Tom Poje

a profit sharing plan only has a discretionary contribution - therefore there is nothing to freeze. However, if contributions are not substantial and recurring (no guidelines what this would be) then the plan would be considered 'terminated' and all participants would become 100% vested. hopefully everyone is 100% vested right now or forfeitures are used to reduce plan expenses. Otherwise you will have to allocate forfeitures and that smells like trouble if you also have a SIMPLE

If someone has met the plan's eligibility requirements, they are includable. If they got zippo, then they will show with a zero. For coverage, includable and not benefiting under 401k, 401m and nonelective. For nondiscrim testing: ADP test, ACP test - not on (assuming this is the one time election to not participate in the plan (as opposed to not deferring) and all future plans nonelective - on test with zero.

I think this is my '2000' posting on benefits link. what a waste of my time over the years! Therefore, I will list the code cite and force you to look it up or beg, borrow and steal from someone else to post the exact wording look at 410(a)(3) of the code

rcline: I understand your point of view, though the 'argument' from the original post refers to distributions made prior to March 15, not to ones made after that date. Apparently the auditor says those are the ones you list as liabilities. which of course means then you would have to put them on line 2f on the form 2003 even though they weren't really paid until 2004. I don't read the instructions that way.

Cute. so when you fill out your form, for example,(if I understand things correctly) you would have (column a) 1a begin bal = 100 b liabilities = -50 (corrective distribution) c net assets = 50 suppose the only thing that happened during the year was the actually corrective distribution, then: line 2f corrective distributions = 50 (instructions require you to include all distributions paid during the plan year) per instructions line 1c, column b (assets at end of year)must equal 1c(column a) plus 2j net assets plus 2k(transfers) therefore my net assets at end of year must equal 0 even though I really have 50. There is nothing in the instructions for line 2f that says "also include corrective distributions that were paid before March 15" or "Do not include distribution paid during the current plan year that were for the prior plan year failure"

I would hold Yes. I have never seen a document address the issue. If anything the option to shift deferrals to the ACP test is the one I have seen limited. I have seen plenty of documents that say something like ACP test consists of match and after tax contributions - hopefully whatever you come across also says ...and those deferrals not used in the ADP test.

I don't even see where you are getting 'fully vest it' from. You have to provide a meaningful benefit. If the contribution was going to a terminated ee who was zero vesting, then I could see fully vesting it but if it was to active ee then I don't think that is necessary, as long as the contribution isn't just a few cents.

I have my leanings against using the SSRA option at this time. I don't believe Corbel's document defines testing age, but it certainly could be done in one of their individually designed documents. which of course means you would hopefully apply for the determination letter. Here is the answer I read way back a number of years (pre-Sal) "I suspect a lot of people are simply using SSRA as testing age, despite the fact the document defines NRA as 65 and the regs require you to use NRA" The other issue that arises, even if you define testing Age as SSRA is a possible BRF issue. Are you then required to test age 65, 66 and age 67 separately for BRF. If you do, you will probably fail that, so SSRA becomes useless anyway. No, never have bothered to try and get a document as such. with the gateway minimum requirement I don't know if it would be worth the extra involved. By the way, I also have leanings against the rate banding. Currently the system will take an HCE and place them at the Hi point. The midpoint is then determined and the Lo Point as well. This is cleary a problem with the regs that says you can group accrual rates as long as the grouping doesn't overly favor the HCEs. You can massage things a little bit by setting your own bands, but... Be careful out there just punching buttons!

This keeps coming up, as far as I know, no one knows for sure at the moment. One theory is that since testing has to be completed within 12 months after plan year end, you should be able to amend by that date as well.

yes it jives. I was merely pointing if there are no other contributions it is a bit hazy on how to handle things.

