Tom Poje

doesn't sound correct. corrective amendment must be made by 9 1/2 months of plan year end. so it could be done for 2003, but the prior years are another story

ah, the truth is out. You must be a large-mouthed bass.

I'd agree with you Blinky, stopping short of special language I would hold you have to use total comp. that is the type of plan I would request a determination letter on any language included. Of course, based on what I read in other threads, if your document doesn't address that issue then it sucks.

that is document driven by the gateway language. it can be from date of particpation, so you get the following (if I remember correctly) 1. 1/3 rate based on plan def of comp 2. 5% based on date of entry but not less than 3. top heavy based on full year comp

good luck! you might try looking at this section of benefits link http://benefitslink.com/buzz/new.html there are lots of different articles (most wouldn't pertain to what you want) but I know there was an article today about trends among younger employees.

well, when the guy filed his taxes for 2003, he would submit thw two w-2s and the govt would know he over deferred. (ooooh. big penalty on $15) but regardless the IRS will know. In addition, when he takes a distribution, he will be taxed again. same deal, you aren't talking about a lot of money at that point. though I guess if the $ never get deposited then that wouldn't happen. If this is only one plan you are talking, then there is always the possibility of disqualification. The extra $15 was not deposited, so that is like a loan to the company, a prohibited transaction. In fact, what happened to the $15? If it was simply given back to the employee, then I like that scheme. I will defer and have the employer give me back the $ under the table and I avoid taxes. Interestingly enough, if the situation is remedied 12 months after plan year end then the $15 would count as a nonelective contribution, and if no other nonelectives were made, then you fail coverage as well. my understanding would be that the extra $15 should still be deposited and then distributed back to the HCE. Now, would the IRS fight over $15? The self correction program implies you don't have to worry about a corrective distribution if it is under $50, so I doubt it. On the other hand, the fact that the $ were not deposited does not relieve the employer of the prohibted transaction. again, the penalty on that is rather small, but continues until corrected (if I remember correctly)

if there are no HCEs participating, just what discrimination test are you going to fail?

you are correct. schedue T is simply how many NHCEs got something as compared to how many HCEs. It does not care how much - as you indicated that would be your nondisrim test

the regs clarify it 1.414(q)-1T, A-9(b)(A): ...an employee's service in the immediate preceeding year is added to service in the current year in determining whether the exclusion is applicable... so pretty much if you were full time you will get counted even if you quit Jan 1 (guess I never knew that was the exact wording, I simply assumed the 6 month rule applied to new hires. net effect appears to be pretty much the same)

Becasue there is a discretionary contribution (assuming one is made) you might have to perform nondiscrimination testing. you pass coverage because all ees receive the SHNEC. However, consider the simple case of an additional 7% profit sharing contribution being made. and, by bad luck because of hours requirement or last day provision only the HCE received this contribution. this means you have HCE at 10% total and NHCEs at 3%. you would have to perform the general test. this example would fail testing on an allocation basis, but might pass on an accrual basis - which would require the gateway minimum. Hopefully the above wouldn't happen, and you would have at least 70% of the NHCEs receiving the 7% as compared to the HCEs receiving the 7%. then you should be able to pass on an allocation basis.

It would probably surprise a lot of people to actually go back and read the provisions of the law - the pension portion was just a small part of the tax changes. Thats how all this got passed. Tacked onto the tax bill which Congress wouldn't dare vote against. In particular the pension changes were found under "Title VI -Pension and Individual Retirement Arrangement Provisions" and this was divided up into subtitles (Very Brief descriptions) A. IRAs B. Expanding Coverage (Increased various limits) C. Enhancing Fairness for Women - (This is the section that allowed catch-up contributions) D. Portability for Participants (rollovers/hardships E. Strengthening Pension Security F. Reducing Regulatory Burdens will Congress repeal all those provisions? I doubt it, though if the debt continues to grow anything is possible. Will they expand catch up provisions? I extremely doubt it. Is that discriminatory - well I guess you could call it that, but if the govt wants to give some extra savings to 'older folks' (those over 50) I don't see a problem with that.

