Tom Poje

under the otherwise excludable rule you could 'pretend' your plan has a 1 year wait for everything and base your testing (both coverage and ADP/ACP) with 2 groups (those with 1 year and those with less than 1 year) the regs refer to 'max exclusion' but the IRS has yet (despite promises) to explain what that means. some officials insist you follow the plans entry dates (e.g. monthly) other stand by 1/1 and 7/1 for a calendar year plan. A strict reading of the code would be the first day of the plan year and 6 months after meeting the 1 year/age 21 wait (e.g. someone hired 3/1/10 would enter 9/1/11 sbjpa added a wrinkle that says the otherwise excludable rule can be modified slightly. if you have an HCE with less than 1 year pretend he actually had 1 year of service. Thus, you only have NHCEs in the otherwise excludable group and that always passes testing. Those rules apply to ADP/ACP testing only, the coverage rules remain the same! as far as I can tell, this could create what seems odd for the otherwise excludables group for coverage testing. only the hce gets a match. but no NHCEs are eligible yet so the plan passes coverage for the otherwise excludables!

well, I suppose on Relius the easiest way to 'trick' the system would be to tell the system ADP is using prior year testing, and prior year testing for the NHCE was 0. this should cause the system to generate a report indicating a return of all deferrals for all HCEs along with the gains. Its a fake simply to obtain the amount of earnings on the one person, but after all, you only asked for the easiest way. Logically that should work. Then of course you would go back and redo the test so you have the correct results on the system. Again, if the person is over age 50 it seems like you could count some of the amount as catch up, because amounts the 415 limit are eligible for catch up, though that really seems strange when you have no comp, but you sort of did, at least from one end of the business.

from the IRS website http://www.irs.gov/retirement/article/0,,id=238940,00.html Q #3 May I prepare one Form 8955-SSA covering both 2009 and 2010 reportable employees? Yes, you may prepare one Form 8955-SSA encompassing both 2009 and 2010 reportable employees. In that case, the 2010 reportable employees are treated as reported in 2009. Enter the beginning and ending date for the 2009 plan year on the Form 8955-SSA when combining information for the 2009 and 2010 plan years. For example, a plan that reports on a calendar year basis and combines information for the 2009 and 2010 plan years should enter January 1, 2009 as the beginning date and December 31, 2009 as the ending date.

lets suppose the excess deferrals are distributed timely - oh wait, thats what actually happened, so no 'suppose' is involved. we turn then to 1.402(g)-1(e)(8)(iii) Distribution of excess deferrals after correction period. ...they may only be distributed when permitted under section 401(k)(2)(B). [these are the usual rules for distributions for deferrals.] so technically you are not even permitted to distribute the deferrals even though failure to do so is possibly a disqualifying event! How do you like them apples! For purposes of the person's tax form, he was suppose to attach the W-2's, and those indicated excess deferrals, so if the IRS caught it (or the individual filled out the form correctly), he would have been taxed on the amount in the year it occurred, even though no actual distribution took place. then he will be taxed again in the year of the actual distribution, so he ends up getting taxed twice!!!! At this point we should stop and say a person could have deferred 10,000 into one plan, quit that job, went to another and deferred another 15000. In that case he has excess deferral, but neither plan is in violation so neither plan is subject to disqualification so no distribution would be made until the person has a distributable event. if it's in one plan (or one employer) then the plan is subject to disqualification. EPCRS permits the amounts to be distributed (even though 1.402(g)-1(e)(8)(iii) says you can't) because EPCRS is avoiding plan disqualification. (Appendix A.04 of Rev Proc 2008-50(The EPCRS rules) it indicates you are taxed in the year of excess deferrals and the year the distribution was made. It is silent as to whether the 10% tax applies (but then it is silent to whether such taxes apply in other cases (e.g. min distribution) Everything I've read indicates that in the case of min distribution the 50% excise tax still applies (though of course one could request that tax be waived) My understanding is that for excess deferrals the 10% premature tax still applies (unless of course the person was age 59 1/2) reason being, you did not meet an of the exceptions to a premature distribution. if it was not viewed as a premature distribution, then it doesn't make sense (at least to me) why EPCRS would have you taxed twice (hence following the rules of the regs found in 1.402(g) which says you can't get the $ out if you are late. long winded answer enough???

I thought once all assets were paid out, the plan year end became the date the last payment was made, and thus a short plan year was created.

