buckaroo

I have a calendar year safe harbor plan that contains the elective deferrals and the safe harbor match. The eligiblity and entry date for the elective deferrals are immediate and on DOH. The eligibility and entry date for the safe harbor match is 1 Year of Service (1,000 hours via actual hours counting) and semi-annual entry dates. The main question revolves around the ADP testing and the determination of the statutory employees and the otherwise excludable employees. In the vast majority of these types of cases, I have determined that if a parrticipant does not completed the YOS using the hours counting, then they would be considered otherwise excludable employees for all purposes until the do meet the YOS requirement. Recently, I had a discussion with a colleague who says that the determination of statutory employees and the otherwise excludable employees is done on a source by source basis, based on the eligibility and entry date requirements for each source. So, in my example above, the colleague is saying that for the 401(k) portion, the YOS would be determined on an elasped time basis and the SH match portion, the YOS would be determined on an hours counting (1,000) basis. If this is the case, I would then have a problem testing as I would have a group of participants who meet the YOS on an elapsed time basis for the 401(k) and never meet the YOS for the SH match source. This would lead to the problem where you would have statutory employees for the 401(k) who do not receive the SH match. So, would I have to run an ADP test for only the statutory employees who meet the statutory employee defintion for the 401(k) but do not meet the requirements for the SH match? I see no basis for this. I disagree with his thought process, but I am unable to find a detailed explination regarding how the statutory employee group and the otherwise excludable employee group are defined under the plan rules. Can anyone assist?

My recollection is that this can be an option in the plan document. Does the plan document address this? I also recall that the software I use permits the calculation to be done either way. (I think there is a check-box to limit it to deferrals while a ptp in the specific source.)

Thanks for the replies. I have been doing some digging and I have found the following from Internal Revenue Bulletin: 2009-12. It is a small portion from the 414(w) Regs where it talks about definitions and appears to back-up my thoughts, but wanted to post it for others to view and comment. In part, it says: (e) Definitions. Unless indicated otherwise, the following definitions apply for purposes of section 414(w) and this section. (1) Applicable employer plan. An applicable employer plan means a plan that— (i) Is qualified under section 401(a); (ii) Satisfies the requirements of section 403(b); (iii) Is a section 457(b) eligible governmental plan described in §1.457-2(f); (iv) Is a simplified employee pension the terms of which provide for a salary reduction arrangement described in section 408(k)(6); or (v) Is a SIMPLE described in section 408(p). (2) Automatic contribution arrangement. An automatic contribution arrangement means an arrangement that provides for a cash or deferred election and which specifies that, in the absence of a covered employee’s affirmative election, a default election applies under which the employee is treated as having elected to have default elective contributions made on his or her behalf under the plan. The default election begins to apply with respect to an eligible employee no earlier than a reasonable period of time after receipt of the notice describing the automatic contribution arrangement. This default election ceases to apply with respect to an eligible employee for periods of time with respect to which the employee has an affirmative election that is currently in effect to— (i) Not have any default elective contributions made on his or her behalf; or (ii) Have contributions made in a different amount or percentage of compensation. (3) Covered employee. Covered employee means an employee who is covered under the automatic contribution arrangement, determined under the terms of the plan. A plan must provide whether an employee who makes an affirmative election remains a covered employee. If a plan provides that an employee who makes an affirmative election described in paragraph (e)(2)(i) or (e)(2)(ii) of this section remains a covered employee, then the employee must continue to receive the notice described in paragraph (b)(3) of this section and the plan may be eligible for the excise tax relief with respect to excess amounts distributed within 6 months after the end of the plan year under section 4979(f)(1). Such an employee will also have the default election reapply if the plan provides that the employee’s prior affirmative election no longer remains in effect and the employee does not make a new affirmative election.

