Tom Poje

coverage is probably tested on a combined basis so that wouldn't matter wouldn't change minimum participation because they aren't benefiting in the db plan unless they are leaving open the possibility of changing the formula and actually giving them something... because there is a gateway minimum it probably won't matter, for top heavy I guess they have to get 5% because they are a participant in both plans. maybe someone just didn't think about the issue when putting in the plan.

so now I suppose you will tell me that the 415 limit is called that because taxes have to be filed by 4/15 the ultimate limit! ............................ more useless facts from Tom: Emancipation Day: April 15, 2016 Emancipation Day is an official public holiday in the District of Columbia. It usually falls on April 16, but when April 16 is a Saturday – which it is in 2016 – then Emancipation Day moves to the previous day (Friday). Here is an excerpt from IRS Revenue Ruling 2015-13: “The term ‘legal holiday’ includes a legal holiday observed in the District of Columbia…. Emancipation Day, April 16, is a legal holiday in the District of Columbia [D.C. Code § 28-2701 (2010)]. When April 16 is a Saturday, the preceding day is the observed holiday.” That means Emancipation Day will be observed on Friday, April 15, 2016. Since Emancipation Day is a legal holiday, it gets precedence over the April 15 tax deadline. Here is another excerpt from IRS Revenue Ruling 2015-13: “Section 7503 of the Code provides that, when April 15 falls on a Saturday, Sunday, or legal holiday, a return is considered timely filed if it is filed on the next succeeding day that is not a Saturday, Sunday, or legal holiday.” That means the Federal tax deadline is pushed to the following Monday. Therefore, most individuals will have until Monday, April 18, 2016 to file their income tax return. Note that this also affects the deadline for the first installment payment of estimated income tax (see below).

just a portion of the notes found at https://www.irs.gov/Retirement-Plans/Discriminatory-Plan-Designs-Using-Short-Service 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 dont satisfy Treas. Reg. Section 1.401(a)(4)-1©(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. ........... In other words, yes you can get the plan to pass mathematically but that it is quite possible the formula won't pass a reasonable interpretation of the intent of the regs.

to clear things in my mind (or maybe thinking out loud), you could have a person who makes commissions only so can defer for match he would get 'something' because of the base minimum that is offset by the commissions. so if you ran a comp test on the match portion you could have someone receiving a contribution but no comp if you exclude all commissions?

correct, no tax on the Roth if it has been there 5 years going forward, one suggested strategy is to roll the Roth into a Roth IRA because there are no minimum distributions from Roth IRAs (at least at the moment) that would reduce the min distribution in future years.

to expand a little on this (going beyond just a safe harbor plan): the following question is from the 2012 ASPPA Q and A #30 The §414(s) regulations provide a safe harbor definition of compensation that excludes elective deferrals from the §415 compensation definition. However, the regulations refer to the exclusion as applying to elective deferrals that are not included in gross income. These regulations were written before the advent of designated Roth contributions. Since Roth contributions are treated as elective deferrals for qualified plan purposes, we have administered plans so that the exclusion of elective deferrals includes the designated Roth contributions, and we treat this "net" amount as a safe harbor compensation for IRC §414(s) purposes. Is this correct? Yes. The intent of the safe harbor exclusions under IRC §414(s) is that all elective deferrals are treated uniformly. It is proper to interpret the regulations as requiring the exclusion of designated Roth contributions along with other elective deferrals in order to have a safe harbor definition of compensation of nondiscrimination testing purposes.In fact, to exclude only the pre-tax elective deferrals and include the designated Roth contributions in compensation would not be a safe harbor definition of compensation under IRC §414(s). The IRS agreed with the proposed answer

for those who don't look at the daily news link https://www.federalregister.gov/articles/2016/03/31/2016-07217/proposed-collection-comment-request-for-the-annual-returnreport-of-employee-benefit-plan this is kind of nice - there are a couple of charts that provide a reason / explanation for the question

good luck on this one, not quite sure what the correct answer is. as for EPCRS, as you note, the pre-approved fixes are fine if they = the situation you are in, and of course, are not the only possibilities, merely 'guaranteed' to be permitted. your post does bring about a point worth following in practice - even if someone doesn't want to defer, have them fill out the form at 0% just so there is protection from someone coming back and saying 'no one told me'. of course, thinking about it, I'm sure none of these folks ever received the SAR which probably most folks never read anyway, which means they are treated as being not eligible in a way. my problem with the argument there is no contribution to the HCE- even though there are no contributions, is the HCE benefiting under 401(k)? yes, 'cuz he could have deferred. could the NHCEs defer? not really if not given a chance. so the HCE had something the NHCEs didn't. but I'm not even sure how you approach the IRS - oh, I set up this plan so I could take my rollover, avoid paying taxes, and also be able to get a loan and benefit no one else. but then those are only my ramblings, which may be far off the mark.

