Tom Poje

curiosity- just what was the top-heavy ratio at the end of last year? let's say the ratio was 61%, and if the company had made a profit sharing contribution of 1% to all employees last year the ratio would have been only 59%, so not top heavy. at the 2002 ASPPA Conference Q and A 49 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 following is my analysis: 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. a reminder that such response do not necessarily reflect an accrual Treasury position. but if valid, then it is possible a contribution for the prior year might be less than a 3% top heavy this year. since we are still before 9/15 it might be possible....

use Relius with MEPs, no controlled group. the plans are separate, but coded as in one 'group', created a crystal report to pull contributions and generate the required attachment for the 5500. e.g. run reports for all plans in the group in report writer, then generate a report in crystal which will combine the data. somehow figured out how to accomplish that... also run an 'ssa' report for all plans in the group and then combine the data for import into FT William as well. couldn't live without the convenience of FT William 5500 system.

most of the time we submit 5500s on a cash basis so missed contributions as well as receivables don't show until they are actually made anyway.

if I read the IRS notes properly, the fact he did not have a 1 year period of severance means he is treated as if he never left. see highlighted notes page 2 column 2, also example 2, also highlighted note page 6 item line c such highlighted items because my brain refuses to retain this often and I need all the help I can get. min partic standards publication 6388.pdf

that is my understanding, you would not include deferrals in the avg ben pct test. of course, I guess you could test using a comp definition that excludes deferrals, but I hadn't thought about that before....

you do raise a possible valid point of concern. see comments below, years ago (oh good grief many many moons ago)a question arose about avoid a large plan audit by splitting a 'plan' into more than one - probably tough to prove - and you didn't indicate if this was even an issue (how many other employees there are). (in this case you noted the assets are all combined (or possibly they are separate and they want to combine them) If combined, arguably it almost smells like in reality one plan) [i am simply posting a note an not expressing an opinion one way or the other) .................................. at the 2000 annual ASPPA meeting, in the general Q&A session. The questions at this session were answered by Joe Canary, Scott Albert, Lou Campagna and Mabel Capolongo of the Department of Labor: Question 5: A 401(k) plan has 150 participants. The plan must file a full 5500 and have an audit by an accounting firm. Due to the cost of the audit ($10,000 or $15,000), my suggestion to the client is to split the plan into two plans, each with 75 participants. For 2000 there will be an audit. The plans could be split into two plans on December 31, 2000. Therefore, on January 1, 2001, both plans have less than 100 participants and no audit required. For tax qualification testing, they can be permissively aggregated. In fact, my plan is to administer as if it was one plan and just separate for 5500 purposes. Is my conclusion correct? Answer: This question raises issues of avoidance and evasion. It is not certain that you really have two plans for purposes of Title I of ERISA in this instance--even if there may be two plans for Internal Revenue Code purposes. In Advisory Opinion 84-35A, the Department stated it would consider, among others, the following factors in determining whether there is a single plan or several plans in existence: who established and maintains the plans, the process and purposes of plan formation, the rights and privileges of plan participants and the presence of any risk pooling, i.e., whether the assets of one plan are available to pay benefits to participants of the other plan. This Advisory Opinion also notes that the Internal Revenue Service has cited the existence or absence of risk pooling between funds as relevant to the determination of single plan status. See §1.414(1)-1(b) 26 C.F.R. §1.414(1)-1(b). In DOL Advisory Opinion 96-16A, the Department stated its position that whether there is a single plan or multiple plans is an inherently factual question on which the Department ordinarily will not opine in the Advisory Opinion process.

I apologize, after reading the question a couple of times I still don't even understand it. are you saying some people were provided a smaller match than what they should have received? are you saying some people shouldn't have received a match at all and therefore that causes a plan failure that wasn't there originally? as a side note, EPCRS provides 'acceptable' solutions, but that doesn't mean there aren't others. I haven't done any under VCP, but I thought the issue was you suggest a possible correction and proceed from there.

I should have added on my comments my brain simply doesn't work very well on non-calendar year plans, much less if the plan year and fiscal year don't match.

as Lou point out it is buried in 404 for instance 404(a)(3)(A) says in the taxable year when paid, if the contributions are paid into a stock bonus or profit sharing trust, and is such taxable ends within or with a taxable year of the trust so the plan year could end with the tax year but there is no reason it has to, as the code says it could end within the plan year. if they had to be the same, then no company could adopt a SIMPLE plan unless the fiscal (or tax year) ended 12/31. in fact, I suppose you could state a short plan year (at least due to plan termination) would be impossible because the plan year wouldn't match the fiscal year of a company.

