Tom Poje

With nothing better to do, and having a handy pocket copy of the book, I just happened to be thumbing through the Code and Regulations the other day Anyway, Code section 411(d)(3) states the following: (3) Termination or partial termination; discontinuance of contributions Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under section 401 (a) unless the plan of which such trust is a part provides that— (A) upon its termination or partial termination, or (B) in the case of a plan to which section 412 does not apply, upon complete discontinuance of contributions under the plan, the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees’ accounts, are nonforfeitable. I would read that as saying only those benefits accrued to that point in time would be 100% vested and not future ones. but that is my interpretation of the code. I suppose if you terminated the plan and made everyone 100% vested then started a new plan you wouldn't start everyone at 100% either.

in addition to the IRS Q and A, here is the IRS RMD comparison chart for IRA and defined contribution plans. where or where does it say "but only if the plan says you can take more" of course, some will say the IRS is simply following up on their other incorrect statement. well, I guess if you pay out more, and the IRS questions "Why?" you can always point to both their Q and A and the Comparison Table without a problem. RMD Comparison Chart.pdf

mbozek- I agree with you. others are taking the stance you can't distribute more unless the plan document permits it via 'in service' or other wording.

let's suppose the plan allows for other distributions. then asking the question "Can I take more than the RMD?" makes no sense, since you could anyway. If the plan doesn't permit other forms, then how can the answer ever be "Yes"? Because Bird raised the issue of IRAs I looked back at the IRS notes to see if there was anything to imply this only applied to IRAs. I hadn't noticed it before, but in addition the particular Q and A on this issue the very first bullet point says you can withdraw more than the required amount. (And I see nothing that implies this only applies to IRAs) ...................... In the regs for minimum distributions Q2 of 1.401(a)(9) -5 says "If for any distribution calendar year, the amount distributed exceeds the minimum required, no credit will be given is subsequent calendar years for such excess distribution" since this is in the section pertaining to minimum distributions, I don't see this as saying "If the amount distributed (that is the RMD and any other distributions you might have taken", of course other will disagree. so then I think you are left with how do you read the document. I read the regs as saying you have reached the point in time where you absolutely have to start taking distributions and they have to be at least a minimal amount. The accudraft document I looked at says Amount of Required Distribution for Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed each Distribution Calendar Year is... I don't read that as being so restrictive as to say "only the minimum amount is to be distributed" FT William is similar (1) Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

are you saying 60 NHCEs in plan A are not eligible yet, or are, for some reason, excluded from the plan entirely? I will assume they are not eligible rather than excluded entirely. otherwise the denominator for the NHCEs has to increase by 60 and all bets are off. taking a look at 401(a)(4) testing (nonelective/profit sharing) and using plan A 587/23 and plan B 119/30 you have 706 nhce total and 53 hce total B offers no profit sharing so whether you aggregate or not all of B are treated as not benefiting so you have NHCE 587 / 706 = 83.14% and HCE % 23 / 53 = 43.40% 83.14 / 43.40 - 191.57% so that easily passes. for 401m you have the reverse NHCE benefitting 119 / 706 = 16.86% HCE 30 /53 = 56.6% 29.78% so that fails ratio % you have 706 NHCE and 53 HCE or 706 / 759 = 93% which for NHCE concentration % translates into 25.25% for 'safe harbor' since the ratio % 29.78 > 25.5% you at least pass that portion. If you can pass avg ben pct test then you pass. since the avg ben pct test relies on any and all contributions, providing additional profit sharing could be done to pass testing. apologies if I have typos or miscalculations.

