MWeddell

No. Individuals who receive eligible rollover distributions may rollover their 403(b) distributions into a 401(a) plan. The employer may start up a new 401(a) plan but can't transfer the 403(b) assets to it. Neither of those sound like what you're trying to do.

The ERISA Outline Book, for those of you who haven't read it, doesn't really take a position on the issue. It concludes that to be safe excess deferrals should be refunded by April 15 even when it falls on a weekend because the IRS likely will content that IRC 7503 doesn't apply to this situation. At least that's what I recall when I had to look up this issue earlier in the week.

I agree with what's been said so far on this thread. To elaborate on one point, if you have a non-ERISA 403(b) program with only elective deferrals, it is true that there is no ADP test for 403(b) plans and no ACP test because your program doesn't allow for the types of contributions subject to ACP testing. However, there still is a universal availability requirement and 402(g) limits apply (with two different kinds of catch-up contributions permitted). 415© limits also apply but they are high enough to be unlikely to be an issue.

Hardship distributions are not eligible for rollover but most other types of in-service distributions are eligible for rollover. As indicated by the last post, though, under most circumstances plans aren't allowed to distribute the elective deferral account until an active employee attains age 59½.

The last time I looked at survey questions on this issue, a huge (85%?) majority of DC plans with participant loan provisions were basing their interest rates on the prime rate plus or minus an increment. If the DOL disagrees with that position for 16 years now, it sure is doing a poor job communicating what to do. I think it's implausible that one would suffer any sanctions for using prime rate or prime rate + 1%, plus it is administratively easy. Banks are not in the business of making loans secured by half of one's vested defined contribution plan account balance and it's unclear what a similar loan would be. There's no commercial market that makes those loans. Hence, the guidance in the regulations is pretty sounding verbiage but doesn't really give guidance on what to do.

The 415 regulations are still proposed, not final. Under current law, while the IRS and most practitioners believe the best practice is to not take deferrals from compensation paid after an employee's last hour of service is earned, the IRS also has grudgingly said it won't challenge taking deferrals from severance pay if it is expressly authorized by the plan document and the document has a current favorable determination letter. Consider searching for "severance" in the 401(k) plans forum and I'm sure you'll find many prior discussions of this topic.

I didn't say the word "probably" but until we know whether plan compensation is a 414(s) definition of compensation, then the "probably" caveat still belongs in my opinion.

Changing the plan year is a possibility too. Eventually you can change the plan year back to the calendar year (I'm assuming that's the current plan year) because the 401(k) regulations permit a safe harbor 401(k) plan to have a short plan year if the plan year immediately before and immediately after it are 12-month plan years using the same safe harbor option.

Does the plan's definition of compensation used to allocate contributions satisfy 414(s)? If so, then I agree with the other posters that you satisfy the 3 to 1 gateway but that you wouldn't have to test this on a benefits basis in the first place.

Only "eligible employees" are included in the ACP test. Looking at the that definition from Treas. Reg. 1.401(m)-5, seems to me that these five individuals aren't eligible. (I'm assuming that your plan doesn't permit employees to make after-tax contributions.) If you're shifting elective deferrals from the ADP test to the ACP test, that action wouldn't affect the above conclusion.

From the 1997 Enrolled Actuaries gray book: QUESTION #38 Other DB Issues: Mergers and Short Plan Years A plan sponsor intends to merge two calendar year plans. To avoid filing a short plan year Form 5500 for either plan, should the merger date be December 31 or January 1? RESPONSE The merger documents should include language describing the transaction as taking effect at a time such as "as of the beginning of the plan year" or "as of the end of the plan year." As long as the intention is clear, the IRS should not question a date of either December 31 or January 1 on Form 5500 or on Form 5310-A.

It sounds to me like at least 80% of the non-profit foundation's directors are representatives of or are controlled by the for-profit company. You'll want to consider your fact situation in light of proposed regulations issued in 2004 under IRC 414©.

Neither (A) nor (B) are permitted. Regarding why (B) doesn't work, see Treas. Reg. 1.411(d)-4, Q&A-2(b)(2)(ix) which allows de minimis changes in distribution timing of up to two months but your (B) proposal would change timing by 3-14 months.

DAO -- It sounds like you're out of luck. Before the 401(k) regulations became final (effective in 2005 or 2006 depending when plans complied with the final regulations), then using the old 410(b) regulations method of disaggregating the < 21 or < 1 YOS group required that the HCEs, if any, in that group were tested against the NHCEs in the otherwise excludable group.

