Tom Poje

I would phrase it this way. if you cross test then before you test for nondiscrimination you have to pass through the gateway. if you test a DC plan on an allocation basis, there are no gateway rules in the regs, so no gateway needed. so if you have a 1 month wait, you could slit the plan into 2 parts. the otherwise excludables probably have no HCEs, so you could test this group on an allocation basis, and thus no gateway needed

I'm not so sure it is poorly written laws, but how the English language is used. But that is why they do put out Rev Rulings just to clarify things but lets run through a few examples. suppose the plan provides the 3% SHNEC and a discretionary match limited to 6% deferral/4% of comp. there is no requirement to actually provide a match, it is discretionary. and before you say 'if none is made you are top heavy' then fine, put 1 cent in every year. or to say if all you provide is the 3% SHNEC too bad since you didn't do a match then you are top heavy. so I have a plan that provides safe harbor match and no NHCE defer, but that is ok, it is not top heavy. Another company provides 3% SHNEC but no match. too bad you are top heavy, even though terminees also received the match, you also have to bump up anyone who entered mid year. I would hardly think that is the intent of the law, even without other guidance. now on to the English language. plan fails ADP test, so refund is made. the regs say plan 'may forfeit related match'. does that mean you don't have to if you don't feel like it? no, it means, even though that match might be 100%, the related match supersedes all bets and it 'may' be forfeited.

Cites are Rev Ruling 2004-13 as it is applied in context with 401(k)(12) Situation 1 of Rev Ruling 2004-13 says no nonelectives made only those that satisfy 401(k)(12) or 401(m)(11) Rev. Rul. 2004-13 Top-heavy status; special rules. This ruling describes four situations where a non-governmental profit-sharing plan contains a cash or deferred arrangement described in section 401(k) of the Code that provides for safe harbor matching contributions. In the first situation, the ruling holds that the requirements of section 416(g)(4)(H) are met for that year. In the other situations, the ruling holds that the contributions do not meet the requirements of section 416(g)(4)(H). ISSUE In the situations described below, which plans meet the requirements of § 416(g)(4)(H) of the Internal Revenue Code for the 2004 plan year so that they are not subject to the top-heavy rules in § 416? FACTS Situation 1. A nongovernmental profit-sharing plan containing a cash or deferred arrangement (“CODA”) described in § 401(k) provides for safe harbor matching contributions that are intended to satisfy the requirements of § 401(k)(12)(B) and otherwise satisfies the requirements of § 401(k)(12). The plan also permits the employer to make a nonelective contribution for any plan year at the employer’s discretion. The nonelective contribution is subject to 5-year vesting described in § 411(a)(2)(A) and is allocated to participants’ accounts in the same ratio that each participant’s compensation bears to the compensation of all participants. The plan is a calendar-year plan and covers all employees of the employer (including highly compensated employees as defined in § 414(q)) who have 1 year of service and are age 21 or older. Other than elective contributions and the matching contributions, no other co ntributions are made to the plan for 2004 and there are no forfeitures. Situation 2. The facts are the same as in Situation 1, except the employer makes a discretionary nonelective contribution to the plan for 2004. Situation 3. The facts are the same as in Situation 1, except forfeitures occur in 2004 due to the severance from employment of a participant who was not fully vested in amounts attributable to discretionary nonelective contributions made in a prior year. Pursuant to the terms of the plan, forfeitures are allocated to participants’ accounts for 2004 in the same manner as nonelective contributions. Situation 4. The facts are the same as in Situation 1, except employees are permitted to make elective contributions immediately upon commencement of employment but are not eligible for matching contributions until they have completed 1 year of service with the employer. LAW AND ANALYSIS Under § 416, a plan that is a top-heavy plan (as defined in § 416(g)) for a plan year must satisfy the vesting requirements of § 416(b) and the minimum benefit requirements of § 416(c) for such plan year. Section 416 does not apply to any governmental plan. Section 416(g)(4)(H) provides that the term “top-heavy plan” does not include a plan that consists solely of (1) a CODA that meets the requirements of § 401(k)(12) and (2) matching contributions that meet the requirements of § 401(m)(11). Section 416(g)(4)(H), which is effective for years beginning after December 31, 2001, was added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16. The determination of whether a plan is a top-heavy plan is made on a year-by-year basis. Thus, a plan that satisfies § 416(g)(4)(H) for one plan year may be subject to the top-heavy requirements the next plan year if it does not satisfy § 416(g)(4)(H) for the next plan year. Section 401(k)(12) and § 401(m)(11) provide design-based safe harbor methods for satisfying the actual deferral percentage (“ADP”) nondiscrimination test contained in § 401(k)(3)(A)(ii) and the actual contribution percentage (“ACP”) nondiscrimination test contained in § 401(m)(2). Section 401(k)(12) provides that a CODA is treated as satisfying the ADP test if the CODA meets certain contribution and notice requirements. To satisfy the ADP test safe harbor contribution requirement, an employer must make either (1) a nonelective contribution equal to at least 3 percent of each eligible nonhighly compensated employee’s compensation (“safe harbor nonelective contribution”) or (2) a matching contribution that satisfies certain minimum amount and rate conditions (“safe harbor matching contribution”). Matching contributions do not satisfy § 401(k)(12) or § 401(m)(11) if the rate of matching contributions for a highly compensated employee at any rate of elective contributions is greater than that for a nonhighly compensated employee who is eligible to make elective contributions. Also, a plan does not meet the requirements of § 401(k)(12) if, under the terms of the plan, a nonhighly compensated employee is eligible to make elective contributions but is not eligible to receive either a safe harbor nonelective contribution or a safe harbor matching contribution. Safe harbor nonelective contributions and safe harbor matching contributions must be nonforfeitable when contributed to the plan and subject to withdrawal restrictions. Section 401(m)(11) provides that a defined contribution plan is treated as satisfying the ACP test for matching contributions if the plan meets the requirements of § 401(k)(12) and in addition meets certain limitations on the amount and rate of matching contributions available under the plan. In Situation 1, although the plan provides for discretionary nonelective contributions, none are made for 2004 and thus only contributions described in § 401(k)(12) or § 401(m)(11) are made to the plan for that year ...................................................................... 401(k)(12) is satisfied if B or C are met and C is the nonelective safe harbor (12) Alternative methods of meeting nondiscrimination requirements (A) In generalA cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement— (i) meets the contribution requirements of subparagraph (B) or (C), and (ii) meets the notice requirements of subparagraph (D). (B) Matching contributions (i) In generalThe requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to— (I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee’s compensation, and (II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee’s compensation. (ii) Rate for highly compensated employees The requirements of this subparagraph are not met if, under the arrangement, the rate of matching contribution with respect to any elective contribution of a highly compensated employee at any rate of elective contribution is greater than that with respect to an employee who is not a highly compensated employee. (iii) Alternative plan designsIf the rate of any matching contribution with respect to any rate of elective contribution is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if— (I) the rate of an employer’s matching contribution does not increase as an employee’s rate of elective contributions increase, and (II) the aggregate amount of matching contributions at such rate of elective contribution is at least equal to the aggregate amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i). (C) Nonelective contributions The requirements of this subparagraph are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of 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. .

