Tom Poje

if your ratio % is > 50% then you have to pass nondiscrim classification since the largest midpoint is 45%. therefore, if you can pass avg ben % test then you 'win' this year's tournament. therefore you are correct, you could increase the profit sharing to the NHCEs in sufficent amounts to accomplish this task.

you are not changing anything. (at least I hope) when you run the ADP test you can test everyone together, or test otherwise excludable employees separately from those participants who are statutorily includable. thanks to SBJPA you are also allowed to 'pretend' that all HCEs are statutory includable, even if they haven't worked a year (12 months, completed 1000 hours) or are age 21. Usually this would only pertain to owner's kids, as it would be uncommon for someone to have been recently hired and make $$$$$$$$$$$$ in the prior year.

look at 1.401(a)(4)-11(g)(3)(vii) Special rules for section 401(k) plans and section 401(m) plans. (A) minimum coverage requirements. even has its own title, fully expecting the possibility of failing coverage in a 401(k) plan! ok, there are actually 2 paragraphs o ne for 'before 1/1/06 and one for 'on or after 1/1/06' do you have a copy of the regs handy, or is that enough to get you started?

I am not really saying anything. it is the regs that tell you what to do. 1.401(a)(4)-11(g)(3)(vii) Special rules for section 401(k) plans and section 401(m) plans. (A) minimum coverage requirements. look at that. even has its own title, fully expecting the possibility of failing coverage in a 401(k) plan! ok, there are actually 2 paragraphs o ne for 'before 1/1/06 and one for 'on or after 1/1/06' do you have a copy of the regs handy, or is that enough to get you started?

ignoring the fact of the merge, the regs are clear you can't take an existing 401k and turn it into a safe harbor mid year or for any portion of the year. the safe harbor has to be 12 months long (exceptions of course for short plans years) the regs are also clear you can not aggregate a safe harbor with a non safe harbor 401k. I would conclude (perhaps incorrectly) that you can not merge 2 such plans except at the start of the year.

the preamble to the final regs says the following. anything in CAPS is my own emphasis. "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 servcies performed by the partner during the year, and the final regulations have been modifed to clarify the 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 ondividual, based on the individual's ACTUAL INCOME for the relevant period. http://www.ustreas.gov/press/releases/repo...22804td9169.pdf here is the link to the entire text of the final 401k regs, including the preamble. in particular, pages 12-13 deal with this question. print a copy of this! or at least the preamble. it helps.

if you don't pass coverage then you would have to expand the group by making a QNEC

look in EPCRS, which is rev proc 2006-27 appendix A .05(f) you can not correct for missing ees until after you correct adp failures

this is described in the new 401k regs Sole proprietor and partners (1.401(k)-1(a)(6), 1.401(k)-2(a)(4)(ii))

yes, that is the same as would apply to the instruction to terminate a safe harbor match.

sorry, I'm not sure what the link is. maybe someone else can provide as with any Q and A, the note of caution is that the views reflected by the IRS at the meeting do not necessarily reflect an actual Treasury position.

I'd say the regs don't imply anything (they dont really give guidelines if a SHNEC is involved), but at the 2005 ASPPA Conference the IRS officials said that would be a reasonable practice to follow (Question #12)

I think the original notice 98-52 might have been worded a little better, though still not entirely clear. VIII D deals with the SHNEC (if it was 7%, then since 3% was used for ADP you could use 4% in the ACP) VIII F3 deals with the match by saying 'exclude match contributions that do not exceed 4% if the match satisifes the safe harbor.' perhaps if it said 'exclude those safe harbor match contributions that do not exceed 4% if those match satisifes the safe harbor.' it would be clearer, but I think that is what is implied. in your particular case, that would make sense anyway if you think about. the ee defers 1%, gets a 1% safe harbor and also gets a 1% discretionary (but you have to be there on the last day, so the discretionary is certainly not safe harbor) if you excluded all match up to 4%, then you would be excluding some match that is not safe harbor. that makes no sense.

ah, I see a little better what you are asking. I'd say the wording of the regs is not real clear. My understanding is that you could only exclude up to 4% of matching contirbutions that satsify the ADP safe harbor. ERISA Outline Book would agree.