What if a person does not modify their auto enroll deferral %, but does modify their investment allocation %? Does this person remain in the autoenrollment group or does the affirmative investment allocation % remove them from the group? Example: A ptp in a plan is auto enrolled at 3% and has their contributions placed in the default investment election. The participant modifies the investment election to have the future elective deferrals invested in a different fund. The plan now wants to increase the automatic enrollment % from 3% to 5%. Would this person still be included in ther automatic enrollment population and, thus, have their deferral % increased from 3% to 5%? Or would the change of investment election take them out of the auto enrollment population and cause their % to remain at 3%? Side note: If the participant does not change the default investment election, but does transfer funds, would this change to their account balance take them out of the auto enrollment population? Any help is greatly appreciated. Any cites would be desirable as well.

Thanks for the reply. if the funds (at least those that go back in to restore the non-vested balances) do not go back into the sources, tracking the vesting will become very complicated. To clarify, the amounts that are restored will go back into the original sources to maintain the characteristics of those sources and will also be subject to the vesting schedule for those sources. If it is just the restored amounts, the vesting will be incorrect. This is compounded by the idea that new funds for those sources could be contributed. It would then require a whole new set of sources for the funds subject to vesting. One thought we had was to deposit the funds back to their original sources so they would maintain proper vesting, withdrawal restrictions, etc. EXCEPT for the Roth source. We would then take the Roth source buy back amounts and deposit those in the pre-tax deferral source. (We would still note the basis for each.) Thoughts?

We have a plan where a participant took a distribution of funds (including Roth funds) and rolled the funds into an IRA. Three years later, the participant has been rehired and wants to "buy back" the non vested portion that was forfeited when the distribution was originally taken. The participant intends to "buy back" by issuing a check from their personal account (not using the rollover acocunt). When we receive the funds, we will deposit the appropriate amounts into the sources from which they were taken. When this is done, we indicate that the amounts of the repayment were marked as after-tax basis. The issue we are encountering has to do with the Roth funds. How should the funds redeposited into the Roth account be handled? What about earnings? If the participant meets the requirements, would the earnings be Roth qualified? Should the "buy back" amount, attributed to the Roth section, be deposited into an alternative account? Is it possible that the participant will "double up" on the Roth funds because they have rolled over the Roth funds? Not sure I explained this well, but any comments are greatly appreciated.

I have a plan the has mutliple sources. The elective deferral and match sources have a 1 month wait entering on the first day of the month following. The safe harbor and profit sharing sources have a one year wait and enter on the first day of the month following. Here is a quick example. Ptp is hired on 7/15/2011. He would enter the plan (elective deferral and match source) on 9/1/2011. Presuming he completes his YOS, he would enter the SH and NEC portions of the plan on 8/1/2012. The plan also calls for compensation while a participant in each specific source. Based on my example above of the 2012 calendar year plan year, the comp for the elective deferral and match source would be for the entire 2012 plan year. The compensation for the SH and NEC portions of the plan would be from 8/1/2012 -- 12/31/2012. Now for the question: When performing the gateway testing, I known that you can use compensation while a participant to perform the 1/3 of plan comp test or the 5% of 415 test. My question is am I permitted to use compensation while a participant in the plan as a whole or can I use comp while a participant for the portion of the plan year in which the participant is eligible for the SH and NEC portions of the plan? My understanding has been that the compensation for the gateway testing can be for the SH and NEC portions of the plan, but I am having trouble confirming it. Next, we recently upgraded versions of Relius to 17.0. My recollection of version 16 and prior was that you could define comp for gateway while a participant, but I can no longer find that option in the newly designed plan specs. if anyone knows where it is, I would greatly appreciate being told where it is. Thanks in advance.

