Tom Poje

agreed, just to make sure the terms are being used in the same way. if I test on an allocation basis I take contr / comp so I am not converting to a straight life annuity. it could very well be I fail the ratio % testing on an allocation basis (e.g. 60% instead of being greater than 70%) (but 60% is greater than any midpoint) and however, it could also be true the avg ben pct test passes at 70% on an accrual basis 9e.g. converting to a straight life annuity). but the avg ben pct test does not trigger the gateway.

would agree with above comments. I've attached this before, but that was while ago. If the above answer didn't answer your question, perhaps this will. this is the IRS guidelines, I believe break in service starts on page 5 minimum vesting standards.pdf

yes, if you test dc nonelective contributions using allocation rates (even though the avg ben pct was tested using accrual rates), you have not 'cross-tested', and therefore there is no gateway, even though, conceivably you may have more than one allocation rate. I think, what happens in many cases such plans would pass the broadly available gateway anyway, but maybe that is an overstatement. Of course, technically, at least in a prototype plan you have to define the specific gateway, you can't pick and choose, otherwise the IRS says the formula is not definitely determinable.

For a real simple example suppose I have a plan with 10 NHCEs. Plan's formula is a straight 5% across the board. 4 of the NHCEs term, > 500 hours and receive nothing. so for ratio % I have 60%. I run the average benefits % test on an accrual basis and it passes 75%. Since the plan as a whole passes avg ben pct test, and the ratio % test is 60% the IRS says no gateway is needed. But people get worried because the avg ben pct test was run using accrual rates. Now, in this simple example everyone received the same %, so gateway wouldn't come into play. so lets modify it. formula is now 10%, but the 4 people in question received 3% top heavy because they were active but failed hours requirement. using the allocation method (not accrual) you still have 60% in the rate group, which will satisfy the midpoint and the plan as a whole passes avg ben % test, so you have a plan with different allocation rates (e.g what people refer to as cross tested rates because they are different)

one item I don't see mentioned: how were other terminees with loans handled? And if the person in question here was an HCE and he was allowed to continue payments and others weren't then it fails the smell test.

at the 2009 ASPPA Conference they said (Q and A 44) the IRS response was: "No. There is no gateway requirement for a general tested plan under Treas. Reg. §1.410(b)-5(d)(5), unless cross-testing is used to determine the rate group testing. The gateway rules are in §1.401(a)(4)-8(b)(1)(I)." remember, there is one and only one avg ben pct test. you first run coverage and if your plan fails ratio %, you could pass using the avg ben test (which includes the avg ben % test) you are not testing nondiscrimination at this point so there is no gateway. Mike: Saturday Feb 2 is ground hog day. That means 6 more weeks until Michigan gets the # 1 seed on selection Sunday in basketball.

" I'd assume he isn't eligible for the combined plan gateway" not sure about this statement. once you receive any nonelective contribution of any type you must receive the gateway. doesn't matter whether you have hours or otherwise. The same thing happens all the time with safe harbor contributions for people who terminate, they get bumped up to the gateway. top heavy is a different matter. I think the language in the DB docs I've see simply says if you particpate in both plans you will get the top heavy in the dc (w/o addressing last day or hours, of course, but it's past my 4:15 limit so I'm only guessing on that). of course, that probably conflicts with the DC language which says you have to be there on the last day.

years ago (2007) I worked on a plan that we did some preliminary testing. one individual owned exactly 5% and was deferring 15%. Based on whatever data they sent- maybe it was 9 months of comp, their projected comp was 100,000.14 I told them I don't care how they handle it, just make sure that the person's comp did not go over the 100,000, even if the person comes to work in the morning and finds 14 pennies sitting on his desk one day.

