Tom Poje

component plan testing 1 avg ben pct test. (unless I suppose you are also testing otherwise excludables separately) after that pretend you have 2 plans 1 plan consisting of one set of ees, 2nd plan consisting of everyone else. when testing plan 1, everyone from plan 2 is includable and not benefiting. when testing plan 2, everyone from plan 1 is includable and not benefiting this is no different that if you actually had 2 plans that you were testing separately. you can not use this to avoid the gateway, all must get the gateway.

since you have a plan with 6 months deferral eligibility but 1 year for safe harbor it is a given that the plan is tested splitting the groups - statutory includable and otherwise excludable the statutory includable is safe harbor so no ADP test. the otherwise excludable most likely has no HCEs so that ADP test passes with a free ride as well. as for your question regarding gateway minimum, again, you would probably test the a(4) portion as statutory includable and otherwise excludables. since there would be no HCEs in the otherwise excludable group, then there would really be no test so no gateway needed. such a plan design (different eligibility) does not have the "get out of top heavy for free card" so if the plan is top heavy, then yes they would get the 3%. If the key employee is not receiving and nonelective contribution then the question of gateway is unimportant anyway, no matter even if the NHCEs were not otherwise excludable.

something like this when he filed his 2014 taxes his W-2 indicated 23,496 in deferral (catch up would be 5500, so excess deferrals of 496.) the sophisticated govt computer should have, at that point, indicated 496 in excess and taxed him appropriately. If things had been done appropriately and timely there would be a 1099R to indicate this. assuming the individual is only working for one company then the plan has accepted deferrals above the deferral limit which is cause for disqualification, which is correctable under EPCRS. the distribution is made after April 15, so the person is taxed in the year of distribution, hence the double tax. If the person was actually working for 2 unrelated companies, and it is possible neither plan accepted amounts over the deferral limit, so neither plan is subject to disqualification (despite the fact the person is over the limit)

I guess by 'savvy' it means you will contact the original poster, to maximize 'his' business. note how there was no attempt to even point out any differences/similarities between a rollover and transfer.

my understanding is you would treat (or at least could treat) such people as otherwise excludables, in which case it probably wouldn't change testing. If the only employees involved were NHCEs then that wouldn't be a problem, item (iii) above notes that those affected by the amendment must be predominantly NHCEs. so if, somehow it was only an HCE (which would almost have to be an owner because of the look back rule) then it already smells bad! .............. I should have pointed out from above, the amendment method is clearly allowed under the self correction method. so if you follow those procedures you have guidance if the plan was ever audited, etc. and it avoids other issues. some folks lean toward returning the $ - there are no examples in EPCRS, but even under EPCRS the rules say to put the plan in a position as if the error hadn't occurred. but then do you have to issue 1099s and other things that aren't real clear.

I have often wondered if someone would ever participate in a plan (or combination of plans) that was (were) integrated for 35 years! without the plan eventually going new comparability is beyond me. look what step 2 in the LRM says for someone who has reached the limit. STEP TWO: Any contributions and forfeitures remaining after the allocation in Step One will be allocated to each participant's account in the ratio that each participant's compensation for the plan year in excess of the integration level bears to the excess compensation of all participants, but not in excess of 3% of each participant's compensation. For purposes of this Step Two, in the case of any participant who has exceeded the cumulative permitted disparity limit described below, such participant's total compensation for the plan year will be taken into account. now look at 1.401(l)-2©(ii) Overall permitted disparity ...employer contributions are allocated to the account of the employee with respect to the employee's total plan compensation at the excess contribution percentage how all that gets translated for my simple brain gives me a headache.

while their may be other methods of correcting the problem, the one method clearly found under EPCRS Appendix B section 2.07(3) (3) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan’s minimum age or service requirements, or (ii) has completed the plan’s minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan’s actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. For a defined benefit plan, a contribution may have to be made to the plan for a correction that is accomplished through a plan amendment if the plan is subject to the requirements of § 436© at the time of the amendment, as described in section 6.02(4)(e)(ii). (b) Example. Example 27: Employer L maintains a § 401(k) plan applicable to all of its employees who have at least six months of service. The plan is a calendar year plan. The plan provides that Employer L will make matching contributions based upon an employee’s salary reduction contributions. In 2007, it is discovered that all four employees who were hired by Employer L in 2006 were permitted to make salary reduction contributions to the plan effective with the first weekly paycheck after they were employed. Three of the four employees are nonhighly compensated. Employer L matched these employees’ salary reduction contributions in accordance with the plan’s matching contribution formula. Employer L calculates the ADP and ACP tests for 2006 (taking into account the salary reduction and matching contributions that were made for these employees) and determines that the tests were satisfied. Correction: Employer L corrects the failure under SCP by adopting a plan amendment, effective for employees hired on or after January 1, 2006, to provide that there is no service eligibility requirement under the plan and submitting the amendment to the Service for a determination letter. .......... sorry, I can't recall if the latest updated EPCRS revisions that just came out indicated determination letters were still required or not.