of course a lot depends on the software. and that is not to be negative one way or another against any particular software. based on what you said, it sounds like the match should have been limited $11,000. so for example, On Relius (and I of cousre have no idea if that is what you are using, using that as an example only), is you ran a formula capping at 5%, then that is what the indiviudal would receive. However, if you were to enter 12000 into the match field on an indiviudal, that becomes an override, so the system wont cap properly. basically, you are telling the system that is what the company did , end discussion. again, based on what you indicated, I would say the person is not entitled to the $1,000. that should be forfeited (along with gains associated with it)

that sounds correct. there is nothing that says you can't include the safe harbor match, especially if it helps.

section 6.07 of EPCRS says only available for failure corrected through VCP by either 1. lump sum payment plus interest for missed payments 2. reamort loan over remaining period 3. comination of the two

under EPCRS Appendix B section 2.06 you would simply forfeit the extra (and gains) .07 says you could amend the formula to increase all other employees by similar type % - I guess that means 300,000/ 220,000 the examples are only with money purchase and profit sharing, not match. however, there is no suggestion that you would run a nondiscrim test with the full amount of contribution and divide by the capped comp. based on that, I would guess you would not run the ACP test with the 'extra' match, but thats my opinion.

Based on Revenue Procedure 2005-66, such a change would constitute a discretionary amendment. [Rev. Proc. 2005-66§5.05(3)]. In the case of switching from current year testing to prior year testing (or vice versa), such amendment must be adopted no later than the last day of the plan year for which the amendment is effective. in other words, it is to late to switch for plan year ending 12/31/2006. or at least that is how I understand things

assuming you have 2 separate plans, and each company can pass coverage on its own, you are correct. regardless since you can not aggregate a safe harbor with a non safeharbor that had better be the case

if I understand things correctly, I believe you are ok. since catch ups don't count toward 415. speaking of which, it is close to my 4:15 limit. time to stop thinking pensions. (of course I am here hours before anyone else, so ...) but I don't think you could allocate more than that and therefore create an additional 415 violation, thereby creating more catch ups. if you did that, then your initial adp test would have been incorrect, because it would have used deferrals in excess of the 415 limit.

I have enough work to do, but also am trying to throw some notes together for my talk at the Western benefits Conference - this one on 401k testing. and I was looking through what I have together so far. ah yes, there it is - to run your ADP test, you do not include catch-ups as a result of statutory or plan imposed limits (1.414(v)-1(b)(1) (i) and (ii)). this is found in 1.414(v)-i(d)(2) the statutory limits would be the deferral limit or 415 limit. then you run your test. if you fail and have a refund, you can treat part of this refund as catch up as well. now you want to allocate the profit sharing (exceeding the 415 limit) and create more catch up wait, you can't do that - otherwise you ran an incorrect adp test to start with, and calculated a refund due to a failed test that was run incorrectly because you included amounts that violated a 415 limit. or put another way with you initial example (using rounded numbers) ee deferred 16,000, so 1000 in catch up. ADP test run with 15000 deferral. due to failed test had refund of 3000 as well. if you were to treat all of this as 415 limit violation then your initial ADP test should have been run with 12000 deferral. now determine the refund. if you have more than one HCE it would make a big difference. oh well, wandering thoughts of an idiot.

what the issue boils down to is if you are permitted to allocate a profit sharing causing an ee to go over the 415 limit, and therefore end up treating some of the deferrals as catch-up. having sat in with the IRS during the Q and A pre session, they expressed 'reservations' about such a strategy, but there is no definitive word on it.

(iv) says you have a gradual age or service schedule. the way I read that an age weighted plan falls into that category. or put another way: does an age weighted plan have gradual age bands? I'd say 'yes' lets see (1) schedule defines bands bands based on age yes (2) allocation rates increase smoothly at regular intervals yes (B) this adds the requirement that the bands increase no more than 5% points, etc. age weighted plans will only be different from one band to the next by the interest assumption (e.g. 1.08%) or whatever so 'yes' plus adds the requirement that the ratio from one band to next cant be more than 2.0. in this case the ratio will always be 1 © regular intervals - bands have to be the same length - in this case the bands are 1 year, so those are the same length (D) minimum rates permitted - this is where the top heavy kicks in, it is the minimum rate

your assignment is to read 1.401(a)(4)-8(b)(1)(iv)(D)