buckaroo

Thanks you all. It great to get confirmation that my thought was correct. The information provided is great and will help me not second guess myself in the future.

I just received the BenefitsLink Retirement Plans Newsletter. One of the articles ("Retirement Plans Work Differently for Highly Compensated Employees ") states that 'The regulations define an HCE by compensation. The limit is adjusted for inflation each year. If you earned $105,000 or more in 2007, you would be an HCE for 2008, and if you earned $110,000 or more in 2008, you will be an HCE for 2009.' I think that the above is incorrect. I believe that if you earned $100,000 or more in 2007, you would be an HCE for 2008, and if you earned $105,000 or more in 2008, you will be an HCE for 2009. Does anyone disagree? (I have always found this issue to be troublesome as the way the figures are displayed on any chart are misleading.)

Plan with 12/31 PYE adopts a resolution to terminate in 2006. They distribute all of the assets in 2007 and file a Final Form 5500. In 3/2009 they receive a check from settlement proceeds related to late trading and market timing. (See FAB 2006-1). 1) Does the plan need to file a Form 5500 for 2009? Does it matter if the funds are recevied and distributed during 2009? 2) If so, can you confirm that the participant count at the beginning of the year is zero? 3) Does the plan need to file a 2008 Form 5500? 4) Does the plan need to file an amended 2007 Form 5500? All comments and cites are appreciated.

Thanks for the info. I will keep in mind the comment about resonableness. That being said, I think that my question should be, if a plan changes the NRA, what is used for a new comp PSP?

I have a plan that currently has a NRA of 54 1/2. At this time they may wish to amend it. Forgetting for the moment that this NRA may be unreasonable and Notice 2007-69, let's say that the client amends it to NRA of 62. My recollection is that the NRA is a protected benefit. Is this correct? Additionally, the plan is currently a new comparability plan. I was using age 54 1/2 to process the EBARs. With the NRA change, what do I use to calc the EBARs. I would guess age 65. The reasoning for this is because age 54 1/2 and age 62 are not uniform as the NRA is a protected benefit. Therefore, when the NRA is not uniform, Age 65 is to be used. Am I on the right track or way off track. Any comments and cites are greatly appreciated.

I agree with the OP and had come to the same conclusions as by Laura Harrington. However, I have a slightly different situation. For my situation, the payroll match is the same as the OP. However, substituting the discretionary match, I have a "true-up" contribution for only those active at EOY. BRF is obviously required, but my thought concerns someone who receives the match troughout the year and has a $0.00 true-up. Could I consder them part of the group receiving the true-up as it is zero? Any thoughts would be greatly appreciated.

From what I was told from my colleagues, it seems to indicate mandatory. I am working with all parties involved to clarify.

Thanks again. I typed when I said exclude. I meant not benefitting, non-excludable for 410(b). Even if I did this, my apologies, but I want to confirm that I fully understand that it would still be considered a safe harbor design. All employees are getting the 3% SHNEC and then getting 6.801% of total comp and 5.4% in excess of 81% of TWB. Are you saying that essentially it is akin to using a two step integrated allocation where you are giving 5.4% of total plus excess of 81% of TWB and then giving 4.401% on total comp? Is this correct? My issue may then be a software issue. The system I am running is telling me that based on the information I have fed it, that it is failing 401(a)4 on an allocation basis based on the numbers below. I think that it has to do with the reduced integration level (81% of TWB), but I will have to verify. Thanks for your help.

All: Thanks for your replies. David, Unfortunately, yes, it is a 401(k). Tom, I was emersed in 1.401(m)-1(a)(3) and came to the same conclusion. Thanks for verifying. Sieve, Yes, I believe that is what some of my colleagues thought. They said they thought it might be a carry over from an old plan. I am glad that you think so as well. It certainly feels that we are on the right track. I thought of a negative election, but it does not seem to allow the participant to waive out. That seems to be the start of where I was lost. My lack of knowledge stems from never seeing a mandatory AT cont in a plan before. (I have been doing this quite a while and this is a new one on me.) I didn't know that this could be done. And trying to find out information on it seems difficlut. I found the ssame cite that Tom detailed as well, but it did not detail the mandatory issue. I was hoping to read how this worked, but there does not seem to be much reference to this. I assume it is rare now. Is that your take on this type of set-up?

Blinky, Thanks for the reply. I always welcome your input. I thought about excluding (from coverage) those who receive only the SHNEC, but I felt uncomfortable doing so. So I included them in the testing. Either way, most of the HCEs have an allocation percentage of 15.789 (13.261 prior to imputing disparity) and most of my NHCEs have an allocation percentage of 15.501 (9.801 prior to imputing disparity). (The "raw" allocation percentages include the 3% SHNEC.) Therefore, I cannot utilize the allocation methodology. I had to convert to EBARs and test on a benefit basis. Based on this, I had to provide the gateway minimum to those who only received the SHNEC. From my review this makes sense as the 3% SHNEC cannot be "imputted upon" and the formula calls for utilizing 81% of the TWB. Any additional thoughts would be welcome.