I'm still unclear why the particiapnt enters upon rehire. The title of the thread was elapsed time. doh 6/23/03 dot 8/19/03 ee has not completed 3 months of service. rehired 5/17/04 I would have thought until 6/21/04 he finally completes the three months. the quote ActaryWanabee - especially the last line would seem to support that idea.

since the document should contain top-heavy language, all you do is bump up the contribution to cover top-heavy (though the SHNEC would be 100% vested and the remainder subject to the vesting schedule.) If there are no other forfeitures or contributions(only safe harbor contributions made) , then I think it is unclear whether the plan gets a free ride on top heavy or not.

yes, I strongly feel that is how the IRS intends safe harbors to work. (Not that I felt that way when these things first came out) Yes, I agree, I dont think the notice is as powerful as we once thought.

There is one possible exception I can think of - you did not make it clear what the 3% was based on. If it was based on date of entry and the ee entered midyear, then you will have to bump that person up with additional contributions. Top Heavy is based on total comp for the year, regardless of when the person entered.

it has been awhile since I slept...er read through the proposed regs. I know when I looked at them the first time the question that came to my mind was how you could even use a maybe notice - and then I figured its a matter of the document doesn't even contain the language. (As an example, I think the original corebl documents you would put the safe harbor language in, but the spd contained language that the plan would provide safe harbor if a notice was given.) This does not appear to be what the IRS would want to have, hence the proposed regs to clarify things. They put the proposed regs out so they get comments - hopefully whatever comments they got will clarify even more. I think what you intend to do sounds like a bit much, but thats only my thought...

in performing ADP or ACP or the general test (e.g. cross testing), the compensation used must satisfy one of the safe harbor definitions under 414(s). Does limiting comp to 170,000 satisfy 414s? lets see: one safe harbor definition is 415 comp - nope there are 3 safe harbor modifications: 415 comp less 'special comp - moving expenses, reimbursements, etc) - nope 415 comp less deferrals - nope exclusion applies only to HCEs - 415 comp modified to exclude any item of comp if exclusion only applies to HCE - but this only refers to excluding comp listed above , so this would appear to be nope. however, 1.414(s)(2)(iii)last sentence says "A definition of comp is not unreasonable merely because it excludes all compensation in excess of a specified dollar amount." ah ha. then a document that limits comp to 170,000 would certainly fall under the 'reasonable definition'. therefore 170,000 satisfies 414(s). now, in your particular plan what comp are you required to use for testing? A typical Corbel document would allow you to use any compenastion that satisfies 414(s), so you could use either170,000 or 200,000 or for that matter exclude the deferrals from the total comp. as for your document, I would agree with WDIK. stopping short of anything else, I would express some concerns if the it says 'Compensation' as opposed to 'compensation' [lower case meaning it is not defined]. One still has to follow the terms of the document even if it is more restrictive than it need be. This is no different than a document's definition of the ACP test which says to use match and after tax contributions. Such a document would not appear to allow you to shift deferrals (as opposed to a document that says use match and after tax and any elective deferrals not used in the ADP test). Now, all that being said, I would say I am not 100% sure. could you amend the document to contain a better definition of compensation? Or at least a clarification of what testing comp is? In other words, can you amend after plan year end? There wouldn't appear to be a cutback, since you are not required to provide a QNEC. It has been discussed before, if plan used prior year testing, could plan switch to current year - that is really unclear. I know many argue since you have 12 months after plan year end to correct the test you SHOULD be allowed to amend. I don't see how amending/clarifying what comp to use for testing purposes would be any different. so, I simply am not sure in your particular case. got a bit long winded didn't I?

The proposed regs are exactly that - only proposed at this time. However, they do appear (at least in my humble opinion) clarify things - the way that plans were intended to be operated. so, this is the way I understand the rules: calendar plan is non-safe harbor, but on Dec 1, 2004 says it might go safe harbor. By Dec 1 , 2005 if it chooses to go safe harbor, then plan is amended to include safe harbor language, and another notice is provided stating this fact as well. If it is decided not to go safe harbor, no further action is required except the notice saying the plan is not safe harbor for 2005. Now, can a plan toggle back and forth? It looks like that is possible. In other words, at the time the plan is amended, it is indicated that the plan will be safe harbor for the 2005 year only, though the notice could say the plan might go safe harbor in 2006, and then the process starts all over again. I would suspect an administrator would not want to go through the process of amending the plan every year like this, but rather decide on some type of permanancy. I would also suspect the IRS would prefer that as well. In the same way, if plan went safe harbor in 2005, the notice for 2006 might say the plan will now provide a match instead, in which case the plan would have to be amended from the nonelective language to the match language.

