Tom Poje

I didn't realize that was what had happened. I'm not sure what happens then if you follow those instructions - the participant is 'correct', the withholding has been completed, it is already done. if you toss in an additional amount from the employer at this point that would really botch things up....well, I guess since it is VCP you can always ask the friendly IRS folks and tell us what they say.

but you said he already took his distributions. Arguably, if you had done it at the same time you should have included more withholding. and if you hadn't have paid the person out you wouldn't tack on withholding, unless that is what the govt expects in all cases if you file this way. I haven't heard that being done, but then, I don't handle that end of things. so maybe someone who has done these things can say what they do. personally I'm not even sure why that provision is in there, because it becomes a windfall for the participant, which makes no sense. I understand it if there are additional tax penalties, but EPCRS is clear if it is the sponsor's fault they are responsible for those.

I am guessing in most cases 2 1099s are created because you are talking 2 separate events. 1. if the person took a distribution then 20% was already withhold and that event is done. 2. now a 1099 is issued for the late loan. there is no withholding because there is no assets left. if the distribution hasn't taken place, then the 1099R for the loan is issued, no withholding because no other distribution has been made at this time.

that was what I was taught when I started in the business years ago, well, that was well before safe harbors. I was taught you included money purchase contribution (a plan subject to minimum funding standards) due but not yet made because it was mandatory, so the logic would seem to be the same for safe harbor, though of course they never amended the regs to say that . (If it was the first year of the plan, for whatever reason the regs say you include the profit sharing as well.(the regs say "however in the first year of the plan, the adjustment should reflect any contribution made after the determination date that are allocated as of a date in the first year. the long winded answer (even longer than some of my sad humor I've posted) is below. it should be remembered that IRS responses to such Q and As do not necessarily reflect an actual Treasury position. .......... Receivable Contribution and Top Heavy Determination? Is a discretionary profit sharing contribution for the prior plan year that is deposited after the end of the prior plan year included in the top heavy determination for the current plan year? Let’s say we have a calendar year plan, effective several years ago. We are determining the plan's top heavy percentage for the 2002 plan year. The determination date is therefore 12/31/01. The employer makes a contribution in February, 2002, which is allocated and deducted as of 12/31/01. There is a question as to whether this contribution is included in the top heavy determination for the 2002 plan year. The question relates to Q&A T-24 of the 416 regulations, which says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. A. The key phrase here is “account balance”. The participants’ account balances, as of (say) 12/31/01, include the profit sharing contribution that is allocated and deducted for the 12/31/01 plan year end. So the guidance regarding “adjustments” does not apply to the receivable profit sharing contribution; it is already part of the participants’ account balances. The question as to what contributions are considered due on the determination date is determined under §1.416-1, Q&A T-24, which says that it “is generally the amount of any contributions actually made after the valuation date but on or before the determination date”. It then goes on to say that any amounts due under §412 are considered due, even if not made by the determination date. One could take the position that this is a exclusive statement; in other words, if a contribution is NOT due under 412 and is made after the determination date, it is not considered 'due'. However, the answer to the question (T-24), “How is the present value of an accrued benefit determined in a defined contribution plan” is answered, “the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions...” The term, "the account balance" includes contributions credited to the account of a participant, it does NOT mean only the contributions actually made that have been credited. For example, if a 100% vested participant terminated after the determination date but before the contribution was actually made, the distribution would include that contribution, even though it had not yet been made to the plan. This is because the account balance, as of the last day of the plan year, includes the contribution. So, when the regulation addresses adjusting the account balance for contributions made after the determination date, we must start with the account balance, and then apply the adjustments. Since the account balance includes the receivable profit sharing contribution, the adjustment does not refer to the receivable. The reference to §412 in §1.416-1 is with regard to a waived funding deficiency that is not considered part a the participants' “account balance”, as the term is defined. Q&A T-24 refers to a DC plan with a waived funding deficiency that is being amortized. Such a plan must maintain an “adjusted account balance” (reflecting the amount of the contribution that has not been deposited) which must be maintained until the actual account balance increases to the point where it equals the “adjusted account balance”. It is to this (unadjusted) account balance that the (waived) contribution must be added, since the amortized contribution only becomes a part of the actual account balance as it is paid to the plan. The requirement therefore has the effect of determining top heavy status as though the contribution required under 412 had actually been made. In other words, the “account balance” would not include the waived minimum funding contribution, so an adjustment is required. IRS response: We accept this analysis. 2002 Annual Conference IRS Questions and Answers #49