Sieve- I don't know, I'm in the sub-minor leagues when you start getting into the ramifications of controlled groups and the different partnership, LLC, and stuff. As I indicated, I'd have to know all the different facts and circumstances, etc. , and then hunt down someone like Darren Watson who knows everything about stuff like that. (I didn't even think about controlled groups based on the original posts) on the other hand the following is the example used in the ERISA Outline Book (2008) : 7.d.1)Example. Devon is employed by both corporations A and B. The corporations constitute a controlled group of businesses as defined in IRC §414(b). Devon receives compensation from both companies. To determine whether the section 415 limits are exceeded with respect to Devon's participation in any plan maintained by either corporation, Devon's section 415 compensation from both corporations must be aggregated. Thus, if Corporation A maintains a plan, but Corporation B does not, Corporation A’s plan still must count Devon’s compensation from B to compute Devon’s section 415 compensation. Similarly, if each corporation maintains a separate plan, Devon’s combined compensation from both businesses would be used to compute his section 415 compensation under each plan. based on that I would say the guy is out of luck (again if he is catch up eligible then the catch up could stay in the plan.)

I'd agree, knowing all the facts is important. still, if I understood the original post correctly, for plan purposes the total 415 income is 0 (or negative), I'm not sure how one would get around the 415 limit (except perhaps for a catch up contribution)

this was made clear in the preamble to the final 401k regs: One commentator asked for clarification of the interaction between these timing rules and the rule under the regulations that treats a self-employed individual’s earned income as being currently available on the last day of the individual’s taxable year and whether this last day rule precludes a partner from making elective contributions during the year through a reduction in the partner’s draw. The restriction on the timing of contributions is not intended to prevent a partner from deferring amounts that are paid to the partner throughout the year on account of services performed by the partner during the year, and the final regulations have been modified to clarify this point. However, self-employed individuals who take advantage of this opportunity to defer amounts during the year must make sure that the amount contributed during the year will not exceed the limits (such as the limits of section 415) that will apply to the individual, based on the individual’s actual earned income for the relevant period.

compensation to determine HCE status is based on 415 comp, not alloaction comp. so there is no loophole in which you can exclude whatever compensation for determining who is an HCE.

well, 1.415(j)-(1)(d)(3) says Deemed changed of limiation year: If a defined contribution plan is termianted effective as of a date other than the last day of the plan's limitation year, the plan is treated for purposes of this section as if the plan was amended to change its limitation year. now, while it says "for purposes of this section" it would seem strange to me to have a deemed change in limitation year to a short year and pro rata things for 415 and not for other purposes. however, 1.401(k) -6 definitions Compensation - it says the period used to determine an employee's comp must be either the plan year (short in your case) or the calendar year ending within the plan year. so if you go with calendar year comp then it would not make sense to pro rate the comp for 401(a)(17) purposes. so that would almost seem to say for 401(a)(17) you don't have to limit the comp. so the question would be, what is the intent of the purpose of this definition. I'd have my leanings to say that it is not meant to apply in the cases of a terminating plan as you have. - but I can't say that I'm 100% sure of that statement.

my grandmother on my dad's side came over to this country in 1912 from Yugoslavia. Believe it or not, she actually could of purchased a ticket on the Titantic, but sailed on a ship that left earlier in the year. Few in her situation had much money, so you didn't wait around for another ship, even a brand new luxury liner.

yes you can have vesting on the discretionary but not alloaction conditions. sent you an example taken from the Erisa Outline Book.

if your document permits both a discretionary match and a safe harbor match then 1. of course you will have to provide the SHMAC and the ADP test is covered 2. You might have ACP testing depending on how much and at what rate the match is provided, and you are permitted to test all match or even exclude 4% of the match from the ACP test. if the document does not have a discretionary match, then my understanding is that you can not add that for this year.

Most people don't know that back in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars ofthe condiment scheduled for delivery in Vera Cruz, Mexico, which was to be the next port of call for the great ship after its stop in New York.This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was forever lost.The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great, that they declared a National Day of Mourning, which they still observe to this day. The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.

my comment was more to mean, for example: Plan originally had immediate entry. Bob is in the plan. Plan now changes to a 1 year wait. Bob has never had a year of service nor deferred nor received anything Could Bob still defer? That depends on how the amendment is done. If it is written to say anyone who was a participant remains a participant, then yes Bob still could defer. If its written to mean that you must have a year of service to be eligible then end discussion, Bob is now ineligible, and since he didn't have any $ previously then he wouldn't be counted for anything. If Bob had a previous balance, then he could no longer defer, but he would be counted because he has a balance.

so instead of releasing a new form, I see they have released the latest draft, dated 4-28-2011 haven't looked at it yet myself, so don't know whatmight have changed from the original draft. http://www.irs.gov/pub/irs-dft/f8955ssa--dft.pdf

and if desried (and if you use Relius) I have a customized alloaction report that lists the people and the amount required including totals (including by division) though if there are safe harbor nonelective contributions you might have to modify the report a little bit to get those to appear.

ugh. logically you would think it shouldn't make a difference, but the IRS seems to be pretty strict about modifying things. you would think a deferral is a deferral, but even addinga Roth feature is one of only 2 things you could change, so I would be hesitant about adding a loan mid year. I know on our safe harbor notices, that is one of the items that is described, and changing that would be something not in the original notice.

