Tom Poje

I wonder. lets say the formula 50% of deferral and that was changed to 25%. and the HCEs deferred the max, so are finished. a side effect, for all practical purposes, is the formula over the whole year, because of the way things worked out, the HCEs received a 50% match and the NHCEs, averaging things out will receive 33%. If that had been my formula for the whole year it would fail BRF, because no NHCE were in the 50% group. I don't think the fact changing the formula itself is a problem, but the added fact the HCEs maxed out might add a wrinkle. or worded another way, we changed the formula, reduced it and the only people it effects are NHCEs. lets say they follow the same pattern year after year, that begins to smell bad.

plan is safe harbor so I can pass ADP test. so NHCEs are going to get the 3% no matter what. and it is fully understandable you can't impute disparity on safe harbor. I don't see the argument that imputing disparity works better if you don't give the HCEs a safe harbor . no matter what I give the NHCEs in a safe harbor plan, when figuring disparity it is based on 100% of contribution less the 3%. Excluding the HCEs from safe harbor means it will always be 100% of the profit considered when imputing disparity. thus when imputing disparity the total contribution for HCEs is always considered while a lesser amount is considered for the NHCEs

so change the numbers to whatever comp you want (or go back to my example of every NHCE deferring 5%.) I only used an extreme example to make a point (which obviously doesn't meet the need to 'allow to defer enough to meet the max') that excluding comp leads to possible abuse and ends up 'saving' the company $ that they don't have to put in, a nice end around. I do not think that is the intent of the law, that you can fail a comp test, and there are no ramifications in that situation. we will simply agree to disagree on that point.

if I am only providing the 3% safe harbor to the NHCEs, then imputing disparity makes no sense. but then the max for the HCEs is 9%, and whether that consists of 3% safe harbor and 6% profit sharing or 9% profit sharing it doesn't matter as disparity will not be imputed anyway. If the intent is to get the HCEs more then imputing disparity comes into play, and even only a minimal 1% profit sharing to the NHCEs (generally not enough for the gateway) will max out the disparity on anyone age 42 (or thereabouts). any one older will still increase, just not by the max disparity of 0.65. so unless there is match involved as well, I'm not sure excluding HCEs from the safe harbor accomplishes much, except, as I mentioned, if you are cross testing, and you have a young HCE, such a contribution will throw things out of whack (unless you can get by restructuring testing).

so you will be selling all the stuffed toys, trinkets and everything else you have been gathering from the ASPPA conferences on E-Bay to supplement your income. talk about putting away something for retirement, guess you followed that advice wisely. .................................................... If I recall correctly (my apologies if I am wrong) Happy Passover פסח מבורך

I'd take this one step further. let's say you exclude commissions. you give a base pay of $1000 and $49,000 in commission. even if the person defers 10% of pay the maximum make up match using total comp only brings the person up to $100 in match. but the company gets a top heavy free ride, no adp testing, etc. you can't convince me that is how it is suppose to work.

I inadvertently deleted a topic in my attempt to simply delete a blank response The topic dealt with Derrin's book on e-bay. my bad ooops

k2retire- I am aware of that (an NHCE deferring more would get something extra), but that still leaves you some NHCEs who are, I guess, "out of luck". and despite that, the HCEs get the free ride, again, despite the fact comp test failed. no further penalty. so for example, if all NHCEs deferred 4% they received 4% match. now plan fails comp test. no correction needed because they still received 100% of deferral, despite the fact they couldn't defer 4% of total comp. to me that just smells bad.

I would suspect at the SSPPA conference the issue is 'family members', not a "in general, don't provide HCEs with the 3%"' if a 'child', is provided a 3% safe harbor, that often blows cross testing out of the water. and by child, even a 30 year old can cause problems

Kevin, that is point exactly. by dividing by total comp, the NHCE only defers "2.7%" not 3%. so basically the HCEs get their full match no matter what, but, in some ways you have limited the NHCEs to less than 3% and so the company didn't need to fund a "full" match despite failing the comp test.. you can argue "Then the NHCE needs to defer more" but the crux of the matter (or the wrinkle) is you failed the comp test, but you still get the free ride on everything. or, put another way: Why the heck did you run a comp test. it makes no difference in this situation. there is no "penalty" or correction, and you are still rewarded with a free ride.

my problem with not providing an additional deferral, in the example I gave the ee deferred 270 and received 270 in match. plan fails comp test. so now I use total comp. ee can't receive more match otherwise the match is greater than the deferral. so net effect, you still get the free ride on the adp/acp test you get the free ride on top heavy (assuming no other contributions) and yet you failed the comp test, so the company has gotten by without providing that extra match. I don't know, I don't think that is the intent on how the thing should work

you can't amend the plan so that it is no longer safe harbor. however, I think there are some areas that haven't been addressed. for example, suppose the person makes 10,000 (including 1000 in bonus) he defers 3%. so his deferral is 270. his match is 270 which is 100% of deferrals. but since you failed 414s you have to use total comp for the match. The comp used for deferral could be considered 'reasonable' so it is only the comp for match that fails. so now you have a deferral rate of 3% based on plan definition of comp, and a match rate of 2.7% based on total comp. this would seem to me to fail the rate of match requirement. so then do you have to provide a QNEC for missed opportunity to defer on that bonus comp as well?

no. you always have to aggregate for avg ben pct test because if you COULD have aggregated for testing you include those plans. but that is for avg ben pct test only. well, ok, the reg was written before safe harbor plans, because you can't permissively aggregate a safe harbor with a non safe harbor, but no one ever thought of changing that, I guess. but then you also 'aggregate' deferrals and match and profit sharing, which you can't aggregate either, under normal conditions so it is understood in the context. so, for instance, if using Relius you run the avg ben pct test. then their is a 'check box' under nondiscrimination for the avg ben pct test, with the following choices (or at least something like the following verbiage): perform test employer passes You might be in deep shrinkfit because employer fails