I'd lean toward zero. he failed 415 limit so all deferrals are treated as catch-up. the IRS has indicated (somewhere) that yes you can allocate a larger profit sharing thus creating a 415 violation if you have catch up room to spare.

ASPPA 2005 Q and A #13 13. Revenue Ruling 2004-13 indicates the term “top-heavy plan” does not include a plan which consists solely of: 1. a cash or deferred arrangement that meets the requirements of section 401(k)(12) 2. matching contributions with respect to which the requirements of section 401(m)(11) are met. We have a safe harbor 401(k) plan provides for a 3% safe harbor nonelective contribution. No match is provided. Does this plan satisfy the condition required or must a match also be provided? A. Yes, it satisfies the provisions and no match is required. In this case there are a number of participants who enter the plan mid year, so the 3% safe harbor would not be based on total compensation. 5 A. That’s ok. Would the answer change if the Plan provides the 3% safe harbor contribution only to NHCE's.? This Plan has several HCE's who are not Key Employees A. Yes .............. all bets are off if, for instance , you have immediate eligibility to defer and a waiting period to be eligible for safe harbor.

I'll take BG one step further. suppose it is first year of profit sharing plan. so no one has a balance, the 5500 shows nothing but 0's for assets. (When I started in this fool business years ago I think people insisted you at least deposit $100 just to have some type of balance, etc) I can vaguely recall Jethro Bodine running one of his calculations "Naught from naught is naught"

I'd say there is something wrong with the ASPPA write up. if you were hired 12/12/2014 assume you work 1000 hours in 12 months then you hit 12/11/2015 you enter 1/1/2016. they must have started to changed the dates and missed something. they even say "However for 2015 it would depend....whether they would be considered an otherwise excludable employee for 2016" that makes no sense should be However for 2015 depending on which method you use...whether they are otherwise excludable for 2015.

