Tom Poje

I don't think there are 'examples' floating around. yes irate bandingt is in the regs, but the same reg also says you can only use if the HCEs do not fall significantly higher than the NHCEs within the range. but how is that to be interpreted? You establish a midpoint, for example 11.0. so everyone with in 5% is treated as having an E Bar of 11. so everyone between 10.45 and 11.55 is treated the same. (5% of 11 is .55) now if all the NHCEs are below 11 and all the HCEs are above 11 that probably is not so good, especially if the HCE is at 11.55. that sounds like you are significantly favoring the HCE. If some of the NHCEs are above 11 it is probably less of a problem. e.g. you are bring some NHCEs down to a mid point rather than only HCEs. even if all the HCEs are above the midpoint and all the NHCEs are below it is probably less of a problem if instead of a 5% range you only use 1%, but who is to say? 5% is simply the maximum range, so does that mean 1% would be considered 'close enough'? In the case of an age weighted plan like the example above I suspect it is less of a problem (I doubt the range needed is anywhere close to 5%), than a cross tested plan in which the HCE gets 20% and everyone else gets 5%. .............. I suspect in the example above if disparity was imputed that would probably be enough to pass rate group testing. while I personally have never seen an integrated age weighted formula, I do recall reading an article about such a formula, the conclusion being it wasn't worth all the extra involved in such a formula, so unlike an ESOP or SHNEC which you can't impute disparity, my understanding is it should be possible even with an age weighted formula.

years ago I came across a similar type situation. possibly this is what is going on in your case. the example used was the following: 2 ees, one age 65 and one age 70. both make the same compensation. under age weighted the older person would normally receive a smaller contribution (because of the APR) that's a bit discriminatory, so the doc was written to use the same APR when determining points. that works fine for getting the same contribution, but now testing the age 70 person has a larger e-bar, which would fail testing. however, 1.401(a)(4)-8(b)(1)(ii) Allocations after testing age A plan does not fail to satisfy [testing] merely because allocations are made at the same rate for employees who are older than their testing age....as for employees who are at that age. I'm sure most software won't catch something like that. ................. rate banding - (in a rather simplified description- lets say the HCE has an e-bar of 2.50 and all NHCE have 2.45. under rate banding they would all be treated as having the same e-bar because 'they are close enough to each other'

what I learned there is no requirement the Avg Ben Pct Test use the same method as a(4) (rate group testing) ERISA Outline Book Ch 9 Section IV Part C3c agrees. In fact, if it wasn't true, you could never do component plan testing - splitting people into two parts, testing one group on an allocation basis and another on an accrual basis. you still have 1 avg ben pct test (run on accrual or allocation basis)

disregarding the safe harbor plan for the moment, there is certainly nothing to stop me from putting in a profit sharing plan on 12/31/15 and having an effective date of 1/1/15 and thus a long time employee entering in that date. (at least as far as I understand the rules) ............. now lets look at the question in hand, lets add the 401k feature and use the date of 9/1/15 as you described as being the date things 'started'. can anyone defer on comp earned before 9/1? Not according the regs. in fact, if someone terminated before that date and you used comp from date of participation for the ADP test[i realize it is safe harbor and there is no ADP test, but bear with the argument] (which for the 401k portion would be 9/1) they would have comp of 0, and the IRS has generally suggested such people are excluded from the test. the regs only require the safe harbor for each 'eligible employee' (1.401(k)-3(b). under the definitions of 1.401(k)-6 an "eligible employee" is an employee who is directly or indirectly eligible to make a deferral election for all or part of the year. If this person was not able to do so because they terminated, even if the doc said use comp for the entire year for the safe harbor, I don't see the regs as saying this person falls into the 'required to receive', but of course without knowing the exact verbiage in the document I can't say more than that.

