Tom Poje

well, I could be wrong. been before, will be again. my comments based only on what I was taught (or thought I was taught) and the explanation given e.g. if I am looking at the nonelective portion of the test, and I have a 1 year wait for that portion, I would only consider those participant who are nonexcludable. (I would actually never arrive at this situation if I had immediate eligibility for deferral, because I can't think of any plan I run that I don't test separately at that point)

I use the concentration % for only those in the ratio % test

I'd say you don't really have a "concentraion %" for the avg ben pct test . (or at least that is my understanding of the rules) 1.410(b)-4 describes the classification test, and NHCE concentration %. the avg ben pct test is 1.410(b)-5, so an entirely different section. so under 1.401(a)(4) nondiscrim testing it refers back to passing by rate group 1.401(a)(4)-2whatever " satisfaction by section 410(b) by a rate group"

If its a 3% SH, then that is a nonelective contribution, and the results would be the same as PS. All PS get lumped together (though no fair inmputing disparity on SH contributions) Even with a SH Match as a general rule the NHCE concentration % is generally the same, it is not affected by the who receives a contribution but just the number of bodies in the count. The only bodies that can be eliminated would be eligible ees who term < 500 and don't benefit (and even that is an option)

following EPCRS instructions guarantees your method of correction is ok if you ever get audited. I suspect a number would simply 'let it go', but that comment should not be interpreted as advice one way or another. I know on the Relius software there is an option 'credit full month for any service' so by selecting that a person hired anytime in January would be credited with a full month and thus would enter 7/1. Are you allowed to do that? I can't make that decision. But then if this person was hired 1/2, does he 'complete' 6 months on 7/1 or 7/2?Depends on whether you use inclusive or exclusive logic. I don't think there is anything in the regs to say one way or another. (In the same way when performing nondiscrim testing there is nothing that requires you to use age definition nearest or last) so unless there was something really specific in the document you could possibly have an arguement one way or another (as long as you are being consistent!)

if it is that close I would try testing on comp less deferrals (which includes cafeteria amts), though I guess if you used comp - plan deferrals only and passed the comp test you would be ok. or if someone who deferred entered mid year use comp from DOP.

there are 2 parts to the avg ben test. avg ben pct test: everyone is included. this makes a difference in a 401k plan, because if you can defer you are inlcuded - regardless if you terminate with less than 500 hours. rate group for profit sharing - it is optional to exclude terminees with less than 500 hours if they receive no nonelective. if you are a participant and are active you are includable whether you receive a contribution or not. it is permissible to split the avg ben test in 2 parts - statutory includable, and otherwise excludable.

most documents (if not all) should contain language something like: Compensation of Self-Employed Individuals. Compensation of a self employed individual will equal his or her earned income. if you are talking about trying to put in 3% every pay period, that is a little trickier, even with deferrals. The preamble to the final regs says One commentator asked for clarification of the interaction between these timing rules and the rule under the regulations that treats a self-employed individual’s earned income as being currently available on the last day of the individual’s taxable year and whether this last day rule precludes a partner from making elective contributions during the year through a reduction in the partner’s draw. The restriction on the timing of contributions is not intended to prevent a partner from deferring amounts that are paid to the partner throughout the year on account of services performed by the partner during the year, and the final regulations have been modified to clarify this point. However, self-employed individuals who take advantage of this opportunity to defer amounts during the year must make sure that the amount contributed during the year will not exceed the limits (such as the limits of section 415) that will apply to the individual, based on the individual’s actual earned income for the relevant period.

and before you simply change document for future years, if these 6 people are deferring at a high rate it would probably make the ADP test worse so you have to be careful. what this means for the year in question is that you have to run a nonelective test based on total comp (or comp less all deferrals) That does not force you into a 'cross-testing' because you can test on an allocation basis.

Lady MacDuff: To be (in the plan) or not to be (in the plan) - that is the question and I'm too swamped at the moment to go back and look at all those dates. It's just in the last few weeks there have been a few posts regarding eligibility, and the pdf sticks in mind. I was hoping that would possible answer the question w/o straing my old brain gears.

on page 6 of the pdf, see line c of the IRS guideline (if I post this one enough, maybe everybody will have a copy) This particular section deals with Elapsed time, service and breaks in service min partic standards publication 6388.pdf

so if HCE 3 and the son receive 3% and tested on an allocation basis then no matter what NHCE 1 receives (as long as it is = or > than what they receive) you will pass ratio because 1/2 NHCE ratio and 2/3 HCE ratio = 75.7% testing accrual rate you have 1/2 NHCE and 1/3 HCE for 151% so as long as the NHCE accrual is > HCE accrual rate you pass. you have an 8 year age difference, so 1.085 ^ 8 = 1.92 in other words, the owner can receive 1.92 times whatever the NHCE receives. (but this would pretty much be true even without the kid in the plan, it is just you have to test special. if owner was born in first half of year and NHCE 2 in 2nd half of plan year then possibly you have a 9 year age difference and can do even better. If more than 3% is provided, then imputing disparity might kick things up even higher.

all nonelectives have to be included. depending on the population you may have to test using component plan testing. test one group of employees on an alloaction basis and the rest on an accrual basis. e.g. test the young HCEs on an alloaction basis with old NHCEs (all other participants treated as includable and 0 and the owner with young NHCEs on an accraual basis.- all other participants treated as includable an 0 you still have to provide the gateway to all NHCEs no matter which group they end up in. The power of component plan testing is you get to pick and choose who is in what group. no fair duplicating ees. no fair leaving someone out. disadvantage: depending on the software you use, illustrating it. For 2014 I think I'd amend to exclude HCEs from the safe harbor. Also make sure key ees aren't required to receive top heavy

