Taking ASPA C-2(DC), need help....

[stevena]

I know there is a seperate board for the C-2DC but no one ever uses it...

Can you help with a couple of questions?

1. Can you really exclude participants from your ACP test if they are not eligible for a Match due to a last day requirement? Per the textbook, "An employee may be eligible for the ADP test and not the ACP test, e.g., did not meet the last day employed requirement to receive a matching contribution."

I have never seen this before and have always included participants in my ACP in this situation. And the question on the Practice Test:

"Which of the following describes participants that can be excluded from the ACP test?

a. A participant who cannot contribute due to a hardship distribution taken in the last six months

b. A participant who elects not to defer

c. A participant who is not included in the minimum coverage tests for the 401(m) component of the plan.

the answer is © but I am not sure why??

Also, another question asks, "All of the following statements regarding catch-up contributions are true, except:

a. Participant deferrals may be recharacterized as catch up contributions after the plan year ends

b. A plan will not fail 401(a) (4) because of catch ups

c.Participants must be at least 50 before the end of the plan year to be eligible to make catch ups

d. Catch ups will not cause failure of the ADP test

The answer is (a). I cant figure out why this is the answer as I dont see how catch ups are characterized until the end of the year when testing is done, so why would this be a false statement??

I really appreciate all you smart guys helping me out....

Lisa

[R. Butler]

If a plan has a last day requirement or imposes a minimum hours requirement, employees failing to meet those requirements are excluded from the ACP test (See 1.401(m)-1(f)(4)). Thus although "C" won't be correct in every circumstance (ie for plans that impose last day or hours requirements), it is the best of the three choices.

I don't really follow question 2 either. If I was taking the test I may have guessed "A" simply because B,C,&D are very definitive statements and answer A uses the word "may", but really I don't see that "A" is not true.

[AndyH]

Those are not good questions. When I took C-2 DC a few years ago, there were several questions that I got wrong that I still think I answered correctly, because IMHO they were bad questions.

I found that to be true on all of the multiple choice tests, but much more so on C-2 DC for some reason. And I got a 9 on each of them.

[Gilmore]

Please let me know if I have this completely wrong on the second question, but if the plan year ends on June 30, 2003 and the participant turns 50 later in 2003 are they not still allowed catch-up contributions during Jan-Jun of 2003. So it seems to me that answer C would be the wrong answer since the participant needs to turn 50 before the end of the calendar year, not the plan year.

[AndyH]

To really resolve this, if you have the ASPA yearbooks, or know somebody who does, you can determine who was on the E&A committee for that test for that particular year and send him/her/them an email. I did that when preparing for one of the essay exams and the authors of the text (who were also on the committee) confirmed that the material contained errors. It does happen, so I would not get too hung up about it.

[Gilmore]

Thanks, I'm planning to take this exam next year so that is good to know. Although I understand that they are completely redoing their exams starting next year?

[R. Butler]

Gilmore now that you mention that, you are correct Answer C to Question 2 is not a true statement. The regs are pretty clear that you are considered age 50 on January 1 of the calendar year you turn 50.

Good thing I don't need to take this exam again.

[Harwood]

The false statement is: "a. Participant deferrals may be recharacterized as catch up contributions after the plan year ends"

Is the answer in the terminology?

Is the statement false because "recharacterization" is a term used for changing elective deferrals to after-tax contributions?

One determines how much of deferrals are considered catch-up; one does not recharacterize?

[Harwood]

Regarding "Gilmore now that you mention that, you are correct Answer C to Question 2 is not a true statement. The regs are pretty clear that you are considered age 50 on January 1 of the calendar year you turn 50."

The regs, issues October 2001, do say 50 by end of calendar year. However, EGTRRA itself says "who has attained the age of 50 before the close of the plan year."

Maybe ASPA wrote the test question based on the law, before the regs were released.

[stevena]

OK everyone, help me out. I am of the understanding that you can NOT even begin to do ADP/ACP testing with a group that will not pass coverage. So, if I have so many non highs not getting a contribution due to say, a last day test, that I woud fail coverage, how can I then decide to exclude them from my ACP?

The weird thing is, I did go back and read the regs (thanks to whoever cited them) and they do say to EXCLUDE anyone who does not actually receive an allocation of match in the ACP due to not satisfying the requirements for a match. However, when I went to the 2003 401(k) Answer Book, the Q&A which addresses this issue cites exactly the regs, word for word, except it actually deletes the whole section regarding excluding employees who dont receive an allocation due to allocation requirements. it purposely cites the regs word for word but deletes the section about the issue I am questioning???

[AndyH]

stevena/Lisa ???

Would you clarify what your question is please. If you are asking if the practice questions make sense, the answer is NO.

