Tom Poje

the original thread was started early 2004, a few years later at the 2006 ASPPA Conference the IRS indicated (Q and A #6) [in true Grinch fashion] NO, a QNEC cannot be used to satisfy the gateway. bless their little hearts.

I think its Qualified LACk of anything better to do with retirement $. just kidding. perhaps the enclosed will help, it certainly leans against QLACs, but negativity aside I think it is a fair description of the basic concept. qlac.doc

on a somewhat related line, I had submitted the following Q and A (but it wasn't among the questions answered). Can you use the excess assets as a safe harbor contribution. (since such contributions have to be 100% vested when made to the plan) the ERISA Atty I asked said that was a good question, the IRS people she asked 'thought' you probably could but nothing definite. someone else I know asked at one of the actuary meetings (simply question an agent on the fly), and the response was probably not. sigh.

BG5150 in this case it is a new plan, so top heavy would be determined at the end of the year for the current year. if the keys were cut off now the plan might end up at 58% instead of 62% again, in this particular case, if the plan only has safe harbor contributions it is a moot point since that would be top heavy free anyway. ................ one of the very first plans I ever ran in my life (on the old Pentabs system, back in the late 80s) it was a first year of the plan. the system ran through things, determined the plan was top heavy and allocated an additional contribution. then determined because of that the plan wasn't top heavy so it took it away. but then it determined the plan really was top heavy so it allocated it all over again. but then determined it wasn't top heavy....talk about getting stuck in a loop. it just ran and ran and ran...

well Code Section 416(3)(B) says In the case of any distribution made for a reason other than severance from employment, death, or disability subparagraph (A) shall be applied by substituting "5 year period" for "1 year period" no exceptions are listed for active employees that I have been able to find.

The LRM from the IRS issued a few years ago sums it up this way A. ( ) Participant Group Allocation Each eligible employee is assigned to a participant allocation group, as follows: (Describe the objective criteria for determining the make-up of each participant allocation group. Criteria may not be subject to employer discretion, which would cause the plan to fail to have a definite allocation formula. In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of §1.401(k)-1(a)(6) continue to apply, and the allocation method, including the determination of participant allocation groups, should not be such that a cash or deferred election is created for a self-employed individual as a result of application of the allocation method ....... years ago at an ASPPA conference someone asked a similar question and the IRS response was simply "We would know abuse when we see it". but it is still a situation that may be hard to prove. each doctor could have set up his "own plan" and except for the inconvenience of having multiple plans it accomplishes the same thing

maybe outlandish, but on the other hand, at least the payroll provide (though wrong in their understanding) was trying to help the client the best way they knew how.

well Code Section 416(g)(4)(H) says "The term 'top-heavy plan' shall NOT include a plan which consists solely of (i) a cash or deferred arrangement which meets the requirements of section 401(k) or 401(k)(13), and (ii) matching contribution with respect to the requirements of 401(m)(11) or 401(m)(12) I looked up 401(k)(13) and it indicates 401(k)(13)(B) Qualified Automatic Contribution Arrangement [if I take the first letters of that I get QACA, but maybe I did something wrong] I looked up 401(m)(12) and it says 401(m)(12) (A) Qualified Automatic Contribution Arrangement which I also end up with QACA Unless you have immediate eligibility for deferral and a wait for the match then based on the Code, the plan is NOT top heavy. I have since corrected my copy of the Code using red crayon to indicate that the Code is incorrect according to an unnamed payroll provider. Dang it, was I suppose to use green magic marker instead?

I'm guessing the following: plan is top heavy, but with a number of people that receive top heavy but not a full profit sharing contribution. therefore, the plan passes coverage because enough people are benefitting, but you now have a plan that has 2 formulas, one at 3% and the other at x%. Therefore, it is treated just like you would a cross tested plan with 2 formulas. There is no requirement that if you test on an accrual basis one year you have to test on accrual basis the following year. (unlike the ADP or ACP test for which the document must specify prior or current year) I add one caveat to my statement - I have seen some documents that specify a particular mortality table and interest rate, so I suppose it is possible the document could specify that accrual testing will be used.

I don't believe there is any requirement that it has to be a QMAC. if it was terminated people that weren't vested, even then I don't think a QMAC is required, though you would have to provide vesting.

Lady MacDuff- that is cute and funny! or maybe another song to Austin's moaning Don't look so sad ER-PA is over but life goes on and this old world will keep on turning....

