perkinsran

Thanks that's what I thought from the earlier post. Not what I wanted to hear but it makes sense.

Thanks for the reply, but lets look at some numbers and make sure we have this correctly. 10 employees, 1HCEs and 1 NHCE who terminated with more than 500 hours. Since all employees receive the 3% safe harbor, do we have 100% coverage for PS or 90% coverage for PS. In other words, is the contrihbuion for Safe Harbor and PS combined? Whay we are trying to do is when an employee leaves, cash him out without a subsequent year end contribution. Lets say at year end the company makes an additional 2% contribution for NHCEs. DOes the employee that terminated have to receive that if the plan requires a last day of employment? It seems clear from your earlier response this employee must be included in the 401a4 analysis for the cross tested piece.

We have a client that excludes terminated employees in the year end cross tested profit sharing allocation. They do however receive the 3% safe harbor (401k cross tested plan) since it is funded each pay and there are no restrictions. If we pass the 410b coverage tests with these employees excluded, do we have to bring them back in when testing for 401a4 for the cross tested?

Boy, I step out for a few days and everybody gets in the fray Thanks for your input. To finish off this post, in answer to Andy (I think), yes the EBARs of the NHCE is considerably higher due to the age of the owner (58) compared to a relatively young employee population. Also, there are some other older HCEs that have short service and therefore have low EBARs. This should be reflective of the old days if the plan wasn't top heavy and we wanted to max benefits for older owners (before the gateway.) I think I agree if the plan becomes top heavy, the formula will not work since the minimum % rate must be 1%. (1.401(a)(4)-8(b)(iv)(D)). In that case, I think you could use 1% as the minimum "hypothetical" rate to prove smooth increases and then override it with the 3% TH minimum. Finally the plan document does not provide the formula, just the service bands.

Thanks so much. This is a fairly unusual situation. The company has about 50 eligibles, but the onwer is the only one with 15+ years of service and there is only one employee in the next band. There are also 5-6 other HCEs who are in the lower bands. We obvioulsy fail coverage in the rate bands but we pass a4 general tests. We also have not used this concept but it seemed to work well for this company, since the overhelming majority of employees fell in the first two bands. and thereby we only had to contribute 1.2% or lower instead of the 5% gateway. Regarding Top Heavy--Although the plan is not top heavy they are very close and we assumed a minimum 3% would have to be provided for all bands less than 3%. How could you avoid top heavy minimums if you only provided the 1%?

It appears the following bands will satisfy the "regular intervals and smooth increases" tests under the final regulations. <3 years of service .6% Contrib 3 to 5 yrs 1.2% 6 to 8 yrs 2.4% 9 to 11 yrs 4.8% 12 to 14 yrs 9.6% 15+ years 14.6 % Obviously the owner is the only one with 15+ years. Does anyone see anything wrong with using this formula? Thanks.

We have a plan that is interested in using salary levels in $25,000 increments with the last salary defined as >$100,000 as the group classification. They are doing this to balance out the expected soscial security replacement ratios for the various salary levels. Is there any reason to think this may be considered an inappopriate class definition?

We just put in a 401k cross-tested plan with a 3% safe harbor. The client just advised us they have many employees subject to Davis Bacon Act. Is there a reason the employer cannot treat the 3% safe harbor as a credit towards their obligations under the DB provisions?

What is the appropriate safe harbor compensation to use for an LLC taxed as a partnership? The plan uses W2 earning definitions but we want to include pass through corporate earnings since the owners include that income in determining employment taxes.

We have a prospect that has a non safe harbor 401k plan with a 50% of first 6% match with about 50% participation. They became top heavy for the first time in 2002 and had to make a 3% to all nonkeys. This cost them an extra $15,000. It appears we can change the plan in 2004 to be a SIMPLE 401k with 100% match of first 3% and avoid the top heavy rules. TRUE?? Is there any reason you can't change back later if they become non top heavy??

I seem to have read somewhere that if a 501c3 organization has a 401k plan with a ADP problem for the HCEs, the company can sponsor a 403(b) plan just for the HCEs and doesn't have coverage or ADP problems. Thoughts?

Has anyone ever broken it down to an individual level and gotten a letter from the Service?