If you are asking if you can ignore a coverage test failure and proceed to ADP/ACP, you've answered that yourself. NO.

If you are asking if people who don't get a match because of a last day requirement need to be included in ACP, I think the answer is NO, but that group needs to pass coverage as you mentioned, or as one possible correction, you might need to correctively alter that provision.

[Gilmore]

A participant who did not get the match because of a last day rule would still be included in coverage testing. I think (and I'm not anywhere near the expert that these other guys that are answering are) that by answer C they may mean a participant who was not included in coverage due to factors such as not meeting the plan's eligibility requirement for match (which may be different from eligibility for deferrals) or perhaps did not meet statutory requirements.

[stevena]

AndyH,

I think my question is, do I exclude or include people on my ACP who do not get a match due to a last day requirement.

If the answer is no, then I ask, how can my testing group be a viable group, since the testing group for ADP/ACP has to be a group which passes coverage FIRST.

If the answer is you can exclude them from the ACP, then how to do you fix the coverage problem? Would you start bringing people into the ACP test like you would maybe correct a coverage problem? Do I start looking under how to correct coverage to see who I need to include in my ACP??? it shouldnt be an issue because you should always be starting with a group that passes coverage already!

I wish the people who wrote the ASPA exams would have a committee of people actually review them. And not actuaries, I mean real people, actual English speaking people. Tons of questions that I read I can tell are written by actuaries because they know what they mean, but the question is so ambiguous, sometimes I am not even sure what question they are asking...

[AndyH]

You exclude them if you pass coverage. If you do not pass coverage, then you need to take corrective action. You would typically look to the document to see how to go about taking corrective action. Unless the document directs or limits what you need to do, the rules are generally dictated by regulation 1.401(a)(4)11-(g). That could include bringing some or all back in.

And you can usually have a number of them in the situation you've described before you have a coverage violation. The standard is 70%, not 100%.

And, by the way, I just looked up the ASPA C-2 DC committee and none of them are actuaries, nor do I recall seeing any actuaries on that committee before. These actually are humans who speak English. And, like everybody else, they sometimes make mistakes.

But I do understand your sentiments. The questions are often tricky, often ambiguous, and sometimes they are just plain bad. But they don't require you to get a 100 to pass, either.

[stevena]

No, didnt mean anything by that....I meant that when they (whether actuaries or not) write the test, they should have someone who is totally not associated with writing the test review it. You know, if they are writing the test, when they go to review it, they already know what they meant when they made up the questions. Like I imagine everyone sitting around a table discussing the questions, and unfortunately anyone taking them is not privy to the 20 mnutes of discussion about the questions...

thats all i meant...not anything about actuaries.

sorry if i offended....

actuary brains/math brains are way above what my brain can handle...

[stevena]

AndyH,

I have one HCE and one Non HCE

The NHCE does not make employee deferrals.

there is a 1000 hour last day rule for match.

the high defers and gets a match

the coverage test already passes because the non high is deemed to be benefitting

does my ACP test now pass because I can pull the non high out of my test because he did not meet the requirements for receiving a match?

So...if my NHCE did not quit, I would fail, but because he quit I pass?

Extreme example but shows exactly my confusion.

[Guest mkimball]

I was on the E & E Committe for 3+ years and I can assure you that writing good test questions that test knowledge and understanding (as opposed to student's ability to sniff out trick questions) is the most difficult task a committe member has to perform. When you find questions that seem tricky or are just incorrect, send an email to ASPA and it will get to the committee that made up the question so it may be fixed. The questions are constantly put through review at several levels as well as statistical analysis to throw out bad questions. But, what sometimes seems so obvious during the writing and review process, sometimes is not so obvious in the exam or practice question setting. The feedback from candidates is invaluable to the committee and I encourage all candidates to let the committee know if they find errors or inconsistencies. It is always difficult to write a question at the appropriate level of the candidate when you've been in the business for a long time. All the exam committees try very hard to write appropriate questions for the candidates, sometimes we miss the mark.......but we never try to purposely confuse.

[stevena]

Thanks for the reply...I am sure that the people who write the exams try hard and are very nice people. I think I came across wrong but aside from that....

This issue seems rather HUGE to be just a typo or a bad question...The very way that the book says to do an ACP test is what is in question.

This is not just one question, this could very well affect a number of questions and the way I run all of my tests. that is why i am concerned. i would not harp on a bad question, believe me

and i could simply have been doing it wrong for years...but that is why i am asking.

[Harwood]

Original question:

1. Can you really exclude participants from your ACP test if they are not eligible for a Match due to a last day requirement? Per the textbook, "An employee may be eligible for the ADP test and not the ACP test, e.g., did not meet the last day employed requirement to receive a matching contribution."

