austin3515

Is anyone else frustrated that no one can point to a document from the government that says "immediate eligiblity is required"? Why doesn't it just come out and say that? Shouldn't there be a reason that it doesn't just say that in plain simple English? Personally, I think there is a reason. Now, I would never in a million years suggest anyone actually do this, however, I'm still troubled by the fact that it takes 2 giant sized paragraphs to simply say "eligiblity must be immediate on date of hire."

In the isntructions for the POA, it lists absence from the country as a valid excuse to have a POA sign. Check out the instrucitons though, which are a pretty good resource.

But ify ou're telling me "Effective opportunity" is not met, you need to point to where in paragraph 2 I have gone astray (at least I think so). How do you reconcile your conclusion with the following language from paragrph 2: "Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including...the period of time during which an election may be made," " a section 403(b) plan satisfies the effective opportunity requirement of this paragraph (b)(2) only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make (or change) a cash or deferred election (as defined at §1.401(k)–1(a)(3)) between cash or a contribution to the plan" Both of those seem to contemplate some administrative delays between DOH and date of first deferral.

I disagree, because I believe the way retirement plan law is structured, eligibility requirements that deal with required service periods are addressed independently of exclusions. So in my example, people with less than 90 days of service would not be considered "excluded" from the plan. That;s why most plans (including 403b's) document "exclusions" (such as union employees, nonresident aliens, etc.) in a totally different section of the Plan from eligiblity. Plus, I think my citation is more on point, since it is the universal availability requirement that we are discussing. And if what they meant to say was "everyone must be eligible from the date of their first pay-check" then, by golly, I think they would have said that, but they didn't. You may be right (in fact, you probably are), but I'm just not convinced I've got the full answer yet.

Can a 403(b) have a short eligibiltiy period or not? I have an ERISA Attorney drafted 403b with a 90 day wait. I can't find anything in this reg that is specifically failed. The term "permitted" as used in the first paragraph is defined in the second. In there it references all relevant facts and circumstnces including "the period of time during which an election may be made." What's more, nowhere in here does it specifically say "eligiblity must be effective on date of hire." My orignal thought was that most employers/"prototypes" use immediate eligiblity as a de facto safe harbor, but that a short eligiblity period might not be per se a problem. Thoughts? (b) Universal availability required for section 403(b) elective deferrals—(1) General rule. Under section 403(b)(12)(A)(ii), all employees of the eligible employer must be "permitted" [term "permitted" defined in next paragraph] to have section 403(b) elective deferrals contributed on their behalf if any employee of the eligible employer may elect to have the organization make section 403(b) elective deferrals. Further, the employee's right to make elective deferrals also includes the right to designate section 403(b) elective deferrals as designated Roth contributions. (2) Effective opportunity required. For purposes of paragraph (b)(1) of this section, an employee is not treated as being permitted to have section 403(b) elective deferrals contributed on the employee's behalf unless the employee is provided an effective opportunity that satisfies the requirements of this paragraph (b)(2). Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections. A section 403(b) plan satisfies the effective opportunity requirement of this paragraph (b)(2) only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make (or change) a cash or deferred election (as defined at §1.401(k)–1(a)(3)) between cash or a contribution to the plan. Further, an effective opportunity includes the right to have section 403(b) elective deferrals made on his or her behalf up to the lesser of the applicable limits in §1.403(b)–4© (including any permissible catch-up elective deferrals under §1.403(b)–4©(2) and (3)) or the applicable limits under the contract with the largest limitation, and applies to part-time employees as well as full-time employees. An effective opportunity is not considered to exist if there are any other rights or benefits (other than rights or benefits listed in §1.401(k)–1(e)(6)(i)(A), (B), or (D)) that are conditioned (directly or indirectly) upon a participant making or failing to make a cash or deferred election with respect to a contribution to a section 403(b) contract.

I meant that not matching catch-ups generally only comes into play when the matching rate is generous (and that therefore not matchign catch-ups principally serves to make orphan match more likely). I agree that the orphan match thing can arise with any match formula.

You are misreading it. The 152K numer your saying is solely to figure out whether or not someone gets a new 5 year term. The reg isn't saying that you really have 152K out in loans, they are just going to treat you like do for purposes of determining whether or not you qualify for a new 5 year term.

Not necessarily. It depends on the match formula. If your match formula is 50% on the 1st 6%, then you only have orphan match if the remaining non-catchup deferrals are less than 6% of pay. If it drops to say, 5%, then the orphan match is the match that was "born" of the reclassified 1%. Unless you are matching at extremely high rates of deferrals, excluding catch-ups generally has no effect. You would need to be matching on deferrals of more than 6% of pay for this to ever have an impact because 16,500 out of 245,000 is over 6% of pay. Comp of less than 245K means the deferral rate is above 6% of pay. So in almost all cases, the only affect of not matching catch-ups is creating this orphan match situation, which I think would be unintended by most plan sponsors who I would think generally do not want their key employees to forfeit the match they were given. But if I am missing something, please let me know.