We are trying to get as much flexibility with physician discretion without running into IRS problems. We know all the Doc could contribute $40,000 if Docs were one group and everybody else was another group. However, Docs salaries range from $150-$400 K. Since the docs are owners and share prorata in the 8% they are doing for everyone else, some can't afford to do $40,000 for themselves. Therefor, we are trying to get as much flexibility without raising IRS issues/concerns. We first proposed breaking the Doc group into 5 year age brackets to give some flexibility. You still have the same issue with two Doc in those age brackets not wanting to do the same %. By ages, we are getting very close to a separate group for each Doctor and the Sal Tripodi ERISA Outline Book indicates "this may be a problem, but there is no offical word from the IRS." If we break it into individual ages, I don't think we will have to amend the plan yearly because the % are determined at year end and are discretionary.

we have a large medical practice with about 250 employees and 25 physicians. The company currently contributes 8% of pay for all employees. The 8% of pay will support a 20% of pay for the Doctors as a separate class. However, some Doctors would want to contribute the max for themselves and some will not. Can we structure the HCE groups in single age increments to accomodate this? i.e Groups as follows: Group 1 All NHCEs 8% Group 2 HCEs age 35 8% Group 3 HCEs age 36 20% Group 4 HCEs age 37 15% etc. etc.

We are a sponsor of a Corbel Prototype and we just picked up a new plan from a major payroll vendor. They had a 401(k) prototype and the vendor received their GUST letter 4/29/02. We talked to the payroll vendor and they said new documents/AA/SPd were being mailed out end of November. We thought, from prior conversation with COrbel, that Prototype plans had to sign a certification by 2/28/02 to be granted the extended relief. It now appears the client may have until 12/31/02 to adopt the restated plans from payroll vendor. Query--Since the client did not sign a Certification by 2/28/02, are they granted the relief if they adopt the payroll prototype by 12/31/02. ALso, could they simply adopt the COrbel prototype by 12/31/02 with a 2/28/02 certification.

We are looking at putting in a cross tested plan with following contributions: 1. 401(k) 2. 3% Nonelective Safe harbor 3. Match 2/3 of 401k up to 4% of pay 4. Profit Sharing Cross tested It is our understanding the only discrimination test to apply are 401(a)4 as follows: First--2 & 4 are subject to Ratio test under 401(a)(4) Next--if ratio test fail fo any group, all sources are included in Average benefits % tests. ADP and ACP are not applicable. Correct? If not, help.

Correct. The rate group is that each group must satsify the 70% coverage test.

The profit sharing contribution is first tested under rate groups and if each rate group can pass, the plan would be considered passing coverage. If any rate group fails, the plan would have to go to ABP test and deferrals are then included in the testing. As was mentioned earlier, if we get to this step, the plan is likely to fail and we would get to this step if we have some terminations that make rate group coverage fail.

Can a small employer establishing a PSP claim the small employer startup tax credit if the only plan they have maintained in the last five years is a SIMPLE?

The plan actually passes the rate group coverage testing before getting to the ABP test. The doc ends up about in the middle with 15 people and his spouse is on the bottom. If it weren't for her being included in the Rate Group coverage testing, the plan would fail and be required to go to ABP tests.

This is a fairly fundamental question, but I will asks it anyway. We have a Doc and his spouse in a Profit Sharing plan. Doc makes about $350K and spouse makes $40K. We are converting the plan to a 401k safe harbor with a comparability ps formula. Since we no longer have to worry about family aggregation, I assume the spouse is an HCE due to ownership attribution, but the spouse is tested totally separately for 401k and 401a4 as a separate HCE. The spouse will defer $11,000 of salary and we could, but have chosen not to, include her in the comparability additional amount. The interesting thing is the spouse actually helps with the a4 testing since (1) she was not getting the extra comparability contribution; (2) she is one of the older employees; and (3) she was at the bottom of the ABRs as an HCE. Seems to good to be right?

I am converting a straight PS to a Cross tested Plan. The PS has been actively funded since 1986 at about 15% of pay. The owner is about 50 and two NHCE are also about the same age. When we ran the a(4) test using Annual method, the plan would only support a small increase for the owner. Since the two NHCEs have less service than the owner, we wanted to use the Accrued to date method. Three questions: 1. Regs say to include years the employee benefited. For HCE, I assume we use 15 years (1986-2001) or must we only use years for the cross tested plan effective date? (The plan is being amended) 2. If plan recognizes services before inception date, are you still restricted to limit the denominator years to inception date ("benefiting" service forward? 3. If the plan had several years in which it were not funded, can you still count those years?