Bill- My greatest admiration for someone who double checks data from time to time. To many times do we simply 'assume' the software is doing things correctly (of course sometimes it is user coding issues)

unless something broke over the years I would expect Relius to work way back in the early 90's when I did support for Pentabs someone once asked if you could do a similar type calc on an age weighted plan with around 100 partners. I was 'stupid' enough to say 'not as designed, but give me a little and I'll figure something out', and I actually did figure it out- coded the plan as a first year target benefit and it actually worked. (Target benefits had an ideal salary cal, but no such thing existed for age weighted plans)

as Mike said it was designed for a simple 1 person case (though I guess arguably you could use the sheet 140 times (one for each partner) It was originally intended to simply calc the FICA but was expanded to handle a fairly simple small plan with a few people, which are the only cases I ever had to deal with in my days! Attached is one I have never used, don't know where I pulled it from. dated in 2005. I even have a number of versions, all with the same date and time, one called original, one says revised, another says better, etc. so I really have no idea. This one is coded up with 6 partners and 10 employees. again, I have never used it, never tested it or anything earned income revised.xls

it might be in the definition for 414(s) compensation, something like "Comp is any definition that will satisfy 414(s)..."

in the past, I only have one or two plans that need such a calculation I've used the spreadsheet sort of as a prelim for running something on the valuation software we use (and the numbers have always been what I expected). don't think I have any plans left to run this year, but next time I need a 'quick and easy' check I'll look. sorry.

I guess you could always amend the DB plan to exclude anyone by name 'who wants out' so to speak. of course such an arrangement you are talking about with some accruing in the db and others in the DC would have to be tested for nondiscrimination, and would also possibly fail minimum participation somewhere down the line (imagine if 60% decide to go DC, then only 40% benefit in the DB...)

note how the '5500-SUP' has been added for 2015 (question 13 - 16) so looks like this is a done deal when next year 13 Has plan been timely amended... (Q 6 on the 5500-SUP) 14 Have required min distributions been made for 5% owners 15 was there unrelated business tax income (Q10 on the 5500-sup) 16 were in service distributions made (Q-11 on the 5500 SUP) 14 wasn't on the original 5500-sup, so maybe that is getting added since it is an EZ I guess there was no reason to ask a number of the other questions on the 5500-sup - e.g. coverage, ADP testing, etc) new EZ.pdf

I believe the rules came into play under TEFRA, the original rules were actually the later of 70 1/2 or the day you retire (but were changed to simply 70 1/2 within a year or two of the initial proposed regs) so now we are back to the way they originally were, except I guess in the case of 5% owners. why 70 1/2? I recall in regards to some reg they chose some odd date it went into effect and someone investigated and found it was a particular date that effected some congressman or senator, so it wouldn't surprise me if 70 1/2 happened to be something similar. as for picking a mortality table, I think at the time most plans were still DB in nature, so I guess pretty much the mentality of having a pseudo life time annuity. but you could wave off the table and choose to take that initial percent and simply subtract one each year for the divisor, so in that sense it was a 'decreasing set percent'.

Without looking at it, but knowing your skills, I'll simply say "you're a better man than I am Gunga Din"

along similar lines, in 2006 someone asked "Could automatic enrollment begin at 10%" and the response was that it would probably violate 'effective' availability, so arguably you could be correct,

the other option I have seen done is go with a "first year uses prior testing at 3%" and then go with safe harbor the following year. If you only have 1 HCE that might limit him to 5%, but with comp of 260,000 it is still 13,000 and a test that is passed

I realize this is not your situation, but it is a good example for a reminder -a plan with a safe harbor match is a good example of a plan in which it is advisable to have employees enrollment forms on file indicating '0' deferral as an election - to prevent some disgruntled employee from running the DOL with "I didn't even know the plan existed". I vaguely recall a scenario in which the owner set up such a plan and didn't tell anyone - socked away max deferrals and got a match and no contributions to employees!