Basic HCE 100 (or why I am glad I'm not HCE!!!!!!) Doctors are blaming a rare electrical imbalance in the brain for the bizarre death of a chess player whose head literally exploded in the middle of a championship game! No one else was hurt in the fatal explosion but four players and three officials at the Moscow Candidate Masters’ Chess Championships were sprayed with blood and brain matter when Nikolai Titov’s head suddenly blew apart. Experts say he suffered from a condition called Hyper-Cerebral Electrosis or HCE. “He was deep in concentration with his eyes focused on the board,” says Titov’s opponent, Vladimir Dobrynin. “All of a sudden his hands flew to his temples and he screamed in pain. Everyone looked up from their games, startled by the noise. Then, as if someone had put a bomb in his cranium, his head popped like a firecracker.” Incredibly, Titiov’s is not the first case in which a person’s head has spontaneously exploded. Five people are known to have died of HCE in the last 25 years. The most recent death occurred just three years ago in 1991, when European psychic Barbara Nicole’s skull burst. Miss Nicole’s story was reported by newspapers worldwide, including WWN. “HCE is an extremely rare physical imbalance,” said Dr. Anatoly Martinenko, famed neurologist and expert on the human brain who did the autopsy on the brilliant chess expert. “It is a condition in which the circuits of the brain become overloaded by the body’s own electricity. The explosions happen during periods of intense mental activity when lots of current is surging through the brain. Victims are highly intelligent people with great powers of concentration. Both Miss Nicole and Mr. Titov were intense people who tended to keep those cerebral circuits overloaded. In a way it could be said they were literally too smart for their own good.” Although Dr. Martinenko says there are probably many undiagnosed cases, he hastens to add that very few people will die from HCE. “Most people who have it will never know. At this point, medical science still doesn’t know much about HCE. And since fatalities are so rare it will probably be years before research money becomes available.” In the meantime, the doctor urges people to take it easy and not think too hard for long periods of time. “Take frequent relaxation breaks when you’re doing things that take lots of mental focus,” he recommends. Origins: In 1994 the story of the unfortunate Mr. Titov graced the pages of the Weekly World News, an American tabloid rarely devoted to the reportage of actual news. Once again, the WWN failed to disappoint — this offering was fiction.

if calendar year plan an ee hired 11/25/15 who worked 1000 hours from 11/25/15 - 11/24/16 or 1000 hours from 1/1/2016 - 12/31/2016 would no longer be otherwise excludable on 1/1/2017. It is not 6 months after meeting the one year wait because the first day of the plan year kicks in.

the attached IRS memorandum has the following It is an acceptable application of the statutory and regulatory provisions to treat the population of otherwise excludable employees for purposes of coverage testing under § 410(b)(4)(B) and performing the ADP test under § 401(k)(3) as including employees participating in the plan who have not satisfied the § 410(a)(4) period applicable to them (meaning through the earlier of the date 6 months after the participant attains age 21 and completes 1 year of service or the first day of the first plan year after the participant attains age 21 and completes 1 year of service). .................................. If you are talking for purposes of ADP testing there is a special provision that all HCEs could be treated as includable even if they only worked a short time. otherwise excludables.pdf

so for 2019 you have lots of choices. good luck!

Perhaps this will help from the 2010 ASPPA Conference Q and A DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top heavy minimum is required, it needs to be made.) Questions: (1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of the plan year, so that only non-key employees who are employed on that date are entitled to a TH minimum? (2) If (1) is Yes, is the 3% minimum calculated for compensation from 1/1/2010-9/15/2010? (3) If (1) is No, is there NO top heavy minimum for the 2010 plan year because the plan terminates before the end of the year (similar to the concept that there is no money purchase plan funding if the plan terminates before the end of the year and there is a last day employment requirement), or does the plan have to wait to see who is employed on 12/31/2010 to determine who is entitled to the TH minimum, even though the plan has terminated before that date? (4) Is the answer to any of the above affected by whether the employer continues in existence through the end of 2010? (1) Of course, if there is no employer contribution, there would not be an obligation to provide top heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes. (2) yes (3) n/a (4) no change

I plead my usual ignorance ERISA Outline book had (Chapter 8, Section VIII, Part E 2.Regulations expand application. The regulations define an "acquisition" or "disposition" for IRC §410(b)(6)(C) purposes to include any stock or asset acquisition, merger, or "other similar transaction" that involves a change in employer of the employees of a trade or business. See Treas. Reg. §1.410(b)-2(f). This definition permits use of this transition period where a corporation purchases the assets of another company and acquires the employees of that company. Following the purchase, there is still only one company, so a new "controlled group" member has not been added. Yet, the regulations permit use of the transition period under this type of transaction 5.Creation of new subsidiary probably not eligible for this transition rule if no acquisition from another company is involved. The transition relief granted by IRC §410(b)(6)(C) appears to contemplate some form of acquisition from an unrelated entity. The formation of a new subsidiary by a company, as part of a business restructuring, or acquisition involving entities that are already part of a related group, are probably not covered by the transition rule.