I'm sure you will get differnt opinions as to what the 'best' way to correct this problem. The one method described in Rev Proc 2013-12 (this is EPCRS or Self-Correction), easily downloadable from Appendix B Correction by amendment .07(3) Since it is described under EPCRS it is guaranteed 'blessing' by the IRS. Other methods might be possible, and are probably valid, but none carry that blessing that I know of. (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.

yes, or have immediately eligibility for match and a 1 year for profit sharing (and even safe harbor - but if done with safe harbor you give up the top-heavy free)

in my case, since people knock the 'L' out of me, it's anthro-po-je

of course, if you are real lucky these people are over age 50 and you can simply treat the amounts as a catch-up. 402(g) defines 'excess defrrals' as amounts exceeding the 'dollar limit', no mention is made of 'plan imposed limit' so I don't think treating/coding them as a violation of yhe 402(g) limit makes much sense. therefore i think I would code them in the year distributed as excess contributions. way way way back when, the following write up(or Q and A 107 or 108) http://benefitslink.com/modperl/qa.cgi?db=qa_plan_defects&n=109#.URu6RqU4tqX referred to a 'how to correct' statement from the IRS by 'analogy to the 402(g) rules' I would interpret that as saying "We have no guidelines, but you have to do something. Follow the general procedure outline for excess deferrals" but I don't see their statement as saying you treat them as excess deferrals, rather they are simply using that as a reference point.

if I understand your question correctly, you are simply adding a deferral feature as of March 1. (and by chance a safe harbor as well) you shouldn't need anything else, document already says 1 yr wait for ps. you are simply adding a deferral (and safe harbor), I assume saying the same (1 yr wait) and all people currently active have already met that eligbility

here are some IRS guidelines. great examples (e.g. for eligibility see p.7 of the pdf file. vesting see p.5 for rules after break in svc. minimum vesting standards.pdf min partic standards publication 6388.pdf

e.g. if the plan has 5 HCEs and gains or loses one, I would consider that a significant change

well, there is an exception to the rule, so perhaps that is what or why the payroll 'requires' what they have. from the preamble: These final regulations retain the rule in the proposed regulations that a plan that changes an employer-provided limit during the plan year is permitted to use a time-weighted average of these limits as the employer-provided limit. For example, under this alternative method, a plan that provides for an employer-provided limit of 8% for the first 6 months of the plan year and 10% for the second 6 months is permitted to use 9% as the employer-provided limit for the plan year. These final regulations also provide that the plan is permitted to use the definition of compensation used for ADP testing purposes for this weighted-average simplification, and can use this alternative method without regard to whether the employer-provided limit is changed during the plan year. so if the plan has a cap (e.g. 8%, the person might designate 8% deferral and the rest catch up) but that is about the only scenario I can think of. even then, if the person stopped deferring during the year it would wipe out any earlier 'catch-up', so its kind of silly to have some type of requirement.

one of the consequences, of course, is you end up with an odd plan year, and then a short plan year the following year to get things back on track. (I'm pretty sure you have to have at least one 12 month plna year in such a situation. If the HCEs are at max comp, then max deferral for 2013 results in 17,500 / 255,000 = 6.86% so if you have an avg of 1.86% on the NHCEs a 3% QNEC to all would raise the avg to 4.86%, enough to pass testing and works the same as a safe harbor (aside from some possible top heavy issues). of course every situation is different and you may have HCEs not at max comp and that would change an example like that, but it is something to consider if it is worth the hassle to accomplish something for one year..

if I understand your comments, it sounds like you want to do the following: because I have an 'oldie', I run the ADP test treating old HCE as having 2000 deferral and 5500 in catch up beacuse that will help the test. But that is impermissible. You first run your test using all deferrals (except those amount over the 17,000 limit) then if the test fails, you can treat any additional amounts as catch, but only on a top-down basis (he who deferred the most)

of course there are no guidelines, the regs simply say 'reserved' for how to handle mergers, acquisitions, and the like. so I think you make a good faith effort. While the people are participating in a deferral arrangement, it is already a safe harbor, so you are merely going from one platform to another and continuing the safe harbor. whether the following argument would work in the eyes of the IRS is unclear. you have a MEP which consists of safe harbor A + B + C + D + E you want to pull apart the Mep and end up with A + B + C + D safe harbor and E safe harbor on its own since the MEP tests nondiscrim as if each employer was a seperate plan it is almost as if you already have each company with its own separate plan anyway. you are only switching from one document to another, so to speak. if nothing else changed then you haven't really even 'amended' the plan at the 2013 ASPPA Conference Q and A 38 the IRS indicated you could change investment platforms and #40 you could change trustees. While such answers do not necessarily reflect an actual position they do offer some hope and guidelines. But who knows how they would handle a situation for which there is nothing in the regs. Arguably, if the safe harbor contributions were to be deposited in a different plan you had to indicate so in the safe harbor notice, and there is nothing in the regs about issuing a new safe harbor notice to indicate such a change, and that could be a strike against switching things. Personally I doubt the IRS would have a problem if nothing else changed, but then I'm not the IRS and I've been wrong on stuff before. But again, in light of the fact the regs are simply 'reserved' for cases of mergers, acquisitions and stuff I doubt they could/would do anything if everything else stayed the same.