Tom Poje

I'm not sure I would go so far as to say you 'didn't get it', once you indicated the 'key' compensation was small, that offered potential and a simple example to illustrate. but appreciate the comments, maybe more than you would realize. (for some deeply personal reasons not worth going into I no longer attend ASPPA, but at least here I can still share) guess a 'few' years of experience and a hopelessly mathematical mind for tinkering with numbers paid off.

I think if it applied to the past, then arguably someone like 'Freddie' who worked for 3 years, never 1000 hours but over 750 each year and quit last year would have to be retroactively entered in the plan a few years ago and provided benefits for those years.

well, you never know. maybe not the most creative... the best one I came up with years ago... was asked to run a rare pre lim ADP test - must have been Oct or something. one NHCE who was deferring the max had projected comp of 120,000.07. of course that was 7 cents more than HCE comp limit at the time. I told them I don't care what happens, if the guy finds 10 pennies sitting on his desk one morning before the end of the year and by chance a pay check which was 10 cents less than normal, well, those things happen. you don't want to mess up next years test!

in other words, lets say the top heavy ratio was only 60.5% since it was indicated the keys have small comp it might be possible that a small comp to comp contribution would tip the scale. e.g. if the keys had 40% of total comp of all employees

Kevin C - those were my thoughts exactly this was Q49 from the ASPPA Conference p 49. Receivable Contribution and Top Heavy Determination? Is a discretionary profit sharing contribution for the prior plan year that is deposited after the end of the prior plan year included in the top heavy determination for the current plan year? Let’s say we have a calendar year plan, effective several years ago. We are determining the plan's top heavy percentage for the 2002 plan year. The determination date is therefore 12/31/01. The employer makes a contribution in February, 2002, which is allocated and deducted as of 12/31/01. There is a question as to whether this contribution is included in the top heavy determination for the 2002 plan year. The question relates to Q&A T-24 of the 416 regulations, which says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. A. The key phrase here is “account balance”. The participants’ account balances, as of (say) 12/31/01, include the profit sharing contribution that is allocated and deducted for the 12/31/01 plan year end. So the guidance regarding “adjustments” does not apply to the receivable profit sharing contribution; it is already part of the participants’ account balances. The following is my analysis: The question as to what contributions are considered due on the determination date is determined under §1.416-1, Q&A T-24, which says that it “is generally the amount of any contributions actually made after the valuation date but on or before the determination date”. It then goes on to say that any amounts due under §412 are considered due, even if not made by the determination date. One could take the position that this is a exclusive statement; in other words, if a contribution is NOT due under 412 and is made after the determination date, it is not considered 'due'. However, the answer to the question (T-24), “How is the present value of an accrued benefit determined in a defined contribution plan” is answered, “the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions...” The term, "the account balance" includes contributions credited to the account of a participant, it does NOT mean only the contributions actually made that have been credited. For example, if a 100% vested participant terminated after the determination date but before the contribution was actually made, the distribution would include that contribution, even though it had not yet been made to the plan. This is because the account balance, as of the last day of the plan year, includes the contribution. So, when the regulation addresses adjusting the account balance for contributions made after the determination date, we must start with the account balance, and then apply the adjustments. Since the account balance includes the receivable profit sharing contribution, the adjustment does not refer to the receivable. The reference to §412 in §1.416-1 is with regard to a waived funding deficiency that is not considered part a the participants' “account balance”, as the term is defined. Q&A T-24 refers to a DC plan with a waived funding deficiency that is being amortized. Such a plan must maintain an “adjusted account balance” (reflecting the amount of the contribution that has not been deposited) which must be maintained until the actual account balance increases to the point where it equals the “adjusted account balance”. It is to this (unadjusted) account balance that the (waived) contribution must be added, since the amortized contribution only becomes a part of the actual account balance as it is paid to the plan. The requirement therefore has the effect of determining top heavy status as though the contribution required under 412 had actually been made. In other words, the “account balance” would not include the waived minimum funding contribution, so an adjustment is required. IRS response: We accept this analysis. Of course such a response doesn't necessarily reflect an actual Treasury position, but still...

you indicated the plan for the first time was top heavy. curiosity killed the cat, just how close to the magic 60% is the plan? and then of course depending on how large it would be, if top heavy is indeed provided in 2018 will the plan cease to be top heavy (guestimation)?

