Tom Poje

If I recall the 1099 gets real strange. the individual has to claim the distribution on his taxes, but wont get a 1099 until 2008 (the 2007 1099R with a code P)

there is nothing I know of to prevent you from adding a match, and since that option wasn't available then you can use the 3% prior year for testing. you would need to decide of course whether this would be done on a payroll basis, etc

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.