"Catch-up contributions are not eligible for matching contributions" Are you positive? Becuase that would be extremely unusual... Allowing catch-ups to get the match really only affects this exact situation (generally)...

Tom, I had never heard that before - is that really how it works?? I thougth you paid 40% of the refund amount - so pay 160, forfeit 240. Am I blowing a basic concept?

LEt;'s back up though because if the plan matches catch-ups, then there would not be any orphan match, and the only reason for forfeiting would be that he is not 100% vested. So assuming the guys is 100% vested, you just run your ACP test and refund to him whatever the excess amount is.

Why are you forfeiting? Is it a) because the participant is not 100% vested in the match, or b) because you have "orphan match"? Either way, yes, you would adjust it for gains. I just wanted to make sure you were really supposed to forfeit it.

Accoridng to the EOB, that was a pre-2002 rule. 4.d.1) Restrictions on use of matching contributions in pre-2002 plan years. For plan years beginning prior to January 1, 2002, any matching contributions used to satisfy the top heavy minimum contribution must be separately tested for nondiscrimination purposes under §401(a)(4), and are not subject to the §401(m) nondiscrimination test (i.e., the ACP test) normally applied to matching contributions. Matching contributions that are not used to satisfy top heavy continue to be subject to the ACP test. This rule is prescribed by Treas. Reg. §1.416-1, M-19. Note that having to test the matching contributions used for top heavy purposes under §401(a)(4) usually does not present a problem because non-key employees are typically nonhighly compensated employees for nondiscrimination testing purposes. However, it is possible to have non-key employees who are highly compensated employees, so that any matching contributions used to satisfy top heavy minimums for these type of non-key employees could raise a §401(a)(4) testing issue. As for the remaining matching contributions that are not used to satisfy top heavy minimums, they will probably have a tougher time passing the §401(m) nondiscrimination test, because all (or most) of the key employees' matching contributions are still included in that test but less of the non-key employees' matching contributions are included. Thankfully, this whole problem goes away in post-2001 plan years with the changes made by EGTRRA.

I'm with you on the distribution one... What do you think about the forfeiture scenario?

Which I didn't do Any suggestions? I can easuly do the new 2010 form and file it, but now I have this bogus 2009 form out there? I guess I just wait until the letter comes in from the IRS?

No it doesn;t because you can't term a 401k plan and then start a new one in the same year because the distributions wouldn't be eligible for rollover. Plus, you blow your safe harbor for the year, and need to run ADP testing, plus you blow your TH exemption, and need to allocate top-heavys. And finally, the TPA and the financial institution can both be switched by the Plan. I cannot think of any reason to pursue this course, whatsoever. Use the 401k plan you already have, you can still do everythign you want to do.

Why in the world would you terminate a 401k plan only to start a new 401k plan in the same year? I won;t get into why this won't work until I have a better understanding of what the rationale was.

Tom - I agree that is another intereting question. Can't even pass average benefits, can I? But what do you think about the guy who forfeits his match - the very same match that satisfied THM. Would you agree that his THM is not satisfied and he needs the 3%? Sounds like a couple more questions for the IRS Q&A youi mentioned last week!

So you are convinced that if a non-key HCE gets the match refunded to him, that he is still entitled to the THM on top of the match he has already gotten from the Plan? Isn't that a bit of a windfall?

I agree with you on the forfeiture scenario, but not on the refund since in the latter the participant did receive a benefit under the Plan. but alas, what I'm hoping is that this is conclusively answered somewhere in the regs??

But the point is that his match satisfies the top-heavy minimum. Question is, does having it refunded and/or forfeited change that treatment?

Got a non-key HCE who is having all of his match refunded to him due to the 2009 ACP test (no NHCE's deferred). 1) Does he still need to get the top-heavy minimum? 2) Does the answer change if the non-key HCE is 0% vested, and therefore forfeits all of the match?

Accordng to the 2009 instructions "2010 Short plan year filers may not use the 2009 forms for filing They must 2010 forms schedules and instructions. Dear RElius: Thanks for the validation warning: "One or more of the plan year dates are questionnable, or the dates indicate a short plan year." Apparently it was the former and not the latter. But of course it WAS a short plan year so I thought this to mean the dates were not questionable and there was no issue.. Perhaps you should change the warning to "Hey stupid, this won't work!" Sincerely, Austin Powers

Why do I have a feeling the authors of the bill probably couldn't even answer the question?

I did that. I thought I was being clear, but perhaps not clear enough. And I can't delete it because it WAS filed. The errors of course only come back after it's been filed. Now I have to amend.