Mike Preston

Sounds like no donuts for me. Nonetheless, because of the deduction for 1/2 FICA a 50/50 split will violate 415 based on 90/10 profit split. Here's an example at $200,000. Split profit sharing of 20% of net profits 50/50 when K-1's are split 90/10. Gross profit 200000 A B Profit distribution 180000 20000 FICA 9757.34 1412.96 Net 170242.7 18587.04 Net limited 170242.7 18587.04 Profit sharing 37765.94 18882.97 18882.97 Note that B's profit sharing exceeds 100% of net pay. Whoever came up with this concept needs to sharpen their pencils.

I'm not skeptical at all. I see all kinds of crazy crap. This is just another one. Personally, I think you are mathematically challenged. $ to donuts that what you are thinking is 50/50 is actually pro-rata on comp, where comp is based on 90/10. Give us a sample set of numbers that you think the client wants.

Please rephrase your second sentence.

The client adopted a simplified plan. It was inexpensive. Live with the results or pay some money to get a more flexible plan.

Sorry, no can do.

Well, that sure clears things up. :-(

If it is a pure DC plan then Datair has it right, as I would expect.

Oh, its clear for current rules. The new rules (that are not in place and, with any luck, will never be so) also apply a "who gets the same contribution that determines the contribution for each HCE" rules that adds a requirement.

We do it all the time. Not an issue.

You would have a violation of 415. With $65,000 in annual additions, how could it be anything else?

The only quantitative guidance we have is the "Paul Shultz letter" which I would think you are already familiar with because you used the 1/2% amount in your original post. No, you do not take into account anything other than the DB when dealing with 401(a)(26).

That font hurts. Ughh. Problem? Yes. "Little bit lower"? How is it not 25% lower? More if comp in 2015 is big relative to prior years. Ultimately, it is a judgment call as to whether whatever the plan provides satisfies the definition of "meaningful benefits". Do you feel lucky?

I think it is clear, Tom, that everyone in their own group followed by an allocation to everyone satisfies the definition of a reasonable class. If the Plan Sponsor declines to allocate at least $0.01 [you may not want to be that aggressive] to somebody then the Plan does not satisfy the reasonable class rule because the IRS takes the position that is effectively the same as naming somebody out of the plan. Of course, if you are in for a penny you are in for a gateway, unless you are otherwise excludable and testing separately. The IRS has never definitively stated whether the reasonable class definition is satisfied if the only participants that *CAN'T* receive an allocation under plan terms are terminated. Personally, I think a judge would lash the IRS if it tried to enforce a determination that it did not meet the definition, but who wants to fight that battle? Not me. The issue is gently sidestepped by having everybody in their own group and no allocation requirements. In that case, the terminated participants don't fall into the category of "can't receive an allocation", they fall into the category of "don't" receive an allocation when they otherwise could which, per the above, the IRS treats as effectively the same as naming them out of the plan. So give them a gateway and cure all doubt.

I am very interested. Thanks.

Are you SURE you fail the average benefits test? One option that I rarely see applied is to substitute the average EBAR for the annual EBAR where the average can be for the year of testing and the prior year or the year of testing and the prior two years (a 2 year average or a 3 year average). There is disagreement amongst practitioners as to whether this averaging can be applied on a participant by participant basis (for example, use 2 year average for one participant, 3 year average for another participant and no averaging [1 year average?] for all others). I am of the strong opinion that it can be applied on a participant by participant basis. If folks disagree then the conservative choice in their opinion would be to apply the averaging to the extent possible (certainly somebody who just entered the plan would have a "1 year average" in any event. I know, I know. Your software doesn't have the ability to do this easily. Welcome to my world.

Yes.

I think you are comparing the wrong things. First, using zero in a4 testing leads to your software thinking you have a gateway problem. You don't. You fix that by fixing the software. Worst case you run the test on a population that completely excludes this person. Yes, I know you can't use that data for any other purpose. What you don't do is put a fake compensation into the existing data because as you can see, it doesn't fix the problem. Second, it isn't that it is easier to pass by excluding this person. That's not possible. If you included the person at the calculated ebar (infinity!) I promise the test would be easier to pass. So, by excluding him you are by definition being conservative (making it harder to pass).

Gateway is as gateway does, so you need to ensure the document doesn't use comp for entire year even though it could be drafted to use comp while a participant. Infinity is, by definition in my mind, unreasonable. Torn between using zero in a4 testing and treating as excludable. Can ignore issue by using full year comp for testing.

No, they don't. The rule is that any disparity that exists should not be one that unfairly discourages a member of the terminated group from continued participation. Think two-tiered fee structure where terminated folks are charged 10 times what others are charged. Not good. But if they are charged their fair share of administrative expenses while actives have the administrative expenses paid by the plan, that is fine. In this case unless the two options are markedly different for some reason I can't see it being an issue.

Gets gateway, included for a4.

People who design their plans such that the HCE's receive the SH deserve their fate.

EBDI, yes, but Tom's suggestion is better. However, you state that the plan's allocation is "age weighted". If you are using that term correctly and the plan's formula satisfies the definition of "age weighted" in the regs, the plan will pass (and you don't even need to worry about gateway). What are you not telling us?

Just switch, if Plan Sponsor wants to. You *can* continue to file the form filed in the previous year if the BOY participant count is 80-120.

This is a very confusing thread because jpod's #5 suggested a solution that did not include a QDRO. All the comments after that which presumed he was talking about a QDRO based solution just muddy things.

Interesting. I've never seen a domestic relations order require gifts. It usually takes the form of support, which is deductible to the payor and taxable to the payee. I'd consult with tax counsel!