austin3515

But wouldn't you agree that the formula itself which provides for the highest level of match at just 5% of pay, that it should essentially be deemed to be nondiscriminatory?

I see... And admittedly was not aware of that requirement! But the test is a facts and circumstances test of "Effective availability." What would exactly is preventing the NHCE's from contributing 5%? I suppose the issue would crop up if the match was 10% on the first 10%, and then 200% on the next 2%. I guess I recognize the issue under this more aggregious set of circumstnaces. So Ithink I cam to the right answer, albeit for the wrong reasons I learn more from these boards than anything else I do!!

Everyone is benefitting from the exact same formula. Your thinking of different match levels depending on how many years of service someone has. In that case, you need to run BRF testing (which uses coverage principles) to make sure that the match formula is not being provided to a discriminatory group. Perfect example would be "only employees with 20 years of service get the most generous match" when only the owner has 20 YOS. That's when there is a discrimination problem. Also, if the IRS thought tiered matches were discriminatory they would not have used it for the Basic Safe Harbor MAtch formaul.

Sure, why not (other than the obvious reason that it's crazy). Everyone gets the same formula, so BRF is not an issue. just the ACP test.

Beleive me, you have no idea... TAG says anything the employer puts in = employer contributions even if reimbursing admin expenses. They provided the following citations if anyone is interested: Revenue Ruling 86-142 and Private Letter Rulings 9124036 and 9252029

Plan's recordkeeper wants to charge 20bps to participant accounts. They cannot override their system to charge the employer instead, so the employer wants to reimburse the plan for the charges. Is there any problem with this? Because it is a direct reimbursement, I think it should NOT be treated as a contribution.

Upon further review the question very clearly references a "discretionary" contribution. Thanks for the link to that older post. Very informative!

I had not picked up on that subtlety actually. You're right, they seem to be udner the assumption that the diocument requires 5% for the staff, and therefore an amendment is needed to increase from 5 to 6. So now when choosing between increasing from 5 to 6, or adding additional eligibles, that of course is a "normal" -11g amendment. So that does make it different than a plan that includes a discretionary contriobution feature.

See the last question on page 5 of the attached. Q_A___2010.pdf

And a follow up question. I read the 11(g) regs to specify that these amendments cannot be part of a pattern of making these types of changes, but it appears that this caveat only applies to correcting BR&F issues. Have I got that right? What I'm getting at is, should we be looking at this option in the same we way we look at net comp testing, or testing based on Otherwise Excludables? i.e., just another tool in the shed to be used when it works, conceivably every year in differnt ways?

Does your answer change if everyone is in their own group, and I bump the employee affected by the 11g amendment up to 10% and leave everyone else at 5%?

But can;t the person withdraw all the money from the bank account and then default on the loan? Wouldn't that account for the extra credit risk embedded into the 2nd point above prime?

How iffy is it (if at all) to amend a plan to bring in a term, or someone who worked less than 1,000 hours, just because they would help testing. So a plan would have to give 8% of pay to the staff to be able to get the owners to the max, but if they amended the plan to bring in this one last person who happens to be 25, they only have to give 5% of pay to the staff. I know this was the subject of a q&a, but it just seems aggressive. Are people using this technique on a regular basis?

you add back ISD's for 5 years. Sorry to be the bearer of bad news... But 5 years does go by eventually. It takes about 5 years

FWIW, we always use it and never file under VFCP. We've definitely used it when responding to DOL letters regarding late deposits, closing DOL audits, and even scenarios where the participants have complained to the DOL. They have not made us go back and recalculate actual investment returns. I can think of only one exception to that and it was by far the biggest and most egregious situation that has come under scrutiny (it was a large company, depositing monthly, and even then was not always hitting the 15th business day window which we of course no is basically not a real timeline anyway). In that situation, we were made to use actual returns. That was probably 6 years ago now!

I asked others right here at "home" and they said they did the same thing with no consequence. Thansk guys,

Thanks for the post Tom. In my letter (which I've read 5 times) it does NOT ask for a response. I've received the ones that do ask for a response, but this one doesn't. Does that change things? They're not asking for anything, so why should I send something? Let them follow up if they want to, but because they didn't ask for a response I'm not sure how they could hold it against me.

Client received the letter from the DOL regarding the disclosure on line 4a of late deposits. The letter does NOT request a response. Are you advising clients to respond or not? I'm inclined not to respond because they did not request one. If we respond then we will need to show the correction which just gives them the opportunity to disagree with the correction. Alternatively, they could respond and simply say that it has been corrected. What do youi think?

Brilliant observation. I think the IRS shouild be ashamed that a group of pension experts can't decide what to charge for interest on a participant loan. Shame shame shame.

I heard a more broadly sweeping comment on the appropriateness of prime in general. She certainly didn't emphasize a distinction regarding plans that mandate the interest rate in the documents and plans that do not. In my experience, most do not.

If you are doing a conversion, you have two choices (listed below). Under both choices, the educational aspect of the change would of course be outstanding. All notices would be delivered, etc.. 1) Any non-responders will be defaulted into a target retirement fund, or some other QDIA 2) Any non-responders will be mapped over into a similar fund to the one that they originally elected. For me, I think option 1 could serously backfire in the event that market goes down (which we all know will happen at some point in the long-term). I use the example of the 30 year old who opted for the money market, but got defaulted into the 2040 fund instead, which obviously is very heavily weighted to equities. I also feel like 9 times out of 10 the people who call irate are the ones who lost money. IF they feell they lost money because of anything connected to our actions, well then they are incensed. I'm not against the QDIA approach for dribs and drabs of money related to profit sharing. It's when it involves peopels life savings (in some cases) that the risk is increased. And to me, the mere fact that you sent them a QDIA Notice will not stop them from suing you. It may ensure you prevail in court, but my number one priority would be to stay out of court in the first place. And as for mapping, the logic from a fiduciary perspective of placing people in funds that are similar to thsoe they originally elected seems to be beyond reproach. Who could claim that it was unreasonable to move Susan from a money market, or an S&P 500 index, to the same type of fund at the new vendor? Of course Susan had the opportunity to select new funds, but did not. Instead of defaulting into a fund that has no correlation to her original intention, she is being "defaulted" into funds that do reflect her intentions. I think this topic is critically important because vendors are giving a lot of pricing breaks these days in exchange for using their target retirement funds as the default during a conversion (i.e.., in lieu of mapping).

My mantra is "why not charge prime+1%." just charge prime+1 (not only because there is safey in numbers) and get on with more important things.

I wonder if the question of reasonable interest rates has ever gone to the courts?

Yes a typo, and in my document we elected the 5% DC THM. To restate: Because I am going to save this: -If you work 1,000 hours and are eligilbe for the DB Plan and the DC Plan you get the 5% THM in the DC Plan. -Otherwise, you only get the DC top-heavy minimum if you are entitled to it under the DC rules.

I just listended to the IRS phone forum where they went over their questionnaire and the results. They said they are getting a lot of questions on interest rates for participant loans but: 1) They referened the DOL's rules. (commerically reasonable, etc) 2) BUT Prime was NOT reasonable, because only the bestest borrowers can borrow at prime. 3) Prime +1 and Prime +2 was "probably reasonable" We've always used and always seen prime plus 1 so I'm happy they have backed off the statement of "anything less than prime +2 is suspect." I can see their point on prime anyway.