perkinsran

Does anyone know if Prevailing Wage Contributions can be used to satisfy top heavy minimums?

I just met with a prospect yesterday and they bought a company that has a plan with Prevailing Wage Contributions under the Service Contract Act. The parent company sponsors a 401k safe harbor plan. Two vendors before me told them they had to sponsor a single plan. Is anyone aware that as long as the plan passes coverage testing, the SCA plan can remain separate from the Parent plan? That would not make any sense, but in this business, does anything make sense.

Does anyone know if the 15 year catch-up is mandatory or is it optional. I know regular catch-up is optional. The Relius Corbel document gives you a choice so I would think it is optional. A vendor is telling client it must be included. Thanks

That would make sense but who knows whether the IRS would consider the intital excess to be an impermissible in service distribution. CLient's TPA did test wrong since 2005. The TPA is doing the retesting and some people recieved too much and some too little. We suggested they correct through VCP for the people who did not receive enough refunds, but did not know if anyone had experience with the "too much paid out" scenario.

Any idea what you are supposed ot do when you file under VCP for an old ADP failure and some HCEs received too much from the original tests. The rules are pretty clear if you need to do an additional refund but I can't find anything on the excess.

A surgical practice is an LLC taxed as a partnership. They have a DC plan in which they are maxing out contributions. Each Doctor can decide whether to be on call at the Emergency room of a local hospital and they receive a 1099 personally and report it as Sole Practitioner Earned Income. Can this income be included in the LLC Partnership income? If not, can they make a retirement plan contribution from this income separate from the partnership?

I think that is the real question. Since we have already violated the terms of the plan by not refund failed ADP test in time, can we simply follow the rules of EPCRS and use actual gain and/or losses.

We have a client that failed their ADP test in 2006 but the prior vendor never corrected the problem. The SCP allows us to fix the problem but the issue becomes the calcuation of gains/losses. Rev Proc 2006-27 (Haven't read 2008-50 but I assume it is similar) appears to allow for actual gains and or losses to be used for the refund as well as the One to One Correction Method for the contribuiton to NHCEs. The prior vendor is claiming Gap period methodology must be used for the period after 12/31/2006 based on 2006 earnings. It makes a huge difference since the funds lost significantly since 12/31/2006. Any ideas as to solution?

Andy, That is exactly correct. We are testing a dc plan on a benefits basis. It is not that i don't want to aggregate but we are not the actuary for the db cash balance plan. Our dc cross tested rate groups fail the 70% test, so I am trying to determine if I need to get benefit rate from the actuary for the CB plan to determine if the plan passes the (a) 4 test. So before I ask the actuary for the equivalent rates in the CB plan and he says I don't need them, I just wanted to post this inquiry.

Sorry for the delay and thanks for the response. Here is the scoop. We just picked up the dc only portion of this plan. It is a 401k safe harbor cross-tested plan. Employer contributions to this plan are about 5.5% per year for nonowners. When we run the a4 test, each of our rate groups do not pass the 70% test so we have to rely on the average benefits % tests. The prior TPA ignored the Cash Balance plans in the calculation of the latter for a4 testing. The two plans each pass general 410 b coverage tests since they cover all eligibles. Does that change the answer?

I understand that a change would not be made until next year, (if it can be done at all ) but can you make a change that would allow participants to enter the plan for elective deferrals immediately, with Safe harbor non-elective contribution for 1 year of service ?

We have a client with 401k safe harbor cross tested plan and a cash balance plan. All statutorily eligible employees are eligible for both plans. When we run the ABRs for the 401(a)(4) tests for the cross tested plan, do we have to look at the cash balance plan or just the cross tested dc plan?

Company currently has a 401k safe harbor with a 4% non-elective. Immediate eligibility. Questions have been asked regarding whether they can amend to make deferrals immediate, but Safe Harbor non elective only to those who have 1 year of service. Can this be done? and if so would it need to be done at the time of the Safe harbor notice ?

