Tom Poje

Bob owns 100% of company A, 60% of company B so no controlled group exists well, I guess, except for 415 limits, if I understand how the silly rules work. to receive a contribution, each plan requires 1000 hours. does he have to work 1000 hours at each because no controlled group exists? well, besides simply having the census note that he 'worked' 1000 hours at each company.

in the 'old' days' [what was it - before 1997 or 1998 or something like that]a partners match was actually treated as or considered a 'deferral'. that was eliminated awhile ago so, yes at one time there were special rules (a partners match was used in the ADP test rather than the ACP test, which of course could easily cause a plan to fail) but now, see 1.401(k)-1(a)(6)(ii) that was eliminated under the rules.

well you just never know what rules are buried deep within the recesses of the regulations. there may be an out! accidently tripped across this one. According to the regulations, a corrective distribution must be made as soon as administratively feasible after the date of termination of the plan, but in no event later than 12 months after the date of termination. If the entire account balance of an HCE is distributed prior to when the plan makes a distribution of excess contributions, the distribution is ‘deemed’ to have been a corrective distribution of excess contributions to the extent such a corrections would have been required! [Treas. Reg. §1.401(k)-2(b)(2)(v)] similar rule applies to a match §1.401(m)-2(b)(2)(v)]

to be an HCE in 2007 you would have to make 100,000 in 2006 or be a 5% owner in 2006 or 2007. it doesn't sound like that criteria was met.

the term 'universal ability' generally only applies to the ability to make catch-up contributions, not match contributions. yes, a plan can discrimination against HCEs (e.g. exclude HCEs from the match), though I would say it is not that common. as Jim Chad indicated, the SPD should indicate whether or not HCEs are eligible for the match.

EPS2: on Relius, in plan specs, there is a date box on the top heavy screen that can be set: include contributions with a trade date on or before: _____________ that might help!

jevd- hmmm. last year I became catch up eligible. but I never listened much to music, so it really limits any songs that I discover. hey, maybe I could get in on National Treasure and find some old stuff! ............. anyway, I was planning on doing Sam Cooke's "Don't know much about this D-B There's a funding de-fi-cian-cy..." oh but that would give it all away....

yeh, well my music knowledge is extremely limited. I never even heard of the original or who it is by. dang, I'm lucky I can come up with what songs I do!

the match is not going to show up on the pay check stub. a match is not 'additional pay' - it is a contribution. so your deferrals are put into a plan, and assuming you get quarterly statements you will see the match at that point in the game, assuming all people (including HCEs receive the match). sometimes matching contributions are not made until the end year, so you might not even see it until then.

Austin and others: as I have indicated before, the basic formula for the e-bar is the follwoing you stick a CONTRIBUTION in the bank for a number of years. the number of years is how many you have to retirement. the interest at this wonderful bank is between 7.5% and 8.5%, because the govt says that is what they have to pay. so at retirement I will have this much $$ (or in the case of Mr Preston $$$$$$$$$$) Contribution * 1.085 ^ yrs to age 65 (assuming an 8.5% interest rate and retirement age 65) you divide this by the APR, which gives you a monthly benefit, multiply by 12 to annualize it and then divide by comp to give you an E-Bar again, if everyone has the same retirement age, then the APR is a constant, and really has no effect on anything, so it doesn't matter what mortality table you use. (If you impute disparity it will make a bit of a difference) thus, what becomes important is the range - which table produces the largest APR and which table produces the smallest APR. All other tables would fall imbetween these 2 values, and thus wouldn't make much of a difference in testing, or put another way, at least in my humble opinion, you don't really need to know all the tables. at 8.5% 1983 iaf apr = 115.39 up 84 = 95.38 so really those should be the only tables used (unless the govt 'blesses' a new GAR table (or whatever they call it) that would fall outside those boundaries)

This raises an interesting question how to handle what you describe- such a provision is no longer available under the new 415 regs - of course these rules apply for limitation years beginning after 7/1/07 - however this is a reminder - those provision were removed from the 415 regs! and now return of deferrals is only available under EPCRS - at least as I remember things.

the only portion of 1.401(k)-3(h)(2) that was modified was to add "or 401(k)(13)(D)(iv)" to the last sentence (which is the sentence that says you can't use a safe harbor for integration and imputing disparity.) thus one would conclude you can follow the first part of the paragraph which says you can use the contribution for a(4) testing. as for top heavy, the code [416(g)(4)(H) was amended by adding 'or 401(k)(13)' after 'section 401(k)(12)' and 'or 401(m)(12)' after 'section 401(m)(11)' to give the free ride on top heavy if there are no other contributions