If the only match you have is discretionary then you must has the 3% SNHEC to pass ADP now the discretionary could be 100% of the first 4% deferred or 66.67% of the first 6% deferred or something similar. I suppose you could 200% of the first 2% deferred as long as you don't receive more than 4% of compensation.

The IRS is concerned about giving a free ride on the ADP/ACP test. for example, it is more likely an HCE can defer 10% than an NHCE. so the IRS imposed an 6% limit on deferrals in regards to matching contributions. Maybe they figured even lower for NHCEs - expecting 4%, plus 2% to leeway to pass testing if plan was not a safe harbor. all match contributions have a cap of 6% maximum amount of deferrals that can be matched, not 6% match. Discretionary match is also limited to 4% of total comp - no such limit exists for the basic match.

this can get a little crazy, but yes, each match formula is 'independent' if that is a good description, as long as combined you don't receive at some point a higher rate of match in combination the more you defer ............................ the discretionary match is limited to 4% of comp, so a common formula for that is 66.6% up to 6% deferred ... one example sometimes suggested is a triple stack match - here is one example, but they all seem to be the same. hurts my brain to read things like this, but that is me! http://employeebenefitplanaudit.belfint.com/how-to-order-a-triple-stack-match-for-your-plan/ Stack One: 100% of the first 3% of deferrals, plus 50% on the next 2% of deferrals. That means that if an employee defers 5%, they will receive the maximum 4% of compensation match on the first stack. If we also assume our owner is doing extremely well and earning the maximum includible annual compensation of $265,000, he/she would have to be deferring at least 6.79% of compensation. At this point, our owner has contributed $18,000 and received a match of $10,600 without being subject to any discrimination testing. Stack Two: A discretionary match of 66-2/3 % of deferrals up to 6% deferred. To continue to qualify as safe harbor, the allocation of an additional discretionary match cannot exceed 4% of compensation and the match is limited to the first 6% of compensation deferred. Since 4% divided by 6% is 66.67%, this means that matching up to 6% of compensation to achieve an overall 4% of compensation match would require a 66.67% match for every dollar contributed up to 6% of compensation. Still using $265,000 as compensation, we have another contribution of $10,600 ($265,000 x 6% x 66.67%) for a total annual addition after stack two of $39,200 ($18,000 deferral + $10,600 stack one match + $10,600 stack two match). Stack Three: A fixed match of X% of deferrals up to 6% deferred. To meet safe harbor requirements, participant deferrals above 6% cannot be matched and can never be greater than 6% of compensation. To find our third stack, we must solve for the percentage that will get our owner to the maximum contribution. $53,000 – $18,000 – $10,600 – $10,600 = $13,800. If we take 6% of our owner’s compensation of $265,000, the maximum amount of deferrals to be matched is $15,900. If we divide $13,800 by $15,900, we find out that the owner in our example must receive a third matching contribution of 86.79% of deferrals up to 6% deferred to get to the maximum annual addition of $53,000.

There is nothing concrete in 12 months, just a guideline, I suspect, depending on facts and circumstances if there was one or two stragglers it might not be an issue (unless perhaps it was the owner or something like that). I'd be the first to admit, I hadn't thought about the issue until the IRS raised the point. I suppose it sort of ties in with the concept that you really aren't suppose to get $ out of a deferral plan without a 'reasonable' distributable event. And if only a few people take distributions it sort of sounds like cheating to get around the rule.