I would say what gets confusing is the 5500. Imagine this was the only loan in the plan. on the 5500 the question is asked "Are there any existing loans" and you answer NO! so for that purpose only the loan 'doesn't exist' As the ERISA Outline Book points out, the defaulted loan is solely a tax rule, and is not treated as an actual distribution for other purposes.(7 IX D4) ........................... arguably, since no loan payments were made on the original loan, the 'second' loan could (or possibly should have been denied. e.g. what if the plan allowed more than one loan? This is not suppose to be a way to get 'distributions' from the plan.

in the example I used everyone received 5% (not a new comp, simply a nonelective. I assumed NEC meant NonEleCtive, but maybe you meant NEw Comparability. if you have a new comparability, then for coverage the ratio % for plan 1 is still 72.18% but when you get to rate group testing then it depends on how things turn out. if all 208 NHCE is plan one were age 30 or less, and all 30 HCEs were age 50 or more that is a 20 year difference on everyone. so I think 5% to NHCEs and 25% to HCEs would actually work because 1.085^20 = 5.11, and when cross tested (treating everyone in division 2 as 0 for nonelective) the ratio % for each rate would be above 70%.

for a real simple case... lets say you added a NEC and gave 5% to everyone in Div 1. for coverage, division 1 ratio % would be 72.18%, it passes, no ABT needed. If you tested on an allocation basis, the rate group for each HCE would also be 72.18% (unless some of the NHCEs don't receive due to last day rule or hours requirement. so again, each rate group would pass and no ABT needed.

for the record, There was a 2 year window in which the rates were changed. it only changed things a few dollars. as noted, it was TRA 2010 http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes Self-Employment Tax Rate The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 was 13.3% (10.4% for Social Security and 2.9% for Medicare). The Temporary Payroll Tax Cut Continuation Act of 2011 extended the self-employment tax reduction of 2% for calendar year 2012 so the rates for 2011 remained in effect for 2012. For self-employment income earned in 2013 and 2014, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

for 2 years (2011 and 2012) there was a special calc for FICA. even the form SE shows the 59.6% you are referring to on line 13, and I even added that to the spreadsheet for those years. my understanding things returned back to normal and even the schedule SE for 2014 indicates things are back to the way they were - at least I don't see ' 59.6%" on line 13 anymore., so I removed that from the spreadsheet. 2012 form SE.pdf form 2014 schedule SE.pdf

Mike-looking at it, I would say you are correct. The original sheet only had a single cell to enter total contribution to NHCEs. I modified it to input comps on NHCEs and have that field populated. Then I had a plan that was integrated at 100% of the TWBso I added a column for that. so it wouldn't surprise me if I missed something. Of course, I have always compared the sheet to actual results running a formula on other software, and never had a problem, though I suppose it could occur. even at 80% TWB NHCEs generally won't get an integrated piece. I've never thought of using the sheet for the modern day everyone in their own group possibility. good suggestion. the brief history of the sheet is that I had written up notes for the calculation. someone had gotten a hold of those notes and then sent me the spreadsheet (many moons ago - late 90's probably) to make sure the logic worked. I was impressed (and still am!). just about everything from column H on was my later additions. sort of like the sheet for calculating the indexed limits, someone saw my notes on how those are calculated every year and sent me a sheet on that, which of course I have tweaked and modified over the years. Guess I've been lucky to have written some notes that were clear enough to make sense, and then have someone send me the notes back in an excel format.

possibly this will work, no instructions provided, aside from entering data in the gold colored boxes, possibly some items you wouldn't even use. ideal salary current.xls

though the statement "ESOPs may not be aggregated with other plans" is only true to a point. for the average benefits percentage test, example 2 of 1.410(b)-7(e) aggregates the ESOP with other plans. no mention is made in the example if you have to run the test on an allocation basis. one of the plans in the example is a DB plan, so it would appear it could be allocation or accrual basis.

ignoring everything else and simply focusing on the statement "The plan allocated a contribution pro-rate baaed on compensation I assume you mean everyone received the same % of pay. the gateway rules are satisfied if all NHCEs receive 1/3 the rate of the HCEs, but since they received the same %, so even if you had to worry about the gateway rules you would have satisfied them. is a formula actually stated in the document or does it simply say 'it is cross tested', which is (in my humble opinion poor language) if it is meant to imply 'everyone is in their own group, or something similar.