Hopefully your document actually says you will use 'calendar year' comp Sample choices from one adoption agreement: For purposes of allocating Matching Contributions and Nonelective Contributions, Compensation is determined over the period specified below ending with or within the Plan Year: [ ] Plan Year [ ] calendar year [ ] Plan Sponsor Fiscal Year [ ] Limitation Year ............. If I recall corectly, though,comp for deduction purposes is based on the employer's fiscal year, because that is what the employer's tax year is based on.

well, if you go by 1.401(a)(9)-2 Q-2© a 5% owner is an ee who is a 5% owner with respect to the plan year ending in the calendar year in which the ee turns age 70 1/2.

Certainly no expert on 403b plans, but does your document even allow such a choice?

I vaguely recall years and years ago the IRS...ok, it was 1997 according to the ERISA Outline Book 1B24, #30 Q and A "the effective date could proceed the existance of the company" the usual caveat, it is an opinion only and doesn;t necessarily represent an actual position, so who knows if that really carries any weight. I think you are correct, the person is limited to 12,500 - anything above that is over the 415 limit, which could be treated as a catch up. By the way, lets suppose this person was an HCE at a former job, deferred 4,500 and all of that was treated as a catch up due to a failed test. Then what? he would have deferred 4,500 (old plan- treated as a catch up) + 12500 new plan + 5500 catch up = total deferral = 22,500 everything I've seen in the regs says a catch up limit is plan by plan max of 5500 - not combined all plans of all employers. the only thing in the catch up rules is all plans of an employer are combined and capped at 5500. 402 g simply says you can get the max deferral 17000 plus the max catch up of 5500 in a given year. so it looks like that would be possible.

but remember, even if such people are excluded from the plan, once they meet age 21/1 yr svc they are included and not beneifiting for coverage and nondiscrim purposes (the non elective portion but not on ADP or ACP test)

If you have 2 plans in a controlled group, but wish to test separately you have the following 1000 NHCE (A) + 300 NHCE(B) = 1300 total NHCE 200 HCE (A) + 50 HCE (B) = 250 HCE when looking at plan A treat all B people as includable not benefiting so 1000 / 1300 =76.9% ratio for NHCE 200 / 250 = 80% for HCE Plan A ratio = 76.9 / 80 = 96.12% passes Plan B 300 / 1300 = 23.08% NHCE 50 / 250 = 20% HCE 23.08 / 20 = 115.4% so passes ratio% as well. or at least based on data provided unless some of those bodies are also not benefiting. e.g. you said you have 1000 NHCEs, but maybe some aren't benefiting (but of course that depends on which test of coverage you are talking about. if its the 401k, then assuming all 1000 could defer then its 1000/1300. for the nonelective portion if there is a last day rule or hours requirement then its (less than 1000) /1300...etc. ................... for purposes of average benefit pct test, all contributions are included, whether the individual plans are aggregated or not. your NHCE concentration %: in a controlled group you really only have 1 employer, doesn't matter whether plans are aggregated. so, what % of the population is NHCE and go from there. ............................

or you could use the 5500-sf form,and check the box indicating it is a one person plan. (This is also supposed to trigger 'not available for public viewing) you have to get the person to sign the form anyway before submitting, so attaching the signed form and submitting electronically is really no different that mailing the thing in. Can not speak for other software, on FT William the SF form practically becomes an 'EZ' form because you are only permitted to enter a minimal number of fields, everything else is grayed out.

hey, just who is that young smiling man whose picture shows up on Dave Baker's threads?

so lets suppose a plan failed coverage and you had to correct by providing an additional allocation to someone. would you argue you have created a new allocation group. oh crap, the document won't let me do that? I would hold you allocated a contribution to someone of x%. if he gets bumped up to the gateway, well, thats the regulations - that is not your choosing. by the way, at the ASPPA conference a similar argument was used for safe harbor plans - you could change things to pass coverage/nondicrim testing because you simply have to to be in compliance.

it is absolutely forbidden to correct loan problems through SCP - only can be done through VCP. I think it is because there are individual tax issues involved, or at least that is the best reason I can think of why you can't use SCP)

