mild amusement to me. Counting seems to be a lost art. (gg)

My machine shows the prior message as 1:39am. Isn't that only 10:39pm here? That's not even dinner time on sime nights. Is it showing up on your machine as 4:39 am? If so, then the 1:39am must be "real time" for my computer. That's not even bedtime! So, take your pick: before dinner or before bed!

Which way makes your balance equation work?

You use the right number. ;-) That number is the number of plan participants on the first day of the year. How many is that? FORGET WHAT THE SYSTEM IS TELLING YOU.

Yes, they can. I'll leave the citation stuff to somebody else on this one.

Haven't we already crossed this treshold when dealing with TH plans and participants that are only eligible for TH contributions, not the "regular" contributions? That is, even if the "regular" contirbution is a safe harbor, the only way one passes a4 testing is if the TH only participants are treated as not benefitting and those treated as benefitting are a 410(B) group. If they are treated as not benefitting and the remaining group satifsfies 410(B), 1.401(a)(4)-2(B)(4)(vi)(3) says that (if you meet the other conditions) everything is ok. But the situation you propose is not covered by the special exception for TH benefits, is it? I haven't reviewed the guidance on SH k plans to respond to this message, so there may very well be something in there which is akin to the above cited regulation. Note that the above is only if the allocation to the "regular" group is a safe harbor allocation. If the allocation to the "regular" group is a cross-tested allocation, not even the TH only folks are excludable from the general test. So I'm not finding any support for the position that a SHNEC contribution for those who satisfy statutory eligibility can be ignored when cross-testing a plan that provides a higher benefit to some people (those who meet 2 year eligibility) than others (those who only satisfy 1 year eligibility). I guess I'm not as bothered by the fact that it is theoretically possible (unless we can pinpoint guidance to the contrary) that a SH plan with 2 year eligibility can be forced into general testing by the addition of a SHNEC contribution to those who have 1 year, but not 2 years. of eligibility service. Nothing would preclude the plan sponsor from using restructuring if the 2-year group is a 410(B) group. Then you are back to where you want to be. Normally, using restructuring requires the separate groups to satisfy the 70% test, but in this case, I think a strong argument can be made that the restructuring satisfies reasonable classifications and can therefore use the ABT results. In short, I think you can get to where you want to go (test the cross-tested allocation while treating those with less than 2 year eligibility as not benefitting - is that where you want to go?) via restructuring.

You know me too well. ;-) I think that those with more than 1YOS who are receiving an allocation of employer monies (which is what the SHNEC is) count in the rate groups. Am I off base?

"What I think I am hearing here is that you can imput disparity on the allocation and end up with (essentially) an integrated allocation rather than a comp to comp across the board for all employees of both groups." Geez, this just doesn't seem to die, does it? No matter how many times the responders indicate that it can't be done, or that it won't work out this way except in unusual circumstances, the posters continue to say exactly what you have posted above. Wow.

Unless the 401k was established before 12/31/2002, the arrangement the financial advisor wants to establish is not legitimate. Further, even if the arrangement was established before 12/31/2002, unless the individual executed a salary deferral election form on or before 12/31/2002, the deferral of income into the plan is not legitimate. I have serious doubts as to whether the reclassification of income is legitimate, at this date, either. Run from this as fast as you can, keeping in mind that you now know about the intent of the financial advisor. This puts you in a tough spot. I think the right advice for you is to consult your own attorney to see what YOUR responsibilities are in this area.

I think nobody can tell if you are right or not based on the facts presented. Whether you are a custodian or not depends on the agreement you have with the plan/trust. There is nothing that I am aware of that limits the definition of custodian to 403(B) arrangements. That doesn't mean that it doesn't exist, just that I haven't seen it. I have seen financial institutions sign as custodians without being trustees of 401(a) plans.

It is an interesting question because no matter how hard you look, you won't find a specific deadline for making the TH contributions in a ps plan. In a MP plan, of course, the deadline was that associated with minimum funding. There are a couple of indirect references, though. First, a contribution not made within 30 days after the employers tax return due date for the year in question doesn't count for 415 until the year deposited unless a correction method such as EPCRS is used. In that case, if you have anybody due a TH contribution who has subsequently terminated, a TH contribution would end up being a 415 violation. Not good. Hence, most people just take the "logical" approach of saying that the 2000 and 2001 TH contributions need to be corrected under EPCRS. Once you make that leap, the addition of earnings is mandatory.

Wouldn't you normally want to include the SHNEC in the a4 testing for those who satisfy the 1 year eligibility but not the two year eligibility?

Saying that the plan will be determined to be or not be top-heavy based on the language of the plan itself is a statement that can't be argued with. However, if the plan merely references 416 or the regs thereunder in the determination of top-heavy ratio (as most pre-approved documents do) it doesn't provide much guidance. I am in total agreement that T-24 is quite clear that contributions made after the determination date in the case of a profit sharing plan are not counted in the top-heavy ratio. However, the fact remains that the IRS is now on record as saying that the individual that submitted the actual question at the 2002 ASPA Annual Conference (question number 49) had a reasonable argument as to why, if the plan wanted to, it could interpret the language of T-24 to support inclusion of contributions made after the determination date in a profit sharing plan. This means that practictioners seem to have a choice. This is usually a good thing.

Well, while I agree the net impact at the time was to increase DB assets relative to liabilities, I seem to recall that the assets were not booked with zero liability. I think there were offsetting liabilities. It was just that the liabilities were less than the assets. The regulations are silient when it comes to how the promise compares to the expectation. A plan sponsor could use a modest promise combined with optimistic expectations to do just what BofA did. Another plan sponsor might reverse it to enrich an overall benefit.

wsp, can you clarify what you are saying. There seems to be a "not" missing somewhere. I agree with Earl, though.

Lynn, doesn't this depend on the level of compensation that the individual who sponsors the SEP actually makes? At $200,000, with your hypothetical $10,000 employee, a non-integrated SEP will yield $40,000 for the HCE and $2,000 for the NHCE. A fully integrated SEP at the $10,000 level will yield a contribution of $39,430 and $1,430, if I've done my calculations right. (You have! Hi Mike) . Each individual is reduced by $570