Mike: when people refer to me as an actuary, I am terribly insulted. I still have some personality and a sense of humor. it may be off the wall, but at least I still have one. Alex: as for the actuarial factor above, it can be calculated as follows. (but before doing so a bit of explanation. In the example referred to above from the Coverage and Nondiscrimination Answer Book, there is an example and the book provides two different ways of arriving at the same answer. I provided the second method, the previous author provided the first, which uses the term 'actuarial factor' and pulls a 'magical' number from some table hidden in the deep caverns of wherever.) ok, all kidding aside at 8.5% interest and 10 years to retirement you have 1.085 ^ 10 = 2.260983 annualized would be 2.260983 * 12 = 27.1318 the APR was 95.38 so 95.38 / 27.1318 = 3.515 which is the actuarial factor (well ok, if you divide by 100 it is the same value)

Jim: there is no report I know of, what you might do is set up a DER (there is a set of fields for some of this data labeled "Ownership Attribution". This is the data found in the table ATTRIBUTION. you would want to pull the soc sec number, last name firstname from PERSONAL and ownership % from STATUS that is about the best I can recomend. export to excel and dummy up how you desire.

perhaps one should look at the preamble to the final 415 regs. for a copy: http://benefitslink.com/taxregs/td9319.pdf its so long, and it goes on and on...but wait...look there, at the bottom of page 47... is is there in print....throw that in front of anyone who says otherwise! bottom of page 47, last paragraph "As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415©(3). However, in applying these two rules, a plan is not required to determine a participant’s compensation on the basis of the earliest payments of compensation during a year."

this is not quite your situation, but possibly may help in being prepared for how the IRS might reason the situation. at the 2003 ASPPA Conference, Q and A #1 asked about a terminating 401k plan (pye 12/31) Is a top heavy required (plan terminated 11/30) the response was Yes, and, if the plan year is amended as part of the termination to a Nov 30 date, then top heavy may be determined based on comp through 11/30 rather than 12/31.

well, I have no clue what the actuarial factors or pv factors are, though I can get the same results by the following: Ann has 10 years to retirement, 170,000 comp and 17,000 contribution. in 10 years what will 17,000 grow to? 17,000 * 1.085^10 (assuming 8.5% interest rate) = 38,436.72 now, instead of taking this in one lump sum, an annuity is purchased. (hence APR or Annuity Purchase Rate) 38,436.72 / 95.38 = 402.985 monthly benefit 402.985 * 12 = 4835.82 annual benefit benefit / comp = e bar 4835.82 / 170,000 = 2.84% EBar which equals what you indicated. this should work for the other people as well.

a correction on the term being used APR stands for Annuity Purchase Rate. you have determined someones 'lump sum' at a testing age. now you 'purchase an annuity' to provide a monthly benefit. ........... now, the govt gives you a slection of tables that are permissible to be used. I believe UP 84 has the lowest APR 95.38 and 1983 IAF has the largest APR 115.39 (at testing age 65). if all (and I stress all) people have the same testing age, then it doesn't matter what APR you use because the APR will be a constant. (If you do NOT IMPUTE DISPARITY) if you impute disparity then generally you would want to use a larger APR. you can not simply say "I can use 95.43 for all participants". it has to be possible that such an APR factor would exist. now, since the range for a testing age 65 falls between 95.38 and 115.39, then it should be possible by using an interest rate other than 8.5 (you get to choose between 7.5 and 8.5) and a different mortality table to generate such a factor.

the problem with that is the document says that a 3% contribution will be provided. thus it acts like a money purchase , and as I recall, you have to give notice and provide a contribution up to that point in time, not simply 'freeze or stop' the money purchase instantly.

when in doubt, read the regs 1. [1.414(v)-1(b)(2)(i)(A)] Sum of $ amounts of the limits for each payroll period. or 2. [1.414(v)-1(b)(2)(i)(B)] weighted average (without looking it up, the example in preamble was something like "the limit was 8% for 6 months and 10% for 6 months, so use 9%) while not quite the same as you described, the example I used at an ASPPA conference was as follows: Plan has a cap of 10% on deferrals. Ee defrred 10% plus a little extra each month for awhile, then stopped deferrals in July comp deferral possible catch-up made Jan 10,000.00 1000.00 10% 416.66 Feb 10,000.00 1000.00 10% 416.66 Mar 10,000.00 1000.00 10% 416.66 Apr 10,000.00 1000.00 10% 416.66 May 10,000.00 1000.00 10% 416.66 Jun 10,000.00 1000.00 10% 416.66 Jul 10,000.00 1000.00 10% 416.66 Aug 10,000.00 0.00 0% 0.00 Sep 10,000.00 0.00 0% 0.00 Oct 10,000.00 0.00 0% 0.00 Nov 10,000.00 0.00 0% 0.00 Dec 10,000.00 0.00 0% 0.00 Tot 120,000.00 7,000.00 2916.62 Total deferrals is only 9,916.62, which is < 10%. No limit reached, no catch up for the year! suppose the reason the ee quit was because the cap was changed from 10% to 3% in Aug. so the most he could have deferred from Aug - Dec would be 300 * 5 months or 1500. thus for the year he could have deferred 8500. anything above that would be catch up. this is an example of the first case.

