Tom Poje

You sound correct on all counts. The otherwise excludable rule is optional from one year to another as well. However, if you do indeed use this option, you must also use it for 410 (B) testing. I doubt it would make a difference in this case, but one never knows. I have seen it make a big difference in regards to ACP testing. You are correct about your statement 'pushing the right buttons'. For instance, Relius has an option for testing on SSRA, but since testing is suppose to be on the plans NRA that button should be rarely used, unless the document specifically called for it. And even then, you have some BRFs to worry about. The rate banding is another one where I heard people just simply 'click' and for the most part, its default method is most likely in violation of the regs about favoring HCEs.

Ha! The 'doctor' from Maryland appendix B section 2.06 of Rev Proc 2002-47 provides the self correction method. reduce (w adjustment for gains/loss), place in suspence account and allocate the follwoing year [unless this amount would have been allocated to others - e.g. a profit sharing contribution instead of safe harbor

My understanding would be that all have to receive because the plan is standardized. Certainly, in the past, you couldn't do it. I guess rev proc 2000-20 removed some of the language in regards to preventing this, but that it is still implied in 5.03 of rev prc 2000-20 http://www.benefitslink.com/IRS/revproc2000-20.shtml

Tired of constantly being broke and stuck in an unhappy marriage, a young husband decided to solve both problems by taking out a large insurance policy on his wife, with himself as the beneficiary, and arranging to have her killed. A "friend of a friend" put him in touch with a nefarious underworld figure who went by the name of "Artie." Artie explained to the husband that his going price for snuffing out a spouse was $5,000. The husband said he was willing to pay that amount but that he wouldn't have any cash on hand until he could collect his wife's insurance money. Artie insisted on being paid something up front. The man opened up his wallet, displaying the single dollar bill that rested inside. Artie sighed, rolled his eyes, and reluctantly agreed to accept the dollar as down payment for the dirty deed. A few days later, Artie followed the man's wife to the local Ralph's grocery store. There, he surprised her in the produce department and proceeded to strangle her with his gloved hands. As the poor unsuspecting woman drew her last breath and slumped to the floor the manager of the produce department stumbled onto the scene. Unwilling to leave any witnesses behind, Artie had no choice but to strangle the produce manager as well. Unknown to Artie, the entire proceedings were captured by hidden camera and observed by the store's security guard, who immediately called the police. Artie was caught and arrested before he could leave the store. Under intense questioning at the police station, Artie revealed the sordid plan, including his financial arrangements with the hapless husband. And that is why, the next day in the newspaper, the headline declared: "Artie Chokes Two for a Dollar at Ralph's Market".

well you can't have 0 eligible employees! 401(k)(3)(F) "... the employer may...exclude from consideration all eligible employees (other than HCEs) who have not met the minimum age and service requirements of 410(a)(1)(A) therefore, you have a test with only HCEs, so plan passes. Note: Not that it probably makes a difference, but this rule does not apply to coverage testing or cross testing!

John - see 1.401(a)(4)-4(B)(2)(ii) Current availability...... disregrad age and service....with respect to an OPTIONAL FORM of benefit or social security supplemental.... note, that the rule only applies to optional forms of benefits. The match based on service is not an optional form of benefit

at the ASPA conference 2002 the question was asked what if plan consists of 401k, 401m and profit sharing features, but only deferrals and safe harbor are made. Can the plan use the match safe harbor to satisfy top heavy? Answer, yes, but if there were no other contributions made the plan is not top heavy. so you only have to watch out for forfeitures. Hint:if you are smart, read that as saying: amend plan so profit sharing forfeitures pay plan expenses.

actually, the safe harbor match satisfies the ADP test. However, if the match is the Basic Match or an enhanced match limited to 6%, then ACP is also satisfied. Symantics! If there are no other contributions besides the deferrals and safe harbor, then the plan is simply 'not top heavy' rather than top heavy being satisfied. gain, symantics, but what the heck. Such a deal, 100% of the assets belong to owner and no top heavy. That is why a notice has to be given at least 30 days before the plan year begin. Otherwise all owners would put these plans in and not tell anyone.

All cross tested plan we run would allocate contributions to direct owners. If yours is similar and the son received the same % as the rank and file you still might pass by using restructuring - e.g. testing the son with some nhces using allocation method. there was an earlier thread about restructuring.

Try the ERISA Outline Book (9.129 of the 2001 edition) while no true guidance exists, 1999 Q and A ASPA conference, the IRS voiced an 'opinion' that if fees are reasonable and not determined by the employer, then fees could be ignored when determining availability. IRS also said other factors would include if reasonable alternatives existed for those with smaller balances. By the way, if you don't own the book, it easily passes the 'availability' test! ;)

to rerun or not to rerun that is the question... why, I am not sure. guess it depends on why you want to rerun. The new rules say you calculate the amount of refund based on percenatges, but determine the refund by who deferred the most $, not percentages. It makes absolutely no sense to rerun the test, because the plan could still end up 'failing'. If the purpose is to merely have a hard copy showing that the HCEs match rate is not greater than the NHCEs, then fine. I modified the report on the system I use (Relius) to show the results for the HCEs under both the old rules and new rules so I have the proof either way. By the way, it is not necessarily true related match will be forfeited, especially in the case if the plan fails ACP testing as well. For instance, the particular document I am looking at clearly says "Matching contributions which relate to excess contributions shall be forfeited UNLESS the related matching contribution is distributed as an Excess Aggregate Contribution.