1.401(k)-2(a)(5)(iii) says elective contributions that are treated as catch up contributions under section 414(v) because they exceed a statutory limit or employer provided limit are not taken into account... since 415 is one of the statutory limits, it is, as far as I know, the general consensus, that if the 415 limit exceeded, deferrals greater than this limit are treated as catch up contributions and therefore not included in the initial ADP test

that 16 is a magic number a few years ago, after the Lions lost every game during the season, someone had a Detroit Lion Jersey made with the name on the back OWEN and the number 16 shortly after the NFL (no fun league) promptly put a ban on such items.

in other words, I think this is what happens (as Lou explained) 1. neither plan is subject to disqualification so there is no reason' for the distribution 2. the IRS has received all the W-2s. they are sophisticated enough to know there are excess deferrals, so the person is taxed on the amount of excess deferral, even though no distribution took place 3. someday in the future the person quits and takes a distribution, thus ultimately he is taxed twice. if he quits before age 55 the 10% penalty applies. if the person actually received a distribution in this year, how would he ever get taxed a second time on the amount since it is not in the plan? I think Lou gave an excellent brief explanation, I only used the IRS comments to back my statement

thoughts, for better or worse . and then the IRS 'thoughts' the only exception to the 10% early distribution penalty is if the distribution is made before April 15. (unless of course the person is older than 59 1/2) since this involved two plans and neither accepted amount greater than the deferral limit there is no disqualification issue for the plans. that would only apply if it was a single plan. ........................... the IRS apparently agrees: https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-elective-deferrals-exceeded-code-402g-limits-for-the-calendar-year-and-excesses-were-not-distributed Consequences of a late distribution Under IRC Section 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS. Under EPCRS, these excess deferrals are still subject to double taxation; that is, they're taxed both in the year contributed to and in the year distributed from the plan. These late distributions could also be subject to the 10% early distribution tax, 20% withholding and spousal consent requirements. Excess deferrals distributed to highly compensated employees are included in the ADP test in the year the amounts were deferred. Excess deferrals distributed to nonhighly compensated employees aren't included in the ADP test if all deferrals were made with one employer. Excess deferrals distributed after April 15 are included in annual additions for the year deferred. How to find the mistake: Ensure that no one's elective deferrals exceed the 402(g) limit for a year by comparing the amount deferred to the 402(g) limit. If anyone exceeds the 402(g) limit and this isn't corrected, the plan could be disqualified. How to fix the mistake: IRC Section 72(t) imposes a 10% additional tax for distributions that don't meet an exception, such as death, disability or attainment of age 59 ½, among others. To avoid this additional tax, correct excess deferrals no later than April 15 of the following year. If you don't correct by April 15, you may still correct this mistake under EPCRS; however, it won’t relieve any Section 72(t) tax resulting from the mistake. Under Revenue Procedure 2013-12, Appendix A, section .04, the permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable both in the year of deferral and in the year distributed. These amounts are reported on Forms 1099-R.

Proving when a partner actually made an election, of course, might be hard to prove, but my understanding of the regs (beaten into my head [or body] a number of times), when it says you can't make the election after the last day of the tax year it means what it says. (this is different than when the deferrals are actually made, it is the election that must be in place) (iii) Timing of self-employed individual’s cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner’s compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor’s compensation is deemed currently available on the last day of the individual’s taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated. Treas. Reg. § 1.401(k)-1(a)(6)(iii) at least one other group agrees (and I suspect they know more than I ever will) The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Nevada is representative of a common question relating to a 401(k) plan participant’s salary deferral election. The advisor asked: “Several of my clients are self-employed and have 401(k) plans. What is the date by which a self-employed individual must make his or her salary deferral election?” Highlights of Discussion • Pursuant to Treas. Reg. §1.401(k)-1(a)(6)(iii), a self-employed individual (e.g., a sole proprietor or partner) must make his or her cash or deferred election no later than the last day of his or her tax year (e.g., by Dec. 31, 2014, for a 2014 calendar tax year). The timing is connected to when the individual’s compensation is “deemed currently available.” • Often a self-employed individual’s actual compensation for the year is not determined until he or she completes his or her tax return, which could be after the end of the partnership or individual’s taxable year. The IRS deems a partner's compensation to be currently available on the last day of the partnership taxable year and a sole proprietor's compensation to be currently available on the last day of the individual's taxable year. Therefore, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. • There are also special rules that address when salary deferrals for self-employed individuals are treated as made to the plan (versus when they may actually be made). Treas. Reg. §1.401(k)-2(a)(4)(ii) states that an elective contribution made on behalf of a partner or sole proprietor is treated as allocated to the individual’s plan account for the plan year that includes the last day of the partnership or sole proprietorship’s taxable year. • From the Department of Labor’s perspective with respect to determining late deposits of employee deferrals, deferrals for self-employed individuals must be deposited as soon as they can be reasonably segregated from the business’s assets. The DOL’s safe harbor for plans with fewer than 100 employees also applies. Therefore, as long as the deferrals are transmitted within seven business days after the amounts became payable, the contributions are deemed timely made. From the IRS’ perspective, in no event can the deferrals be deposited after the deadline for filing the business’s tax return, plus extensions. Conclusion With respect to making a salary deferral election, the self-employed individual must do so no later than the last day of his or her tax year. Therefore, for those following a calendar tax year — be sure to execute those deferral elections by Dec. 31, 2014! The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission. http://www.napa-net.org/news/technical-competence/case-of-the-week-salary-deferral-elections-for-the-self-employed/