I'm still baffled. the original post asked if the person making 20,000 (10,000 from mid year comp) could receive an allocation of 20,000. I still would hold such a person would use up the 6% deductibility awful fast. so I have 2 people, one at 260,000 and the other at 20,000, 6% of 280,000 = is 16,800. yet I have already given 20,000 to the NHCE. The example I used was only referring back to the question is there a problem of having 200% of comp in new comp testing, so I posed the example suggesting you probably wouldn't have a problem using 200% in the ADP or ACP test, so why should it be a problem in the new comp plan.

at the 2009 ASPPA Conference the question was answered this way (#43) Question A retiree has been receiving MRD payments. He is going back to work for the employer who sponsored the retirement plan that has been paying MRD payments. When the employee is back actively at work for this employer may MRD payments be discontinued? IRS Response Once minimum required distributions begin, they continue for that plan without change, regardless of changed circumstances. So, the MRDs are not discontinued on rehire.

huh yourself. if you give someone 100% of pay how do you deduct it if you are limited to 6% in total (unless you have enough other comp that are not anywhere close to 6%.

correct, that section has nothing to do with the situation in hand. The particular document I looked at from Corbel was in section 4.8 (f)

ugh, it says uniform basis for all employees. I don't know how you get around that. one of the old Corbel documents we have (2008?) has the following language (you would find it in the corrections sections section, not the matching section if it exists: (f) Administrator may prevent projected failure. If during a Plan Year the projected aggregate Contribution Percentage Amounts to be allocated to all Participants who are Highly Compensated Employees under this Plan would, by virtue of the ACP Test of Section 4.7(a), cause the Plan to fail the ACP Test, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.8(b) the projected share each affected Participant who is a Highly Compensated Employee of such contributions by an amount necessary to satisfy the ACP Test of Section 4.7(a). I think 4.7a is simply the top down method for running the ADP/ACP test.

should be possible, unless there is something else going on. for example, in a DC plan deductibility is 25% of total eligible comp, so if you are being as generous with other folks, you couldn't do this and deduct it. if it was a db/dc combo plan and you were limited to 6% deductibility in the DC it obviously wouldn't work.

one of the great injustices is the large plan requirement is based on a 'body count' not on a '# of bodies with a balance'. arguably, since every thing else has gone up, why has a large plan remained at 100 forever? Charles, I'm going to guess the plan has always been filed as a 'small' plan, even if using the form 5500 rather than 5500-SF. that clearly raises some interesting issues!

the only caution is to be careful how the plan document defines 'limitation year'. if it is defined as the plan year (and the initial year runs 7/1-12/31) then the contribution limit is cut in half due to a short plan year. way back in 1996 at ASPPA Conference (Q and A #86) the IRS indicated even though the company might not have been in existence there is still no short limitation year unless the plan document indicates otherwise.

the 410(a)(4) rules clearly permit you to use comp while a participant. 1.401(A)(4)-12 definition: plan year compensation. so for instance the person enters mid year, but the regs require you to use full year for top heavy so sometimes you get help in testing. As I recall, this was even asked at different ASPPA Conferences and the IRS indicated that was ok. I would note that the last sentence in the definition indicates you need to run things on a consistent basis from year to year, and in a manner that does not discriminate in favor of the HCEs. I think there are certain 'cheating' situations not permitted. e.g. people enter 'last day of plan year', so I have one day's worth of comp but provide an allocation based on full year comp, but using comp from DOP blows things out of the water. . let's change the question slightly. ee's spouse makes mega $ working elsewhere (unrelated company), so their comp isn't 'essential' they are an NHCE, enter 7/1, make $5000 and defer it all (ignoring taxes, etc) there is a 100% QMAC, so they get $5000 in QMAC. would you have a problem using 200% for the ADP %?