I don't believe so, that would be sort of like saying, "Can I start a new plan after the end of the year" but very observant to realize plan is going to be top heavy. but check the wording in the basic document. for example FTWilliam has (d) Qualified Matching Contributions. In addition to any Qualified Matching Contributions provided in the Adoption Agreement, the Company in its discretion may make matching contributions designated as Qualified Matching Contributions for the benefit of such Participants and in such manner determined at the discretion of the Company. The Company may determine, in its discretion whether allocations of Qualified Matching Contributions shall be limited to Participants who are credited with at least a certain number of Hours of Service during the Plan Year and/or who remain in the Company's employ on the last day of the Plan Year. Such Qualified Matching Contributions shall be nonforfeitable when made unless attributable to withdrawal rights under an Eligible Automatic Contribution Arrangement or Qualified Automatic Contribution Arrangement and may only be distributed upon the Participant's: (1) attainment of age 59-1/2; or (2) severance from employment, death, or disability I don't think there is anything in that basic document that says "You must fail the ADP to exercise this option" so you might be able to give a QMAC to all and accomplish what you want (though it would be 100% vested) now, the only other possible issue is 1.416-1 T-24 which says when determining end of year balance use the end balance as of 12/31 and contributions that are due as of that date. normally that would be receivables and, at least in the past would not include 'discretionary contributions' though at one ASPPA Conference years ago an IRS agent voiced an opinion you could include other contributions. so, if you told someone you were going to give him a contribution, would that make it 'due' and therefore includable.

the original proposed regs suggested earlier last year would have required reasonable classification for both coverage and nondiscrim, but, at least for the moment, the IRS backed off on that point.

this might be a starting point The ERISA Outline Book has the following note: Chapter 7 section IX part D 1.b.Withholding requirements on deemed distributions. The withholding requirements with respect to deemed distributions are discussed in Treas. Reg. §1.72(p)-1, Q&A-15. As noted in 1.a. above, the deemed distribution is not an eligible rollover distribution, so the 20% mandatory withholding under IRC §3405(c), as described in Section VI of this chapter, does not apply. Are the voluntary withholding rules under IRC §3405 applicable, since the deemed distribution triggers current taxation to the participant? That depends on whether the deemed distribution occurs when the loan is made or on some later date. 1.b.1)Deemed distributions occurring after the loan is made. When a deemed distribution occurs on a date which is after the loan is made, which is usually the case, no withholding is required if the deemed distribution is the only distribution being made at that time, even if the participant has not formally elected to waive withholding. If other cash or property is being distributed at the same time as the deemed distribution, then, unless the participant has waived withholding on the deemed distribution, the required withholding would be taken from the cash or other property, to the extent such other cash or property is sufficient to cover the withholding obligation, as illustrated in the examples involving offsets in Part E.3.b. of this section. Generally, the withholding rate on the deemed distribution would be 10% since it is a nonperiodic distribution that is not eligible for rollover. See IRC §3405(b) and the discussion in Section VI, Part A.3., of this chapter. For example, if the employee is also receiving a distribution with respect to the non-loan portion of his/her account at the same time as the deemed distribution is triggered, any withholding with respect to the deemed distribution would be taken from the additional distribution.

that is my understanding. if there had been a match in prior years (e.g. not last year obviously) then there are some other possibilities. lets say there was a prior match, and the person's match balance is 2000 and he is 60% vested. then his vested balance is 1200 and he could receive all 600 of the match as long as his next statement would be match balance 1400 60% vested but vested balance is 600, which, 600 / 1400 is less than 43%.

does the plan document say you match catch-up?

I have lived here since 1992. since that time, on a few occasions the power has gone off, never more than a day. last year's storm was just bad enough to soften the ground and with wind put a nice lean and slightly uproot my grapefruit tree - maybe about 12 foot tall, but not an overly large tree. that was October, I let the fruit ripen, must have been close to 500 grapefruit and then cut the thing down a few weeks ago (and promptly planted a new tree as soon as they had one in stock). I'd rather have winter and tulips and daffodils and all the other spring beauty in exchange....

