Tom Poje

tell them you can't take an in-service without running the ACP test first. if you fail that the $ are refunded (but then remember, I'm a Grinch and like to spoil people's plans.)

without knowing the exact details, it sounds like nothing has really 'changed' which could mean the new plan would be considered a successor plan - thus nullifying any possible distributions from the old plan. (But there is nothing wrong with having a second 401k plan)

for the SF they have added lines 5d(1) active begin of year 5d(2) active end of year 5e term < 100% vested Active Participant Information. Filers are now required to provide the total number of active participants at the beginning of the plan year and at the end of the plan year on both forms. •Terminated Participant Vesting Information. Form 5500-SF filers now must provide the number of participants that terminated employment during the plan year with accrued benefits that were not fully vested. for MEPs you will have to attach a schedule listing each company in the MEP as well as % of contribution. (well, for Relius I was able to create a Crystal report to generate that attachment)

The plant went down with a crash. Died in the traces. A redefinition of ‘power failure.’ Technicians and managers went scampering all over the facility, tinkering, thunking, tampering and trying to coax things back to life. Nothing worked, and desperation reigned. Finally the plant manager and the Chief Operating Officer admitted the solution was beyond the means and expertise of the staff. The needed a real expert—an outside consultant. So they placed a frantic call. The trouble-shooting ace said he’d pack his bag of miracles and be right there. The pro arrived and hung up his coat. He looked the situation over. He squinted his eyes in a Clint Eastwood way, then he walked into the bowels of the plant. People watched respectfully, and some held their breaths. The consultant pulled open the door of a little metal box on the side of a monstrous machine. He put out his hand, and with his right forefinger, he touched a button. The plant sprang to life. Lights came on, machines hummed, systems resumed vigorous activity. The plant manager shook his consultant’s hand. The CEO, overcome with relief, clapped him on the back. “This is wonderful,” he gushed. “What do we owe you?” “Four thousand dollars,” replied the consultant. “Four thousand dollars!” gasped the CEO. “All you did was walk over and push a little button on the side of that machine. Can you give us a breakdown?” The consultant jotted on a piece of paper and handed it to the CEO. “Pushing button: $1 Knowing which button to push: $3999″ “And if you’d known which button to push, you could have done the same thing.” Sometimes you have to be willing to pay for what people know.

I guess I am a bit confused at the moment. if these people haven't deferred there is nothing to fix under VCP. what type of plan year are you talking about? if it's calendar year I would just amend for the upcoming year. a bit late to do much for 2014.

at the 2012 ASPPA Conference (Q and A #37) the IRS expressed the following opinion. (That doesn't necessarily mean it represents an actual Treasury position, but at least it gives something to point to if the issue gets raised as to why you did what you did) Q. A safe harbor 401(k) plan covers only salaried employees of Company X. The plan passes the ratio test under IRC §410(b). The plan year ends December 31. In June, X decides it would like to open up the 401(k) plan to the hourly paid employees, effective on July 1. Would this amendment be a violation of IRC §401(k)(12)? ASPPA suggested answer: No. Although certain amendments to a safe harbor 401(k) plan are not permitted to be made effective on a date other than the first day of the plan year, this is not one of those types of amendments. The amendment solely applies to employees who are not otherwise covered by the plan. The safe harbor rules simply treats these individuals as newly eligible, and the safe harbor notice provided prior to the beginning of the plan year would not have had to be distributed to these employees before July 1. IRS Response The IRS agrees with the proposed answer as long as there is no effect on the already-eligible employees.

yes, can be excluded, eligibility is not a protected benefit, only amounts accrued up to that point in time.

or put another way deaths by bedsheet strangulation in 2000 = 327 population was 281,421,906 according to the census or odds of being strangled by bedsheet in year 2000 was 1 in 860,617 odds of winning $10,000 in powerball 1 in 698,976 just think, instead of sleeping those folks should have bought a powerball ticket

I suppose it is possible some are familiar with different terms so to is avoid possible confusing on terminology (at least for individuals using Relius software) testing on the basis of contributions is the same as testing on an allocation basis testing on the basis of benefits is the same as testing on an accrual basis

1.401(a)(26)-7© says if plan fails min participation use same method for correcting problem as with coverage 1.401(a)(4)-11(g) [a corrective amendment if plan wasn't amended to include someone by plan year end] and under those rules you usually simply increase an accrual to someone (in this situation that wouldn't work) or rant an accrual to an individual who didn't benefit. generally that is a pick and choose as far as I understand the rules, though of course the rules require the benefit must have 'substance' as well. I suppose if plan was amended to include someone by name to avoid the problem in the future then you have to pass coverage without the avg ben pct test, but that is probably not a problem since plans are combined for testing.

