Tom Poje

actually the distribution/vesting was to be in the 2006 notice as well, but the IRS gave a 'free ride' last year mainly because the final regs were issued late enough that no one had time to fix their safe harbor notice. there was some talk that maybe the distribution/vesting cross reference in the SPD was accidently left out of the final regs, but that was not the case. I personally sat in on a discussion on the issue, the particular IRS agent had thought it might be an oversight so he personally looked into the matter and discovered that this change was intentionally made.

ah, a pearl of wisdom. lets say you have an excel sheet to download as follows (the headers are for illustration but of course you can't download those) comp bonus total soc sec # 20000 1000 (comp + bonus) xxxxxxxxx you want to download total comp. if you delete the column comp and bonus, then total wont be correct since it is a sum. you could copy total column and paste values and that wouldwork. (oh PAD is found under FILLER) or your DER could be PAD PAD salary soc sec # Pad simply ignores the particular column when performing the download. therefore you can save a lot time by not having to modify the download. does that help or make your life easier?

you might want to print out the info from the IRS site regarding frequently asked questions about roth 401k http://www.irs.gov/retirement/article/0,,id=152956,00.html in regards to safe harbor, a Roth is still a deferral, so nothing really changes there.

this is one last revision of an attempt at generating a safe harbor notice in Relius. added info for Roth and catch-up and lots more "yes" user fields. if answered yes (or left blank) the particular sections will print. alpha numeric User fields in plan specs: these are examples of possible coding: #20 deferral changes can be made (e.g. quarterly or monthly, etc) #21 is compensation definition (e.g. Total or comp less bonus, etc) #22 and #23 distribution conditions (e.g. upon termination) #25 contact person (e.g. Blunky the one eyed newt) #26, #27 and #28 vesting schedule #26 2yrs 20% 3 yrs 40% #27 4 yrs 60% 5 yrs 80% #28 6 yrs 100% #29 hours for vesting answer YES (or leave blank) if using these #30 Roth available #31 catch up available #32 safe harbor non elective used? #33 safe harbor non elective maybe used? #34 basic match used? #35 enhanced match used? #36 any match? #37 otherwise excludables? #38 other contributions available?

you are correct. it is only in the case of a new company their would be no prior comp. all that being said, was this in a book that might have a typo that needs correcting, or perhaps wording that needs to be described?

Andy: I belong to Losers Really Matter and thats what showed up... seriously, I wasn't looking for LRMs. This one either appeared on one of the daily BenefitsLink news letters a few weeks ago or else it showed up in one of the emails I received because I am on one of the ASPPA committees.

Andy: I depend on people like youto explain to me how LRMs work and stuff like that in regards to documents. If I understand things correctly, if you go individually designed you wouldn't have to worry about it (expect perhaps to the extent you can see what the IRS thinking is on the issue) but after that I get all muddled how they apply to prototypes and stuff.

things are getting a bit muddled. if plan is top heavy then 1. if contribution is only 10,000 which, based on comp would be less then 3% to all so it does not have to be bumped up. top heavy is 3% or less depending on what key ees get. however, you now indicated the plan is safe harbor. that imples deferrals involved, which means a key person probably deferred at least 3%, so top heavy would be 3%. 2. therefore, assuming the plan provides the 3% SHNEC all have received top heavy. however 1.401(k)-3(h)(2) is clear that "To the extent they are needed to satisfy the safe harbor contribution....shnecs may NOT be taken into account under any plan for purposes of 401(l). so I would read that as saying I can't simply take the additional 10,000 and use it as an integrated piece. of course you have to follow the terms of the document. if the plan is integrated I would expect something like 1.2% plus 1.2% above the TWB or however the allocation works out.