I imagine it could be possible for an HCE to receive a match at a greater rate than an NHCE is some circumstances.

the LRMs dated 10/2011 has the following language (page 131 of the pdf file not the actual page number) the participants share of the employer contribution allocated to each such group will be based on the participants compensation for the part of the year the participant was in the group. lrm.pdf

I assume yes, as Lou noted there will probably be even more questions on the SF than on the EZ, at least if the sample 5500-SUP is any guideline. it makes little sense an EZ would require more info that the EZ! [i realize ASPPA is fighting to have these new items 'optional' for the first year, but I guess my approach is we have been forewarned with plenty of time. as long as you are restating documents take the trouble to start compiling this info somewhere so you won't have to dig back through things to find it. e.g. Trustee info, etc. the instruction for the EZ note the following: Trust information on line 4 is no longer optional. You are required to answer these questions relating to the name and EIN of the trust, and the trustee’s name and telephone number. Preparer information on the Form 5500 is no longer optional. You are required to answer these questions relating to the preparer’s name, address, and telephone number. New IRS compliance questions from lines 13 through 16 were added for purposes of satisfying the reporting requirements of section 6058. IRS Late Filer Penalty Relief Program. The Department of the Treasury and the IRS established a permanent penalty relief program for late annual reporting for non-Title I retirement plans effective June 3, 2015. This late filer penalty relief program facilitates voluntary compliance by plan administrators and plan sponsors who are delinquent in filing their annual return under section 6058 by permitting plan administrators and sponsors to pay a reduced monetary penalty for voluntarily complying with their IRS annual reporting obligations. If the Form 5500-EZ is being filed under this late filer penalty relief program, the applicant must print in red letters in the top margin above the form’s title on the first page of the return: “Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief.” Each submission must include a completed paper copy of Form 14704, Transmittal Schedule – Form 5500-EZ Delinquent Filer Penalty Relief Program (Revenue Procedure 2015-32). The completed Form 14704 must be attached to the front of the oldest delinquent return in the submission. Form 14704 can be found at www.irs.gov/pub/irs-pdf/f14704.pdf.

These are my notes from an ASPPA talk I gave years ago. You can’t ask for the penalty to be waived until you have actually taken the distribution. This is proof you are trying to fix the situation as soon as possible. so make the payment and include a copy with form 5329 Fill out form 5329. (questions 50-53) Write letter begging for mercy, explaining the reason you didn’t receive the minimum distribution was the incompetence of the investment house or something similar. Years ago, it was required to send in the 50% penalty and hope the IRS would have leniency and waive the penalty and return the money. Now simply send in the letter with the Form 5329, and if they don’t accept your lame excuse they will bill you. ......................................................................... the IRS instructions found at https://www.irs.gov/instructions/i5329/ch02.html#d0e992, but I listed the important points below. The form is found at https://www.irs.gov/pub/irs-pdf/f5329.pdf Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows. 1.Complete lines 50 and 51 as instructed. 2.Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 52. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 52. 3.Complete line 53 as instructed. You must pay any tax due that is reported on line 53. [i can't imagine anything but 0 here unless there is some other amount that was due] The IRS will review the information you provide and decide whether to grant your request for a waiver. .............. sorry, that is as far as I go.

this one goes back to 2014 (from Prudential)- nothing has changed since then - but there are various ones out there on the internet from other sources. not sure if this is the easiest format to read. checklist is for all items throughout the year, not just year end. Compliance-Checklist-ERISA-2014.pdf

as Earl said, you have 'one company'. so all employees are included for coverage. If the employees of the other company are excluded from the plan, then they would not be on the 401(k) test for ADP testing, but they do count as big fat non benefiting 0s on conerage. since it is November already I express a bit of concern over any ADP test if the owners are going to maximize out. the best you can do is 5% for the owners with the 'free' prior year testing of 3% for the NHCEs that the regs permit. I can't imagine the NHCEs avg being more than at this late date.