agree with ETA, but with a caveat 2010 ASPPA Conference Q and A #3 DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top heavy minimum is required, it needs to be made.) Questions: (1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of the plan year, so that only non-key employees who are employed on that date are entitled to a TH minimum? (2) If (1) is Yes, is the 3% minimum calculated for compensation from 1/1/2010-9/15/2010? (1) Of course, if there is no employer contribution, there would not be an obligation to provide top heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes. (2) yes ........... so if assets aren't liquidated are distributed: #10. If a plan sponsor takes actions to terminate a plan but doesn’t distribute the assets as soon as administratively feasible, the plan isn’t considered terminated under IRC 401(a). The plan must remain qualified until it’s terminated. See Rev. Rul. 89-87 and IRM 7.12.1.8, Wasting Trust Procedures. https://www.irs.gov/irm/part7/irm_07-012-001 As I recall from the Conference, the IRS representative indicated the top heavy would then have to be provided through the end of the year if the assets weren't distributed timely (I believe it was indicated 'within 12 months' was deemed reasonable).

at the 2008 ASPPA Conference, Q and A #1 A 401(k) plan disregards commissions as compensation for plan purposes. One employee has only commissions, therefore could not defer. Assuming the compensation definition satisfies 414(s) testing, is this person included in the ADP test as a 0%, or would they be excluded from the test completely since they have no compensation for plan purposes? response: Refer to Treas. Reg. §1.401(k)-2(a)(3)(i), last sentence, which requires that you include all eligible employees in the testing. What is an eligible employee? Per Treas. Reg. §1.401(k)-6, it is someone who is directly or indirectly eligible to make a deferral for the year. Is this guy eligible? Yes, you must include him as 0% ...................... This went against what was given as an answer in the past so the answer is clear as mud. Or perhaps the 'logic' in the past was, if the person has no comp and no deferrals that would be a 0%. usually such people would be HCEs (e.g. owners with no sched C income) and to include them in the ADP test would be a 'gift' to the other HCEs as far as testing goes, so don't include them at all, because we want the test to be as hard as we can on the HCEs. at least in 2008 a couple of reg cites were provided, whether you agree or disagree is another matter. such answers given do not necessarily reflect an actual Treasury position, so some will say use the answer that was provided in the past, but then one could say the same thing the old answer was incorrect and use the new answer.

recently I was looking something up on the internet and the following appeared but clicking on those links did nothing. King Dave Baker indicated the following (after a big ARRRGGHHH) I am finding that I can reach the intended target pages by doing some manual fiddling -- e.g. the first link below has a "t=4889" which means this link will work instead: https://benefitslink.com/boards/index.php?showtopic=4889

no I meant min participation. they say they have cash balance, and if you start excluding people you run the risk of failing min. participation. since it is a cash balance plan, at least many I have seen, this can be a problem because of the formula, even though you pass coverage you end up failing min partic. In point 2 I said both plans would need to pass coverage on their own. the comment was made he was unable to benefit in the cash balance (for whatever reason). maybe he didn't meet eligibility yet. but then he will eventually be eligible, and I took the comments to mean he would not be happy with the results even when that happens.

you have a number of things going on. 1. cash balance plan is a DB plan so has to pass minimum distribution. 2. there is no requirement the plans be aggregated for nondiscrim testing, provided they can pass coverage testing on their own (and then of course whether they can pass nondiscrim on their own). if you need the avg ben pct test then 1.410(b)-5(e)(3) indicates you would run 2 Average Ben Pct test 1 for the DB (all dc benefits treated as 0, plan tested on benefits basis), and 1 for the DC plan (all DB benefits treated as 0, plan tested on an allocation basis)

Based on the CPI value released today (and using the values for Mar-Apr-May) the rounded/actual limit at the moment should be: catch up 6,000 6,364 deferral comp 19,000 19,092 280,000 281,900 415 db limit 56,000 56,380 225,000 225,520 key hce 180,000 183,235 125,000 127,376

well, I don't think there was anything describing a specific format, so go with what you can generate. we use Relius, so I modified an allocation report to provide a breakdown, this particular version prints by division, if date of hire was last year or current year it prints, as well as age if less than 21 - just in case comp is from date of participation, which print in the allocation comp column. I also put on hours if less than 1000 and DOT if any, and a blurb at the bottom with a signature line. might be more than needed. but the dates, hours and stuff make my life easier checking the allocation as well, but as long as I have everything I simply send that and I assume makes it easier on the client as well. this is simply the last page of the report, which turned out to be the group labeled otherwise excludable. If plan could have passed testing separately this group would not have received the 1.44% ps, but only the safe harbor, but to pass testing everything had to be combined and they needed the gateway.

