Tom Poje

I still don't see how it is possible. again, my understanding of the one time election found in the 401k regs pertains to all plans, even if not established and can only be done when first eligible, otherwise such an election would be treated as a 'deferral election' (v) Certain one-time elections not treated as cash or deferred elections. A cash or deferred election does not include a one-time irrevocable election made no later than the employee’s first becoming eligible under the plan or any other plan or arrangement of the employer that is described in section 219(g)(5)(A) (whether or not such other plan or arrangement has terminated), to have contributions equal to a specified amount or percentage of the employee’s compensation (including no amount of compensation) made by the employer on the employee’s behalf to the plan and a specified amount or percentage of the employee’s compensation (including no amount of compensation) divided among all other plans or arrangements of the employer (including plans or arrangements not yet established) for the duration of the employee’s employment with the employer, or in the case of a defined benefit plan to receive accruals or other benefits (including no benefits) under such plans.

yes, that sounds correct. you won't know if someone is there on the last day until 2015 - well I guess you be clairvoyant and know both comp and if someone is going to be there on the last day. (if plan is a safe harbor 401k plan and there are no other contributions, then no top heavy as well.

the regs simply say if you already distributed the balance to an HCE before distribution of excess, the corrective distribution is deemed to have been made. there is nothing in there that says "But what if he rolled everything into an IRA?" 1.401(k)-2(b)(2)(v) Distribution. Within 12 months after the close of the plan year in which the excess contribution arose, the plan must distribute to each HCE the excess contributions apportioned to such HCE under paragraph (b)(2)(iii) of this section and the allocable income. Except as otherwise provided in this paragraph (b)(2)(v) and paragraph (b)(4)(i) of this section, a distribution of excess contributions must be in addition to any other distributions made during the year and must be designated as a corrective distribution by the employer. In the event of a complete termination of the plan during the plan year in which an excess contribution arose, the corrective distribution must be made as soon as administratively feasible after the date of termination of the plan, but in no event later than 12 months after the date of termination. If the entire account balance of an HCE is distributed prior to when the plan makes a distribution of excess contributions in accordance with this paragraph (b)(2), the distribution is deemed to have been a corrective distribution of excess contributions (and income) to the extent that a corrective distribution would otherwise have been required. as for testing comp, I'd think you'd use the same logic as applies to top heavy as explained at the 2010 ASPPA Conference Q and A #3 Q: 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.) A 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

the only rule that I know of that exists for waving out is a one time election when the person is first eligible to participate in any plan. for lack of better reasoning on my part, I believe the govt would otherwise view such an election sort of like a 'deferral election' and of course in a db plan, that is impossible. you would have to amend the plan to exclude the person by name or some other reason.

the plan will need to provide a top heavy benefit in 2014, depending on what the key employees receive as contributions in 2014. if 2013 is the first year of the plan, then since you have nothing from the prior year, so you use 12/31/2013 to determine if 2013 is top heavy and provide a top heavy in 2013 if needed, but that is the first year rule only.

in conjunction with the reports I posted a few years ago to import ssa data into FT William these are my 'double check' of the data A D will print next to someone who has been paid and terminated over 2 years ago on the distribution report An A will print on terminees who quit last year on the termination report Might miss people if the dates are 12/31 or maybe 1/1 in a leap year, but they seem to work. of course, no 100% guarantee Distributions ssa code.rpt terminated with ssa code.rpt

if the match is only going forward, then I suspect the IRS might have issues if the HCEs didn't defer the first half of the year. that just smells.

from a practical point of view? let's say you go with 1 year holdout instead. person works a few years and quits. then rehired. he works the 1 year, thereby becoming re-eligible, but now you have to retroactively enter him in the plan to date of rehire. but when you ran the ADP test last year you didn't include him. in addition, he can't defer on $ from a year ago. The IRS has never answered the question on how to handle such people. in some ways, it is next to impossible to not use rule of parity, at least in a 401k plan. now suppose the plan is not a 401k, but a profit sharing - but to complicate things, it is cross tested. same thing is going to happen. suddenly he is eligible going back a year. talk about tossing a monkey wrench into the works. so just write it into the document: Sorry, if you quit you can not come back to work simply because it will save everyone involved lots of grief.

correct. it doesn't matter how you do things as long as no one has his contributions counted in more than one group. and yes, that is common, the owners son ends up in a group tested on an allocation basis.

a more important question is whether it will do any good 1.401(a)(4)-9( c)(1) a plan may be treated...as consisting of two or more component plans 1.401(a)(4)-9( c)(2) ...the employer may select the group of employees in any manner, and the composition may be changed from year to year. every employee MUST be included in one and only one component plan... 1.401(a)(4)-9( c)(3)(ii) ...can.t be used for gateway purposes If using Relius, it can be 'tricked' into producing reports if need be. It makes a big difference how you 'divvy' things up. I assume that is one of those technical terms. usually young NHCEs are used in the component plan tested on an accrual basis. so lets suppose I have a plan, we will call plan O I split the plan into different component plans (in some ways I am simply pretending I have 4 plans instead of 1 HCE 1 is in Component Plan 1 of Plan O (or C1PO) - test on accrual basis with some young NHCEs, all other ees includable and not benefiting HCE 2 in C2PO HCE 3 in C3PO (may the force be with you getting that one to pass!) HCE 4 in C4PO

yes, the rule for the safe harbor def of compensation is exclude all deferrals, not just some. otherwise you run the comp test and by the way, that includes Roth, though Roth are not pre tax. As I recall this was discussed at an ASPPA Conference a few years ago.

