Order in the Universe

[rcline46]

Say you have a plan with Profit Sharing contributions, forfeitures, employee deferrals, and a matching contribution. In no particular order you have 402(g) violations, 415© violations, ADP and ACP failures, and just to make life interesting, it is an off calendar year. (This has been happening for at least 5 years). These failures were all corrected timely according to the plan document.

Is there any citable authority for the order in which to make corrections?

For advance credit - consider that in addition to the above failures, there is also an operational failure which occured in each of the above years in the Profit Sharing contribution which has just been discovered. Correction of the operational failure will change and maybe eliminate most of the prior failures.

And yes, the client is being billed.

[JanetM]

I type fast since the meter is running for the client. I was told order is 402(g), plan limits (if any) 415© then ADP/ACP. Of course don't forget to reclass deferrals as catch up before you do anything.

Extra credit question is confusing. How would decrease in profit sharing change 402(g) or ADP/ACP failure? I can only see that it would eliminate 415© failure.

I think your client need remedial class in plan sponser 101 and basic record keeping needs for TPA. For summer school they could attend class on how the calendar deadlines work.

[Guest Robin.Wolf]

I was taught the same way. Teri Weatherby wrote an excellent article on this (don't have the cite, though) and included Top-Heavy, employer deduction testing, 401(a)(6), 410(b) and 401(a)(4) after the tests Janet lists. The article is old but is still the clearest explanation I have ever seen on the various tests and how they inter-relate.

[rcline46]

Janet - the operational failure would (may) clear the 415 failure, which in turn would change the ADP ACP testing, which was already done. Sigh. And where does an operational error fall into the testing order?

And Robin, who is the Toni lady? You say that hind cite is not possible (its a pun folks!!!!) - any other clues?

Interesting fact - formula in document is a comp to comp allocation, therefore a Safe Harbor formula and plan (a4 part) easily passes 410b, so there was 'no need' for a4 testing. TPA is engaged for specific tests only as each test is priced separately. This one just keeps getting funner and funner.

[JanetM]

rcline am a bit dull today, how does fixing profit sharing change ADP/ACP or max deferral amount?

I am basing this on logic, which may lead be completely wrong. Op failure would occur as you ran each test.

Test 402g - make refunds if over deferral limit.

Next test for plan limits if there are any. Fix any failures.

Next test 415c and ensure person isn't over annual additions limit. Fix if needed.

Last is ADP/ACP. In last post you say plan is save harbor, why are you doing ADP? Only do ACP if you have after tax contribs.

[rcline46]

Sorry, Teri, not Toni!

Janet - It works like this - Profit Sharing for owner was calculated incorrectly - based on actual pay not limited to 401(a)(17). This is an operational error. To much put into plan. Causes 415 violation. However, if the operational error was corrected, no 415 violation.

So we have an improper 415 violation, which is fixed by the usual give back unmatched deferrals, then matched deferrals and related match. This affects (improves!) the ADP test and ACP test.

The Safe Harbor formula is for the profit sharing, not this new fangled ADP/ACP Safe Harbor stuff. A comp to comp profit sharing allocation is considered a safe harbor formula providing 410(b) is passed.

This is going to be a lot of fun to straighten out. Improper givebacks once the operational failure is cleared, revised ADP/ACP testing and catchups. Order please! I might retire on the fees for this one!

[JanetM]

Okay, I see now. HMMMMMM looks like you will have your hands full for a bit sorting this one out. Good Luck!