Ambiguous Classifications

[Spencer]

100% owner and his wife and son work at company. Wife and son are not management and are only HCEs by attribution. Intent was for wife and son NOT to receive contributions. But I am concerned about wording of the rate groups.

Rate Groups are:

Classification A shall consist of: >10% Owners and Management

Classification B shall consist of:Non-Commissioned HCEs Not in Classification A

Classification C shall consist of:Commissioned HCEs

Classification D shall consist of:NHCEs

Are the wife and son in A because they are owners by attribution? Or can they be in B because they are non-commissioned HCEs and less than 10% owners (not taking into account attribution)?

Can I do an 11(g) amendment to add another group, Owners by Attribution Only to clarify and not allocate a contribution to the wife and son?

Thanks!

[Tom Poje]

I think you are right to be concerned by the definitions.

if you take a strict interpretation I think you are correct that wife and kid are owners and therefore in group 1.

if you are talking about the 2009 valuation, then no you couldn't do a corrective amendment because that would be taking away a benefit someone has already accrued.

I suppose another possible interpretation would be would be to say if group A includes owners by attribution, then no one is in group B and that wouldn't make sense as to what the plan was designed for. Therefore, it's logical to conclude that group A is meant to be 'owners, not by attribution" or "direct owners". possibly a board of resolutions to indicate as such. would it stand up under IRS scrutiny? who knows.

[John Feldt ERPA CPC QPA]

Could you also argue that in a state where community property law exists, then the each spouse directly owns 50% of whatever the other spouse owns, thus an owner without attribution... - careful with those class definitions!

[Guest Sieve]

By the way, Spencer, what's a "commissioned" or "non-commissioned" HCE?

[Spencer]

Thanks for your answers. Did more research on the retro amendment and realized that I can't cutback anyone (I though maybe it was okay to cut back HCE). The owner opted to make a smaller contribution instead of maxing out and we gave the wife and son the same contribution rate as the owner (all in group A).

By the way, Spencer, what's a "commissioned" or "non-commissioned" HCE?

They have salesman who receive commissions and they are HCEs, but they do not want them to receive to contribution so they put them in a separate group from the regular salaried HCEs.

[BG5150]

So, I'd amend the plan for 2010 to add the owner-by-attribution class. It should be okay as long as no one has already earned the PS for 2010 yet.