My client has a safe harbor plan (3%NEC) with a New Comp profit sharing allocation. In the past, the client defined the allocation groups as: Owners/Officers and All Others. This year, they decided to have three allocation classes: Owners/Officers, Other Employees who made elective deferrals, all others. They will pass coverage at 100% for the P-S allocation due to the 3% SHNEC. My questions are as follows: 1) Can the plan sponsor define the allocation group dependant on whether or not the participant chose to make an elective deferral? (I think that the answer is yes, but I wanted to confirm.) 2) If they are able to define the groups in this fashion, does not matter how they pass the 401(a)(4) testing? Ratio vs. ABT? (I think that they can pass in any fashion, but wanted to double check.)

I have a QACA plan that employs a match of 100% of the first 3% and 50% of the next 7%. (No A-T contributions.) I know that this match formula does not meet the ACP safe harbor requirements. I want to confirm what match figure I should be testing. My thought is that I should be testing any match that exceed 3.5% of compensation. A couple of my colleagues state that the basic QACA match formula should be applied and that the match calculated by this formula should be subtracted from the match calculated using the formula calculated in the document and that should be tested in the ACP test. Example 1: A participant has a deferral percentage of 5%. Based on the formula in the plan document, the participant receives a match of 4%. My opinion is that we should be testing an ACP for this participant of .50% (4% - 3.5%). My colleagues believe that we should be testing an ACP of 1% (4% - 3%). The 3% is calculated based on applying the basic QACA matching formula (100% of the first 1% and 50% of the next 5%) to the participant's deferral rate. (My colleagues calc is, since his deferral rate is 5%, he should be calculated at 100% of the first 1% and 50% of the next 4%, giving him a calculation of 3%.) Example 2: A participant has a deferral percentage of 2%. Based on the formula in the plan document, the participant receives a match of 4%. My opinion is that we should be testing an ACP for this participant of 0.0% (2% - 2%). My colleagues believe that we should be testing an ACP of .5% (2% - 1.5%). The .5% is calculated based on applying the basic QACA matching formula (100% of the first 1% and 50% of the next 5%) to the participant's deferral rate. (My colleagues calc is, since his deferral rate is 2%, he should be calculated at 100% of the first 1% and 50% of the next 1%, giving him a calcualtion of 1.5%.) Any help and citations are greatly appreciated. FYI - ACP run on all match contributions is failing. ACP run using my methodology is failing. ACP run using my colleagues methodology is passing.

Does anyone know where I can get a copy of this publication in english?

Did not receive a response. Just re-posting...

Employer A - Plan A - Participant defers 10,000 in 2011 and receives a 10,000 match (1 for 1 match) Employer B - Plan B - Participant defers 10,000 in 2011 and is to receive a 5,000 match (.5 for 1 match) Employers are unrelated and the participant is not catch-up eligible. Both plans are calendar year. Participant has a 402(g) violation of 3,500. Participant requests the 3,500 be refunded form Plan B. Questions: 1) Is the related match to the 402(g) refund (NOT 401(a)30) in plan B in the amount of 1750 required to be refunded? If so, can someone provide a site or a passage in EOB? 2) If the match has not yet been funded, does the entire 5,000 need to be funded? Or does only 3250 need to be funded? Must the 1750 be funded and forfeited even if the refund is processed well prior to the funding of the match? Any replies are greatly appreciated.

I have a follow-up to all of this. If a participant met the statutory eligiblity and entry date then terminated and was later re-hired, does that peerson remain in the Over 21/1 group or can that person be statutorily excluded? Also is this dependant on the length of active service versus the length of the termination? If the former participant is termianted for more than 5 breaks in service, does this affect how they are classified. Here are a couple of examples: DOH 7/1/2007 DOT 9/1/2010 Rehire 2/1/2011 This one appears to be clear. They are in the Over 21/1 statutory group. DOH 10/1/2007 DOT 9/1/2009 Rehire 11/1/2011 Two years of service and two breaks. DOH 10/1/2004 DOT 9/1/2006 Rehire 11/1/2011 Two years of service and five breaks. Any thoughts?