this is the Padilla memo Internal Revenue Service Memorandum Date: March 13, 1998 To: Robert Padilla, Chief, EP/EO Cincinnati Key District From: Director, Employee Plans Division, CP:E:EP Subject: Requirement for definitely determinable allocations On September 8, 1994, we issued a field directive concerning whether a profit-sharing plan that provided for employer discretion to determine amounts allocated to particular groups of employees satisfied the definite predetermined formula requirement under section 1.401-1(b)(1)(ii) of the Income Tax Regulations. The field directive concluded that this requirement was not satisfied for such a plan. On July 30, 1996, we issued a second field directive which rescinded the prior field directive and illustrated several plan designs that satisfied the definite predetermined formula requirement. You have asked whether the first field directive was rescinded in its entirety or was limited to the illustrated plan designs. The first field directive was revoked in its entirety. Consequently, the second field directive should not be interpreted as applying only to the illustrated plan designs, but rather to all plan designs. A plan would not violate the definite predetermined formula requirement if the employer has discretion to determine the amount of the contributions to be allocated to particular groups of employees defined under the plan and the plan specifies the method for allocating these amounts among the employees within each group. The number of people in each group or the number of groups is immaterial provided that each group is identifiable under the plan and the identity of particular employees in each group is not subject to employer discretion. It is also immaterial that the purpose for forming the groups is to satisfy the cross testing requirements under section 1.401(a)(4)-8. For example, a plan with defined groups including a group with one person (i.e. 100% shareholder) would not violate the definite predetermined formula requirement. Although the plan can provide for employer discretion to determine the amount of employer contributions for each group, the plan must require that the employer notify the trustee, in writing, of the amount of contributions for each group. This requirement does not mean that the plan must provide the specific amount of contributions for each group. Instead, the plan must provide that the trustee be given written notification from the employer as to the amount of the contribution to be allocated to each group. If you have any further questions regarding this matter, please call Mr. Al Reich of Technical Branch 5 at (202) 622-7976. Date Published: 03-13-1998 Date Added to File: 05/03/99 09:55 PM EDT

this came up before, about a month ago. the preamble to the regs (at least the propsed regs way back when had the following) “Designated Roth Contributions as Excess Deferrals Even though designated Roth contributions are not excluded from income when contributed, they are treated as elective deferrals for purposes of section 402(g). Thus, to the extent total elective deferrals for the year exceed the section 402(g) limit for the year, the excess amount can be distributed by April 15th of the year following the year of the excess without adverse tax consequences. However, if such excess deferrals are not distributed by April 15th of the year following the year of the excess, these proposed regulations would provide that any distribution attributable to an excess deferral that is a designated Roth contribution is includible in gross income (with no exclusion from income for amounts attributable to basis under section 72) and is not eligible for rollover. These regulations would provide that if there are any excess deferrals that are designated Roth contributions that are not corrected prior to April 15th of the year following the excess, the first amounts distributed from the designated Roth account are treated as distributions of excess deferrals and earnings until the full amount of the those excess deferrals (and attributable earnings) are distributed. “ ..... so to prevent you from going insane, it would be wise to segregate such amounts in a separate account so you can keep track of earnings as well. the problem of course, if it involves 2 unrelated employers. neither plan might know about the issue. in addition, neither plan would be in violation for accepting excess deferrals at the plan level, so neither plan is subject to disqualification, so ultimately it boils down to the participant to tell one of the plans to do something. and we know all participants 1. know the regulations sufficiently to know what to do or 2. are honest enough not to intentionally do something like this and inform one of the plans of the problem when they discover the issue.