my initial guess is the plan is top heavy anyway, so you would end up comp to comp for allocation purposes since the contribution is so small

based on data provided, I would agree, plan needs to provide top heavy minimum

google up LRM #94. here is probably the most relevant part: each eligible employee will constitute a "separate allocation group". only a limited number of allocation rates is permitted. For plans with only one or two eligible NHCEs, the allowable number of NHCE allocation rates is one. For plans with 3 to 8 eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed two. For plans with 9 to 11 eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed three. For plans with 12 to 19 eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed four. For plans with 20 to 29 eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed five. For plans with 30 or more eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed the number of eligible NHCEs divided by five (rounded down to the next whole number if the result of dividing is not a whole number), but shall not exceed 25. in addition, there is a requirement that the number of eligible NHCEs to which an allocation rate applies must reflect a reasonable classification of employees. in other words, if you have less than 9 NHCEs it looks like you would be limited to 2 allocation rates, though you have a number of allocation 'groups'

100 % confirmation is impossible at this time. at least one IRS official insists this would be the case. (I believe the reason being is that the discretionary does not satisfy ADP - it is an 'additional' contribution) However, individuals at Corbel would disagree, since the discretionary does indeed meet ACP safe harbor on its own. they keep promising to release some type of guidance on the issue.

you indicated the plan was a safe-harbor. it does not matter if a notice was sent or not. you have a failure to follow the terms of the document by not providing a notice. the IRS has indicated (at least informally at ASPPA conferences and other conferences) in the case of a SHNEC you could probably self correct and provide a notice ASAP. again, if the document says the plan is safe harbor, it is safe harbor. failure to provide the 3% would be another failure to follow the terms of the document. it is not the notice that drives wheter the plan is safe harbor - it is the document. in the case of a 'maybe' safe harbor, it is still not the notice that drives things. it simply imforms the participant. ok, this type of question keeps popping up. lets try these comments: (I don't mean these in any negative way. There seems to be an idea that the notice and not the document decides if the plan is safe harbor. this is simply not the case. when safe harbors first came out, many document providers worked under that assumption, and the language implied as much. however, I thought most of them have been corrected.) American Bar Association Committee on Employee Benefits Q and A May 9, 2003 Company A adopts a safe harbor 401(k) Plan. IRS insists that each year that the safe harbor election is used, the employer must amend the plan to provide that the safe harbor contribution will be employed for that year. Is this correct? Proposed Response: If the plan contains a default provision, annual amendment to employ the safe harbor is not necessary. The acceptable default provision provides that in any year where the required advance notice that the safe harbor fails to be given, the Plan is subject to the standard ADP test. The employer can file a copy of the safe harbor notice with the form 5500. This procedure cuts down unnecessary paperwork and is consistent with the statute providing for the safe harbor. IRS Response: The IRS disagrees with the proposed answer. Notice 98-52 requires a notice to participants before the beginning of the year indicating the plan may be amended during the year to provide for a safe harbor nonelective contribution, and Notice 2000-3 provides for some flexibility by providing a supplemental notice to participants and amending the plan to provide for the nonelective contribution by December 1 of the plan year. There is NO DEFAULT OPTION under existing IRS guidance. (Emphasis mine) OR What happens if a plan fails to make the safe harbor contribution within 12 months after plan year end? Is it no longer safe harbor and testing must be done? Answer: No. Plan is still safe harbor, per terms of the document. You have a potentially disqualified plan. Making a ‘corrective’ QNEC per EPCRS (with earnings) seems a reasonable correction. 2002 ASPPA Conference, Q and A #2. (above 2 comments are comments from IRS representatives. as with any such comments they do not necessarily represent an official position. OR this was in the preamble to the final regs A PLAN that uses the safe harbor method MUST specify whether the safe harbor contribution will be the SHNEC or the SHMAC and is NOT permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied. The safe harbors are intended to provide ees with a minimum threshold in benefits in exchange for easier compliance for the plan sponsor. It would be inconsistent with this approach to providing benefits to allow an employer to deliver smaller benefits to NHCEs and revert to testing.

