Tom Poje

I have misgivings about that. My understanding the formula must be determinable before the plan year begins so employees can make their informed decision. the one exception of course being the 'maybe SHNEC', but with that it doesn't matter whether you defer or not. There is a big difference if you said you might have a discretionary match at 66% and a definite 300% match.

are you saying they wish to no longer provide the 3% SHNEC, and instead use the fixed match? If so, then no, you cant retroactively amend. you will have to wait til next year. the regs are fairly clear on this. Think of it this way - you told me you would provide a 3% SHNEC. therefore I chose not to defer. now you want to change things and provide a match, so I have lost out on deferral time. IRS would frown on such a practice.

sorry, I have no experience with Omni. I have no idea on how the import process.

I suppose if you got real lucky and had immediate eligibility and no new NHCEs you could test using otherwise excludables. and be careful about amending at this late date! if all you need is 1000 hours, amend quickly. if it is a standardized plan and all you need is 500 hours it is probably too late. if you have last day provision, then you have plenty of time.

this just came out http://www.benefitnews.com/detail.cfm?id=7530

oh, and to top that, if matches are deposited after 12 months then they are treated as nonelective contributions and as if they were the only nonelective contributions. 1.401(m)-2(a)(5). I would assume that applies to safe harbor contributions as well. you would have to pass a(4) testing, which could get interesting if you had to cross test and therefore also provide a gateway minimum!

yes. oh, you probably want the low-down as well. 12 months after plan year end. 1.401(k)-3(h)(1) If I recall, if match is done on a payroll basis, then by end of quarter following, but I am too lazy to look it up.

so you want the plan to have entry dates of 1. the first day of the plan year or 2. 6 months after satisfying the 1 year wait. thats 182 or 183 entry dates. I think that is possible in an individually de$igned plan, so added cost there. the poor administrator who has to handle the case. the poor payroll processer who has to make sure people are given a chance to defer on one of those magic dates for new entrants. good grief its hard enough to process a plan without all that!

I work on one plan where eligibility is 6 months and you enter on 12/31 following, so I guess it is possible, though conceivable it could present problems. An ee hired 7/1 could be treated as completing the eligibility as of 1/1, in which case the ee should come in since the regs require one to enter first day of plan year after meeting eligibility. The problem is not solved by using inclusive logic and saying ee satisfies requirements at 12/31, because then the ee hired 7/2 would satisfy requirements at 1/1. But that is about as goofy a plan as I have ever seen. and after they amended the plan to include deferrals, I made them switch to 1/1 and 7/1 entry dates.

I suppose the easiest way to compare the two is simply eliminate the word SIMPLE. One is still basically an IRA (e.g. no 5500) and the other is still a qualified plan, with most of the bells and whistles - 5500 filing, loans permitted, coverage testing, etc. you can convert the 401k to a SIMPLE 401k with a model amendment, and if you get tired of the SIMPLE 401k you can switch back. can you convert in the middle of the year? not with the model amendment, and maybe if you are amending the plan. it is unclear from the regs. I suppose if they go SIMPLE IRA it almost elimnates the need for an administrator. I will assume you are talking a calendar year plan since that is a requirement.

suppose instead of 'adding' a 401k feature to the existing plan, the company had simply put in a new safe harbor 401k plan. in that case it would seem the shnec would only be for that short period of time. now, recall, that under the regs, for purposes of issuing the safe harbor notice, the 401k is actually treated as a 'new' plan, so I would lean toward applying the SNHEC only for the 'short' plan year.

the actual answer is no, but if you dont big momma could disqualify your plan. check your document and see what it says. if related match contributions are not forfeited, then the rate of match for the HCEs will be greater than the rate for NHCEs. this is a discrimination failure. one option available is to make a corrective amendment to increase matching contribution to the nhces. see 1.401(a)(4)-11(g) there is an example. I suspect if the document is worth its weight it will require related match $ to be forfeited.