This is a very interesting question. On one hand I think you could consider them benefiting and include them in your ACP and 410(b) testing. (This would be based on the fact that if a discretionary match was made, they would benefit from it.) On the other hand, you could consider them not benefiting and do not include them in your ADP testing and in 410(b) testing as non-benefiting non-excludable. This would alleviate the burden of the ACP testing, but may cause an issue with the coverage testing. 1) If they are included as non-benefiting non-excludable, does this 401(m) portion fail the 410(b) testing? 2) If they are included as benefiting, does the ACP fail? If they pass both ways, I would simply note it and move on. One final “far out” thought: If you consider them benefiting, you may have some folks benefiting at the level of the SH match contribution and some benefiting at 0 (even though they made 401(k) deferrals and completed the allocation requirements for the discretionary match). In this case, you may need to consider BRF testing as you now essentially have a two tiered match. One as the SH match for the first three months of the year and the second as 0% of 0%. I am not sure this is valid but thought it was worth mentioning.

I have a client with a SH 401(k) plan. They staisfy the SH via the SHNEC. The Plan also has a profit sharing allocation as an integrated allocation of 81% of the TWB. They want to "Max out" the HCEs who make 230,000. Questions 1) My understanding is that if this were a non SH plan (standrad 401(k) plan), the regular PS allocation would be considered a design based safe harbor as far as 401(a)4 is concerned. (As long as the integration portion does not exceed the 5.4% on the excess and is not more that than the % on the base. For example 7% on base comp and 5.4% of comp in excess of the 81% of the TWB.) Correct? 2) Because it is a safe harbor, each person is required to receive the 3% SHNEC first and then the integrated allocation of 7% on base plus 5.4% on excess. This combination allocation requires 401(a)4 testing as it is now not a safe harbor allocation design. (There are people who are not getting the "uniform" allocation soely under the permitted disparity formula.) Correct? 3) Based on #2, this plan fails the allocation method of 401(a)4. Therefore, the plan must be cross tested to ensure passage. Therefore, those employees who have qulaified for the SHNEC and not the integrated NEC would have to receive an additional allocation to ensure that they meet the gateway contribution. Correct? Any responses are greatly appreciated

Tom, Thanks for the post. I had actually looked at this and dismissed it. However, your answers in the past have been spot on so I have taken your "might" and looked at this section again. The issue I keep getting hung up on is the fact that the section refers to it as an election. From my discussions with my colleagues, I do not believe that they were given a choice to elect. I believe that the contribution is mandatory. There is no choice. Thanks again for taking the time. If you have any other thoughts, I welcome them.

I am working with my colleagues on a take over 401(k) PS plan that has language regarding a mandatory 2% contribution as defined by 401(m). (I did not know this was allowable in a DC plan. If someone could point me in the right direction to read more about this I would greatly appreciate it.) Based on what they have told us: 1) They first said is a pre-tax contribution. However, I do not see how this is possible based on the referenece to 401(m). I would think that it has to be an after-tax contirbution. Can this be confirmed? 2) They then said that it is a non-elective contribution. I assume that they meant that the participant could not waive out and it was required. I do not think they meant a non-elective (PS) contribution as I would think of it. Does anyone see how this type of contribution could be the "standard" non-elective contribution (including the idea that it is under 401(m))? Any replies are greatly appreciated. I have some other issues which I may address based on the answers to the above. Thanks in advance.

Thank you both very much. Insurance is not one of my strong suits. I appreciate the site.

Participant wishes to insure his spouse. I believe that this would be a violation of the "exclusive benefit" rule and possibly some other rules. However, I cannot find a specific citation for this particular scenario. Can anyone help?

I have a client who has provided me with a document which states that match is made on a payroll-by-payroll basis for all eligible participants. It goes on to say that a matching "true-up" contribution will be made to participants who are actively employed on the last day of the year. The are claiming that they need coverage testing for the true-up match. (This is what was provided by their prior service provicer.) My opinion is that coverage is automatically satisfied as all eligible employees are eligible to participate in the plan and, if they make deferrals, then they will receive a match contribution. Therefore, the coverage ratio is 100% for the 401(m) portion of the plan. I would take the postion that the issue is a BRF issue, but I am not 100% sure. My problem is that I am unsure how this should be tested. On the surface, I would think that there is a discrepency in the rate of match. However, if the plan sponsor matches accruately throughout the year, then, I would think that no testing is required as everyone was entitled to the same level of match. Do I simply say that there are two groups of people: the first consisting of those who are actively employed on the last day of the year and the second consisting of everyone else? Do I then calculate the nondiscriminatory availability? Or do I review and see of those not active on the last day, who received the correct matching contribution and include them in the first group as they received the "correct" matching contirbution? Or is there something else I should be doing? As always, comments are greatly appreciated.