I vaguely recall that at one ASPPA conference it was indicated you could follow similar guidelines as for stopping a SHMAC (e.g. 30 days notice, etc), but I am too lazy to look through any notes I have to see if I could find an exact quote. and comments made at such Q and As do not necessarily reflect the actual IRS position, but at least it is a guideline.

the sample notices that I have seen (and which I based the notice I give) carry a note that says something to the following "you must have been credited with 1 year of service (1000 hours) and have turned age 21 to be eligible for the safe harbor contribution" thus, all participants receive the notice, including those who are 'otherwise excludable'

what do you mean by avatar? that is an actual picture of me, didn't you know? no really it is. (Hey Austin Powers - just don't come chasing after me like you do with all your other criminal geniuses. I'm not that evil)

suppose you pass the notices out today - would people still have a 'reasonable' time to make a decision? probably yes, unless of course they are off on Christmas vacation already. remember, the 30 days gvie you an IRS guarantee of providing a reasobale time. If the number of ees effected is small, if they were personally told, etc are all factors that could come into play in deciding if you are being reasonable.

This is a very bad joke. The punch line is going to hurt. What is really sad is I drag it out so long. I wouldn't be surprised if Dave Baker kicks me off for this one. Exit now before it is too late. Ok. You were warned. Our story takes place in Russia, back in the good old days, before the glorious revolution, before there was talk of ‘proletariat’ and ‘bourgeoisie’ and other terms I have no idea how to spell. And it concerns a certain Rudy Rudovich, who lived in one of the small villages that surrounded Moscow. Rudy was a poor dirt farmer. That is being kind, perhaps in a good year he had a bumper crop of ‘dirt’. You see, Rudy was missing a few screws, so to speak. And our hero was quite the hen-pecked husband. Once when I was telling this joke someone stopped me and said I shouldn’t be redundant. Hen-pecked and husband go without saying. Now, I have to take the individual’s word for it. I have never been married, and as I am in my mid 40’s maybe I will never find that out. Well, anyway, it was “We need more firewood, Rudy” and all he could reply was “Yes, dear.” Or “Are you done with the dishes?” “I will get to them as soon as I finish the sweeping, dear”. Poor Rudy. Day after day. Month after month. Year after year. If I had more time, I would explain where the term ‘hen-pecked’ comes from. But that is another bad joke, and it’s Christmas, and having you hear one bad joke is unkind enough for the season. One spring day, the sky was dark and threatening. But it was mid-April, and Rudy always sowed the seeds that day, and he wasn’t about to break his pattern. His wife had invited some ladies over. They were playing bridge, and drinking tea, and eating cupcakes with frosting on them. You know, the ones cutely decorated with those little round silver candies on top. Yeh, I thought you knew. Well, Rudy grabbed his seed pouch and headed out the door. Oh, maybe some of you don’t know. Those little silver candies are called dragees. You can get about 2 ounces of them for a couple of bucks. Well, maybe if they are on sale you can get them cheaper, but they are not that expensive. And you get so many of them, I don’t think they would ever sell them in bulk. Did you ever read the label on them? It says ‘Use only as a decoration’ and ‘Non-edible’. I’m not kidding. That’s why they make them out of sugar so kids won’t eat them. Yeh, right. But seriously, look at the ingredients: Sugar, corn starch, gelatin, acetic acid and silver. Honest. They actually use silver in making these. That’s why you aren’t suppose to eat them. You could get silver poisoning. Oooohhh. A plot for a muder mystery. Slowly poison someone by…oh, that’s another story. Anyway, do the math, silver sells for around $4.50 an ounce [gee whiz, 5 years ago, now its around $14.50] and you purchased 2 ounces of these things for a couple of bucks. There must be enough silver in these things to, hmmm. And that would be if you ate the whole container of them. Guess I wouldn’t lose sleep over whether you ate any or not. Ok, see you learned something new, so maybe it was worth reading this far. Now leave before you get to the punch line because it is going to hurt. Where was I? Oh yeah, Rudy was going out the door to plant the crop. About 5 minutes later there was a clap of thunder, and the skies burst forth with a torrential downpour. Of course, one of the ladies blurted out “Guess it won’t be long before your husband