Sully

Question has come up on the compensation limit for a short initial plan year. Facts: Plan year 10/1 – 9/30 Limitation year is the plan year Plan effective 1/1/2012 Should the comp be limited to: $183,750 (245,000 * 9/12), or $187,500 (250,000 * 9/12) Thanks in advance.

For the ownership test, each entity within the controlled group is looked at separately. 1.416-1, T-20 Therefore, these employees would be Key/HCE. This assumes they own more than 5%.

I thought the spouse would be considered a key employee for 2012. When determining the key employees for the 2012 plan year you look at the employees that owned or were deemed to own >5% stock during the year that includes the determination date. The determination date for the 2012 plan year would be 12/31/2011, which means you look at >5% owners during 2011. Since husband owned more than 5% in 2011 then wife would also be considered an owner, and therefore, key for 2012. Agree/disagree?

Yes, the sponsor can amend the plan on behalf of all adopting employers. No different than a regular prototype document.

You may want to look into Penchecks/Benepay.

Could there be a problem doing a profit sharing allocation if the plan required employment on the last day of the plan year? Or, would the termination date set a new last day?

We sponsor the Corbel Volume Submitter 401(k), PS and MP documents. With the PPA restatement coming up I was wondering if we should go ahead and drop the Money Purchase Plan? We only have a few MPP’s left on the books and those are all 0% of pay plans we set up for clients years ago (typically retiring doctors) who wanted to maintain the plan for various reasons but were no longer going to make any contributions to it. Can we switch these clients under the 0% MPP over to a PSP document or will we run into an issue with the PSP not having substantial and recurring contributions? Do other practitioners still use the 0% of pay MPP? Thank you for any feedback.

Reg 1.401(k)-6 Qualified nonelective contributions (QNECs). Qualified nonelective contributions or QNECs means employer contributions, other than elective contributions or matching contributions, that, except as provided otherwise in § 1.401(k)–1© and (d), satisfy the requirements of § 1.401(k)–1© and (d) as though the contributions were elective contributions, without regard to whether the contributions are actually taken into account under the ADP test under § 1.401(k)–2(a)(6) or the ACP test under § 1.401(m)–2(a)(6). Thus, the nonelective contributions must satisfy the vesting requirements of § 1.401(k)–1© and be subject to the distribution requirements of § 1.401(k)–1(d) when they are contributed to the plan.

Yes, the plan termination was required as part of the sale. A further concern was that if they leave the termination date at June 30th and the July 31st sale date gets postponed again, and again.....

Client has a calendar year safe harbor 401(k) Plan and was scheduled to sell their ownership in the company and terminate the 401(k) plan on June 30th. This would be a plan termination due to a Section 410(b)(6)© transaction. At the last minute the sale was postponed until July 31st. The client would still like to use the June 30th plan termination date. My concern is whether or not they can continue to rely on the safe harbor rules for this plan year if the plan termination is 31 days in advance of the stock sale. The question comes down to how long in advance of a stock sale (or asset sale) can you terminate a safe harbor 401(k) Plan and still rely on the safe harbor rules? A day, a week, a month? Any thoughts on this would be appreciated.

Is the HCE catch-up eligible?

The plan document should specify whether catch-up contributions will be taken into account in applying any matching contributions under the Plan. In my experience most plans do match catch-up contributions.

After all was said and done, the Employer decided to make the change effective February 1st. Thank you for all of the responses.

The employer will definitely notify the employees of the change. They are a very good client and everything is done aboveboard. I would be very surprised if any of the employees had a problem with it. They are in the construction business and most of the employees are just happy to have a job at this point. I agree with Kevin C’s assessment but do have some concerns since the safe harbor notice has already been distributed.

Current safe harbor match plan. Employer has already provided notice to the employees that it will continue to be a safe harbor plan for 2011. The employer now changes its mind and does not want to be safe harbor for 2011. Please confirm that they can make this change and no matching contributions will be required for 2011 as long as they amend the plan by 12/31/2010. Thank you.

401(k) Plan with no QJSA requirements provides for automatic cashouts for vested balances less than $1,000 and automatic IRA rollovers for vested balances between $1,000 - $5,000. A participant terminates back in 2009 and elects to do a rollover of his entire vested balance of $10,000. Later on the employer makes a profit sharing contribution to the participant’s account and he now has a vested balance in the plan of $1,500. Question: Can we do an automatic IRA rollover of the $1,500 or do we have to take into account the prior distribution of $10,000 when determining if he is within the $1,000 - $5,000 range? Thanks in advance for any comments.

I checked with the IRS agent on this and he was kind enough to send this response: You would need to determine whether the definition of QNEC in 1.401k-6 applies to the term used in the safe harbor reg. Generally, unless otherwise provided, the definitions in 1.401k-6 apply to the entire 401k regulation. If that general rule applies here, you wouldn't be able to use forfeitures to make the safe harbor QNEC. Not sure where this will end up. I know most of the plan documents out there already allow you to use forfeitures to reduce safe harbor contributions.

During the recent IRS phone forum that dealt with EPCRS the presenter stated that forfeitures could not be used to make QNEC’s for correcting a failed ADP test. This was because Reg 1.401(k)-6 requires that the QNEC come from nonelective contributions that satisfy vesting (100%) and distribution requirements under 401(k) when contributed to the plan. Forfeitures are derived from contributions that were not fully vested when made so they cannot be used. Does anybody think this interpretation could also be applied to employer 401(k) safe harbor contributions? Would employers not be allowed to use forfeitures to fund the SHNEC or SHMAC?

It is my understanding that the key employee's contribution rate is determined based upon all contributions. And his salary deferral is 'considered 'an ER contribution. Is that right? Thanks Correct. See 1.416-1 Q&A M-20. Also note "...elective contributions on behalf of employees other than key employees may not be treated as employer contributions for purposes of the minimum contribution or benefit requirement of section 416."

Employer A is part of a controlled group and sponsors a calendar year 401(k) Safe Harbor Match (4%) Plan, call it Plan A. Employer B is part of a controlled group with Employer A and has never sponsored or participated in a qualified plan. We are restating Plan A for EGTRRA and the Employer would like to change the Plan to allow Employer B to participate in the Plan effective 4/1/2010? Can they allow this type of change to a safe harbor plan mid-year? The concern is with the limits on amendments and changes to Safe Harbor plans during the middle of the year. Thank you in advance.

According to the IRS website they are currently reviewing cases with a 12/2008 postmark date. http://www.irs.gov/retirement/article/0,,id=150182,00.html

I receive the 'Election Not to Participate' when I choose Package A with the Volume Submitter Document. Are you processing a Standarized Protoype by chance?

The Datair document covers it in the basic plan document (on a prototype plan) and it says..."the availability of hardship distributions to Participants is limited to Participants who have not terminated employment." Under the Corbel document it is optional. There is a choice in the adoption agreement where you elect whether or not a "Participant" includes a former Employee at the time of the hardship distribution.

The answer might be provided in the plan document. The EGTRRA documents for Corbel and Datair specifically address this issue. I have not had to look for it in any other documents.

Don't forget to make sure that neither one of the documents has a provision that automatically covers all members of a controlled group. Standardized prototypes in particular.