the corrections methods provided under EPCRS are guidelines, and certainly won't cover every situation, or even imply that they are the only means of correcting a problem, so sometimes you have to make a good faith effort. If the employees involved were never given an opportunity to defer, I think one could argue when running coverage you have 100% HCEs could defer and no NHCEs could defer and so you have a coverage failure, which then would be one of those nasty items only correctable under VCP. ugh. ok, then let's argue they could have deferred if they had known about so they have missed opportunity. I think at that point you can't really use an average of 0 since there is no average, and as someone pointed out in another post you have a situation of an HCE getting a 'free pass' every year, something not intended. why of why was a 401k established instead of a profit sharing plan with no deferrals? but hindsight is 20-20 I'm not sure what your answer is, but I think the IRS would have a problem with a plan which exists solely for purposes of an HCE being able to take a loan

Mike: just to make sure, which question did you answer "yes" to?

correct. it is no different than if you actually had 2 separate plans. if you can pass ratio pct at 70% when treating the employees from the other 'group' as includable and not benefitting then you don't need the avg ben pct test

for testing I think you mean test 1 group on an accrual basis test 1 group on an allocation basis there is only one avg ben pct test and that includes everyone and all contributions no matter how you do split the folks I can only speak for Relius and not other software and this is a rather quick explanation: so you can put people into 2 divisions (or more) - those on an accrual basis and those on an allocation basis when testing the group on an accrual basis you fill in the grid # of HCEs not benefiting, # of NHCEs not benefiting = those not included in the accrual basis do the same for the allocation basis... so when you are all finished, you report should indicate total NHCE and total HCEs as 40 and 3. on Relius there is an override box "pass/fail avg ben pct test" that has to be answered once you plit the groups

or I suppose, and I could see myself doing this: mis-typing last year's name

if you have been running the plan on Relius, for example since 2005 you can always run a summary of accounts with whatever date range you want, so at the minimum you can determine what year the Roth balance was 0 if it is a takeover, then no I don't believe you have a stored value as to when the Roth started

I see my cut and paste above didn't quite work 1.0850 should be 1.085^0 e.g. if the person was age 62 it would be 1.085^3 I am not familiar with Datair so I can't comment on how it does things. I would assume it the software is calculating things correctly (as NJMike is pointing out) ........................... well at 8.5% interest the APRs for UP 84 are Life Age Only --- ---- 65 95.3829 66 93.1640 67 90.9263 68 88.6669 69 86.3737 70 84.0346 71 81.6530 72 79.2327 73 76.7777 74 74.3028 75 71.8162 76 69.3275 77 66.8477 78 64.3902 79 61.9391 80 59.5039

you are correct, since the APR is smaller for someone age 70 than age 65 the EBAR would be larger. The problem can work both ways, at least in regards to an age weighted plan! I can bore you with the following example I worked out in the book (Coverage and Nondiscrimination Answer Book) I help edit. (Just so the publisher doesn't get mad at me!)This was in regards to an age weighted plan. Example 11-9 Two employees, one age 65 (Employee 1) and one age 70 (Employee 2), each earn $100,000 per year. Normal retirement age is 65. The plan uses the UP 1984 mortality table, the preretirement interest rate is 8.5 percent, and the postretirement interest rate is 8.5 percent. Contributions for the year total $50,000. If the plan used APR at actual age if one works past normal retirement (assuming an APR of 84.0341 at age 70), the result would be as follows: Employee 1: $100,000×95.3828×.01=95,382.80 (53.16 percent of total) Employee 2: $100,000×84.0341×.01=84,034.10 (46.84 percent of total) [the actual points calculated by a particular software may be different - e.g. the APR used might be a monthly factor, etc) but the end result is the % of total will be the same] Total Points 179,416.90 Employee 1 will receive $26,581.33 ((95,382.80÷179,416.90)×$50,000) Employee 2 will receive $23,418.67 ((84,034.10÷179,416.90)×$50,000) The end result would seem to be discriminatory toward an individual who works past normal retirement age. to get around the problem many documents are written to use the same APR (to calculate the contribution - not for testing) once someone hits retirement age. this would result in each employee receiving the same contribution, but then the APRs are messed up... Note. Neither employee has any years left to retirement. Employee 1: $25,000×(1.0850)÷95.3828×12÷$100,000=3.145 E-BAR Employee 2: $25,000×(1.0850)÷84.0341×12÷$100,000=3.570 E-BAR fortunately, there is a provision in the regs that gets around this a plan will not fail discrimination testing merely because allocations are made at the same rate for employees who are older than their testing age (determined without regard to the current age rule in paragraph (4) of the definition of testing age in Treas. Reg. § 1.401(a)(4)-12) as they are made for employees who are at their testing age. [Treas. Reg. § 1.401(a)(4)-8(b)(1)(ii)] note: personally I don't like using my own examples, but I don't have another example I can grab that appears to be close to the question you posed.