You did not say what options you have as far as coverage testing. Are you restricted to the ratio test or can you use the average benefits test? If you can use ABT, have you? Are the results as bad? Are you passing the non-discrim classification portion and failing the ABPT? What does the document say about correction to coverage testing? is their fail safe language? Depending on the the answers to the above, you may be able to utilize other correction methods to fix the issue.

I agree with you. I had read the doc and this is what it says (Not word for word): I took a look at the document and it states that a match will be made for all. It then says that an additional match will be made to true-up those participants who are actively employed on the last day of the year or have term'd due to ddeath disab., retirement. I know that it says additional match, but it all still falls into 401(m) and therefore coverage is met as all are benefitting. This is why I beleive it to me BRF.

All: This is a very interesting thread and pertains to an issue that I am currently detaling with. (However, I believe that mine is a bit easier.) I have a plan that provides a match to all participants on a payroll basis. At the end of the year, they "true-up" the mach for ONLY those who are actively employed on the last day of the year. The client believes that they are due two spearate coverage tests for the two different matches: One for the payroll-by payroll match and one for the people who also receive the true-up. My thought process is that there is only one match for the 401(m) portion of the plan, everyone is benefitting (100% coverage). Agree/Disagree? I also beleive that my situation is clearly a benefits rights and features issue. Therefore, I would need to calculate the number of participants (split between HCEs and NHCEs) who are eligible for the "true-up" contribution and calculate the availability ratio for the populaitons and detrermine if it is great enough to exceed the safe harbor percentage. Agree/Disagree? Please provide details. Any thoughts are greatly appreciated.

Thanks for all of your replies. One of my colleagues has provided me with some research which helped me better understand the problem and provide an answer. (I do not know know the source, but I may be able to provide if necessary.) Here is some of what he sent me: Q: Can a 401(k) plan be offered as part of a cafeteria plan? A: Although a cafeteria plan generally cannot include any plan or option that provides for deferred compensation, this restriction does not apply to 401(k) plans. Thus, elective deferrals and after-tax contributions may be made to a separate 401(k) plan through a cafeteria plan. The rules on change-in-family-status changes under a cafeteria plan cannot be applied to 401(k) plan contributions, and elective deferrals to a 401(k) plan should not be included in the benefits amounts that are tested under the Section 125 nondiscrimination test. 401(k) Plans Flex credits intended for benefits may sometimes backfire. If an employer gives each employee $1,200 in flex credits each year, it’s very possible that the more healthy employees will not use up their flex credits before the end of the year and end up forfeiting them back to the employer. Try offering a 401(k) inside of the flex credit plan. Everyone now has a spot to use their flex credits while building a nest egg for retirement. The advantage? It’s a simple benefit change if a 401(k) plan has already been established and the flex credit plan may boost participation in the cafeteria plan. The only real drawback is that 401(k) contributions are taxed differently than cafeteria plan contributions — FICA is withheld from 401(k) contributions.

I am a qualified plan administator for 401(a) plans. This is my first entry into the cafeteria plan forum so please be kind as to my terminology. If additional details are needed, please let me know and I will try to get them. I received a call from one of my colleagues regarding an ADP/ACP test he was processing. He said that the Plan Sponsor has a Section 125 plan and that any money that is "left over" can be transferred from the cafeteria to their 401(k) Plan. From speaking to some of other colleagues, they thought that this may have been an option many years ago for a very short period of time. 1) Has anyone heard of this? Is this possible? 2) If so, can anyone provide details and a good reference to read? 3) Would this be considered a pre-tax (401(k)) deferral and be tested in the ADP test? 4) If not, was it ever possible? Thanks in advance. Any help is greatly appeaciated.

Client has had a plan for years. For the 2008 plan year, they have informed us that a portion of the population should be treated as a QSLOB and tested separately. The ADP tests utilize the prior year testing method. What prior year percentage should be used for QSLOB? NON QSLOB? I would think of two possible scenarios: The first is to use the prior year ADP as calculated for the combined group. The second would be to use the ADP as calculated for the combined group for the NONQSLOB and 3% for the QSLOB and treat as a new plan. I think the former is the correct way to go. There was also the idea recalcing the prior year for both groups, but I cannot find justification for that so I chose to exclude that idea. Any thoughts would be appreciated. Also, any cite or references would be greatly appreciated.

Tom, Getting back to your first point. I have always been under the impression that if you had a person who rec'd the 3% SHNEC and did not receive the NEC (last day/100 hrs), they had to be provided with an additional contribution to satisfy the gateway. That being said, I thought that a person in this situation was provided with an additional NEC of .334% to satisfy the dateway. Do you agree?

fiona, Thanks for the reply and the detail. I was kind of torn on whether it would be subject to the 12 months. I like what you have written and think it sounds very logical. (Although that is not always the best indicator for our industry ) Thanks again.