Based on what you are saying, my guess is that you probably don't have broadly based rates - at least proably not under the guidelines intended by the IRS. I would find it hard to believe that the gateway minimum would cost that much more an ee at 200,000 is only going to receive around11.2% or so, which means 1/3 of that is 3.73 and you were already giving 3% - I wouldn't think it would be worth taking a chance or pushing the limit.

hadn't thought about the uniformity issue you cited. Though that may only apply in determining if the plan meets safe harbor. the example used in the preamble to the regs on cross testing simply uses 10% and 3% groups and says differences in allocation rates resulting from any method of permitted disparity provided for under section 401(l) regulations wil be disregarded. If the 10% group was integrated and the 3% group wasn't integrated, then would you argue that the disparity still wasn't uniform because you could have someone in the 3% group with comp high enough that wasn't treated the same as the 10% group? if that was true, then the item pertaining to ignoring permitted disparity makes no sense, because you will always be non uniform. Again, I do not know 100% for sure. Given the formula you indicated of 8% + 5.7% excess and another group at 3% plus 3% integrated, and you want to use broadly available bands, that implies the 8% group passes 410(b). If it is passing the ratio % of 410(b), then I would be surprised if the plan would fail testing on an allocation basis, in which case the gateway minimum is a moot point.

that would seem to meet one of the requirements for broadly available (namely that you have 2 rates, and difference in allocation rates resulting from any method of permitted disparity is disregarded.) though I have never seen a formula put forth that way before. Interesting. You still have to pass 410(b) by treating the one group as includable and not benefitting.

my initial reaction was that 1. you amend plan for eligibility 2. therefore, you have a bunch of NHCEs who weren't 'eligible' to defer and 'should' have been (Exclusion of eligible employees) 3. therefore, under self correction you provide a QNEC as outlined under section 2.02 of APPENDIX B however, upon reading 2.07 of APPENDIX B, correction by amendment (3) Inclusion of ineligible employee failure "....may be corrected under VCP and SCP by using plan amendment correction method set forth in this paragraph. The plan is retroactively amended to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan's actual operations. The amendment MAY change the eligibility or entry date provisions with respect to ONLY THOSE ineligible employees that were wrongly included, and ONLY to those inelegible employees, provided (i) the amendment satisfies 401(a) at the time it is adopted, (ii) the amendment would have satisfied 401(a) had the amendment been adopted at the earlier time when it was effective, and (iii) the employees affected by the amendment are predomonantly NHCEs." interesting. it doesn't say I have to bring in all ineligibles, only those that were wrongly included! the only requirement is to pass a(4), whatever that is to mean. If this group of ees consists only of NHCEs, and, since you could test using otherwise excludable option, then you would surely pass, as there are no HCEs being let in early. I guess there is nothing wrong to being discriminatory amongs NHCEs. I think everything I have read on this previously says you have to bring everyone in. however, the above would appear to say you could simply bring in just those extra bodies. that would make it closer in similarity to a corrective amendment under 1.401(a)(4)-11(g) well, I could be way off on this one. plus it is past my 4:15 limt on Friday.

While true you are supposed to list the financial institution, don't forget, if the accounts are individual participant directed no such special language would be required.

interesting - just how to interpret the code! 416 (g)(4)(H) says: The term ‘top-heavy plan’ shall not include a plan that consists solely of – “(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and “(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met. As Butler pointed out it couldn't say simply (i) and not (ii) because that would eliminate the possibility of the discretionary match up to 4% of comp. The IRS has made it clear the following should be 'added' on to the end of that statement (at least as best as I can put it in my own words) ...provided such plan does not use the 'otherwise excludable option for allocating the safe harbor contributions. In addition, a plan can have the option to make additional nonelective contributions, but if none are made the plan will not be considered top-heavy. Harwood points out the way The ERISA Outline Book has 'modified' the code slightly from a plan consists soley of (i) and (ii) into a plan consists of (i) soley of and to the extent made (ii) Chris points out that in another spot the ERISA Outline Book would seem to imply that the following should also be added: to get the top-heavy free option, the plan must allocate the safe harbor on total comp. you gotta love it! My reading is that it doesn't matter what the def of comp is as long as you provide both (i) and (ii) others hold as long as you provide (i) and if made match that satisifes (ii) still others add that comp has to be total not date of entry. well, as I indicated, I am really not sure, I have my leanings in one direction. I was trying to think of an off the wall example If I go to the ballpark and order a hot dog. in the minds of many a 'true' hot dog at the ball park consists of one in which the 'extras' consist solely of (i) mustard and (ii) relish now if I only have one with mustard have I met the requirement? (or does it matter as long as I hate the Yanks?)