Here's an excerpt from the 2003 EA gray book that contradicts the Q&A that Tom Poje quotes above. In practice, one might get to the same result, but it sure is easier to decipher this Q&A: 2003 - 20 Nondiscrimination: New Comparability Regulations Do the new comparability regulations apply for purposes of the average benefits percentage test? Assume an employer sponsors both a defined benefit and defined contribution plan, each of which is tested for coverage and nondiscrimination separately, but uses the average benefits test for demonstrating compliance with the coverage requirements for one or both plans. Do the new comparability regulations affect the employer’s ability to do the average benefits percentage test on a benefits basis? RESPONSE No. Although Treas. Reg. 1.410(b)-5(d)(5) may be interpreted to suggest that the new comparability regulations do apply for purposes of the average benefits percentage test, the preamble to the final new comparability regulations clearly states, "These rules do not apply ...to the situation in which plans are aggregated solely for purposes of satisfying the average benefit percentage test of section 1.410(b)-5."

I think the final 401(k) regulations changed the situation that DAO referred to. Under either method of disaggregation, the statutory rule that became effective in 1999 or the old coverage testing disaggregation rule, one can choose to test the HCEs that are in the otherwise excludable group with the >21 and >1 YOS group.

Sounds like you understand the situation correctly. You may disaggregate those under age 21 or who have less than a year of service and test them separately. There is no benefit, right, or feature testing required based on the facts you've told us about so far: within each disaggregated plan, all participants are treated the same.

Thank you.

Yes, thanks Andy. I don't know why I didn't see it -- it's the last sentence in the "standard mortality table" definition of 1.401(a)(4)-12, although it requires looking up some cross-references to discover that it means the 1983 GAM 50/50 Blended mortality table.

rcline46, I'm stumped by your last post. How does Rev. Proc. 2005-66 answer Leopurrd's question about what is the deadline for adopting an amendment to change the ADP testing method from prior year to current year or (if permitted) vice versa? I think the answer is yes, that this is a discretionary amendment required to be executed by the last day of the plan year, but that's a conclusion I've reached more by inference and omission. I'd love to find official IRS guidance pointing me to this answer.

I wrote a spreadsheet to check whether or gradual age or service or age+service schedule met that portion of the comparability regulations. One of the things the spreadsheet is checking for is whether minimum allocations for a gradual age schedule are permitted, so I wanted to make sure I understood the IRS' calculation. I wanted to try to recreate the IRS' results with its example of part of checking whether the spreadsheet worked correctly.

For 403(b) plans that are subject to ERISA, plan documents have been and still are required. The IRS does not currently require 403(b) plan documents, but it has proposed to do so. Word is that they are keeping this requirement. The regulations are scheduled to be finalized effective January 1, 2007, although one guesses that they won't require that a written plan document be executed before then.

No, the $14,000 limit under Code Section 402(g) is an individual limit that includes all 403(b) and 401(k) deferrals of all plans in which the taxpayer has participated during the year. If someone contributes more than $14,000, then the person is supposed to notice this when receiving the Forms W-2 and by March 1 should notify one of the plans to refund the excess over $14,000 by April 15. If the refund doesn't occur by April 15, then the individual will have negative tax consequences. The 415 limit (lesser of 100% of pay or $42,000 in 2005) is a different limit. Unless the participant has an ownership link with the employer sponsoring the 401(k) plan, then the participant will have a separate 415 limit for all 401(k) plan contributions versus the 403(b) contributions.

"arcane adj : requiring secret or mysterious knowledge" Given the difficulty I had deciphering how the IRS example worked, "arcane" may have been the right description! I find it interesting too. I took a quick look using an electronic utility and didn't find any IRS guidance adding any tables to the 9 deemed to be reasonable in the 401(a)(4) regulations.

Tom, thanks for taking an interest in my arcane question. Two observations, although the first one is trivial: In your last equation, you meant 21, not 19. This is clear from your earlier text that the age 44-year-old has 21 years until reaching age 65 (which is your testing age). There is a good reason that the IRS didn't show all of its steps in the example in the regulation: it doesn't look like they used an annuity conversion factor from a permissible mortality table. 1.401(a)(4)-8(b)(1)(iv)(D)(2) refers to "equivalent accrual rates." The definition of that term is in 1.401(a)(4)-8(b)(2)(i) , and it includes "normalizing" the increase in the account balance. "Normalizing" is defined in 1.401(a)(4)-12 and it requires reasonable actuarial assumptions for which standard interest rates and standard mortality tables are deemed to be reasonable. "Standard mortality table" is also defined in 1.401(a)(4)-12 as one of 9 tables, unless the Commissioner changes the list. The list of 9 tables includes 1983 GAM Male and 1983 GAM Female but doesn't include 1983 GAM 50/50 Blended, which is the conversion factor that you figured they were using. In practice, the example still should work -- "Normalizing" allows for mortality tables other than those listed as "standard" as long as the assumptions are reasonable, and I can't imagine the IRS wanting to argue that either the male or female tables are reasonable but blending them, which of course produces a intermediate result, is not reasonable -- but it sure would have been tidier if the example used one of the 9 standard mortality tables instead of using a different one.