1.401(k)-3(e)(2) simply says in the case of a newly established employer that establishes a plan as soon as administratively feasible after the employer comes into existance.This is the one exception to the rule requiring a safe harbor to be at least 3 months long. so, you can probably argue you do this.

yes, it is under 5500, you will have to go back 60 days, and to the second page.

yes ok, 1.401(m)-2(a)(5)(iv) 2nd sentence says A plan that satisfies ADP safe harbor requirements of 1.401(k)-3 for a plan year using qualified matching contributions (this would be the safe harbor match) but does not satisfy the ACP safe harbor requirements (e.g. suppose you had an enhanced match greater than 6%) is permitted to apply this section (the ACP test) by excluding matching contributions with respect to all eligible employees that do not exceed 4% of each employees compensation. If a plan disregards matching contributions, the disregard must apply to all eligible employees. I read that as saying you can run your ACP test with the Basic match or without. such a deal.

the IRS has never really addressed the issue. informally at the 2006 ASPPA conference they frowned upon adding a match during year, but that is different than your scenario. chances are the only people this will benefit are HCEs (e.g. people who hit the deferral and couldn't defer the rest of the year but would benefit with a true up) which the IRS would probably frown upon. I suppose you could have people who didn't defer the first half of the year who would benefit with a true up, so it could be NHCEs as well. certainly there isn't any reason you can't match weekly or whatever (to avoid having to make one large contribution at the end of the year) and true up at the end of the year, but it sounds like you have a document that says the match will be on a payroll basis instead.

added catch-up language (though that can be supressed) a little more detailed language under 'distribution and vesting.' of course, this is a minimum. you have to modify references to the SPD and be pretty specific what section is being referred to. and certainly add anything more you feel comfortable with. still looks like 2 maybe 3 pages depending on if plan has both SHNEC and SHMAC. same instructions as before alpha numeric User fields in plan specs: #20 deferral changes can be made (e.g. quarterly or monthly, etc) #21 is compensation definition (e.g. Total or comp less bonus, etc) #22 and #23 distribution conditions (e.g. upon termination) and added #24 #25 contact person (e.g. Blunky the one eyed newt) #26, #27 and #28 vesting schedule #26 2yrs 20% 3 yrs 40% #27 4 yrs 60% 5 yrs 80% #28 6 yrs 100% #29 hours for vesting (this might only be available on version 11.0) I added this after the fact. I figured it can't hurt.

please note: under the 401k board I added some notes or other possible suggestions to this report. the 401k board had the version for 11 rather than 10.

other possible modifications (this comes from someone I have a lot of confidence in) under 'making or changing your deferral election' he added a blurb on 'cath-up eligibility' a little more descriptive under distributions and vesting (e.g. $5000 or less automatic cash-out, ability to withdraw rollover $ at any time, etc.) he also has a full description of 'other contributions'. I am not sure how much more needs to be added here since you can reference the SPD but, as indicated, the purpose of the report is to give a starting point and modify it as suits one needs (and I guess as one feels comfortable with)

1.401(k)-3(g) v says plan satisfies requirements through the effective date of the amendment with respect to amounts deferred. (you have to provide 30 days notice) I don't see how this can be interpreted other than providing a match up to that point in time. ERISA Outline Book agree 11.525 (2006 edition)

you might want to look at http://www.irs.gov/retirement/article/0,,id=152956,00.html actually some very good q and a on Roth 401k in particular the section on distributions. I believe you have to include some of the distribution as income since it is not qualified if you go via Roth.

I just noticed one small 'error'. under section V (Distributions and vesting) the font size changed from 10 to 9. hopefully that is easy enough to fix at your end. other thoughts: section IV other contributions references the SPD. I run the report in report writer and save to a file. I then edit the report. for example, I added to section IV (see pages 3 and 4 of the SPD) thats because the regs (1.401(k)-3(d)(2)(iii)) say to cross reference the relevant portions of the SPD. well, for a first attempt at creating and generating a report, this seems to be working pretty good.

based on what you indicated, I would have treated the ee as 1. includable and not benefiting for coverage 2. not included in the ACP test. (unless plan allows for after tax contributions, but then all particpants should have been included) "He did not receive a match because he had no 401(k)." no, even if he had deferred he would not receive a match because he did not work 1000 hours. if the plan allows for after tax AND the plan has immediate eligibility, then there is also the possibility testing was done using 'otherwise excludable' tested separately - and this HCE was otherwise excludable, but used in testing anyway. since there are no HCEs in the otherwise excludable group, no report was generated.

for testing purposes youare allowed to use any definition that satisfies 414(s). (Unless the document is really poorly written) One of the definitions that satisfies 414(s) is 'from date of entry'. therefore you should be able to use comp from 11/1