If a plan is terminating, does it have to be restated under the EGTRRA Restated documents? It is current wiht all amednments except for the final 415 limits.

We are a TPA and were recently retained to straighten out a plan that has many problems (e.g. Safe harbor match exceeding % limitations, integration formula not followed, no 1099s issued, etc.). The company's CPA was doing TPA work when many of these problems occurred and then in an attempt to get a better handle, they transitioned to a major insurance company, which just compounded some of the problems. There was not intent to defraud anyone on behalf of the company and it is a very generous plan for all employees (100% SH Match on first 6% and 4% of compensation contributed which is allocated on an integrated basis.) Almost all of the 10 NHCEs contribute close to matching levels. The client simply did what their outside advisors told them to do. Now the good part---The IRS has now selected them for an audit. My question is for all those people who have been through messy audits, do you think the client should just upfront confess to their sins and ask for mercy or just let the IRS uncover it for themselves? They will get some fines and penalties, but I don't know if it is generally the same regardless of the circumstances. Had the IRS not come in when they did, we would have gone through the EPCRS to fix problems.

Two unrelated sub-s corporations have merged and formed a new company effective 1/1/2007. One company sponsored a SIMPLE and one company sponsored a non safe harbor 401k plan. The new company wants to sponsor a safe harbor 401k plan. Does the fact that one of the companies had a non safe harbor plan create problems for the safe harbor arrangement in 2007? No contributions have been made to either plan in 2007, if that is relevant. And if the 401k assets of the old plan are transferred over, does that create issue relative to the safe harbor status for 2007?

This is a pretty elementary question, but I seem to have a brain freeze. A plan bacame top heavy as of 12/31/2005 and is subjected to minimum contribuitons in 2006. It is a 401k voluntary only plan. Assuming the key employees do not make any 401k contributions in 2006, can I assume there is no Top heavy minimum for 2006. The 401k contributed by key employees in 2005 is irrelevant--correct?

Thanks a lot to both of you. This really clears the air.

We do not have any HCEs with < 1year. So let me play this back to you. We disaggregate the group to < 1 year and > 1year. For the < 1 year group, we do not have to give them anything other than the 3% SH. For the > 1year group, we must give terminated employees 2% (Gateway minimum) of the additional 3.5%. For coverage and a(4) testing, we test the >1 year group only, since the other has no HCEs. COrrect?

We have a 401k Cross tested SH plan. Employees receive 3% SH contribution starting on the first day of the month after 90 days of employment. The plan has a last day of employment provision for Profit Sharing. The company is providing an additional 3.5% for PS resulting in a total 6.5% (3% SH and 3.5% PSP). My interpretation of the Gateway Minimum is that all NHCEs entititled to the SH would also be entitled to 2% of the additional 3.5% PSP. However, the law appears to allow us to disaggregate the plan and potentially exclude the people who have not satsified statutory service (<1 year) from receiving anything other than the 3% SH. I think. Question, if we disaggregate the plan, must we run separate 401(a)4 test for each of the two disaggregated plans? Or can we disaggregatet he plan to demonstrate coverage and then run an (a)4 test for the entire plan? Or am I totally off base here?

I'm very confused on when catch-up are applied to an ADP failure. Can someone confirm logic below that Catch-up is applied as the last step before refunds: Owner A age 45 $80,000 defers 5% or $4,000 Owner B age 51 $150,000 defers 5% or $7,500 Plan only support 3% HCE deferral, so $4,600 in refunds is required and split $550 to Employee A and $4,050 to employee B. Since B is catch-up eligible in 2004, he gets a $1,050 refund. Is this correct?

Thanks Blinky--That's what I thought--Doesn't make sense but confirms the tangled web of the IRC.

A 401k Matching Safe Habor Plan has a three month wait for 401k deferrals and a 1 year wait for the safe harbor match. If the plan is deemed top heavy, must a top heavy minimum be provided for all employees eligible to make 401k contributions?