when this report last week I inadvertently delete part of a formula in which ineligibles were counted and shouldn't be, so I corrected that. I redid that portion of the formula. redo 5500 report to post.rpt

of course these types of things are use at your own risk, but this appears to be working well for our office. much of the data on the last page is from user defined fields so you won't get much there - or the data won't make sense if you are using the plan spec user defined fields since they won't be the same as fine (I am set for next year's compliance question in the office here!) about the only thing you have to remember to do is make sure you check the box to pull all accounts including those with no activity or balances. but the report includes a warning reminder for that purpose. but basically the report will pull the data to check info on participant count for the 5500 including a rough attempt at the 5500-SF even a random message from the 'cow', because, well, the 'cow' insisted on it. report will also count # of ees deferring, those who contributed more than the deferral limit (since the IRS apparently is going to start asking for that info anyway, so I wanted to see if I could pull that data as well.

one issue sometimes missed is vesting. you never prorate hours, always use a 12 month period. so some hours from one year get counted a second time Labor Reg 2530.203-2© ... For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

I suspect in many cases they might show up at the asset house as a 'contribution', but they are still earnings

well, first, I'm not even sure if it is a BRF issue, I'm only saying it could be. the issue is not so much ownership, but HCEs, though I used that as an example. with a population the size of 400 - 500 it is probably not an issue, highly unlikely you have so many HCEs that you would fail even if you had to test

I could be wrong but.... I express a concern it may be a BRF issue. Let's suppose 2016 was the first year of the plan. the owner is the only participant, and based on the vesting schedule he is 100% vested. now he amends the plan to 2-25% for all new participants beginning in 2017. I think that fails the smell test. (or if it helps, in the old, old days you could have a 10 year cliff. that would really smell bad if the owner could be 100% vested and everyone else has to work 10 years). I think if all future accruals (including those hired before 1/1/2017 were subject to the new vesting schedule that would be different. in addition, anyone who has 3 years of service has the right to remain on the old schedule, so really the only people a vesting change would effect would be those with less than 3 years of service. unless you have some geniuses who have been there 3 years and think a 2/25% vesting schedule is better then an immediate 100% because they think they should earn their match by giving them incentive to stay.

it depends. there is one and only one avg ben pct test (I suppose possibly 2 if you test otherwise excludables separately) but 1.410(b)-7 discusses the aggregation rules. even if you disaggregate the plans for coverage, if you need to run the avg ben pct test 1.410(b)-7(e) ...the plans in the testing group are the plan being tested and all other plans that could be permissively aggregated. or put another way Average benefits test is 2 parts 1. average benefits percentage test - all plans and pretty much any contributions including deferrals 2. nondiscrim classification test - only those plans being tested (so you end up with a bunch of people included and not benefiting because they show as zero since not aggregated.

Witch won due ewe ewes?

just to make sure when you say "Each plan passes the ratio percentage test of 410(b) considering only its own respective eligible employees." are you treating the folks hired after 12/31/2006 as includable and not benefiting? as for 'required aggregation the particular Code site is I.R.C. § 416(g)(2)(A)(i) (A)Aggregation group (i)Required aggregation The term “aggregation group” means— (I) each plan of the employer in which a key employee is a participant, and (II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410. so as ETA indicated, the plans wouldn't be required to be aggregated.

agree the regs are quite clear 1.401(k)-1(d)(3)(iv)(E)(2) the employee is prohibited...from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months so, how does a Roth get taken out of a paycheck unless a person 'elects' to have it done (hence the term elective contribution)?

I suppose you could file showing final, assets to 0 and in place of auditors report a note saying company bankrupt, all assets have been out, etc that way when the DOL looks they have something (which turns out to be 'nothing' to go on) maybe include a note from mom indicating you couldn't think of any thing better to do.