My 2 cents - I'm glad you didn't paraphrase the long winded IRS response! I guess I should have posted the actual IRS link, anyone could have faked the word file. http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions

last time this question was asked I vaguely recall posting the following from the IRS, FAQ regarding minimum distributions. In particular, Question 7 Can an account owner withdraw more than the RMD? Now, because I am treating this like "Christmas in August" and I am the Grinch, I will make at least one person download the word file and post the answer, just so someone in the future has a copy of this. :D FAQs regarding Required Minimum Distributions.doc

I haven't seen the following addressed (and I am clueless on how it works but forwhatever reason the following popped into my head last week): person starts collecting soc sec. As I understand it, it can be taxed depending on what one's adjusted gross income would be. now if you take a distribution it effects you adjusted gross income (unless it is from a Roth)???? so would having a Roth make a difference at that point?

What I learned was that you could use either, as long as you are consistent. (1.401(k)-6 Compensation - must be either the plan year or the calendar year ending within the plan year....a plan may limit comp to that portion of the year a participant was eligible. so I would read the first sentence to say "If the effective date was 5/5, you use either 5/5 comp or you could use 1/1 comp based on the calendar year falling within that year. If the effective date is 1/1, since date of participation is 5/5 then that is permissible as well. ERISA Outline book agrees- at least for the first case in which the effective date creates a short year, example 7.h.2

I wouldn't say it is 'not a definite date', it is a date that will vary from year to year, but it is still a specific date, and not left of to a random choice - e.g. Bob was a long time ee who quit on Dec 12 so we choose that date to make sure he gets something in profit sharing

In the Erisa Outline Book (Chapter 2, part B 3) there is a brief blurb about retroactive entry ee hired April 1 2007 works 1000 hours, quits Feb 10, 2008. at the end of the initial computation period 3/31/2008 he is officially credited with a year of service. though he is not employed on 3.31.2008, he is employed on the scheduled entry date (1/1/2008), so the plan must make him a participant on that date. (The example does not indicate this is in reference to a new plan, but I'm not sure that makes a difference) of course, in that example the person would have worked less than 500 hours so would be probably be excluded anyway. I'm not so sure the person is eligible for safe harbor, especially if the plan excludes comp while not a participant. I would think that for those purposes it ties in with the date of participation for deferrals. but if an additional contribution was made then it would be based on total comp. (But I am sure other would disagree)

well Code Section 401(k)-12© says ....if each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee's compensation. since the 401(k) arrangement itself did not start until midyear I would say he wasn't allowed to participate 'in the arrangement' since you can't defer on compensation that is past. (or every write up I have ever seen has always said 'only those NHCEs eligible to defer need get the safe harbor') so for the deferral portion of the plan, which requires the safe harbor I would hold he is not eligible. e.g. if the plan wasn't safe harbor and you were to run an ADP test I suppose you could use total comp, but most would use comp from date of participation for deferrals, which for this person would be zero, and as a general rule people with 0 comp are not included. (but maybe that is my illogic!)

ESOP Guy - again, if plan had a last day provision, then no one has earned a right to anything. perhaps that is what you are thinking of, and that would still hold true, or at least that is what I was always told

if the current plan document says you accrue a benefit after 1000 hours (no last day rule) then the document has told people they are entitled to whatever formula is in place this year - that is my understanding of things. (I am assuming of course since it is past mid July a number of people have indeed worked 1000 hours. last year's contribution or lack of it has no bearing on anything.

According to the ERISA Outline Book, 2012 Chapter 2 Section V, C.2f rule of parity doesn't apply to such a person, 2.f.Rule applies only to participants. Since IRC §410(a)(5)(D) and ERISA §202(b)(4) refer to a "participant" having the requisite number of consecutive breaks in service, it is presumed that this rule cannot be applied to an employee who has not become a participant in the plan at the time the break in service period begins. Apparently then, the rule of parity does not apply to an employee whose break in service period began prior to the effective date of a plan, even if the employee would have otherwise been a participant in the plan if the plan had been in effect and even if the employee has incurred at least five consecutive breaks in service. so I guess that means you use the 1 year break in service rule - see page 5 of the IRS publication - opening sentence of highlighted portion min partic standards publication 6388.pdf

lets suppose nothing changes from 2014 to 2015. all comps remain the same. In 2014 I allocated 100,000 across the board. this turned out to be exactly 5.7% for the NHCEs and again, for the sake of the argument, those making over the taxable wage base received just enough to allocate 5.7% on the excess. now in 2015 you want to allocate 150,000 but not give any of the additional 50,000 to the nhces, even though they have already accrued a benefit under the old formula. If you didn't change the formula they would have received more

but let's suppose the contribution for the year is 100,000. each NHCE would have received 6.3% under the old formula. now by switching to a new comparability you want to allocate 5.7% to each NHCE and the rest to the owners. I would think that was a cut back.