Jim: depends on how you word the change in document language. for example, you can have language that says "anyone who is a participant on such and such a date will continue to be a participant and anyone else will require 1 year svc. (Thats no different than in a new plan saying anyone hired before the start of the plan is a participant and all other require 1 year of service.)

just to make sure, there is certainly nothing wrong with having a plan that has a 90 day eligibility to defer and a 1 year wait for safe harbor.you lose the top heavy free exemption. (This is possible because you can run an ADP test in two parts - those with one year and those less than one year. the group who has less than one year passes because you can test all HCEs as if they had a year of servcie. the group with 1 year passes because that is safe harbor.) if what you are asking is can I also provide the safe harbor to a select group that only has worked 90 days, I don't know if that is possible, don't recall seeing standard document language that would permit this. I would think this vioaltes the principal that says anyone eligible to defer must get the safe harbor, but if you want you can exclude those who are otherwise excludables. Otherwise you end up with an otherwise excludable group that consists of those who have received a safe harbor and others who have not. That seems a bit inconsistent. but then I've been wrong before...

well, the gateway for an age weighted is satisfied because it meets an age based alloaction, so lets look at it from a different point of view. (before even getting to nondiscrimination) suppose 40% of the people termed with more than 500 hours and less than 1000. (or you have a bunch of actives who worked less than 1000 hours and the plan is not top-heavy. if you were to run coverage testing the ratio % test would fail because its less than 70%. But you might pass the avg ben test. basically the same would hold true if you were to run nondiscrimination testing. otherwise if over 70% benefit for coverage, then for nondiscrim the rate groups should all be the same as well and it becomes a moot point, but technically yes, testing should be done. lets take it one step further. suppose the plan wasn't age weighted, but was comp to comp. if you were to test on an alocation basis and 40% term > 500 hours but less than 1000 hours the same thing would happen. you'd fail coverage, and if you were to test nondiscrim you would get the same results as for coverage (unless the avg ben test passed). note: sometimes not all e-bars in an age weighted plan are the same. if plan is top heavy, some ees might receive a larger contribution, so their e-bars would be larger than most. if a rare case where someone hit the 415 limit th e-bar could be less than everyone else. if someone works past normal retirement, the e-bar might be less, a lot depends on how the document is written. consider 2 people both make the same comp, one is age 65 and on is age 70. the person age 70 will receive a smaller contribution! unless the document is written as such to prevent that from happening. there, more info than you probably care about!

the other place to check in the document is the distribution section. money purchase plans have to have an option for J and S

I have never seen a document that calls for a points plan AND puts people into group. I've seen documents put people into groups, and then the allocation has always been comp to comp. I would think you could, with customize language, put people into different groups, and have an allocation based on points with a different formula in each group, but I've never seen it.

a ggogle search reveals: A term used to signify alarm. Popularized by comics, used on the the 1960's Batman show. though a little more research confirmed that I remember it from a Bugs Bunny cartoon "Yankee Doodle Bugs" (1954). MY favorite scene is where George Washington gets his "notice"- he calmly walks up to his mailbox, opens the letter and exclaims, "GADZOOKS! I've been DRAFTED!!", and just as calmly walks back towards his house. Then, he rides his horse into a 'Candy Shoppe' and declares, "Martha, you'll have to run the candy stores alone, while I'm off to fight the war". Now, this joke hinges on the fact that, in 1954, there was a nationwide chain of "Martha Washington Candy Stores"

gad zooks. maybe I worked with this lawyer many many years ago, back when the form 5500 for small plans could be filed as a C or a R. The C had a question "Did the plan limit comp to the 401(a)(17) limit?" The form R didn't, so it was 'ok' if you didn't limit the comp as long as that was the form you filed. no really, that was the argument I was given. just what part of 1.401(a)(17) where it says a plan can't base an allocation in excess of the annual compensation limit is unclear? even the example found in 1.401(a)(4)-2(b) has 2 people with comp at 150,000 (the limit at the time the example was created) is that considered a coincidence that the IRS simply used that amount and not a larger amount?