comes back, huh?” to which his wife replied “Rudy? That idiot hasn’t got enough sense to come in out of the rain” And so it was true. One hour, two hour, all morning rain, rain and more rain. And still Rudy had not returned. Finally, about lunch time Rudy swung open the door, soaking wet. The ladies looked up at this somewhat pathetic looking figure, but rather than express any words of comfort or sympathy, there was nothing but giggles. And then his wife let into him. “Don’t you dare track mud in the house” “Yes, dear” “And don’t you dare hang your wet things over the furniture” “I won’t. dear” “Rudy, I swear, I don’t think you even know what rain is, do you?” “Guess I don’t dear” Looks like it’s gonna be another banner year for the dirt farmer! So spring passed by, summer followed. One Wednesday evening, about 7 there was a knock at the door. Rudy’s wife looked up from her book and shouted “There is someone at the door” “I’ll get it, dear” Rudy said, emerging from the kitchen, soapy hands, apron and all. He opened the door, and standing there 6 individuals – members of the newly formed communist party. They had a very good sales pitch. “Be a Red, or be dead”. A convincing argument, especially when accompanied by the guns they brandished. They wanted Rudy to go their meeting that night, and, though he wasn’t the brightest, Rudy knew it was in his best interest to go. He had started to walk out the door when that old familiar voice resounded “Not until you finish the dishes, mister” Rudy returned to the kitchen “Of course dear. How silly of me” One of the communists took a step in and said “Listen lady…” but that was as far as he got. “Excuse me. Did I invite you in?” Wisely, he took a step back. Perhaps the world of events might have been different if there were more Mrs. Rudovich’s! It took Rudy about 5 minutes to finish his chore and off he went. Secretly, his wife was glad. She put her book down, got up from her chair, went over to the bookcase, and behind the third book on the middle shelf pulled out a chocolate bar. The Wednesday night meetings went on for about two months. (By the way, I could have picked any night of the week, it has nothing to do with the joke if you are trying to figure out where this is headed. I will warn you again to give up on this one, it will save you a big groan at the end.) After about two months, the communists (or Reds, if you will) decided they weren’t making much progress with Rudy. They convinced him he would best serve the party by simply growing food – they would handle the nasty end of things. They even managed to convince him it wasn’t a good idea to plant in the rain, as the seeds washed away. And to top things off, they gave him a red bandana to wear. “Remember Rudy, be a Red or be dead” Wear it for your health. Rudy was only to happy to comply. Fall came and went, followed by winter. Rudy put up a Christmas tree (well, this is a Christmas joke, I have to fit Christmas in somewhere). It was one of the few times of the year there was peace in the house. Ok already, the rest of the year his wife gave him a piece of her mind. But that’s not the punch line I have been warning you about. It is coming. Beware! Spring came at last. And it was almost like déjà vu. Threatening skies. The wife had the ladies over for bridge. There were iced cupcakes, but no silver candies on top this year. No, not because they were worried about the warning labels, but simply because Rudy’s wife was on a diet. Rudy headed out the door armed with his seed bag. And just like last year the skies opened up. Terrible rainstorm. Of course the ladies started in with some nasty remarks, remembering last year’s fiasco. Finally, to climax the snide remarks Rudy’s wife said “I told you that dolt doesn’t know what rain is” And at that moment, the door swung open, and banged against the wall. Now Rudy’s wife was sitting in the chair with her back to the door. She didn’t know Rudy was dry – he had been standing under the eves on the porch rather than being out in the garden. The other ladies were somewhat speechless, so his wife, bidding 2 hearts, added “Don’t track mud in the house” “Not muddy dear” Rudy replied. “Well don’t drip water all over the place” “Not wet dear” came the reply. “Look, Mister. Don’t get wise with me. I know you don’t have enough sense to come in out of the rain. Like I was telling my friends, you don’t even know what rain is. Just what have you got to say for yourself?” And turning, her jaw dropped as she saw her husband standing there, dry and clean. And the Rudy, waving that red bandana the communists had given him simply said “Rudolf the Red knows rain ….dear” I warned you it was bad. All kidding aside, may God bless your holidays! Much Peace in your homes!