Tom Poje

technically old money could remain under the old schedule so.... you need to 'eventually' amend for all PPA requirements

you can not put money into a plan from your checking account, any contributions on your part must come from your paycheck.

by the way, for plan years beginning 1/1/2006 the regs say the document should be pretty specific how to handle such characters see 1.401(k)-2(a)(4)(i)(B)(2) "...only if the plan provides..." regardless of that since you are talking 2005, you have to treat anyone else in a similar manner e.g. if you include this ee in 2006, then someone who terminated on the same date and did not defer would also be included.

it has to be in the document, and the IRS generally frowns upon a series of amendments flip flopping anything back and forth. a simple example: 100 employees 20% of that is 20, so in the top paid group you would have 20 possible HCEs. (if your company has less than 20% of the employees who would be HCE, then top paid group is not going to change anything) after you have determined the HCEs by comp, you still add back in any 5% owners that weren't already included.

I vote no based on Appendix A .05(2)(f) .05(2)(f) says you can't use the correction methods for failure to include an eligible employee until after correction of ADP/ACP failures. since ADP/ACP are nondiscrim tests, and cross test is the 401(a)(4) version of the nondiscrim test, I would assume similar logic would apply. run all tests first, correct them as needed, then fix problem dealing with failure to include eligible employee. That might not be correct, but at least it seems consistent with EPCRS logic.

excluding terminees with less than 500 hours only applies to participants who do not benefit.

that should be possible. In fact, that is the common strategy when a plan is broken up into component testing, with one part being tested on an allocation basis, and the remainder on an accrual basis.

as WDIK pointed out,you could have a single investment as long as you track things somewhere, and can provide that info to the participants a reminder that another difference is that it is possible to take a hardship on deferral but not on safe harbor - so its not simply a matter that 'both are 100% vested'

yes, if I have understood all you said correctly.

it is a false statement to say 'all employees are benefiting' if you split into component plans lets say I had 10 NHCEs and 1 hce and I split things into 2 compnent plans 5 nhces and 5 NHCEs and 1 HCE tested on accrual basis. Now I look at each plan as if it were a separate plan so in one plan you have 5 NHCE benefiting/10 total NHCEs / 1 HCE benefiting / 1 total HCE that is only 50% so fails ratio % test, might pass avg ben test.

since you are past 1 year, it tosses you into EPCRS (self correction) there are 2 ways to handle, probably the least expensive is the one to one correction. distribution the money and make a contribution equal to that amount. There are 4 possible way to allocate amongst the NHCEs as well. (I have this info readily available only because i am working on a powerpoint presentation of 401k corrections and I happen to have that part done, about the only thing I have done at this point in time) Appendix B 2.01(1)(a) – QNEC Appendix B 2.01(1)(b) – one to one correction Determine excess contribution plus earnings through date of correction If excess aggregate or related match, could be forfeited If previously distributed, must inform HCE it wasn’t eligible for rollover If previously distributed and was forfeitable, then make correction for overpayment Make contribution equal to amount distributed and/or forfeited Eligible NHCEs in year of failure Eligible NHCEs in year of failure and are also NHCEs in year of correction Eligible NHCEs in year of failure and are still employees on date of correction Eligible NHCEs in year of failure and are also NHCEs in year of correction and are still employees on date of correction If using prior year testing, year of failure = prior year NHCEs Amount allocated comp to comp

yes, though coverage is not the problem since all benefit. but if you use it for coverage you must use it for nondiscrim, and that is the one that may give problems.

for testing purposes you can split the plan into - that is, test otherwise excludable separately. based on what you indicated, you will have to do this (unless you go the route of putting in a corrective amendment to give additional contributions to selective people.) hopefully testing otherwise excludables separately will solve the problem.

well, if you are billing on time and charges you will be set for life. job security.

the safe harbor is a type of nonelective contribution, so for purposes of coverage regarding the nonelective portion of the plan all benefit. end discussion. however, when looking at the nonelective portion of the plan, you have some people receiving 3% and others receving more. this means you have to perform nondisrimination testing. you did not say how many many HCEs vs NHCEs are getting the additional profit sharing. for example, assuming 1 hce and 15 nhce you have 15/16 nhce concentration % = 93.75% or a midpoint of 22.25 %. 3 of 15 NHCE get the additional profit sharing which is 20%, so that would fail rate group testing. if you cross test, and the HCE received more than 6% additional profit sharing, then the gateway minimum would also kick in. of course the numbers I threw up are only an example based on limited facts provided, so its hard to tell what your situation holds.

the 3% safe harbor QNEC is still a non elective (qualified nonelective contribution), so you are correct once someone receives a nonelective they are 'eligible' or 'required' to receive the gateway. However, the gateway is aptly described as a 'gateway', something you must cross through before getting to cross testing. so, you as Moses the fearless leader, have gathered up your people - those who have 1 year svc and age 21, approach the gateway. did everyone in this group who receined a nonelective receive the gateway? - if yes, then pass through and cross test. otherwise bump them up and then proceed. or get lucky and test on an allocation basis. or get lucky and have an age weighted formula. or get lucky and have broadly available benefits in which case you have also satisfied the gateway. you left behind Joshua with all those people who have less than 1 year of service. since there are no HCEs in this group, there is no testing. so he doesn't need to pass through the gateway - in fact he had coupons for getting in free, so he is already waiting for you to get to the other side.