I simply do not no for sure. It would seem to me if I used the otherwise excludable option I shouldn't have to provide the top heavy either, but the IRS was clear that you have to. If the document contains language for a discretionary match(limited to 4% of comp) and no discretionary match has been made, have you satisfied ACP safe harbor? and if so, why would that be any different than a plan that contained no such language? As I noted, the regs clearly say a plan has to satisfy both ADP and ACP safe harbor. They could have simply said satisfy ADP safe harbor - but they didn't. Perhaps the IRS figured if you satisfied the ADP safe harbor by providing the 3% SHNEC you would have provided an amount equal to the top heavy anyway - without realizing you could have participants entering mid year. I like your comment 'it doesn't make sense' - that is what people said for years about providing a top heavy in a frozen DB plan - yet you still had to do that. so making sense has little to do with anything.

I wouldn't think you would need to amend the plan - the document should already contain top-heavy language, and if an ee entered midyear you would simply provide an additional contribution to someone entering midyear (subject to vesting) as to whether the plan is considered 'not top heavy' is unclear to me. EGTRRA said that a plan that consists solely of a cash or deferred arrangement that meets the ADP safe harbor AND (emphasis mine on the word 'and') the ACP safe harbor will not be considered top-heavy. Certainly the non elective satisfies the ADP safe harbor. But if there is no match, how has the ACP safe harbor been satisfied? EGTRRA could have said consists solely of a cash or deferred arrangement that meets the ADP safe harbor then a SNHEC or a SHMAC would have satisfied that, and in addition the SHMAC would have gone further and satisfied the ACP safe harbor. Is the reading too much into the law? I don't know. It used to be a frozen DB plan had to provide a minimum benefit. In the DC world, if a key ee deferred, even though there were no other contributions you had to provide a top heavy. If you use the otherwise excludable option you still have to provide a top-heavy, so I have my leanings toward thinking you have to provide a top heavy in this case as well.

If your plan year begins 4/1/2004, then the lookback year (if a calendar year election was made) would be calendar year 2004. I hadn't thought about it before (I guess it only makes sense), but I see that there is no such thing as a calendar year election for a 5% owner - that is always the preceeding 12 months (as well as the current plan year)

without researching, I would assume you have to be consistent within the test itself. thus is prior year NHCE is comp - deferral, the HCE for the current year must be the same def (comp - def).

maybe - the proposed regs indicate a short plan year is possible if the plan terminates, the safe harbor is made during the short year, ees are provided notice of the change and the plan passes the ADP test. the proposed regs also say a short year is possible in connection with merger, acquisition, or substantial business hardship. previously there was a requirement for 12 months for safe harbor plans, the IRS recognizews this is impractical because of the above situations. so, if adopted, will the proposed regs apply retroactively? I have no clue.

well, you need to write and tell Sal....... here is the actual example used. Balance = 60000 of which 15000 is loan. so net of loan is 45000 ee rolls over 42000 this leaves a taxable distribution of 18,000 (15000 loan + 3000 additional) "The non-loan-offset portion is only 3000, because the 18,000 is reduced by the loan offset. the total taxable amount is 18,000, or 3600. The non-loan-offset portion is only 3000. [i think something is amiss because the same sentence appears twice!] The required withholding is 3000 because it is the lesser of the two amounts. (3000 actual distributed or 3600 taxable) No cash is distributed because the total cash portion is transmitted for federal income tax withholding." (There does not appear to be anything about 'grossing' up the distribution in Sal's discussion) I think the distinction is what you put on the 1099. You would put down 18000 as the distribution, not the 15000 amount of the loan. So net effect being the ee would owe some additional $ at tax time.

I suppose 1.414(q)-1T Q-3, though I am using a 2003 book and this section hasn't been updated for the new rules - e.g. it doesn't say $80,000 as indexed Who is an HCE? 1(i) employee is 5% owner in look back year 2(i) employee is 5% owner in determination year 1(iii) comp AND top paid group

the instructions on the form for line 2a say 'contributions received or receivable' so normally you would include it but you could do things on a cash basis as opposed to accrual basis. the portion of the SAR which contains the info to avoid the independent audit (if my brain is functioning) would only include the actual amount at the investment