austin3515

cross-testing may or may not work, but that's not the point. The point is this is a standardized plan, and I get the feeling that eveyrone seems to think it's at least possible to fail 401(a)(4). Example: 1 HCE, getting 3% SHNEC and Integrated PS 3 NHCE's, 2 of whom benefit in both the SHNEC and the PS, one of whom gets ONLY the 3% SHNEC, because they were terminated with 300 hours of service. Forget cross-testing, assume the HCE is 21 and the NHCE's are in their 50's. Does this plan fail 401(a)(4)? Am I missing any pertinent data?

I think we should assume non-involvement in the each other's businesses, and that this is a non-community property state, just for the sake of sticking to original question. Those are both valid points though!!

The second plan only passes coverage if the person in the first plan is excludable. So the heart of my question really becomes, is the guy from Plan 1 excludable for coverage under the second plan? So Tom, it sounds like you're leaning to the fact that my standardized plan fails coverage?

Standardized profit sharing plan adoption agreement, everyone gets 3% of pay for safe harbor. Plan applies the "last day rule if <500 hours" allocation condition. There are just 3 NHCE's. One participant who gets the 3% of pay is terminated with 300 hours, so is not benefitting under profit sharing. Because they are benefitting (i.e., getting the 3%), they are not excludable under coverage (and the plan passes coverage). So for this Plan, the rate group testing is failed (i.e., safe harbor allocation model is blown because of different allocation conditions on the SHNEC and the PS). Okay, so we restructure the Plans. The person described in my second paragraph goes into their own plan. They're an NHCE, so that plan passes b/c it has no HCE's. My question is really on the second plan - can we treat the participant in the first plan as excludable? The condition for excluding a term with a break is that the sole reason they're not benefitting under the Plan is the fact that they were not employed on the last day. That condition does not seem to be met here, which means that he is not excludable, which means that the plan failed the rate group test and must be amended. Am I missing something? I guess what I'm really getting at here, is can a standardized plan be considered discriminatory in this scenario? How can that be?

I think everyone seems to agree that a literal interpretation of the rules is that there is a controlled group here. The question is really, would MR be okay administering these two plan's as though they were NOT a controlled group, due to the fact that everyone agrees that it's insane that married couples with children should be at such a disadvantage when compared to a married couple without children. I think it's also pretty well accepted that this outcome is unintentional. Is there some sort of IRS informal policy that says, lets just not go there? Has anyone ever heard of this being an issue? I think we all agree it happens often.

Tom - Is this because of 1.401(m)-3(d)(4), regarding the ration of deferrals to match for HCE's compared to NHCE's?

You plan probably has a section that says, if the Plan is projected to fail the ADP test, the sponsor can place an administrative cap on HCE's deferrals to ensure the test will pass. Because the NHCE's are deferring 0, the only reasonable limit for the HCE's is zero. And with a plan imposed limit, anything over that limit is a catch-up. (without the such a plan provision, this won't work). This is all very well documetned in the ERISA Outline Book somewhere. Perfectly legit.

She just needs to come up with the collateral. OF course if she defaults, the collateral now becomes a plan asset, and it may be an asset that the plan is not allowed to invest in, and yada yada yada... It is a clever solution, but it might not be practical...

Why can't you pass a4 without the QNEC? Are there a lot of non-key HCE's? Did you try cross-testing? mputing disparity? Don't seem to be any gateway issues... Or does the plan inlcude key's for the THM?

Sounds to me like you've done your homework. I've got nothing to add...

There's LOTS of plan's with 3% SH and last day/1,000 hour rules on the profit sharing. There were no rule changes prohibiting this plan design. Sometimes they can write in a manner that is less than straightforward. That you're not finding antyhing to corroborate makes perfect sense!

What if there is already a contract to build the house?

No problem... Long as the SH contributions cover the entire year, short or not, it's okay.

I think to say it completely, the discretionary match cannot exceed 4% of pay, and cannot be determined by taking into account deferrals in excess of 6% of pay... Even if I'm not right, it's clear there's some restrictions - if your designing a plan for someone, you'd better research it pretty thoroughly!

1) According to my reading of the regs, you wouldn't run ACP testing on a match unless the match is on account of elective deferrals, which in my opinion, relates exclusively to elective deferrals under 401(k) (i.e., not under 125). So what you describe is not a "match" as defined by the regulations. You might be able to call it a profit sharing contribution, subject to general nondiscrimination testing of 401(a)(4). Of course, the plan must specify this allocation, which it sounds like yours does not. But if it did, b/c you have no HCE's, it should pass the test. 2) You indicated that the plan does not specify allocation of the match. I suspect the case is that there are two different sections-one spells out the AMOUNT of the contriubtion, and the other spells out the ALLOCATION of those contriubtions. 99 times out of 100, this will be the very next section. 3) So assuming one and 2 are correct, here is what happens: your client is making matching contributions to the plan, but allocating them incorrectly (i.e., based on health insurance premiums, and not elective deferrals). The fact that there are no HCE's does not help with the problems you have.

I thought the Plan Admin has the ability to limit contriubtions of HCE's to ensure passing the ADP test. I didn't think the limit needed to be in the document. I was just reading a Corbel VS document and seemed to include this type of language.

I'm quoting the ERISA Outline Book, page 4.21 2004 edition, Chapter 4, Section III, Part F. "IRS Interpretation applues protected vesting percentage to future accruals. The IRS interprets this rule to mean the vesting percentage at the time of the amendment must not be reduced, EVEN WITH RESPECT TO BENEFITS ACCRUED AFTER THE AMENDMENT (emphasis added by Sal via underlining). There's also an example in their demonstrating this. He goes on to say that an ERISA Conference report contradicts this, but that that won't prevent the IRS from going after you under audit.

I disagree. The vested percentage is what is protected, not the balance. Therefore, you can't amend the plan to decrease someone's vested status in the plan, even for contributions in the future. You CAN apply to new hires eligible after a certain date, but that's it. Although Congress has implied that this is not what was intended, it really doesn't matter because what I've stated is the IRS' position, and it's the IRS that will find you, and not Congress. If you have the ERISA Outline book, look up amending the vesting schedule. If you don't have that book, you should really get it!!

Poje - I thought you could treat people receiving the THM only as not benfitting?

Janet de minimis is $15 for terminated participants with no account - for everyone else there is no de minimis. That's in the VFCP somewhere...

Is all of the money 401(k)? Match/PS/RO money can be withdrawn in service for any reason (assuming the doc says so, and the doc could be amended to say so).

Errors more then three years ago probably are not an issue because the years are closed for IRS audit purposes...

I think with employer stock, the prudent thing to do is to limit their investment to a percentage to force some diversification. I have had clients in the past where once the balance of er stock exceeds 25%, future purchases are simply not allowed. What happens in the future is not relevant (similar to reviewing loans for the 50% security). I'm with mbozek though, with employer stock, 404© is by far the lesser issuer. You'll get nailed on the appropriateness of the investment in the first place--Of course imposing a cap is in my opinion a very good demonstration of prudence which will outa help quite a bit in your defense...

1) 404© is blown if you pull them out of a fund and map them to a new similar fund. OF course if this fund is better, perhaps the related liability wouldn't be such a scary thing. But because you picked the fund, and not the participant, 404© does not apply. 2) This one is much more gray (I think). Again, you don't want to be the one making decisions about investments (except of course for selecting good funds to put on the menu!).

If the employee (former employee!) has any sense at all, he'll leave the money right where it is, safe from anyone who wants, including the people he stole from.