I would add, in addition, since the plan is cross tested, quite possibly a very good chance of it being top heavy, and therefore anyone receiving the top heavy non elective would also get bumped up to the gateway as well.

tripped across the following in the 1099R instructions I've seen this topic discussed before, but never the comment about putting something in the margin of the 1096. (Never had this situation before, not quite sure how you would do this if you file electronically) If you make a total distribution in 2014 and file a Form 1099-R with the IRS and then discover in 2015 that the plan failed either the section 401(k)(3) actual deferral percentage (ADP) test for 2014 and you compute excess contributions or the section 401(m)(2) actual contribution percentage (ACP) test and you compute excess aggregate contributions, you must recharacterize part of the total distribution as excess contributions or excess aggregate contributions. First, file a CORRECTED Form 1099-R for 2014 for the correct amount of the total distribution (not including the amount recharacterized as excess contributions or excess aggregate contributions). Second, file a new Form 1099-R for 2014 for the excess contributions or excess aggregate contributions and allocable earnings. To avoid a late filing penalty if the new Form 1099-R is filed after the due date, enter in the bottom margin of Form 1096, Annual Summary and Transmittal of U.S. Information Returns, the words “Filed To Correct Excess Contributions.” You must also issue copies of the Forms 1099-R to the plan participant with an explanation of why these new forms are being issued.

they don't. you still have to run the ACP test. so if you have a basic match and get lucky enough to have everyone defer 5% then the NHCE will be at 4% so the HCE could have after tax of 2% and still pass ACP, assuming all thing being equal. since the plan accepted contributions other than safe harbor I believe the "get out of top heavy free' card is not applicable. Though it would be a moot point if everyone received the 4% match. ha ha ha. all NHCEs defer 5%. what odds will you give me on that? dang it, where is my map to who-ville?

plan is 'merged' into a MEP during the plan year. all the assets are transferred. if I file the 5500 as a plan termination with a short year then does that mean the data can't be aggregated for ADP testing (because you can't aggregate plans unless they have the same plan year) or is this simply one of those things the regs don't truly address ...e.g. nothing changes at the company, everyone is still in the same boat, etc. so treat it as if nothing else has really happened. The rule for looking at an HCE says you combine all plans for deferrals, but that is if they have the same plan year as well. interestingly enough the old plan has not been 'terminated' yet by amendment, simply everything transferred an no more contributions...

Lesson 2 so building on that concept Contr *(1.085^yrs to retire)/APR /comp = ebar But contr = comp * % of pay So substituting Comp * (% of pay * 1.085 ^ yrs to retire) / APR /comp = E Bar But you have comp on top and comp on bottom so those cancel out. Assuming everyone retires at the same age the APR is the same for everyone so that can be eliminated. So now the basic formula becomes [this is not an e-bar, but ultimately explains why cross testing works] % of pay *( 1.085^ yrs to retire) So to max an owner (age 60) with max comp takes a 20% contribution. (e.g. 20% * 255,000 = 51,000) The basic stripped down formula yields 20% * 1.085 ^ 5 = .3007 The gateway minimum is 5% so what age must the NHCE be to be in the rate group? 5% * 1.085 ^ ? = .3007 The answer is 22 years to retirement because 1.085 ^ 22 = 6.018 And 5% * 6.018 = .3009 which is slightly greater than the HCE value. that is all you want. if it was less, then you simply increase the % of pay to the NHCE until you reach that value. If you have an owner at age 60 and an nhce age 43 (or younger, you are guaranteed of someone in the rate group. And if you have enough NHCEs in the group you pass. This is a simple case, 1 HCE at max comp and the desire to provide the absolute minimum. No deferrals. (or another way of looking at it, if there is a 17 year difference between the owner and the NHCEs this will work. E.g. if owner had 6 years to retire then you need NHCEs age 42 or younger…etc. ........... those are the most important concepts (in my humble opinion) to understand why the whole things work. everything else build and follows on those ideas.