First thought: On the plan specs, Plan Entry Requirements screen, there is a check-box called "Waiting Period Exclusive". I believe that if this box is checked, it means that the participant needs to complete the full "Computation Period" prior to entering the plan. Conversely, if it is not checked off, then it means that the participant would enter the plan upon meeting the the elig requirements on the very next entry dates. Is this coded correctly?

You may also want to consider having the plan sponsor amend the document to reduce the maximum deferral percentage to 85%. This way you should be able to provide the 4% SHMAC and 7.5% NEC without concern. (It also provides a cushion in case an additional allocation is necessary to comply with 401(a)4 testing.)

Tom, Were there any conclusions from the 11/3 webinar? Are individual rate groups permitted?

I recently read the new regulations and it appears that for prototype plans: (1) You must now name the allocations groups in the plan document (2) The restriction on the number of groups has been lifted. Has anyone read this? Does anyone agree?

I have just received my first inquiry into the wrap plan arrangement with a NQDC and 401(k) plans. I saw this post and I want to make sure that I understand it. I am under the impression that the above related to leveling method and CUC sounds logical. However, I read in EOB the following: Chapter 16 - Other Employer-Sponsored Deferred Compensation Plans, Section IV, Part D, Tandem (or “wrap”) arrangements between nonqualified plans and 401(k) plans: 5.“Catch-up” contributions. IRC §414(v), as added by EGTRRA §631, allows a 401(k) plan to offer a “catch-up” contribution option to participants who have reached age 50 by the end of the calendar year. The catch-up contribution is in addition to the dollar limit under IRC §401(a)(30) and is not taken into account in applying the IRC §415 limits to other contributions made on the participant’s behalf to the plan. The tandem arrangement described above is permitted to be structured to accommodate the catch-up contribution option in the 401(k) plan. The total contribution should be initially deferred into the nonqualified arrangement, as shown in the above example. However, the amount transmitted from the nonqualified plan to the 401(k) plan after the close of the year would include not only the maximum amount that can be deferred without violating the ADP test, but also the catch-up contributions that are allowed above the “ADP limit" under the plan. The ADP limit is the maximum amount of elective deferrals permitted under the corrective distribution method under IRC §401(k)(8)©. See Treas. Reg. §1.414(v)-1(b)(1)(iii). To illustrate, consider the example in 1. above. Suppose the catch-up limit in effect for 2010 is $6,000. If Peter is over age 50, a catch-up contribution could be added to $14,200 to arrive at a permissible deferral amount to the 401(k) plan of $20,200. In addition, the total amount that Peter would defer for 2010 under the nonqualified plan might be greater to take into account that the catch-up contribution would be added to the permissible deferral amount under the 401(k) plan. Does this state that the CUC is allowable over the ADP% regardless of the leveling? Responses are greatly appreciated.

I never received a reply to the original posting. I am reposting to see if anyone has any thoughts on the OP.

I have a mulitple employer plan where one employer wants to amend it a safe harbor plan and the others want to leave it as a traditional SH plan. From a previous post: Treas. Reg. 1.401(k)-3(b) states the safe harbor contribution must be made to each "eligible NHCE". Treas. Reg. 1.401(k)-6 defines an eligible NHCE to be an employee who is eligible to make elective contributions under the 401(k) arrangement. Can the multiple employer plan be amended for one unrelated employer and not for the others? From the above, this cannot be done for a plan where related employers/divisions have adopted the plan and one employer wants to be SH and the other doesn't, but I did not know if the same thing held true for a multiple employer plan.

I guess, but then I would think that it would still not be a hardship withdrawal as the funds did not have to be paid by the participant for the medical bills. It would now have to be repayment of a loan rather than payment of the medical bills. Would the loan, depending on purpose, be considered a need for a hardship withdrawal? Simply by getting the loan, I would think that they had the means to pay the bill and the hardship is off the table.