1.410(b)-7(e) All plans..that could be permissively aggregated ....are included so, 1 and only 1 average benefits percentage test (unless you test otherwise excludables separately. maybe an exception if one plan is DB and the other is DC. but even if plans had different plan years and you can't aggregate for other things, you still aggregate for the avg ben pct test.

once many moons ago I heard tell of a plan in which all the contributions were rounded to the nearest $. for the sake of the argument, let's say everyone received 5%. ok, no big deal. then one year someone decided well, maybe due to rounding the plan should be tested for nondiscrim, just to make sure HCEs weren't all rounded and the NHCEs rounded down. nope, turns out everyone was rounded down and then that amount was added to the guy 'running' things (and then his contribution was rounded down) hmmm. so you never know.

oh, I thought you were commenting on any of my posts Faulty Tom Wisdom.

that's exactly how I do it

tough call, if you fail the avg ben pct test. I guess it depends on why. if it is because a young son received a 3% shnec then I would guess it is probably easier to pass than other scenarios. I suppose the hardest part is to get your software to produce such results in some way shape or form.

I suppose in a round about way you could, at least catch-ups that pertain to HCEs(since you could exclude HCEs from the entire safe harbor), but I'm not sure what document language that would imply. If it is a basic match, I'm not even sure if you would reach that point since you are capped at 4% of comp for the match

I would take into consideration some facts and circumstances. lets suppose I provided $1000 to one participant to pass nondiscrimination testing - let's say it gives it gives the person who was at 0 an e-bar of 5.00, just enough to get him into the rate group of the HCE now if that correction is only 20% vested I would argue at that point in time, knowing full well the person is terminated and has no chance to increase vesting, that the 'substance' of the amendment has not been satisfied. you have in effect provided an e-bar of only 1.00. or put another way, instead of provided a 20% vested contribution of 1000, I have in effect provided a 100% vested contribution of $200. I do not think that was the intent of providing a corrective amendment to pass testing. ... under its comments on discriminatory plan design using short term employees the IRS indicates they have an issue about being able to 'pass' but failing a reasonable interpretation of what is reasonable. I would hold that this would hold in a case of a corrective like the example I used. Examples of short service plan designs Some plans limit NHCE benefits to a specific job classification. The result, for discrimination and coverage purposes, is the same because this classification includes only the lowest paid or shortest service group of NHCEs. Another variation on this plan design provides coverage to NHCEs who work on an as-needed basis and earn very little each year. Some plan designs require 1,000 hours to earn a year of service for vesting but not for allocation purposes. In these plans, the low paid or short service NHCEs receive an accrual or allocation but don’t vest in the benefit because they never complete a year of vesting service. Other plan designs define a year of vesting service as the employee’s completion of 12-consecutive months of employment. This design allows the NHCE participant group to become vested in the very small plan benefit. Plans may discriminate even though they allocate a larger percentage of compensation to NHCEs. With this design, NHCEs, on average, may seem to receive a misleadingly large accrual or allocation level. For example, an NHCE participant with $200 of annual compensation may receive a profit sharing allocation of $200 (a benefit equal to 100% of compensation), while an HCE with compensation of $200,000 may receive a benefit of only 25% of compensation or $50,000. Although these designs may allow the plan to satisfy the vesting or numeric general tests for nondiscrimination and the associated regulations, they don’t satisfy Treas. Reg. Section 1.401(a)(4)-1(c)(2), which requires that the provisions of Sections 1.401(a)(4)-1 through 1.401(a)(4)-13 be reasonably interpreted to prevent discrimination in favor of HCEs.

a Blinky the 3 eyed fish sighting!

I'm not sure why a change of ownership like that would necessitate a new plan but as I recall, yes, because of the successor plan rule no one could take distributions, but the balances should be able to transfer to the new plan with no problem. otherwise people would terminate a plan, get their $ out and then start a new plan whenever they felt like it, avoiding the distribution rules relating to deferrals

I know little of Davis-Bacon plans, however the write-up by these folks would seem to indicate for Davis-Bacon you have base pay and fringe benefit, and it's the fringe benefit that can be put into the plan. therefore, just by the nature of the beast I'd think that fringe benefit would apply to all workers, thus it wouldn't be a match contribution http://www.consultrms.com/res/uploads/media//Shifting-Davis-Bacon-dollars-into-Plan.pdf they also have a list of contributions which mentions safe harbor nonelective contributions but no mention of "You could also apply this to safe harbor match": http://www.consultrms.com/res/uploads/media/Davis-Bacon-Plans-10-4-08.pdf

well, I guess for accountants opinion attachment you could attach a note indicating company is bankrupt, sold to liquidation firm, we tried to get one but there is no company that exists now to pay for an audit. . years ago (first year of required 403b filing we attached a note that indicating plan is having independent audit, it is first year for the 403b filing under the new rules, etc. the only thing that happened was the DOL asked for the attachment to be filed as soon as possible. If the plan has more than 100 participants but less than 100 with account balances then you could also indicate if the future rules are passed an audit wouldn't be needed.

reminds me of the Far Side cartoon in which the rat looks into the kitchen cupboard and sees a box of rat poison and says "I don't even know why this is up there" not that I am implying the folks at the IRS are rats, but rather here is a provision that says the employer pays the withholding but they can't tell you why.