you did not specify if the HCEs involved were partners or not. Even the LRMs issued a few years ago state 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. it is of course, one of those areas that is hard to prove, one way or another, but if you had 2 partners, both making 300,000 and one received 52,000 and the other 0, it certainly gives the appearance of, ultimately, being a 'deferral' election

in regards to top heavy, 1.401(a)(4)-2(b)(4)(vi)(D)(3) (if I read the number correctly) is where it indicates, for a 'safe harbor formula'[note: not a safe harbor 401k plan but rather a profit sharing formula that does not have to be tested] if the plan has 2 formulas, one group gets a contribution and the other group gets top heavy, the plan is still deemed to be a 'safe harbor formula' and thus no nondiscrim testing if the plan will pass 410(b) by treating the top heavy people as not benefiting. if you fail 410b, then you have to nondiscrim testing because you no longer have a safe harbor formula, instead you have a cross tested formula, 1 group at x% and another group a 3%. Or another way of looking at it, if the top heavy was not required and you would pass testing treating these people as 0 you do not have to test - which would make sense. The plan you have is cross tested anyway. I suppose safe harbor regs in regards to the SHNEC 1.401(k)-3(h)(2) these contributions ....are subject to the rules generally applicable to nonelective contributions under section 401(a)(4)

please see the post under the following thread under the 5500 forum. http://benefitslink.com/boards/index.php/topic/57538-dol-emailing-clients-directly-regarding-fidelity-bond-coverage/ In could be it is not even the DOL requesting this, but, as I would read it, a company trying to sell fidelity bonds. remember, since 5500s are open to inspection, anyone can see them and search for those plans that checked 'no' to question if the plan was covered by a fidelity bond. that still doesn't mean the plan shouldn't have a bond (at least in most cases)

Again, I think it boils down to your document. we have one that provides the following options. choice iii sounds like the opposite of what you want, excluding someone who is both key and hce. (therefore nonkey HCEs would be receiving so 'logically' you could discriminate amongst HCEs in other ways. but I see option iv gives a chance to describe something other a. Exclusions. For purposes of safe harbor contributions, the term "Eligible Employee" shall not include i. [ ] No exclusions. ii. [ ] Participants who are Highly Compensated Employees iii. [ ] Participants who are Key Employees and Highly Compensated Employees iv. [ ] Other exclusions: _________________

Austin: in other words if your document says at least 3% you could allocate a SHNEC greater than 3% if you desired. (why you would want to do that is a different issue) but it sounds like it has been drilled into your brain that the SHNEC was always only 3%.

the regs simply say all nhce eligible to defer must receive the safe harbor that HCEs can't receive at a higher rate so, provided it can be accomplished in the document that should be possible. years ago I sat in on a pre- IRS Q and A, and asked the following: for the SHNEC does the plan have to specify 3%, and the particular IRS individual gave a somewhat puzzled look, as if to say, everyone knows it is 3%, then grabbing a copy of the regs he said, something to the effect, hmmm, it does say "at least 3%" I vaguely recall safe harbor documents were coded "equal to 3%" but now many say "at least 3%" or "not less than x%< the minimum being 3%"

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unclear in the context being asked. did the HCE in question (spouse) receive a nonelective contribution, and if so what %. my understanding, if you were testing otherwise excludables separately then for test 1 (statutory includable) you have the gateway (if needed) for all those in that test. and when testing the otherwise excludables you have the gateway (if needed) but only pertaining to the rate of the HCE in that test.