Caesar didn't get his done on time and look what happened to him. So beware the Ides of March!

the CPI factor was released today for Feb = 243.603 so if it stays at that level for the next 7 months, the deferral limit moves to 18,500 the other limits will jump if the avg for Jul Aug Sep = 244.5 (rounded) with the Feds expected to raise interest rates, with 7 months to go of CPI factors, I'm guessing there will be an increase in all limits next year. of course it is still early....

if you were to 'self-correct', that would mean following the terms of the document, which means moving the $ from Roth to regular deferral, but that involves tax issues so would require VCP so the other option would be retro amend the plan to permit Roth, but you can't really self- correct something like that without IRS approval, so again going through VCP. I would suspect the IRS would permit that, especially if the deferral election form indicated either deferrals or Roth (as opposed to 'only the owner did this') at least that is my understanding.

well, at least one pizza place from time to time has buy one 'pi' get one free, so I guess I need to celebrate the day. double dang it, it may be 3/14 but it is only 1:36 so I am posting a little early

if you have accidently used my way-back machine and are now pre-2002 then you are correct. If you see Sherman, tell him to come home, his dinner is getting cold. (I thank Tom for letting me use his log-in)

your original posting (which you deleted) had the box checked that sounded like 'maybe safe harbor language' ...the plan might be amended to safe harbor no later than 30 days before plan year end. but that would have required an initial 'maybe' safe harbor notice as well. and (ii) of the highlighted text could imply that as well. item (I) would seem to imply that some NHCEs are not eligible for the safe harbor...e.g. immediate eligible to defer but one year wait for safe harbor - that would require ADP testing for the otherwise excludables, but since there are probably no HCEs in that group that shouldn't be a problem. but I saw no checkbox in what you posted to indicate one way or the other whether HCEs could be excluded. maybe it is buried in another spot. I would expect a document to have that item

in addition there might be a possible issue of an HCE having received a higher rate of match (e.g. in January he didn't need a true up, but an NHCE would)

you are correct, you are not supposed to change things after plan year end. I agree with your calc that 1/12 of 265,000 = 22,083.33 unless you are talking about schedule C income, then 25% of that is 5520.83 for deductibility. deferrals do not count toward deductibility, so that would be 5520.83 in profit sharing

check the document and see how 'limitation year' is defined. if it is defined as 'the plan year', then you are limited if it is defined as 'the 12 month period ending on the last day of the plan year' then no proration of the 415 limit. same with compensation, if plan uses 12 month period for compensation there is no proration. (for example, the calendar year ending in the short plan year) [see ERISA Outline Book item 7 of Chapter 15, Part f]

oops, my typo. of course I meant document not followed (not filed) must be all this testing and dealing. the DOL says deferrals have to get in as soon as possible, the assets house says to process return of deferrals you have to tell at the minimum of a week before hand. go and figure. rather be golfing: I think in the case of er going out of business there is some sort of pecking order in bankruptcy court. but at that point, I think the least of concerns is a failed ADP test, since pretty much all assets are going to be distributed one way or another. The regs do say if you stop or reduce, you are suppose to give notice and then run the test, but then you are probably talking about a situation in which notice wasn't even given...

in other words, if the plan is safe harbor and the contributions aren't made, there is still no testing. however, since the document wasn't filed then I suppose possible plan disqualification, or participants complaining to the DOL they didn't receive what they should have, but thank heavens, no ADP test to worry about

and here I only made a comment that I thought sounded "well Duh, of course he meant that" but one never knows unless one asks for clarification. .......................... the rule is basically as follows, whatever you do for coverage, you do for testing so if you aggregate everything for coverage, you aggregate for nondiscrim testing. If you test separately for coverage you test separately for nondiscrim. and yes, the reverse is true, if you test separately for nondiscrim you test coverage separately.

assuming you mean if they pass 410b testing separately

well if the plan already passes then as you said, increasing comp would only help. I think I would simply note things somewhere. "close enough for govt work" e.g. under the top heavy rules T-39 (1.416-1) Must ratios be computed each year to determine if plan is top heavy? No.....precise top-heavy ratios need not be computed each year.. so you just aren't being 'precise'. yes, even you, Belgareth.

as i recall, one of the reasons for not including failsafe language is the 'cost'. if you include such language, then you sacrifice the avg ben test. in other words, you could fail the ratio test of coverage at 60% but still pass avg ben test and therefore pass coverage. but if you have fail safe language you get no farther than ratio % fail, now bring someone in (without having an amendment because we tell you who or how in the document)