I have never seen this before and have always included participants in my ACP in this situation. And the question on the Practice Test:

"Which of the following describes participants that can be excluded from the ACP test?

a. A participant who cannot contribute due to a hardship distribution taken in the last six months

b. A participant who elects not to defer

c. A participant who is not included in the minimum coverage tests for the 401(m) component of the plan.

the answer is © but I am not sure why??

My take:

c. is referring to excludible employees who do not meet statutory age and/or service. They not included in the minimum coverage test.

People who do not benefit because of a last day/hours requirement are part of the minimum coverage test. They are the includible employees who are not eligible to benefit.

If you can't meet minimum coverage because so many NHCEs don't benefit, follow the term of the plan document. Employer must contribute QMACs so that enough NHCEs do benefit to pass the coverage test.

After pass coverage: - run the ACP test only on those who are eligible to receive a match benefit.

[R. Butler]

Otherwise exudables are not excluded from coverage or the ACP, they are just tested separately. If the document has a last day or hours requirements, participants not meeting that last day or hours requirement are not included in the ACP test.

Lets look at the question:

"Which of the following describes participants that can be excluded from the ACP test?

a. A participant who cannot contribute due to a hardship distribution taken in the last six months

-- They cannot be excluded from the ACP test.

b. A participant who elects not to defer

-- They cannot be excluded from the ACP test.

c. A participant who is not included in the minimum coverage tests for the 401(m) component of the plan.

-- To not be included in the coverage test the participant would have terminated with less than 500 hours. Depending on the Plan's provisions these people can be excluded from the ACP test.

Is it the best question in the world? No, but as has been pointed out every multiple choice contains bad questions. I have taken several; I can also affirm that.

The problem is that you are mixing issues. The question does not ask about the coverage test, it asks about the ACP test. They generally don't try to trick you. If you analyze the 3 choices the only one that can ever be the correct answer is "C".

The fact that you have spent this much time analyzing this one question, leads me to have little doubt you will pass this test.

[R. Butler]

Otherwise exudables are not excluded from coverage or the ACP, they are just tested separately.

Let me modify this part of my previous response. If the document imposes the 21 & 1, then obviously they are excluded because they are not participants.

[pmacduff]

This thread made me smile today... ! I have been in Pensions now for 13 years and have my hard-earned (for me anyway) QPA & QKA. I remember, the longer I was "in the business" the worse I seem to do on the exams. As a 6-year vet, I took the C2-DB with a 1.5 year novice, she passed, I failed. It was depressing to say the least. But I was always told by peers and supervisors that I was reading too much into the questions & trying to apply the REAL everyday situations I was experiencing to the questions. I would agonize over a review question that didn't seem to have a right answer. I think the best advice is to study hard and be as prepared as you can; don't dwell on those few questions that seem "questionable"! Seeing the great detail in the excellent answers on this thread said it all.....

[stevena]

" If the document has a last day or hours requirements, participants not meeting that last day or hours requirement are not included in the ACP test"

what if they do not meet the last day test AND they have more than 500 hours?? Then they are not excluded from coverage, and my understanding is they MUST be on the ACP test

I understand the answer to the question, and i know that people who terminate with less than 500 hours are not on the coverage test and are not required to be included on the ACP test.

I was trying to tie the question in with the statement from the text that said that if a plan has a LAST DAY requirement, and the participant is not employed on the last day of the plan year, then THEY would not be included: "An employee may be eligible for the ADP test and not the ACP test, eg, did not meet thie last day employed requirement." The statement in the book seems to indicate that regardless of hours worked, if an employee is not there on the last day of the plan year, they are not in the ACP test if the requirement for a match is to be there on the last day.

And, the regulations that I read which were posted by another said that the people who are in the ACP test were only those who RECEIVE AN ALLOCATION. However, I wasnt sure what "receive an allocation" meant, I guess that could mean that anyone with more than 500 hours receives an allocation of zero because that is what they are entitled to, and anyone less than 500 hours is just not required to be tested.

[stevena]

pmacduff,

I have been doing this for eight years, and took the C-1 and passed, but failed the C2DC last summer. So, next Monday, try try again...hopefully next Monday I will have earned my QKA.

My boss did tell me to stop trying to find the exception to every question, so maybe that is part of the problem

We do everything by hand here, testing, coverage, etc. on spreadsheets, so it is really distressing to fail this test, because i do know what i am doing!

Lisa

[AndyH]

Before I took the tests, I was told not to read too much into the questions. That was terrific advice. And the points made here about the more experience, the more difficult the questions are very valid.

The questions often are geared towards beginners. I had more trouble with PA-1 and PA-2 than I did with any of the QPA exams because I was reading too much into the questions.