I thought about this some more. the whole thing smells. and smells real bad. oh, an owner quit and now we want to retroactively amend the document to conform what took place in which the owner was 'accidently' provided a contribution. The company doesn't run the cross testing, it is the TPA or whomever, and apparently it was discovered that the owner won't get anything, so now lets go ahead and give him something. (instead of rerunning the test how it should.) and let's call it a correction under -11g and to be fair we will give to the nhce terminees as well. we never gave terminated NHCEs in the past, but then we never had a terminated owner either. arguing they can pass all the mathematical testing reminds me of the comment made by the IRS in regards to cross testing in general Although these designs may allow the plan to satisfy the vesting or numeric general tests for nondiscrimination and the associated regulations, they don’t satisfy Treas. Reg. Section 1.401(a)(4)-1(c)(2), which requires that the provisions of Sections 1.401(a)(4)-1 through 1.401(a)(4)-13 be reasonably interpreted to prevent discrimination in favor of HCEs. so is it a reasonable interpretation to say this flies? lets see, we give an owner $40,000 or whatever and give terminees who probably have minimal comp a 5% contribution and because mathematically it works out, it is ok. dang, might as well have a document that reads in no year terminees will receive except in a year in which it is an owner and then all terminees receive. (Could you at least have said, oh I didn't see that the owner is past NRA and those folks do actually get a contribution) bet you would have problems getting that document approved. or taking it a step further if it was a MP plan at 5% would you say it is ok to retroactively amend to 10% to all and call it a corrective amendment because that is how we ran the allocation?

see highlighted notes from the IRS publication, in particular the second page, special rules when plan uses elapsed time for crediting service min partic standards publication 6388.pdf

Using the paragraph Bird cited but highlighting differently in bold face v)Corrective amendment for coverage or amounts testing - (A)Retroactive benefits must be provided to nondiscriminatory group. Except as provided in paragraph (g)(3)(v)(B) of this section, if the corrective amendment is adopted after the close of the plan year, the additional allocations or accruals for the preceding year resulting from the corrective amendment must separately satisfy section 401(a)(4) for the preceding plan year and must benefit a group of employees that separately satisfies section 410(b) (determined by applying the same rules as are applied in determining whether a component plan separately satisfies section 410(b) under § 1.401(a)(4)-9(c)(4)). Thus, for example, in applying the rules of this paragraph (g)(3)(v), an employer may not aggregate the additional accruals or allocations for the preceding plan year resulting from the corrective amendment with the other accruals or allocations already provided under the terms of the plan as in effect during the preceding plan year without regard to the corrective amendment. since all terminees were provided that would seem to satisfy 410(b), but does it separately satisfy 401(a)(4) as well? e.g. there was nothing to indicate if this was comp to comp or cross tested.

the boring Math details consider the following. the first uses UP 1984, fails the second uses 1983 IAF passes (NHCE e bar is greater than the HCE E BAR)I always recommend using 1983 IAF if cross testing DC plan only. certainly one of the tables that is 'acceptable' if that makes you feel more comfortable. notes: accumulation factor = 1.085 ^ 5 or 1.085^ 21 depending which person equiv amt = total allocation * accum factor annual benefit = equiv amt / APR *12 E Bar = annual benefit / comp these are the extreme ends of the mortality tables - APR = 95.38 vs 115.39 it helps to impute disparity might make a difference whether you used age definition nearest or age definition last

in addition, the 'loan' continues to accrue interest so if payments were stopped for a time, then a larger payment is due. If nothing is done, and the participant wants a future loan, this defaulted loan plus interest also counts against the max loan that can be taken. an eventually when an actual distribution occurs (assuming no loan payments made) this accrued interest is on paper only.

I believe the rule of parity only applies to 'participants' which wouldn't apply in this case. an old Links comment had: we had an IRS audit on a plan which was 6 "consecutive" months of service. With less than 1 YOS you have to use elapsed time so the IRS opined that the word "consecutive" is basically meaningless and the service spanning rules applied. Actually only ended up being a few employees that were missed for eligibility (rehires of course.) Corrected under SCP. That being said, from all of the samples I went through with the agent I would say that since this employee did not return within 12 months from initial DOH, the service spanning rules do not apply as BG5150 mentioned. SO....the participant starts over, needs to work for 3 months and would enter on the next entry date as defined in the doc.