MWeddell

I think the answer is no. Sounds like your plan has to meet both 401(k) and 1165(e) rules, which often conflict, not a good idea. However, it's entirely possible for the same dollars to be considered as catch-up contributions under the U.S. IRC because they exceed the plan's ADP limit but still be considered as regular elective deferrals under the P.R. IRC.

The answer used to be yes, but now it's no for plan years beginning after 12/31/05. If you've got the Federal Register copy of the final 401(k) regulations, it's easier to find this in the supplementary information. See the first full paragraph of column 1 on page 78148 of Volume 69, No. 249 of the Federal Register. Note that there have been a bunch of articles summarizing the contents of the 401(k) final regulations and I've not seen any that mention this development -- that one can no longer process deemed cash-outs of employer sources for terminated employees who are 0% vested for employer sources but have elective deferrals in the plan stil -- was in the final regulations. The cite with the supplementary information seem clear to me, but it'd be great if someone else confirms this.

I'm running into the same situation as HFOSTER described for one of my clients in the restaurant industry. Does anyone else have suggestions?

The regulations themselves tend not to tell us what happens when part of the regulations are violated. If the failure to suspend is being corrected using an IRS correction program including the SCP, then the correction priniciple of putting both the participant and the plan in the position they would have been in but for the error indicates to me that one would exclude the impermissible contributions from the ADP / ACP test.

ACP testing is required on all employee after-tax contributions. One may elect to include all matching contributions in the ACP test.

lgolden, The final 401(k) regulations didn't clarify the timing of adopting an amendment to switch the ADP testing method from prior year to current year or, when permitted, vice versa.

It's been several years, but this thread titled Defined Benefit vs. Defined Contribution - the armwrestling continues! had 113 replies and 1,950 views. My guess is that was the recordholder for most views before the thread that KJohnson mentioned, which has 86 replies and 6.654 views currently.

Yes, the ESOP and non-ESOP portions must be aggregated for ADP / ACP testing beginning in 2006 and may aggregate in 2005. A deduction for pass-through dividends or dividends for which the participant could have elected to have them passed through is allowed only for ESOPs. It's irrelevant whether the ESOP portion of the plan is aggregated or not with the other portion of the plan for ADP / ACP testing.

I don't usually respond with commercial messages on these bulletin boards, but this thread invites me to do so. I'm with Watson Wyatt, and I can tell you that we regularly perform large DC and DB outsourcing searches. Our internal statistics show we've performed 279 retirement plan outsourcing searches over the years for over $84 billion of plan assets. We spend a lot of time developing tools and databases in this area. I personally have worked on about 40 of these projects. Watson Wyatt does not perform any qualified defined contribution plan recordkeeping in the U.S., nor do we have any alliance, referral agreement, or ownership links with firms that do that work. That's quite different that most of the major benefits consulting firms listed in SoCalActuary's post. Watson Wyatt does do some DB administration work. Usually (but certainly not always) that won't prevent us from handling combined DC/DB outsourcing searches. That being said, nearly all firms have conflicts of interest. Doing searches is a project business with a moderately high cost of sale, so to achieve consistent profitability any firm is going to want to develop an ongoing stream of revenue. That means they'll be doing something to try to leverage their search work into ongoing relationships. Besides asking search firms you consider to disclose their conflicts of interest, consider how they are paid as a source of conflitcts too.

The proposed 403(b) regulations state that there'll be guidance forthcoming on whether 401(k), 403(b), or 457 deferrals may be taken for compensation paid after one's employment has been severed. Officially it's unclear although IRS officials have informally voiced the opinion that a plan shouldn't take deferrals from post-termination compensation.

You can allow more shares to be subject to diversification than is required by law. See Q&A-11 of IRS Notice 88-56. However, if your plan is more generous in this regard than required by law, then beware that you have a benefit, right, or feature that requires discrimination testing. See Treas. Reg. 1.401(a)(4)-4(d)(6), especially the word "solely." No, I'm not aware of when if ever the IRS has enforced this testing requirement.

The timing of the mandatory cash-outs must follow the plan document. No employer discretion is allowed. The distribution should occur 30-90 days after the participant receives the 402(f) notice. You have to wait the 30 days before you deem the participant to have not responded. Both of these issues are addressed in regulations under IRC 411. Neither one was mentioned in the latest IRS guidance. Hope that helps.

