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An employer has failed to change deferral elections as requested for eligible participant. In order to correct this I believe the plan sponsor will need to do the following: 1. For participants that chose to increase their % the ER should contribute a QNEC in the amount of the difference plus earnings for those affected. 2. For participants taht chose to decrease their %, the option I would recommend is to forfeit the applicable deferrals and earnings and make the employee whole outside the plan. In calculating earnings, I am assuming the Annual Fed Rate can be used. Have I missed anything or incorrect in my thinking?

By separating your HCEs into a different group (assuming you are giving them a different allocation rate than the rest of A) you do not have uniform allocation rate for that group. Thus you would have to cross-test the plan. Your plan document would also have to be written to separate your HCEs into different groups for allocation purposes and I assume this is not your current situation.

It is possible that you could test these separate groups as component plans. If each would pass coverage on its own then your plan would be viewed as a safe harbor design in regards to testing under 401(a)(4) and you would not have to worry about minimum gateway allocations.

Appleby, if it ends up that the employer and the participant do not have anything, would you agree with Belgarath that the entire distribution of the after-tax monies be treated as taxable?

Yes, the 3% can be used as part of the gateway. However, you cannot impute disparity on the SHNEC. I agree with your logic regarding excluding the HCE. However, the plan doc will have to be written to include that HCE in a different group. It sounds like your current document includes all of the owners in one group.

I have a plan with no historical data except for the last few years. A participant is requesting a distribution but I do not have the basis for him. I am going to try to get the employer to try to find the basis for me. My guess is they are not going to have anything. What would be the process for paying this guy out without knowing the basis?

In order to give the otherwise excludables a minimum of 3% should the plan have a separate group for otherwise excludables so as to not give them the gateway minimum (5% in this case)? Or is it okay to to just leave them as part of the NHCE group(s) they are in?

I agree. You cannot pay plan expenses from one plan for a different plan. I am sure the plan document does not have this provision in it.

It would be used for anyone that has earned income including sole proprietors and partners in a partnership.

If a standardized plan does not amend their document for GUST until after 9/30, does it still have to file for determination letter along with the $250 user fee under RP 2003-72?

I thought it may have referred to making the IRA a shareholder in a LLC or LLP used as a real estate investment entity.

I cannot find any threads that discuss the concept of owning real estate "outside the IRA". Would you mind posting a few links?

I had a client find this and was wanting to know more about it. Does anyone have any comments on this? http://www.pottsfinancial.com/ira_articles.htm

Relius Proposal does a good job as long as you are not cross-testing. I have yet to find anything that does a decent calculation for plans that are cross-tested.

What administration package do you use? Do you need it for cross-testing as well?

I have the following controlled group situation: Husband owns 100% of Company A and 50% of Company B. Wife owns 0% of Company A and the other 50% of Company B. Wife has W-2 comp through Company A and self-employed income through Company B. For purposes of the deduction, what percentage of the deduction does she get? How do I calculate this figure for her two sets of comp?

Yes to both of your questions.

I don't think Relius is capable of aggregating plan for purposes of ADP/ACP.

I'll take Useless Information for $100, Alex. What is Zone Improvement Plan?

Nor earnings on deferrals.

I use Relius Proposal. It has its limitations but it makes some nice reports and is fairly easy to use.

I agree with your assessment based on the information provided. It is not a controlled group.

Client relationship with the broker, its cheap, and there is no convincing otherwise.

It is not specific at all. The document is very poorly written. It is a prototype from a large broker dealer.

I meant to say I agree with you, R. Butler. Too many of you guys with R's at the beginning of your names.