if you can understand the 'concept' of an E-Bar, I firmly believe you are well over 90% of the way there. this is how I explain it (I have an old powerpoint from an asppa presentation I did so it wasn't hard to copy this info) Bob, age 60, receives a $44,000 contribution. He makes $220,000 a year. Not bad, 20% of pay. What is his E-BAR? Using an interest rate of 8.5%, what will that 44,000 grow to at retirement age? • Age 61 = 44,000 * 1.085 = 47,740 • Age 62 = 47,740 * 1.085 = 51,798 • Age 63 = 51,798 * 1.085 = 56,201 • Age 64 = 56,201 * 1.085 = 60,978 • Age 65 = 60,978 * 1.085 = 66,161 66,161 is the lump sum or future value. So at retirement he will have over $66,000 Mathematically speaking, this could be written as 44,000 * (1.085)^5 • Or, generically speaking (contribution * interest assumption for however many years to retirement remain) n*(1.0I ) yrs to retirement where n= contribution I = interest assumption (must between 7.5% and 8.5%) The APR for 1983 IAF at 8.5% interest is 115.39 you might see this expressed as 9.6158. The first figure is for monthly annuity, the second figure is annual (Depending on which mortality table is chosen the rate will be different, but in most cases it becomes a constant across the board so don't worry about that) • Balance = $66,161 • To translate this to a benefit, simply divide by the APR (Annuity Purchase Rate) • 66,161 / 115.39 = $573.37 a month [monthly benefit] • Or, an annual amount of 12 * 573.37 = 6880.44 So what percentage of pay is that? • 6880.44 / 220,000 = 3.127% • Congratulations. You have just calculated an E-BAR!!!! • In other words, a one-time total contribution of $44,000 (20% of pay) to this individual at age 60 will provide an annual benefit of 3.127% of pay for life at age 65. [if you tell me you understand that concept, then you can go to the next step (at least in my opinion) as to why new comparability works]

correct, without other employees it can work (at least it appears to on paper) when I used the term 'scheme' I meant that there are those who sell the concept and might not even be aware of the ramifications / consequences if there are other participants, in this case the ACP test. similar to the plans sold as deferral only - "you never have to put in employer $" and then the plan turns out to be top heavy, with a great big surprise to the owner.

yes, I sense a problem if one non equity partner gets 0 and another gets 30,000. it begins to possibly fail the scratch and sniff test if the IRS looks at it. it sounds like a large deferral. if it ended up all non equities got 0, but the document has each in its own group....well if the equity partners have different amounts it probably still would fail a smell test again, it is a gray area, could be tough to prove one way or another, (of course, such comments come from 'the Grinch' so that might only be a step above a three eyed fish. however, such comments are based on what is in the lrm/documents, or at least the best I can read them)

QDROphile - I think this is the 'scheme' being pushed by whomever as follows: you can only defer 18,000. but if you have after tax, then you can put in even more and then convert it to a roth, so of like a cheating end around the rules. e.g. put in $25,000 as after tax and convert to Roth. it might work if there are no nhces, but if you have nhces then you would most likely fail the ACP test.

if the plan was set up so each person was in their own group, it is an area that might be tough to prove one way or another . at one ASPPA conference years ago the response was something like "We will know abuse when we see it" the lrm from a few years ago (see next to last page) warns that you have to be careful with such an arrangement ft William incorporates this language for 'each person in their own group' as follows NOTE: In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of Treas. Reg. section 1.401(k)-1(a)(6) continue to apply, and the allocation method 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. ................... no such language is in the document if the allocation is by groups rather than each in their own group. based on your description it sounds like you have a few groups, not each person in their own group. lrm.pdf

I have never heard such a claim before. if the person deferred 12,500 to each plan, which received an excess? Not the plan itself, it is the person who deferred too much. the following http://money.stackexchange.com/questions/23511/over-contribution-to-401k-between-two-employers-and-maximizing-employer-match also says the person could decide which plan refunds the excess (the person making the comments points to an IRS guide indicating you could request a refund from either plan (assuming the plan document permits it). again, remember, neither plan has accepted an excess on its own, so neither is in violation, so the document should have something about the ability to request such an excess deferral - I suppose a poorly written document might not provide such, but then, even under EPCRS you can correct anyway. what I find interesting in this example, the person was in an unmatched 401k, quit, and ended up in an immediate eligibility with match plan. the suggestion was to intentionally defer the limit and take advantage of getting the match, and then take the entire deferral as excess from the first plan.

that does remind me of the e-mail I received once. Here are the signed amendments for Smith and Jones. They have been properly executed.

I'd give an arm and a leg to have that client

unclear exactly what is being asked. are you implying you have a ps contribution that is related to the amount deferred? I guess you could have, if each person was in their own group, but that wouldn't be a safe harbor contribution, and it would be subject to a(4) testing (most likely cross testing) in order to pass.

ok, let's for example, assume the owner's comp ends up negative , so he can have no deferrals would you say that removing a match is a 'true up' or a correction, as 401king suggests? I assume he has a deferral agreement in place at 4% (or at least the IRS has indicated he should have one in place) an amount for match was deposited throughout the year. Suppose the comp wasn't negative, but that 4% was less than deposited. again you would correct, but I wouldn't call that true up.