I'm more curious how in the world, if the participant count was greater than 100, it could be filed electronically without bells and whistles going off over a period of 6 years

comp for 415 purposes is based on full year comp, allocation comp can be something else. only in a short plan year is 415 comp reduced from the max (e.g 260,000 in 2014, but even then, entering during the year has no effect on the 415 limit)

Austin - 'vesting' is a 'maybe' see example 7 of 1.401(m)-2(b)(5) ee has excess match of $1000 ee is 60% vested plan has 2 choices. distribution 600 and forfeit 400 or distribute 1000, but now you have to 'track' the 'unvested' portion. in 2 years the person will be 100% vested, so it goes away and the person comes out ahead because they didn't forfeit!!!!! so for example the person has a $2000 match balance before corrections. his vested balance is 1200. so he receives the 1000 in correction. so now his remaining vested balance is 200 so you get the odd participant statement that says 2000 - 1000 distribution = end bal 1000. 60% vested, but your vested balance is only $200 because we already paid you out additional. anything to confuse him. but next year he will be 80% vested.....

perhaps it works, but first, what does the document say. for instance, one such document has the following language: NOTE: The discretionary formula in D.6a must meet the nondiscrimination requirements regarding benefits, right or features described in Treas. Reg. section 1.401(a)(4)-4. if and of itself then, the allocation described above passes that because it favors the NHCEs. but as ETA notes, there are probably issues with definitely determinable. on the other hand, the document might also contain language similar to this (i) Correction Methods. The Plan may, pursuant to applicable Treasury Regulations, do any of the following to avoid or correct excess contributions and/or excess aggregate contributions: (1) provide for the use of any of the correction methods described herein; (2) limit contributions in a manner designed to prevent excess contributions from being made; or (3) use a combination of these methods. so it is possible to limit the match of the HCEs to pass testing. I have never seen this done giving one HCE 37.5% and another 82.5% but I suppose that fits the document language - if each HCE ended up with the same $ in match (or same ACP%) as a result I'd say that would be less likely to raise an eyebrow. at least amongst themselves the HCEs are treated 'equally'.

for sure they show in the avg ben pct test (at least as I understand it) as for when you get to the rate group test - I'm not sure what happens. I suppose the issue is that anyone from plan 1 is not necessarily 100% vested after 2 years in the nonelective [in plan 1], so that is unfair and you get penalized - so for instance if it was a controlled group with 3 different populations that certainly is 'unfair', especially if 2 and 3 consisted of all the HCEs. granted that may not be your situation, but why should the rules change if you didn't have a controlled group of 3 different companies. but I personally have never seen the issue addressed before.

1.410(b)-6(b)(3) Plane benefitting otherwise excludable employees .... is performed without regard to section 410(a)(1)(B) [that section is the special 2 year rule.] my understanding (from wherever I learned it) is that it means you can't apply the 2 year rule to otherwise excludables. I guess since the avg ben pct test includes all contributions, and the maximum exclusion for a 401k portion is only 1 year, I guess that would make sense. or put another way, when testing you have to use the eligibility from the least stringent plan. you can test otherwise excludables separately, but the least stringent eligibility in any 401k plan so you end up including anyone with at least 1 year of service.

that does appear to override 414(s). never have thought about doing that (nor have a desire to do so) not even sure if it could be done in the documents we use. certainly if it was a safe harbor match (which is not what you have) it has to be possible to receive at least 4% of total comp (not sure how things are viewed if there was a discretionary match that was safe harbor but not made)

well, 1.414(s)-1(d)(2) defines 'reasonable' definition but 1.414(s)-1(d)(3) requires such definition to pass the comp test. the two go hand in hand. but your question says deferrals are using a reasonable definition, but won't pass the ratio test (I assume you mean comp test) that sounds inconsistent.

ah, what can happen by omitting the word 'not', changes the whole context of your question. one of the most famous: Is There A Bible That Says Thou Shalt Commit Adultery? “I once read that long ago an English Bible was published having the Commandment saying, “Thou shalt commit adultery” instead of saying “Thou shalt not commit adultery”. Do you know in which Bible this was and in what year that Bible was published? I also read that the publishers only learned of the error after a great number of Bibles had already been distributed. After having distributed that many Bibles, how could the publishers have remedied it? You know the old saying about, “once the toothpaste is out of the tube…” ‘The typographical error’ The Bible you are referring to is known as “The Wicked Bible” or “The Sinners Bible.” It was a 1631 reprinting of the Authorized King James Bible first printed in 1611. The Bible was printed by the Kings Printing House under the direction of Head Printer Robert Barker. Once the mistake was found, the 1000 Bibles in that print run were collected and burned. Eleven survived. One can be seen in The Living Word National Bible museum in Branson, MO, USA. Robert Barker and a man named Lucas were fined a total of £300. Lucas just happened to be in the wrong place at the wrong time as he was acting as executor for the estate of a man who had invested in the printing. You can see one for sale for$89,500 along with a photocopy of the famous error here. (You’ll need to scroll down to see it.) Reference: http://en.wikipedia.org/wiki/The_Wicked_Bible - See more at: http://amazingbibletimeline.com/bible_questions/q21_shalt_commit_adultery/#sthash.Z2utRj17.dpuf ........ and that is your strange and unusual history lesson for today that you might not have known!