I'm not really saying the example you gave even needs restructuring. I was using restructuring as an example to show it is possible to run the avg ben pct test on a benefits basis and the other test on an allocation basis. you simply run the avg ben pct test on a benefits basis, e.g. it passes then you run the rate group on an allocation basis, it equals 60% because 60% > 32.75% [the safe harbor % of the nondiscrimination classification test - in this particular example because 10/12 = 32.75%] and because the plan passes avg ben pct test the plan passes nondiscrimination. and coverage. as to whether it is a safe harbor formula, I vote no, the document does npt indicate if the formula is pro rate or integrated (ignoring the possibility you might be able to have a formula with 2 discretionary possibilities. I don't really think that is possible) now, by choice, the actual allocation may imitate a safe harbor formula and as a result pass testing when performed on an allocation basis (or at least the rate group portion)

there is no requirement a plan run the avg ben pct test the same way it runs the rate group test. in fact, running the tests on different methods is part of what is known as component plan testing. one avg ben pct test is run, then the employees are split into 2 groups - one group tested on an allocation basis and the other group tested on a benefits basis. so if the avg ben pct test is > 70% (tested on a benefits basis) and the rate group test for each NCE > 50% (tested on an allocation basis) then the plan would be deemed to pass nondiscrimination. in other words, the statement "Plan can only pass Coverage on a benefits basis." is not quite true, as the coverage test can be done on either 1. ratio percentage test or 2. avg ben test, which consists of a. avg ben pct test on a benefits basis b. nondiscrim classification test on an allocation basis ............ the only possible exception I can think of is if each person is in their own group which could throw the nondiscrimination classification test out the window, due to 1.410(b) -4(b)

without seeing actual numbers, I still think if the allocation was pro rata. (or integrated) and you pass coverage (because of the avg ben pct test) then the plan would most likely pass nondiscrim. (again, most likely with testing on an allocation basis) certainly if the allocation was different for different folks, then no, because that is what drives cross testing.

Lando - well, lets suppose you had ps only. 10 NHCE, 1 HCE (a real simple case, but changing the numbers shouldn't matter. 3 NHCEs get nothing. so you pass coverage at 70%, and rate group testing would also pass at 70%. now suppose 4 NHCE get nothing so you fail ratio % for coverage, but because of deferrals you pass avg ben pct test. so you pass coverage. now you run the rate group test and - same results! I'm not sure there is a scenario if the formula is comp to comp or integrated where it could pass coverage and not pass nondiscrim. technically if you have a bunch of people getting top heavy only you could pass coverage and fail nondiscrim, but then you have changed the rules because not everyone is receiving the same %.

well, you could put each person in their own group. let's say year one you give everyone 5%. If you were to test on an allocation basis, everyone would be at 5%. Now year 2 you decide to allocate on a formula that works out to be 100% TWB (using 5.7% as the max excess percent) you again test on an allocation basis (imputing disparity) lo and behold, everyone will have the same 'allocation % plus disparity %' simply because that is the way the testing formula works. so the net effect is that, yes, you sort of do have a safe harbor allocation formula. it always cracks me up the regs say you don't have to test (i.e. you have a safe harbor formula) if you allocate the same % to everyone, or if you allocate integrated provided no one receives more than 5.7% excess, because if you wanted to you could test on an allocation and achieve the same results.

any plans I have seen that are set up this way test 'otherwise excludable employees separately' so the issue becomes a moot point

reason: when running the a(4) you use nonelective contributions and the 3% safe harbor is a nonelective contribution while the match is not. since you can not have an 'integrated 3% safe harbor' you can not impute disparity on that portion of the testing. both contributions are used in the avg benefits % test.

Andy - a spot check on Amazon shows Fizzies are for sale (though different sweetener because cyclamates are banned. a lot of negatives comments, but amongst the 'positive' Since I hadn't had them for 46 years, I had to taste test this product. The actual rite of passage into manhood back then was to hold a root beer Fizzy on your tongue until it was fully dissolved. You had to keep your mouth open so everyone could see you weren't cheating. So the first thing I did was the full tilt taste test. Initially, there was a hint of petrochemicals that was missing from the original product. I initially chalked that up to the missing cyclamates being replaced with this generations next marketable carcinogen, but then I realized the hint was more of a toxic dump. The formula was severely altered and it was too late. It was on my tongue and I was stuck with it. 46 years after you take the test of manhood, you can't just wuzz out. I was in for the duration. Fortunately, I survived. The next test was the dissolution factor. The tablets were thicker and smaller around but about the same mass as the originals. Not easily snapped in half like the old ones. I put a single tab in an 8 oz. glass of water and waited. Yep, just about the same amount of time to dissolve, with the finale being the last bit floating on the top while it dissolved completely. Just like back in the day. All in all the color and taste are pretty darned close to the originals, and the fun of watching it dissolve was there, too. The final test will be getting my neighbor’s kid, who is 8, to put one on his tongue. The torch must be passed, you know.