I would agree, as long as you stress the word 'might'. an agent 'might' except the method of self correction. personally if I was to make a self correction, I would want to use one that was listed and approved, but I guess I should be more careful if I use the term 'you can only do it this way...'

I dont think you are missing anything. This is one of thise situations where you do get a 'free' ride, so to speak.

in reality it would probably be impossible to pass the average benefits percentage test - only in extreme case could you pass. consider you example of 5 NHCE, but 2 quit. to make things simple, assume all E-Bars are 1%. you therefore have 3 NHCEs at 1 and 2 nhces at 0 avg = 3%/ 5 = .6 1 HCE avg = 1% ratio = .6/ 1 = .6 so you fail avg ben % test. Imputing disparity might help a little, but I still think you would end up below 70% and fail. if the HCE was capped at the 415 limit then you have a chance. by the way, you are allowed to impute disparity. It is a bizzare concept in an age weighted, years ago I read an article but an integrated age weighted plan. I didn't understand the mathematics of it, and the authors conclusion was that it wasn't worth the few extra $ in contribution it would generate, simply because of the complex calculations involved.

actually, if the 'proposed' method of correction simply make the corrective distributions, then why would there even be a suggested method of one-to-one correction in which you make the corrective distribution plus you kick in an equal amount for the NHCEs. why would you ever choose the one-to-one method?

thank for your compliments. I suppose there may be one other issue involved. This 'option' only applies to the ADP/ACP test. for purposes of coverage the HCEs in question are still treated as 'otherwise excludable' - at least I don't think there is a similar rule under coverage.

Rev Proc 2003-44 sets forth the guidlines for correcting problems Appendix A is titled 'Operational Failures and Correction Methods' to me that means if a plan has an operational failure, here are the permissible correction methods. .03 Failure to satisfy ADP/ACP test permitted (I stress the word 'permitted' correction method is to make QNECs on behalf of the NHCEs Appendix B Correction Methods and Examples section 1 .01 This appendix sets forth correction methods relating to operational failures.... section 2 .01 ADP/ACP failures 1. Correction method - Appendix A section .03 sets forth a correction method for a failure... b. One to One correction. (i) In addition to the correction method in Appendix A, a failure to satisfy the ADP /ACP test may be corrected using the one to one correction method.... I am unable to find any other permissible correction methods The only other possible method I can find is Part III, section 6.02(5)(b) if the total corrective distribution due a participant or beneficiary is $50 or less, the Plan Sponsor is not required to make a corrective distribution if the reasonable costs of processing and delivering the distribution to the participant would exceed the amount of the distribution. In other words, I think the 'reasoning cited' makes no sense. What that reasoning is saying is that despite the fact the regs say correct a failed test by 12 months after year end, we are allowed to go beyond 12 months because the 1. amount is small as a % of assets (the self correction program merely says that because of it being small you are allowed to use the self correction program, not we can follow whatever method WE choose) 2. the fact that some HCEs have cashed out has no bearing on the correction method - it makes it a little more complicated if the $ have been rolled over, but again, there is nothing in the regs I have ever seen that says you don't have to follow the guidelines if some HCEs have already cashed out.

it is optional how you want to handle HCEs that are otherwise excludable. I would simply go into census and change the coding on those ees - the benefits/contribution screen, statutory excludable - no override

good luck to the bunch. For those taking the exams in Dec, if at all possible, I would consider attending the ASPA coference in Wash. DC at the end of October. If you are not aware - the last few years they have had 'cram' sessions - somethink like 4 75 minute sessions on each of the different tests. I would assume the same thing this year. very helpful. they got me by c-3 and c-4. excellent handouts, etc. And, at least in the past, these session are given the day before the actual conference, so you don't miss out on anything. (I'd agree, never seems to be enough time to study! )