We have a plan where a participant is requesting a hardship withdrawal for qualified medical expenses. The issue appears to be that the participant has already paid the outstanding bill. Is it possible to grant a hardship withdrawal for expenses that were previously paid? I would think not because the bill has been paid. If it were a hardship, then the participan would not have had the funds to pay the bill in the first place. Any thoughts would be greatly appreciated.

I have a new prospective client and we are discussing plan designs. I have discussed the possibility of a safe harbor plan. I informed them that the SH allocation only needs to be provided to the NHCEs. They then asked about other allocations to the HCEs. My questions are as follows: 1) My thought has always been that a SH plan could be designed with the 3% SHNEC to only NHCEs. It could also have a New Comparability feature with two groups: NHCEs and HCEs. Due to the fact that a 3% SHNEC was being given to the NHCEs, a regular 3% NEC could be give to the HCEs without any type of coverage/nondiscrmination testing. Does anyone disagree with this statement? What about a BRF issue? I do not think it is an issue, but would like confirmation. Thoughts? 2) My thought has always been that a SH plan could be designed with the basic SHMAC to only NHCEs. It could also have a discretionary match feature. Due to the fact that a basic SHMAC was being given to the NHCEs, could the discretionary match of 3% (100% of the first three percent) be given to only the HCEs? I do not believe that there would be any coverage issue, but the ACP test would need to be run. However, if I tested all of the match allocated to the plan and it passed, then there would be no nondiscrminination testing issue. Agree? Additionally, I am concerned about a BRF issue? Based on the basic safe harbor match formula and a match capped at 3% for all, would this be OK? Thoughts? Any help would be greatly appreciated.

I have a plan that has the following eligibility and entry date requirements for the match portion of the plan: 1 Year of Service, entering monthly. The match portion of the plan has no allocation conditions for the match allocated on a payroll by payroll basis. Additionally, the match portion of the plan allows for a “true-up” contribution for all eligible participants who are actively employed on the last day of the plan year OR terminated during the year due to death, disability or leave of absence. Based on the above: 1) The plan has no coverage issue for the match portion of the plan as there is no allocation condition to receive “regular” match. Therefore, disregarding any excluded employees, 100% coverage. 2) The plan has a BRF issue due to the fact that there is an allocation condition related to the match “true-up” contribution. 3) In order to satisfy the BRF testing for the match issue, the plan only needs to satisfy the Availability test. 4) There are two portions to the Availability test: Effective Availability and Current Availability 5) The Effective Availability test is a “facts and circumstances test” and it states, that based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs. Based on the allocation conditions of the match “true-up”, the plans appears to pass the Effective Availability portion of the Availability test. 6) The Current Availability test is a mathematical test which is run virtually the same way as a ratio test for coverage testing. (The ratios for the NHCEs and the HCEs is calculated by taking the number of participants for who the BRF is available divided by the total number of participants who are not excludable under coverage.) The Current Availability test is passed if the ratio calculated greater than the safe harbor percentage defined in §1.410(b)-4©(4)(iv). Does anyone disagree with the above six points? Question: If the plan sponsor excludes a division from it definition of eligible employees (and does not allow them to participate), do they have to be included in the denominator of the BRF ratio calcs? (I think the answer is yes, but would like verification.) If anyone else has any additional information that they think would be helpful for the above, please feel free to supply it. Thanks in advance.

Based on my analysis, all of the employees in the component plan that only received the SHNEC are NHCEs. Therefore, this will automatically pass 410(b). The other component plan will easily pass 410(b) via the ratio test. Therefore, both pass 410(b). As this is the case and both of them have safe harbor allocations under 401(a)4, then testing stops and no additional 401(a)4 testing is required. Therefore, no cross testing and no gateway. FYI the allocations for the component plans are (a) 3% SHNEC (b) 3% SHNEC + an additional integrated allocation on 81% of wage base (6% of total comp + 5.4% above) - Not integrating on the 3% SHNEC Agree? Thoughts?