What is the deadline for employers to adopt the EGTRRA pre-approved defined contribution plan?

In Announcement 2008-23, the IRS stated that the deadline for employers to adopt the new pre-approved defined contribution EGTRRA plan document is April 30, 2010. The IRS also stated that the opinion and advisory letters will be issued either on March 31, 2008 or as soon as possible thereafter.

Must an individual wait until the date he or she reaches age 70½ to take his or her first required minimum distribution? Or can the RMD be taken as soon as the year starts?

The RMD may be taken at any time during the year in which the individual attains age 70½. The IRS calls this the first distribution calendar year and the RMD for the first distribution calendar year may be taken at any time from January 1 of the year the individual becomes age 70½ until the Required Beginning Date, which is April 1 of the year after the year age 70½ is reached.

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A new 401(k) plan started in 2007 and is using the prior year testing method for its ADP test, what data is used for the prior year?

Since for the first year of a new 401(k) plan, there is no "prior year" data for the prior year testing method, the IRS permits the test to use a "deemed 3%" NHCE rate for the prior year. In the following year the test would use the actual NHCE prior year numbers.

The IRS also permits the use of the actual NHCE percentage for the first year to be used as the prior year number. If that is done, then the same actual NHCE numbers used for the first test will also be the actual prior year number used in the next test. Prior year testing examples follow:

Example 1
Plan starts in 2007. The employer may use the deemed 3% prior year NHCE numbers and the HCEs may defer up to 5%.

Example 2
Plan starts in 2007. The employer may use the actual NHCE numbers in 2007 as the prior year numbers, for example if the NHCEs percentage was 5.2%, then the HCEs could defer 7.2%. In the 2008 test, the prior year method is used and the prior year amount for the NHCEs is the same number, i.e. 5.2%, as that is the actual prior year (2007) number.

 

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Does exceeding the 415 limit permit deferrals to be classified as “catch-up” contributions, even if the 402(g) limit has not been exceeded?

The participant is over 50 and only deferred $15,000 for 2007, but together with the employer contribution allocated to his account exceeded the 415 limit for this participant.

We have had a similar question before on our website and, as before, we answer that breaking the 415 limit is another way to have a catch-up. Here is how we addressed it a while back, see example 4:

http://www.mhco.com/FAQs/FAQ-ELEC%20catch-up%20scenarios.html.

Interested in more information on catch-up contributions? Click here to check out our Back-to-Basics eSeminar.