if you are with Mr. Peabody and use the WABAC machine and are referring to plan years pre-2002 you are correct, you used to use the determination year and prior 4 years. this was simplified and amended years ago to only use 1 year, but the Q and As in the regs were never 'updated' so many of them still use the '5 year rule' instead of the 1 year rule so for example on the Relius software if you have a pre 2002 plan year a person could be categorized as "key 4 plan years ago, not last 3 years" [or 3 plan years ago, or 2 plan years ago, etc) while anything after that date only has the possibility of "key last year", "not key last year" or 'former key" so in your case he will become a 'former key employee' and, though eligible for top heavy, his balance will not be included in testing. as to how you treat him in 2015 see comments from a post a few weeks ago http://benefitslink.com/boards/index.php/topic/58685-key-employee-determination/

If an employee’s ownership interest changes during the plan year, his ownership interest for the year is the largest interest owned at any time during the year. Treas. Reg. § 1.416-1 T-19 (b) (This is from the old ‘top ten owner rules’ no longer used to determine key employees under the simplified rules by EGTRRA)

I think the only thing worse than my humor (as evidienced by songs and bad puns remembered) are my basketball picks. but at least this year I am in a basketball square pool. each game is a chance...

see 1.401(a)(4)-12 definitions very briefly: testing age - testing age means the age determined for the employees under the following rules: (1)...normal retirement age is plan has uniform retirement age (2) if plan has different retirement ages for different groups use latest retirement age of anyone (3)if no uniform retirement age use age 65 (4) if an employee is beyond the testing age otherwise determined in (1) through (3) the testing age is the employees current age 65/5 is considered uniform. if perchance the person in question only has 3 years of participation, maybe that is what the software is using, if that is how retirement is coded.

not as bad as the one I posted d3ealing with that date back in May of 2011 what a groaner that one was

Now that the ADP deadline is past and I have a little more time to hunt some of these things down, I think of this every time I feel out a Schedule C Karaoke Time ........................................ Oh Schedule Cs How I hate to report fees What I lack, What I lack The info that I lack I abhor Oh Schedule C For my heart, it detests thee Worrisome, worrisome All these fees, worrisome Where to start Oh D-O-L But this form is so sorry Forgive me And please wave the big fine The schedule C It came back with an error What to do, what is wrong Its messed up, whatd I miss Its my fault. Oh schedule C Just how do I report thee? Direct comp, not 5 thou Oh no wait, its not that It is more Oh schedule C Oh my dear Im so silly Dont attach, dont attach To SF, Dont attach Oh this form. return_to_me_r1_rt.mid

otherwise how would you handle it from year to year? oh, this year I want 5.7% in excess next I want 0% maybe 3% you simply can't do that with the integrated formula. now, if the document specifies the integration is a 4 step formula, then yes, everyone could get 3% step 1 and you could stop there, but I don't see how you can otherwise get around the document formula.

teach me to Rome the internet and copy and paste some bad puns for this day. still have another 6 or songs to post

Not many people recall that the actor Fredric March was into apiculture. He kept several hives of bees and produced honey for many of his friends. Fredric's friend, Sid Caesar went to visit him in his apiary one spring day but was unable to locate the bee colonies. He did, however, encounter one of the busy little insects gathering pollen on a nearby flower so Caesar stopped and asked, "Bee, where're the hives of March? .......... It's a little known fact that Julius Caesar did NOT die from stab wounds, but rather he died from envy. Caesar and Brutus were master harpists and were often seen in fierce competition. However, Brutus was more skilled as a composer, giving him an advantage. Caesar began to lose the battle against the brilliance of Brutus. Caesar could surpass Brutus only in arpeggios. However, to Caesar's dismay he saw that Brutus had produced a masterful practice composition designed to improve his own arpeggios. That was the straw that broke Caesar's spirit. He died shortly thereafter, saying to Brutus with his dying breath, "Etude, Brutus?"