Jim Chad

FWIW My thinking goes like this: The individual dollar limit under 415 is $44,000 for 2006. Catchup contributions are on top of this. If I understand you correctly, the only part of the $15,999.88 of deferrals that bumps into a limit and can be recharacterized as a catch up is the $3,035.26 ADP correction, so far. So this means his limit is $47,035.26. This much I feel pretty confident in. But I'm pretty sure that since you have at least $5,000 of deferrals, your limit should be $49,000. Look at it this way: If you were allocating a non elective contribution and some one under age 50 was getting too much for 415, would you cut down on this person's allocation or would you refund some of the deferrals. I would refund part of the defrrals to correct the 415 failure. I think a 415 failure herre lets you go all the way to $49,000.

Need clarification: "I have a person who " What is your direction for approaching this? Are you in the Human Resources department? Are you a tax preparer? Are you involved in the investements or administration for this Plan?

You are correct. If a Plan's only employer contribution that year is the 3% SHNEC (including no forfeitures), the Plan is deemed not top heavy. So you would not be required to use whole years comp for TH purposes and Safe Harbor Plans are allowed to exclude comp prior to Participation.

This is either a profit sharing or Money Purchase, right? It would not be legal if it was a 401(k) Plan.

This would be possible for the discretionary or fixed match and the discretionary nonelective portions. But the QNEC, QMAC, SHNEC, SHMAC and Deferral portions are all locked into the plan until termination of employment or age 59 1/2 (with the 2 exceptions: hardship and loan).

Is "Employer stock" another way to say what you mean?

You may want to take a good look at your document. Many people don't realize that they currently have a provision saying they are required to delay distributions for some period of time. Usually the delay is for employer and employee money, equally. But not always. Also, as Blinky pointed out, distribution timing is a protected benefit. Make certain you involve someone very knowledgeable if you amend that part of your document.

Thought you might like a little explanation of why I think it is better to wait until after the Plan anniversary to do the first payout. At yearend many parts of the plan are examined in detail. Even a safe harbor Plan has some testing that needs to be done. Also, when calculating the match, someone will be going over the census data in some detail. There are many kinds of errors they might find. The first one that comes to mind in letting an ineligble employee defer. The second type of error that comes to mind, is one Participant's deferrels going into someone else's account. Some ideas FWIW (For What It's Worth)

A tail distribution, also known as a tag end distribution, refers to a second distribution to pay out a contribution to someone. A second and I think better way to handle this would be to have your document require distributions be delayed until after the next Plan anniversary or eve the second annual Plan year end after seperation from employment.

Notice 2000-3 says you cannot stop the 3% SHNEC mid year except for certain business acquisitions and termination of entire Plan. If the 401(k) portionis continuing or there is a successor plan, you cannot stop midyear.

Is there any chance that this was a SEP or SARSEP and that instead of a Plan Document, they just filled out the form 5305? Do the Participants have individual investment accounts? It is a long shot, but I thought I would ask?

You can retroactively amend the document to make the Employee eligible or You can forfeit the money and make the employee whole outside the Plan. Then amend the w-2 to show no deferrals. If the Employer was going to make a contribution, anyway, he is not really out anything. This can be done under self correction

I can't remember where I heard it. But I have heard that with the IRS, cents (less than a dollar) are always considered deminimus and can be ignored. I would not pay it out. FWIW

I take it you are under age 50 and not eligible for catch up contributions? If you don't know what this means, please write back and ask. Many people say that $15,000 in ROTH is sort of like $20,000 in pretax. By this line of reasoning ROTH would be better. Or maybe you want to save pretax in your 401(k) and start a savings plan with a mutual fund seperate from your employer plans. You can set up with many mutual funds to deduct a specific amount from your checking account every month. This would be easy and still give you the benefits of dollar cost averaging.

What you are saying looks right to me, but here are three other ideas to consider. 1. I'm surprised that a new comparability plan can't be made to work if you have 5 HCE's that don't want to max. You may be testing on allocations rather than benefits, but I would think you would be able to do something good. 2. The goal seems to be to put money away for retirement in something that grows tax deferred even if you don't get a tax deduction today. If this is true you may want to talk to an insurance agent about a single premium deferred annuity, outside any employer plan. Unless there have been changes that I have missed, there is no testing, no limit on how much you can put in and the same tax benefits as after tax contributions. 3. There might be a way for a triple stacked match, to get you to $45,000 and have all of it be pretax.

Your question would lead us to guess that this is a sole proprietor. Is this correct? Was the deposit made in 2006 and is this a calendar year Plan?

If the document does not prohibit it, yes, an employee can take a loan from it. Most of my plans, that allow loans, allow them from all accounts.

Code 8 is the closest thing I see.

I would like to add that the Employer can't " be a nice guy" about it. He has to follow the rules. If it is a partial termination, he has to fully vest the terminating Participants. If the number of employees in the sister company is high enough it will not be a partial termination. It may be possible to amend your document to make all of you fully vested. But there may be complications to this that they are unable or unwilling to deal with.

You would refund deferrals so as not to exceed 415.

We are a CPA firm and Doug Keegstra here has done a lot of valuation work with many other service companies. Maybe he can help you. His phone is 616-455-2800

I'm sorry, I can't find a perfect cite. All I can find is in the ERISA Outline by Sal Tripodi (2006 - page 3.191) and this is the way it has been discussed at every seminar I ever attended.

I have heard of getting this result by going in the other direction. I have heard of a Plan where all money for HCE's went into a deferred comp plan. Then, at the end of the year, money would be moved to the 401(k). They would move only enough money to still pass the testing.

I've got bad news. It won't work that way. The Plan can only count the $225,000 of comp in calculating the match. You are correct. This is $13,500. So the Match tops out at $6,750 in 2007.

Is this an individually drafted plan?