if you have a non-401k plan, the only type of contributions you have are nonelective contributions. (unless you had after tax contributions), so your one comment makes no sense. non elective simply means one had no choice, (made no election, if you will) as opposed to deferrals where you 'elect' to puit $ in the plan, hence the term elctive contribution. you could have the following: profit sharing plan (cross tested) with immediate eligibility. a person will either receive a contribution or not, based on allocation conditions. (this includes top-heavy, which may be less than through the formula) anyone who does not receive a contribution can not get the gateway. anyone who receives a contribution will get the gateway (unless the individual could be treated as an 'otherwise excludable' and the non discrim testing is run disaggregating the groups. that person would simply receive the initial nonelective) there is still no 'fail-safe' or picking or choosing unless one indeed chooses to test otherwise excludables separately. but once that has been determined, there is no further 'adding' people, or choosing who to give extra to. hope that helps

curious as to exact wording of your gateway language. I thought they all said something like "IF an ee received a nonelective contribution, then he would receive the minimum gateway" I don't see any pick and choose option in such language.

I think example 2 in appendix B of the EPCRS implies you can use the forfeitures (according to document terms). the one stipulation is that forfeitures are used as described in the document in the year of failure - just in case anamendment has changed things.

in other words, it is no different than what happened to matching contributions a few years ago.

based on sitting in on a discussion with IRS this would be frowned upon. I believe the argument being the 'reasonabless' of the error. when the additional contribution is fixed (e.g. in the 'old' days when you had to combine DB and DC plans for 415 limits or possibly had a money purchase or target benefit, this might occur). but given the fact you said its cross tested I'fd be a bit cautious about following such a strategy.

if the HCEs are 'over the hill', "graying gracefully" or at least age 50, and the plan allows catch-ups then you could treat up to $5000 as such. if first year of the plan and prior year tesing is used then you can use 3% for the NHCEs, but that would only work this year.

actually, I remember then discussing this one from the podium a few years ago Mike Pruett gave a talk on top heavy a few years before that, and in his notes there was a comment that for profit sharing you would include contributions declared by board of resolution (or similar) but not deposited until the following year. he even had some great footnotes. unfortunately, his site on this one was simply "rev rul "and the rest was blank. I'm not sure where I found his talk, but I did ask him about that, and he couldn't pinpoint the rev rule he had used. oh well.

on old money, it doesn't matter how many years the person had. the old money is a protected benefit. the IRS example is provided below. when the vesting rules switched for match a few years ago, I thought the rule was you could track the vesting on old money under old rules and new money under new rules. Example 4 (A) Employer O sponsors Plan D, a qualified profit sharing plan under which each employee has a nonforfeitable right to a percentage of his or her employer-derived accrued benefit based on the following table: ------------------------------------------------------------------------ Completed years of service Nonforfeitable percentage ------------------------------------------------------------------------ Fewer than 3.............................. 0 3......................................... 20 4......................................... 40 5......................................... 60 6......................................... 80 7......................................... 100 ------------------------------------------------------------------------ (B) In January 2006, Employer O acquires Company X, which maintains Plan E, a qualified profit sharing plan under which each employee who has completed 5 years of service has a nonforfeitable right to 100% of the employer-derived accrued benefit. In 2007, Plan E is merged into Plan D. On the effective date for the merger, Plan D is amended to provide that the vesting schedule for participants of Plan E is the 7-year graded vesting schedule of Plan D. In accordance with section 411(a)(10)(A), the plan amendment provides that any participant of Plan E who had completed 5 years of service prior to the amendment is fully vested. In addition, as required under section 411(a)(10)(B), the amendment provides that any participant in Plan E who has at least 3 years of service prior to the amendment is permitted to make an irrevocable election to have the vesting of his or her nonforfeitable right to the employer- derived accrued benefit determined under either the 5-year cliff vesting schedule or the 7-year graded vesting schedule. Participant G, who has an account balance of $10,000 on the applicable amendment date, is a participant in Plan E with 2 years of service as of the applicable amendment date. As of the date of the merger, Participant G's nonforfeitable right to G's employer-derived accrued benefit is 0% under both the 7-year graded vesting schedule of Plan D and the 5-year cliff vesting schedule of Plan E. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a) and violates section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits with respect to G and any participant who has fewer than 5 years of service and who elected (or was made subject to) the new vesting schedule. A method of avoiding a section 411(d)(6) violation with respect to account balances attributable to benefits accrued as of the applicable amendment date and earnings thereon would be for Plan D to provide for the vested percentage of G and each other participant in Plan E to be no less than the greater of the vesting percentages under the two vesting schedules (for example, for G and each other participant in Plan E to be 20% vested upon completion of 3 years of service, 40% vested upon completion of 4 years of service, and fully vested upon completion of 5 years of service) for those account balances and earnings. [Treas Reg §1.411(d)-3(a)(4) example 4]

this is the actual ASPPA Q and A from 2002 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.