need to be careful here for 2013 the 415 limit is 51,000. so one could have 5500 in deferral (treated as catch up) and 51,000 in profit sharing for 2014 the 415 limit is 52,000 so now one could have 52,000 in profit sharing the amount of deferral makes little difference if it is less than the catch up limit of 5500.

more info needed if it is a new company (as opposed to a new plan for an existing company), then no one has a year of service, so all would be treated as otherwise excludable

the govt handout (for example page 7 of the pdf and elsewhere) clearly state the rule of parity applies to nonvested participants. the ERISA Outline Book sums it up this way 2 V part C 2.d.Partially-vested participant. Note that once a participant becomes even partially vested (e.g., 20% vested under the plan's vesting schedule), there is no break in service rule that will permanently disregard his prior service for eligibility purposes. If a partially-vested participant incurs a break in service, the only rule that may apply is the one-year holdout rule discussed in 1. above, under which it is possible to get the prior service re-credited. In fact, the one-year holdout rule would apply even to a 100% vested participant who incurs a break in service. ASPPA Conference 2011 Q and A #14 Does the Rule of Parity apply only to a participant who is 0% vested and incurs a 5 consecutive breaks in service, or does it also apply to an employee who never became a participant and incurs 5 consecutive breaks in service? What about the one-year break in service rule under IRC section 410(a)(5)© (also known as the one-year 'hold out" rule)? Our answer. Although the statute refers to the word "participant" the Rule of Parity does apply to a rehired employee who incurred at least 5 consecutive breaks in service before being rehired, so that eligibility into the plan is determined by disregarding all prior service and waiting until the rehired employee completes the plan's eligibility requirements. To interpret the statute's use of the word "participant" to exclude non-participant employees who incur 5 consecutive breaks in service is to disadvantage employees who had become participants and accrued prior benefits. The same rule is applicable for the vesting Rule of Parity as well. For consistency, the same interpretation should apply to the one-year "hold out" rule. IRS response. The IRS has not provided a response to this question. ASPPA Conference 2010 (page 4 - questions not numbered) Does the rule of parity for vesting permit the disregarding of years of service for a rehired participant who was nonvested at termination in employer contributions but had salary deferrals? What about someone who made no deferrals but could have? IRS response: If there is a vested amount, prior service cannot be disregarded, even if the vested account is attributable to deferrals. IRC 411(a)(6)© and (D). However, if there is a vested percentage, but no vested amount (i.e., no deferrals made in this example), the rule of parity does permit prior service to be disregarded. min partic standards publication 6388.pdf

I used Mar -April - May figures so your values will be slightly higher. many moons ago I wanted to be able to figure out how all this worked and the 'thrill' (if that is a good term) is still there of being able to figure this stuff out.

basically same as Sherpa pointed out, if plan is cross-tested and especially if combined with a DB plan then the extra 3 years in testing makes a big difference. In a stand alone DC plan and cross tested you are probably helped some at age 65 when you impute disparity is testing. at age 65 the factor added to most NHCEs would be .65, but age age 62 is only .50

anything is a use at your own risk as to 'good', that of course is anyone's opinion as well. arguably this example is designed for one partner when checking for deductibility sorry, no notes, it should be fairly self explanatory ideal salary original.xls

logan - only deferrals count toward catch-ups, so no you can't receive 57,500 and count 5500 as a catch up because there are no deferrals (as John indicated above). the initial preamble to the catch up regs had an example in which the plan limited HCEs to 0% deferrals and therefore a catch up was available because this was a plan imposed limit. This language was removed from the preamble when the final catch up regs were released - but not necessarily because the IRS decided against it, but more than likely as a space saver. other language was removed from the preamble as well.

the accudraft language (at least from a few years ago) was (I imagine a leave of absence falls somewhat into this category) (d) Reemployment of an Employee Before a Break In Service and Before Eligibility Requirements Are Satisfied. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer prior to satisfying the eligibility requirements in Section 2.1 and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee's pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted in determining the satisfaction of such eligibility requirements, and for all other purposes, as applicable, and (2) the Eligibility Computation Period, Vesting Computation Period, and/or benefit accrual computation period, as applicable, will remain unchanged. (e) Reemployment of an Employee Before a Break In Service and After Eligibility Requirements Are Satisfied. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment prior to the Employee's Entry Date in Section 2.1, the Employee had satisfied the eligibility requirements in Section 2.1 as of the Employee's Termination of Employment, and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee will become a Participant as of the later of (A) the date that the Employee would enter the Plan had he or she not Terminated Employment with the Employer, or (B) the Employee's Reemployment Commencement Date, (2) the Employee's pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted for all purposes, and (3) the Vesting Computation Period and/or benefit accrual computation period, as applicable, will remain unchanged.