In addition to the above post, here are some other possible limits you might be thinking of: The 401(m) or actual contribution percentage discrimination test limits the after-tax contributions and matching contributions allocated to highly compensated employees' accounts based on how much is allocated to NHCEs' accounts. Reg. 1.401(a)(4)-4 will limit a plan from making available higher rates of after-tax contributions to HCEs than it makes available to NHCEs. There used to be a 10% of compensation limit for after-tax contributions from Rev. Ruling 80-350. This limit was eliminated unofficially by the preamable to the August 1988 proposed 401(k) regulations and then officially by Rev. Ruling 93-87. One still occasionally finds plans with this 10% limit in place in the plan document. So, the last source I can think of for this limit is what your particular plan document states.

None of the above. You don't need to change the plan's definition of compensation to be a 414(s) definition because you aren't using a design-based safe harbor to show that your contribution allocation is non-discriminatory. Note that I am using your assumption that there are no employer nonmatching contributions in the plan document. You have to use a 414(s) definition of compensation when you perform ADP and ACP testing. Since the plan definition is not 414(s), you need to use something else. Note that the plan document often specifies what must be used, so you'll need to comply with the plan document. If the plan document requires you to use the plan's compensation for contribution purposes in the ADP and ACP tests, now you really might have a problem. In sum, this should be good news for you or your client: no additional contributions and most likely no plan amendment. Also, you probably don't need to bother trying to perform the 414(s) test for future years: just use something that clearly is a 414(s) definition in the ADP and ACP tests.

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The $205,000 limit of compensation does not apply to 403(b) contracts purchased by a church. See Code Sections 401(a)(17), 403(b)(12)(A)(i), 403(b)(1)(D), and 403(b)(12)(B). Note that church is defined more narrowly than in Code Section 415(e) although it does include qualified church-controlled organizations.

Also, there are restrictions on your ability to change from current year method (which a safe harbor plan is deemed to be) to a prior year method, so check that the switch to prior year method was valid.

I think it is exempt from the excise tax (which is the sensible conclusion), but finding a citation to support that exemption is difficult. Like I said, I've not looked into the issue for a long time.

No, it is not subject to ACP testing. A somewhat harder question is whether a non-ERISA church plan is exempt from the excise tax on excess aggregate contributions. I believe the answer is yes, that it ought to be exempt from that, but the last time I researched the point years ago it was not really that clear.

Yes it does. See IRC 403(b)(12)(A)(i), which cross-references to IRC 401(a)(17). The compensation limit does apply to employer nonelective contributions to 403(b) plans.

I agree that bottom-up QNECs are still available. Now's the hey-day of bottom-up QNECs, so enjoy them while they last! The proposed regulations show the IRS is clearly aware of them and the delayed effective date shows they are permitted. The October 2004 guidance, in my opinion, doesn't change this. The proposed 401(k) regulations said they'd be effective for plan years beginning 12 months after they are finalized, so if the final regulations don't come out soon, we're looking at a January 2007 implementation date instead of January 2006. Of course, the IRS could decide to speed that timetable up by changing the effective date in the final version of the 401(k) regulations.

DOL guidance tells us that plan fiduciaries must prudently select service providers for their retirement plans and periodically monitor whether those selections continue to be prudent. As long as the costs of conducting the search are reasonable, I believe the cost of the search may be charged against plan assets. (Of course, because the expenses are visible to participants, many plan sponsors don't choose to charge them to plan assets.)

Assuming that this complies with the plan document, I don't see any problem at all. In 1.401(a)(4)-2, it's clear that a flat dollar amount or a flat percentage of 414(s) compensation is not discriminatory. The rules for testing whether a rate of match is a discriminatory benefit, right, or feature under 1.401(a)(4)-4 are less well-defined but there's no way that the IRS could challenge a flat dollar match as discriminatory.

Short answer is I don't know. Your question is not "what do the rules say?" but instead is "what does the employer do once it has already broken the rules?" That's a harder type of situation to research if you think about it. I've not had Voluntary Compliance Program experience with your specific issue so I don't know the answer. You might want to check the ERISA Correction Book by Panel Publishing or scan carefully Rev. Proc. 2003-44 or hope someone else responds to your post.

It sounds like you've got at least two 401(k) plans in the controlled group. There's a funky special rule if an HCE participates in both plans, but to try to avoid that tangent, I'll assume that the 401(k) plans cover different employee groups. The first question to ask is are you aggregating the two plans for 410(b) coverage testing. (If the answer is "only for the limited purpose of the average benefit percentage test," then consider that a no answer.) If the answer is yes, you are aggregating for 410(b) purposes, then you must run a single ADP test for both plans and neither plan may use the 401(k) safe harbor rule. (You may also have to amend the plan that you believe is safe harbor because it isn't at least for this year.) If you are not aggregating for 410(b) purposes, then you must run the plans separately. If one of the plans meets the 401(k) safe harbor rules, then it doesn't need an ADP test.