austin3515

I'd say the conservative thing to do is give them the 3% from the plan document eligibility date (7/1/04). I think you could make a case for excluding pre-9/1/04 compensation, but probably not a very good one. It certainly carries more exposure...

Just went through your situation VERBATIM. You have the option to run one tests (I believe, if you have the ERISA Outling book look up Mergers and Spin-Offs in the index) but for a lot of reasons, testing separately makes a lot of sense. And yes, each plan would need to satisfy coverage for this to work. The employer is NOT sponsoring the PEO's plan - ADP is sponsoring that one. If the HCE's contributed nothing to the PEO plan, this may be a scenario where you want to combine the testing. But read up on the requirements for this before you go too far. I think there are some snags to be aware of.

How about one brokerage account? You would need to do quarterly vals though if you want individual direction. I have a client that has no participant direction (which I think is a luxury for most people), and the val is done just once a year. This is often a good solution specifically for the reason you've identified.

You need to look at the definition of compensation. More likely than not, if the 401(k) provisions are effective 7/1/04, the plan will call for a 3% from 7/1/04. A lot of documents too though will, based on a literal interpretation, call for 3% of full year pay (or at least pay as a participant). That's because it really is a nonelective contribution. Really though, you need read the nuances of the document, so speculation is almost worthless...

rate group testing is 401(a)(4), and coverage is coverage. Fail-safe doesn't apply to 401(a)(4). Anyone getting a contriubtion is benefitting under coverage, and under the ratio percentage test it doesn't matter how much they get. So I say the answer is you can use the avg benefits test to pass your rate groups.

I just looked it up in 98-52 (and a couple articles). It can be any 414(s) definition, except that the rule that says you can disregard comp over a certain amount is not allowable.

I hear ya, and I agree. But I have seen documents that say what I wrote, so it must be true!

Most plan's say you can use any 414(s) definition for non-discrimination. A good plan document will give you this flexibility, and most do. Are you sure your nonelective isn't a safe harbor? Coverage is based on the whole year. When doing the ratio percentage, of course compensation or the amount of the benefit means nothing. IF your doing the average benefits test, the same 414(s) requirement applies. All I can tell you for a sight is the applicable regulations...

The document could say "if the sponsor elects to disaggregate the plan into two plans pursuant to 410b.whatever, then the QNEC only goes to the nonexcludables." This is still a definite allocation formula. The same logic applies to the gateway contribution when cross-testing. The way it was explained to me (as to why it's still a definite allocaiton) is because the QNEC is designed to pass nondiscrimination testing, and the decision to disaggregate is an operational one. Something like that anyway.

Test on the basis of otherwise exlcudables and basically ignire anyone with less than a year or under 21 (assuming no 5% owners fall into that category). This basis is almost always the best way to go.

Unlike the chicken and the egg, coverage always comes first. If each plan can pass coverage on it's own, then each can test on it's own. This is what I would do first. If that fails, you will need to aggregate plans (i.e., test them together) until you find a combination where they all pass. Try to get each HCE in one "aggregated plan" if you can. You can test plan's 1 and 2 together, 3 4 and 5 together, 1 through 5 together etc. Whatever groupings you use to pass coverage, you need to pass the ADP test on those groupings as well.

I think now that maybe the gave us relief if you read between the lines: 1) You don't have to process the force outs before 12/31/05 2) You don't have the amendment in writing until 12/31/05 (assuming calendar year). So who's to say you didn't make your decision on 3/28/05? Please let me know if others agree, or if I'm missing something. The 3/31 plans are still left with nothing, but at least calendar year plans got relief...

Am I the only one who doesn't think this is much help at all? You still need to decide by 3/31 and we're working our a$$es off to get ADP tests done... Also, did anyone else notice a lot of grammar mistakes in the most important section? "For plans (other than governmental plans and certain non-electing church plans), plan amendments reflecting the plan’s method of compliance with the requirements must be adopted by the end of first plan year ending on or after March 28, 2005." I think maybe the intern wrote this one...

Can you paste a link?

forfeitures for expenses are not allocations, so I'd say your out of a THM situation...

There shouldn't be any issues with ADP or coverage because you can still test based on otherwise excludibles I.e., disaggregate those who have not met the minimum age and service requirements of 410(a), ie. 1 YOS and 21 years old). The only time there's ever an issue with that is if a 5% owner gets hired (i.e, that's the only way you get an HCE as otherwise excludible).

You never HAVE to aggregate two separate plans for nondiscrimination testing. You may if you want to. So if each plan passes coverage without considering the affects of the acquisition (I forget the exact free-pass requirements), then each 401(k) plan would run the adp/acp test separately.

Best practice is to forfeit, and use it next year. That is unless the amount due to other participants is greater than what these 2 were overpaid.

Check it out - Open a checking account in the name of the Plan. Deposit the PS contribution to the checking account, then cut the checks to the participants for the ADP excess. Then cut checks from the checking account to each individual brokerage account for their PS contribution. That way 100% of the contribution is deposited. IT shouldn't matter what bucket the money is in - ie., the plan only defines the trust, not the bucket within the trust. This works for me, but I'm curious to see others thoughts.

I would explain to the client that if the owner performed service, he is in the test, and the THM's are required. Then ask them to determine if he had any hours or not, and then to let you know in writing. I should point out that I don't own a TPA shop. Perhaps I wouldn't be so cavalier if I did?

IMHO, the definition of too aggressive varies from client to client. Some clients are willing to accept risk tomorrow to leave 1,000's in the Plan. I don't think it's "pre-funding-a-year's-deferrals-to-accellarate-the-deduction" bad. I think you could at least defend yourself IF the IRS questioned it. Don't know if you'd win the argument, but again, some client's may find it's worth the risk. I do agree with what jquazza said, but I also don't think you'd be asking the question if it was that off the wall.

1) MAtch counts towards top heavy 2) Any matching contributions are disregarded when allocating out the profit sharing contribution EXCEPT that participants eligible for the top heavy allocation only may receive a reduced allocation or no allocation if they have already received the minimum through matching contributions.

Some Plans will make you wait until you complete a year of service. MOST say anyone who satisfied the requirements (or does it say former participants?) come in right away. Can you type in what your document says about rehires? Otherwise we're all just guessing...

That is why no one in their right mind uses prior year testing with a discretionary match... Luckily, you can change to current year testing at any time which might not be a bad idea. I just did some research and found that the IRS has never forbid amending the plan now for 2004's test...

Now that Tagdata has endorsed, you I just might tout your name! Kudos to you for having the most creative name on the board. Funny they didn't say "would you get your answers from Tom Poje, author of the nondiscrimination and answer book..." or Kirk Maldonado of the "Maldonado letter.."