yesterday's CPI was released. based on the 3 month average we now have catch up 6014.50 deferrals 18044 compensation 266,440 415 53,288 so looks like things will increase. of course our friends in the government could always try and run through a cap, but it is getting late in the year...

in addition to whether the plan document even allows it (and even ignoring the fact the problem with a plan being integrated), if a QNEC used in the ADP test (or ACP test) the plan must pass 401(a) (4) testing with and without the QNEC. (1.401(k)-2(a)(6)(ii) this would mean of course the HCEs have now received a larger nonelective when you test without the QNEC. (which then I think gets you back to the issue of how you are going to do that if it relates to a prior year) so, for example, if the plan wasn't integrated but a flat 5.7% and you treated 3% of the NHCE as a QNEC, you now have to test 2.7% NHCE vs 5.7% HCE as nondiscrim. that barely passes the gateway minimum. by the time you add in the integrated piece you probably would fail the gateway.

I don't think they count against the 2014 415 limits. It is a corrective contribution for a missed contribution. for example, lets say Bob made 20,000 and was missed his top heavy in 2012. he quit and has no comp in 2014. if you deposit a make up contribution in 2014 his 415 limit is 0, hence he can't get what he is owed??? At the ASPPA 2010 Q and A (page 4) the IRS response was An employer had a safe harbor election for the plan year 2008. The plan and company both operate on a calendar year. The plan is a trustee directed, balance forward plan. The required 3% contribution was, say, $15,000. Employer does not go on extension; employer puts the $15,000 into the plan in September of 2009. The contribution is not deductible for 2008 (they'll deduct it in 2009). However, under Section 415, it is not an annual addition for 2008, since it was not contributed within 30 days of the tax deadline. However, it is SUPPOSED to go in for 2008 and be allocated for 2008. Is there a failure to provide the safe harbor contribution for 2008? If so, how to correct? (Note, this could also be an issue anytime a QNEC needed to pass ADP or ACP testing is deposited more than 30 days after the tax return due date but within the 12 month correction period under IRC 401(k).) What if the deposit is not made until after 12/31/09 - that is, more than year after the plan year end to which it applies? Contributions made after the Section 415 timing date of 30 days after the tax return due date are considered to be annual additions for the following year. However, if consider the contribution a self-correction under EPCRS, it is permissible to relate this back to the earlier year. If the contribution is made after 12/31, you are clearly under EPCRS. [One of the exceptions to the 415 timing rule is an erroneous failure to allocate. See Treas. Reg. 1.415©-1(b)(6)(ii)(A). EPCRS clearly treats post-415-period deposits that relate back to a prior plan year as an annual addition for the year to which it is meant to be paid, but EPCRS applies only after the 12/31/09 deadline. Therefore, there is a lack of guidance for the period between 30 days after the tax return due date and the end of the 12-month regulatory correction period.] so I guess in the IRS wisdom, is you are going to be late, just don't correct the problem until 1 year after the fact, just to be on the safe side so you can correct under the EPCRS guidelines. Nuts! Nuts! and more nuts!

you can combine in an way shape or order you please. but what you combine for coverage must also combine for nondiscrim. so you could have ABC A B C AB C AC B A BC one of the things to watch out for is the terminee < 500 hours rules, for one has to be a 'particpant' for that rule to apply. so when testing A by itself, employees of B and C are includable and not benefiting for coverage, even if they quit with < 500 hours. But they would not appear on the ADP test

the cure for insomnia is enclosed. it is an IRS publication. note: by minimum participation it is not referring to DB plans, but minimum participation to enter a plan. probably the highlighted items at the start are sufficient, but there will be a quiz will be on the whole text. Hopefully Blinky the 3 eyed fish, the 'caped' crusader, and Austin are available to prepare the questions. min partic standards publication 6388.pdf

you mean you have a document that doesn't have language something like this: Modifications. As of the date a Participant first meets the eligibility requirements of Section 3.01, he may elect to contribute to the Plan. Subsequent to that date, a Participant may elect to start, increase, reduce or totally suspend his elections pursuant to this Section 4.01, effective as of the dates established pursuant to Plan Administrator procedures. Notwithstanding the foregoing, a Participant may totally suspend his elections at any time. oddly enough, I think the only place in the regs where it is 'required' is in regards to SIMPLE plans (but I have never seen a document not permit one to stop anytime) 1.401(k)-4(d)(2)(iii) Election to terminate. An eligible employee must be permitted to terminate his cash or deferred election at any time. If an employee does terminate his cash or deferred election, the plan is permitted to provide that such employee cannot have elective contributions made under the plan for the remainder of the plan year.