Mike - I assumed that only because the number of NHCEs not benefiting was over 50%. I suppose it's possible many failed hours/last day (or are excluded from the plan), but it just sounded like many were in a group allocated 0. My bad. (Just like the Wolverines the other day)

where is Spock when I need him. 1. if your plan has fail safe language, then do not pass go do not collect $200. you never get to the avg ben test because fail safe language forces you to use the ratio % test. 2. if plan does not have fail safe language, then NHCE concentration % => 94/104 = 90.38% since regs use language something like 'at least' you always round down, so round down to 90%. the safe harbor % for 90% is 27.50. NHCE ratio % = 46/94 = 48.9% HCE ratio % = 100% so PLAN ratio percentage = 48.9% for coverage, there is no 'all rate group'. there is only the plans ratio %. for coverage there is no 'mid point'. there is only a safe harbor. midpoint is a term only used for nondiscrimination testing. well, there is an unsafe harbor, but you have to have permission from mom to use that, and pass facts and circumstances. sonce 48.9% > 27.5% AND Average Benefits % >70% then plan passes coverage. as a cautionary note, IRS has voiced an opinion that if each person is in their own rate group, that "could" be viewed as saying groups are defined by name. any classification by name or other criteria having substantially the same effect as enumeration by name fails the "reasonable" classification test and negates the ability to use the avg ben test. see 1.410(b)-4(b)

I assume you to mean that the owner has taken min distrib in the past and is simply late this year. otherwise of course you have until 4/1. that being said, I suspect most people would simply ignore it and get on with life. but really what should be done is you simply ask the penalty be waived. basically in this case you have all the bells and whistles in place and it doesn't appear tax avoidance is an issue. you then follow the following steps (ignoring what little attempt at humor is included in the comments) •You can’t ask for the penalty to be waived until you have actually taken the distribution. This is proof you are trying to fix the situation as soon as possible. •Fill out form 5329. •Write letter begging for mercy, explaining the reason you didn’t receive the minimum distribution was the incompetence of the investment house or something similar. •Years ago, it was required to send in the 50% penalty and hope the IRS would have leniency and waive the penalty and return the money. Now simply send in the letter with the Form 5329, and if they don’t accept your lame excuse they will bill you. ...... all comments aside, with the govt as deep in debt as it is, who knows what they wil start doing in an effort to raise $. It still boils down to an owner being late. if you are late with a credit card payment you pay the price.

real briefly 1. comp is generally w-2 comp or similar definition, bumped up to include deferral. most if not all docmuments spell this out quite plainly. 2. only determination of HCE and key employees is based on prior year. 3. over contributing on an in individual is cause for plan disqualification. over contribution the deduction limit is cause for tax penalties. 4. the 25% deduction included only those employees who are benefiting, not ineligible and other employees in the plan who are not benefitting

is this like the question "Did Perry Mason ever lose a case?" 1.401(a)(9)-5 Q and A 3 (b) says contributions...allocated...after the valuation date, but not actually made during the valuation calendar year are permitted to be excluded. (the old regulations required these amounts to be included.)

12AX7 - agree, but possibly only because min distr regs predate the new 415 regs. my only point is there may be a valid reason for considering the person to have worked in '2013'. certainly for plan and tax purposes he has. we do have other 'regs' we have to work with the best we can. the one that comes to mind is rehires and the one year holdout rule that makes no sense in a 401k situation. but then the break in service rules were written before the advent of defrrals and stuff.

the problem with the commission argument is that the 415 regs only pertain to comp earned in the first few weeks, not months down the line. regardless, all the regs say is the calendar year the person retires. and again that produces the strange situation in which for plan purposes the person really isn't retired until the following year. I would like to have seen the mim distrib question proposed in a slightly different manner. I don't think I have ever actually had the situation arise. In our office, when we sent out the 2011 valuations we also include a minimum distribution notice thay says 'so and so' will require a minimum distribution due by 4/1/2013 if they terminate by 12/31/2012 - because we won't receive the census until sometime in 2013, and by then it's quite often too late to do anything about it. not that the client actually reads what we send, but you never know.