is it a new controlled group (such that you can use transition rule) you said immediate entry - are you testing otherwise excludables separately)

what may happen on Relius: ee terminated and paid out and you delete him from the system he gets rehired and he will reappear, but prior service is not restored. if you look under historical comp you should be able to find how many prior years of service they had.

just to be clear, lets say there is no hours requirement. someone could have been hired 5 years ago who has never worked 1000 hours. they would have worked over 18 months, but would still be otherwise excludable because the plan could have had 1 yr/1000 hour requirement

well The preamble to the final 401(k) regulations sums it up as follows: A plan that uses the safe harbor method must specify whether the safe harbor contribution will be the nonelective safe harbor contribution or the matching contribution and is NOT permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied. [emphasis added] ................. I don't see how the issue of the match being late changes anything. you certainly don't do ADP testing just because it is late. You correct the problem and put the plan in a position it would have been had the error not taken place. A safe harbor plan is top heavy free if there are no other contributions. you are making up for missed gains, but that is not an additional contribution, and I have never seen any write up that says 'well since you are real late in addition to making the match you also have to run top heavy.

IRS Publication 6388 see highlighted on page 3. Perry Mason never loses. Though he did say 1600 is not to much time to charge for his trouble min partic standards publication 6388.pdf

my friend Jackie Gleason said to pass on this info to Norton: the following example is from the IRS website. I think it is safe to assume deferrals were made during the year and profit sharing was made after the end of the year. basically, 1. sum everything up a person received. 2. ooops, over the 415 limit 3. treat overage as a catch up https://www.irs.gov/retirement-plans/401k-plan-catch-up-contribution-eligibility Example - IRC Section 415(c) limit. Susan is a participant in a 401(k) plan that permits catch-up contributions. She is age 54 and is a catch-up eligible participant. Elective deferrals to the plan are permitted up to the IRC Section 401(a)(30) limit ($18,500 for 2018). The plan provides for a matching contribution equal to 25% of her elective deferrals. The plan also permits discretionary profit sharing contributions that are allocated pursuant to a predetermined formula set forth in the plan. Susan’s compensation for 2018 is $200,000. She deferred $18,500 to the plan. Her matching contribution is $4,625. She receives a discretionary profit sharing contribution in the amount of $35,000. Susan’s total allocation ($18,500 plus $4,625 plus $35,000) exceeds the dollar limitation on annual additions under IRC Section 415(c) by $3,125 ($58,125 less $55,000 is $3,125). The plan treats $3,125 of Susan’s elective deferrals as catch-up contributions.

I don't recall seeing the IRS address the issue before, I understand you could stop a match during the year so why not be able to amend the formula? but that raises some issues as pointed out - at the start of the year you told someone there was no requirement to receive a match, and now you are changing that - which does seem to me to be protected. in this case you are changing eligibility rather than just the amount. Let's suppose an HCE deferred the max and received the max match. now he quits after Mar 1. seems like changing the rules so terms no longer receive after that date is a bit discriminatory becausei t has no effect on him. .......... and if you were able to change the amount, this probably implies some ees will receive a different rate of match than others which would require some type of BRF testing. lets say Fred was eligible before March but after March is no longer eligible. how does coverage work? it should be representative what is taking place. so if you did quarterly testing, then the first quarter he is eligible, but the remaining quarters he isn't. and then whatever option is used for 410b is to be used for nondiscrim testing as well, so then would you run 2 ADP tests?

we always use vested balance, I generate my own report out of Relius because I can save the file in excel and import it into FT William. Relius also uses vested balance on their report. lets suppose you have someone who has a balance and is zero % vested and forfeitures occur the year after the year of termination. and for some reason you like to report people on the SSA the year of termination rather than the following year. now, would you really want to report such a person?

of course there might be some folks you don't care if they enter mid year... if it's for testing, you only need those folks who are deferring if its profit sharing and there is a last day rule and these people quit it doesn't matter if plan is top heavy and the contribution is not overly large then top heavy on full comp ....

thanks for the kind compliment. by the way, those are the extremes at age 65 all other tables fall in between those values the APR for UP 84 is 95.38 and 1983 IAF is 115.39 though I haven't looked recently to see if any new approved table falls on either side of those values.

so for example, if the person had rolled the entire balance out before he turned 70.5 this year, then part of the rollover is 'bad' and needs to be fixed.

maybe... we have a MEP participation agreement that has the following (Item F). and if it is available there I would assume it is available elsewhere, though possibly worded differently elsewhere in a standard document. the default is if the person works 1000 hours in 12 months they enter the plan. (I was told this is from a Corbel document)