rew

I received the following reply from the attorney of our document provider: You are correct on both counts. The definition of compensation used for the safe harbor contribution must pass 414(s) testing and our document does not contain fail safe language for 414(s) failures (the IRS does not allow 414(s) failsafe language in pre-approve documents). From above comments, it appears that some pre-approved documents have fail safe language the IRS allowed.

Thanks for your input. At first glance, I could not find any language in the plan document about using a safe harbor defn of compensation. Will review further.

It appears from my research that a safe harbor 401(k) plan that uses the 3% nonelective contribution on plan compensation that does not satisfy the "safe harbor" definition of compensation and fails the 414s compensation test is a problem. It appears the method of correction is to base the 3% safe harbor contribution on a "safe harbor" definition of compensation which may or may not need an amendment depending on how the plan is written. I am wondering if there are any alternatives other than having the employer deposit additional contributions. For example, can one run the ADP Test on the basis of a "safe harbor" defn of compensation? To illustrate, a plan defines compensation to exclude bonuses and OT pay. a participant earns $70,000 of total compensation of which $20,000 is excluded as OT pay. The participant defers 5% of pay, or $2,500 (i.e. $50,000 x 5%). The company deposits a 3% safe harbor amount of $1,500 (i.e. $50,000 x 3%). At year end, it is determined the plan defn of compensation fails to satisfy 414s. Must the employer deposit an additional $600 (i.e. $20,000 excluded pay x 3%) or can they first run the ADP Test on the basis of full compensation. Is it possible for the employer to first run the ADP Test on basis of using the total wage (i.e. the participant defers 3.57%, calculated as $2,500/$70,000) to see if the ADP Test is satisfied? If it is possible to run the ADP Test and it fails, may the plan be remedied by having the affected HCEs receive a refund of the excess deferrals on this basis?

Thanks again for the responses. This is a situation where the attorney's revenue stream can change dramatically from year to year. His decision to terminate the first DB plan (which was designed to provide a high level of benefits) was prompted by the higher required contributions and his continued ability to fund the plan. He was not interested in a reduced future contribution level at the time of his decision. He is interested now. As far as skirting the in-service distribution restriction, all distributions were properly processed and spousal consent obtained. Each participant elected to rollover their distributions into the existing 401k plan or another IRA. Hopefully, that would satisfy any IRS concerns. And I agree that, with a lower future level of required DB contributions, there will be no 415 issues as a practical matter.

Facts: Small Law Firm (Owner Attorney and spouse and 2 NHCEs) established both a 401(k) plan and DB plan eff. 1/ 1/2009. Decision made to terminate the DB plan 12/31/2013 (non-PBGC plan) and continue the 401(k) plan. DB plan distributions completed in 2014 along with final 5500. Attorney changed his mind and would like to continue a DB plan (i.e. establish a new DB) for 2015 (at a smaller contribution level, $50K). There are no changes to the employee group. Footnote: I would assign PN: 003 to the new DB plan. Question: 1. Are there any considerations (rules/regs.) which may prevent the owner from establishing a new DB plan given the above facts? 2. I believe the terminated DB plan's accrued benefit must reduce the 415 limit for each participant. Agree? I appreciate any comments or other concerns I may have overlooked for this issue. Thank you.

It would be a transfer. I believe if it were a plan termination, then plan participants elect their type of distribution (including spousal consent). They can rollover a distribution to the SEP. The transfer does not involve participant election.

My basic question is: Is this type of transaction permissible? From what I've read, if pension plan assets are transferred to a non-pension plan, the distribution restrictions must continue to apply. I do not see how that can be possible given the fact that qualified plan money is transferred to an IRA in which the participant has access to the funds. Is it possible for a SEP to be written to retain the character of the transferor plan?

Thanks Hojo. Follow up question re:your last sentence. If AFTAP <100%, then you adjust for PFB (no COB in this situation). Is the PFB = $0 or $6,961 as shown above?

I do not think I have a good handle on EOY Valuations. Facts: CB plan established 1/ 1/2014 EOY Valn 12/31/2014 (also first plan year) 4 participants (2HCEs 2NHCEs) Funding Target = $ 0 Target Normal Cost = $ 47,766 = MRC Assets 1/ 1/2014 = $0; Assets 12/31/2014 = $55,000 (all receivable and for 2014 plan year) and at Market Value Employer Contributions totaled $55,000 deposited in Jan and Feb 2015 Discounted Employer Contributions = $ 54,727 Increase in Prefunding Balance = $ 6,961 (i.e. $54,727-$47,766) Q1. What is FTAP and AFTAP at 12/31/2014? A1. 100.00% (which is $0 FT divided by $0 assets since contributions are all receivable) A2. 114.57% (which is $ 54,727 discounted contributions divided by $ 47,766 TNC) A3. 100.00% (which is ($ 54,727 - $6,961) divided by $47,766) Is this the percentage that is entered in line 14 and 15 of 2014 Sch SB? My initial thought is 114.57%. Q2. My reading of the 2014 Sch SB instructions lead me to believe that line 2a and 2b (Asset Values) are $0. Item 3 Funding Target is also $0. Is this correct?