if plan had immediate entry for deferral, then plan benefits employees who have not met the minimum age and service requirements. the plan may be treated as 2 separate plans, and the otherwise excludable group doesn't have to provide the gateway unless there is an hce in that group

regs require all benefiting participants (nonelective contributions) to receive the gateway minimum employee received top heavy, which is a non elective contribution conclusion: ee is entitled to the gateway possible exception #1: ee can be treated as an otherwise excludable possible exception #2 (sort of) : ee entered plan mid year. the gateway minimum can be based on comp from date of participation. In that case the top heavy is more than the gateway minimum so no bumping up is needed.

send me your fax #. believe it or not, i still have a 1 page instruction sheet on what to do!

you could try the following spreadsheet. you will have to enter rank and files age, comp and points. That is a constant. then enter a 'guess' contribution to be split amongst them once that is determined, you can easily calculate what percentage of pay the owner should get, and the spreadsheet will calculate his comp, contribution, FICA this does not cap contribution at 40,000. and about all you can do is try different contribution amounts to the rank and file, which will result in different % to the owner. Can't say I tested it, but logically it should work.

Ah, Andy remembers the discussion better than I do. I only have a chicken scrawled note on my Q and A's! You da man!

hopefully you will say that the sched C is way above 200,000 and you can run that as compensation. If you are lucky and have the old pentabs system, it was actually possible to run this as a first year target benefit plan, because the system calculated an ideal salary for targets. I don't know if it does the same for targets in Relius. The reason it worked as a first year target was because there was no theoretical reserve, so people basically received 'an age weighted' contribution. you simply had to guess at a target benefit % until you came up with the dollar amount of contribution you desired. I ought to know, I came up with the screwball method of doing it years ago. (You also had the ability to build a table to match the age weighted factors) Sorry, I haven't tried such an experiment on Relius and haven't the time

Again, this was the very issue discussed at the ASPA conference in Fall 2000 - the exact same scenario, an ee with negative comp: in fact, ee deferred during the year Person treated them as follows ee over 415, $ must be refunded 410(B) - no treated as benefiting as they received no contribution 401(a)(4) treated as zero in rate group testing adp - treated as 0% IRS response, yes to the first two, not eligible (or ignore) for the next two of course, as always, Q and As are only opinions and do not necessarily reflect any official position. personally, I might argue with the 410(B) point, because I thought the regs said you could treat someone who failed to receive a contribution due to 415 as benefiting

your joking, aren't you? I understand what you are saying, but Since when would the IRS approve a method that heavily favors the HCEs. I think that's why they suggest ignore the ee entirely.

once they meet the plan's eligibility requirements they have to be included (and obviously treated as not benefiting) in the testing.

the IRS has expressed an opinion at least at a couple of ASPA conferences(opinion only for there is nothing in the regs) that it is more reasonable to not include the ee in any testing. Basically, he has no comp, therefore he could not defer. Assuming he wouldn't defer give him some comp and solve your problem

once former key always former key it is not a one year deal- well, I suppose one could magically turn back into a key ee if they are an officer and their comp went high enough or if they became an owner.

I have read and re-read various notes, etc on safe-harbor plans and will quite possible continue to scratch my head on the issue. It does not surprise me that I am not alone being confused. This is my understanding: 401(k) safe harbor actually has 2 parts: 1. ADP safe harbor (absoultely nothing to do with ACP safe harbor) to pass a. Basic Match b. Enhanced Match c. SHNEC end discussion on ADP safe harbor. 2. ACP safe harbor to pass a. If you used the Basic Match above, you are ok b. If you used the enhanced match above, you are ok as long as you only matched up to 6% of deferrals c. The SHNEC does not count at all. do not pass go, do not collect $200. however, if you used the SHNEC you could provide a discretionary match, limited to 4% of compensation. If you provide the SHNEC, and no discretinary match, then there is no ACP test since there is no match. Last I checked if no one received a match you pass ACP testing (unless of course you have a post tax contribution) d. I believe you could also provide a required match up to 6% deferred(e.g. 50% of deferrals) and the 4% cap would not apply. now, what happens if your plan provides for the SHNEC and no discretionary match (in the language)? Interesting, because of the word 'AND' you note above, I would say you fail the top-heavy free ride. This would only be a problem if you had immediate eligibility but used the one-year wait on the SHNEC, because SHNECers are getting 3% - ok maybe not because you might be using comp from date of particiaption. This is slightly different than the case where the document actually provides for a discretionary match capped at 4% of comp, but provides 0 for the year. really getting picky on symantics at this point. so you might as well always put the option in the document for discretionary match even if you never use it. Not sure why or if someone would ever set up a plan to provide a SHNEC and then a Basic Match or enhanced match as well. Logically that makes no sense to me.

If I recall, there is an option to deduct contributions in the year made rather than for the year made for- thus if made after plan year end you could deduct in that plan year and take advantage of the fact the deduction limit has changed.

no, in fact Q-10 of notice 2000-3 specifically states you can exclude the 'otherwise excludables' from safe harbor. Therefore, just because you are more generous letting people defer early, you don't have to provide the safe harbor to those who may have come and gone within the first year of hire. Regardless of getting a fre ride on the test, why would you want to give them a contribution.