Though it wont help now, you could do the following. Special note: You can now quickly submit your questions for future IRS/DOL Q&A conference sessions by clicking this link: www.asppa.org/forms/irs_question.htm and submitting your questions online.

no, that only applies to testing. sorry, nice try, assuming you are trying to keep your count under the small plan reuirement

I think your question was clear, but the details were confusing. now you cleared that up. 1.401(a)(4)-11(g)(2) next to last sentence says In addition, for purposes of satisfying the nondiscriminatory current availability requirement of 1.401(a)(4)-4(b) for benefits, rights and features, a corrective amendment MAY MAKE A benefit right or feature available to employees to whom it was previously not available. well, certainly the profit sharing (or QNEC) wasn't available to the employees so based on that it would seem you could add that brf. your question (and certainly legitimate - I have never seen the situation before and I don't think I have ever seen it addressed before) is can you simply add something that wasn't available previously. 1.401(a)(4)-11(g)(3)(vi)© requires the corrective amendment to 'expand' the group of employees to whom the benefit, right or feature is available. well, since no had this benefit previously, you certainly have 'expanded' the group, but the feature wasn't really 'available', so the ultimate question is can you do what you want. I don't have a 100% I am sure of this answer for that question. 11(g)(2) implies you may make a benefit previously unavailable, but(3)(vi)© would seem to imply the benefit was already available, and you are merely expanding the group. But of cousre, you could argue you have indeed expanded the group. My opinion is that the IRS really doesn't want plans to be disqualified, and I would lean toward a liberal reading of 11(g) that you truly are expanding the group of ees to whom the feature was available. In addition, the self correction program states that the correction method for failures relating to nondiscrim should provide benefits for NHCEs as found uner 11(g).

I do not think that is possible. In the case of a plan that consists of union and nonunion ees, I believe one portion could be safe harbor and the other not, or in the case of testing statutory includables and otherwise excludables you could avoid a safe harbor to a group of ees, but other than that my understanding all who are eligible to defer must receive. This was made real clear in the new 401k regs especially in regards to a safe harbor discretionary match.

you said 'was in the process of converting the plan' was this done? what is the effective date? or has only a notice been issued and nothing else been done?

ok, I got lost on exactly what is going on except plan is failing coverage. it was not indicated which part of the plan failed coverage e.g. 401k, 401m or nonelective. the original statement said the adoption agreement provides for a discretionary nonelective contrib., but then the comment went on to say "can I add a profit sharing option." but that is what a discretionary nonelective contribution is so I am confused. now, based on the question, I would assume the plan is not failing coverage on the nonelective piece. that means it fails either 401(k) - which would really be strange unless it was a controlled group, or the 401(m) piece. no mention was made of match, though I see in example 6 of the regs under 11(g) you could increase in the match to individuals. never thought of that concept mentioned under the example. anyway, as indicated, I am a bit confused as to the exact conditions of the plan. my apologies for missing something that may be staring me in the face.

make a corrective amendment as permitted under 1.401(a)(4)-11(g)

the general rule is that to have compensation counted toward deductibility an individual must benefit. in the case you cite, it sounds like you would not be able to consider the compensation. by the way, in a 401k, an individual is considered benefiting if he is able to defer even if he doesn't. This particular point gets debated an awful lot. best success on the test!

ah, I know a number of years ago Corbel (and I am sure other documents) had fail safe language that kicked in if you failed coverage. the IRS realized the error and said no, it is suppose to kick if you fail ratio-percentage. In other words, if you have fail safe you never get to the avg ben test -or at least that is the way it is supposed to work. I know Corbel corrected their language. I had wondered why some documents were more lenient than others in regards to this and it was due to an oversight.

one has to remember that answers provided at ASPPAs Q & A (as well as other meetings) all carry the disclaimer that they are opinions and possibly might not represent the actual treasury position. In this case, they have held one position for a number of years and now seem to hold another position. I have some old notes (1999) from PIX which holds that there are those that hold one view and those that hold the other view. And that was before the IRS seemed to have changed their position. so no hope there. I haven;t seen anything recent on the IRS position. At the 2003 Cross tested plan specialty workshop sponsored by SunGard Corbel, the following answer, while not directly addressing your question was provided "The 'last day' and '1000 hour' conditions are nondiscriminatory, but the plan must first pass coverage, treating as not benefiting any employee who does not receive an allocation because of failure to satisfy allocation conditions. 1.401(a0(4)-2(b)(4)(iii). I am of the opinion that if a last day requirement or 1000 hour condition are, of themselves nondiscriminatory, then you have a basis for saying they form a reasonable classification. Someone on PIX many years ago said something like "Is it a reasonable business criteria to expect you to be employed on the last day to receive a contribution for the plan year?" Now, the actual reg (1.410(b)-4(b)) refers to it being a facts and circumstances situation. for instance, if it was apparent that the 4 terminated people in your case were let go on Dec 30 to avoid making the contribution then I think you have an argument for failing reasonable classification. proving that may be hard one way or the other, but that is what facts and circumstances is all about. was that answer wishy washy and long winded enough?

there are a number of possible problems with that scenario. 1. if one person quits from the db plan you fail min participation. 2. db = 16 ees and DC= 24 so the combined 'plan' is not primarily DB in character. that means, if cross testing comes into play the minimum allocation gateway would have to be provided. Unless you test on an allocation basis, but if you are only providing a minimal dc benefit that looks pretty grim. 3. ignoring the minimal allocation gateway lets look at an example. suppose the DB provided 3% accrual/year. rather simple, E-BAR=3% suppose the DC plan provides only 2% of comp. For a 51 year old at 8.5% interest rate assumption this means (I'll use comp = $20,000, but comp is pretty much irrelevant) contrib = 2% * 20,000 = 400 at NRA 65, ee has 14 years to retire so 400 * 1.085 ^ 14 = 1253.36 this is how much that contribution would grow to at age 65. (Lump sum) If you were to buy a life annuity (APR for 1983 IAF, 8.5% at age 65 = 115.39) so dividing this lump sum by the APR and multiplying by 12 (to produce an annual benefit) you have 1253.36 / 115.39 * 12 = 130.34 if you divide the annual benefit by comp you have the E-Bar 130.34 / 20000 = .65 this is way less than the DB benefit, so this person is not in the rate group of the HCE. not even close. without checking the numbers, I believe you wouldn't have anyone in the rate group until you get down to age 31 or so. you have 30 NHCEs out of 40, or 75% this means you have a midpoint of 33.75. thus, to pass nondiscrim classification you need 33.75% * 30 NHCE = 11. you have 6 from the DB so only need 5 from the DC. That looks promising, but you would also have to pass avg benefit % test. If you have a 401k, that looks promising, but if not you may have problems. and again, this doesn't adress the issue of providing the minimum allocation gateway. As an aside if you are wondering why I chose the numbers I did, I happen to be working on an illustration for an ASPPA talk, and I happen to have the numbers handy. the .65 is the magic 'extra' amount that can be tacked on if you impute disparity. Thus, if you provide a 3% SHNEC and a 2% profit sharing you meet the minimum allocation gateway at 5%. You are not allowed to impute disparity of the safe harbor portion, so this was merely an illustration to show approximately at what age imputing disparity kicks into full effect in a safe harbor 401k plan.

actually, the better question what is the corrective action in this situation notice given but plan not amended. since the IRS has sometimes indicated or implied the SPD must be followed if it offers better provision then the logical conclusion would be the safe harbor match must be made since participants were told there was going to be one via the notice. However, the document contains no safe harbor language. It would not surprise me if the plan would have to provide the safe harbor match AND still perform ADP/ACP testing as a result, sort of a penalty for not doing things correctly. That of course is an opinion only. but I base that on other such examples such as: if plan had simply been a profit sharing plan (not 401k) and they gave the notice, then started taking out deferrals without updating the document, that would have been a real nasty no no. you simply can't do that. you can tell people yes we will have a 401k, but you cant take out the deferrals until the document is actually in place. I agree Reed, thinking is a dangerous thing. It gets me in trouble all the time. dang back in 1954...or was that 1986..........?????????

yes, in regards to the match. the only time you could amend 'after the fact' is with the contingent safe harbor nonelective. 1.401(k)-(3)(e) "must be adopted before the first day of the plan year" in other words, you are a bit late for 2005. (Reed beat me to the punch- as he indicated it might be possible to go through the self correction program but there are no guidelines. The IRS is trying very hard to prevent people from treating the notice as an amendment.)