buckaroo

I am not sure about the timing of the distributions. My recollection is that if a ptp rolls out prior to the end of the plan year in question, then they have to move the money out of the IRA/plan. I do not know if the rules would be different if the roll occurs after the end of the year. Either way, if you think that there has been a violation, be careful about the 1-to-1 QNEC if the testing was disaggregated. My recollection is that the QNEC must be calc'd based on any refund amounts when the test is run aggregated (Over 21/1 and Under 21/1 together).

The excluded group (who have met min age/service in doc.) must be included in the rate group calculations (Denominator), unless they meet the the definition of an exlcudable employee (i.e. have not satisified min age/service, select union ees, etc...)

Also, am I reading this correctly? How can you give 3% on total and 5.7% on excess? I belive this violates the integration rules.

This is an interesting post. I think I am about to learn something new, but I want to be sure I fully understand. Under your scenario, the CUC for the recalssifed ADP refunds for the year being tested would always be included in the top heavy determination. Do I have this correct? In your example, it appears that the ADP refunds are reclassified as CUC in 2008. You are saying that they do not count for the 2007 TH determination, but they do for 2008? So for the 2009 TH determination, any ADP refunds reclassified for the 2008 PY (in 2009) would be counted in the top heavy determination as of 12/31/2008? It also means that this will continue to be the same way for every year? I always thought that because you were determining TH status as of the last day of the prior plan year, any CUC attributable to the plan year containing the TH determination date (regardless of reason for reclassification) were excluded. In my thought process, you could not provide an accurate TH test until you had completed the all testing which could cause a reclassification of deferrals to CUC. Also, in your scenario, what about 415? If the 415 test is not run until after the EOY, I would think that it would also be included. Correct? Sorry if this rambling, but I have a lot of questions and little typing skills

Ak2ary, I stand corrected. Thank you very much for the clarification. My thought process must have been in the transition rule related to coverage and acquisitions/mergers. If I remember that one correctly, that is simply coverage and not non-discrim, correct? Again, thanks for you insight and help. padmin, I apologize for the misinformation.

For Co. A's profit sharing plan, I would say that no contribution should be made. It appears that the HCE would not be benefitting so the coverage and non-dsicrimination testing would be moot. If there is a 401(k) component, then the entire amount would need to be refunded as a result of the failed adp/acp. As for Company A's MP plan, my initial thought with very little thought behind it would be to retro amend the plan to exclude HCEs going forward. This still allows the Union EE to get the contribution and removes any testing issue for the MP for the lone HCE. I am sure that this is a cutback, but I am not sure it matters much as the only person being adversely affected is the HCE. Sorry I can't be more help. Bottom line: Get these merged ASAP.

My understanding of the three year rule revolves around coverage testing only. If a plan feels that there have not been any significant changes to the population and the plan's features, then they can utilize the three year testing rule and only perform the coverage testing every three years. During the years that they are not running the coverage testing, they are relying on the results from the last coverage test run. THis is usually employed by larger companies whose workforce is so large that small increases and reductions in the workforce will not affect the testing. This rule does NOT apply to non-discrimination testing. 401(a)(4) testing must be satisfied every year. My recolleciton is that there is no exception for this rule. I think the provider may be confused.

Yes, exceeding 415 is also an acceptable way to get CUC.

ERISAnut, Thanks for your reply. I have very little experience with this. I am surprised to hear this and a little confused. I am correct in saying that I am borrowing from the ADP to help satisfy the ACP. Since I am borrowing, I simply use the resulting percentages, not recalc anything related to the individual percentages? Also, again with very little experience, is it simply a difference in terminology? I would think the answer is no, but I am unclear on what the difference would be. Can you clarify a bit or point me in the direction where I can research this a bit more. Sorry for possibly being unclear about this. Appreciate your help.

Plan fails both the ADP and the ACP. Client processes refunds for the ADP failure. After the refunds are processed, the test is deemed to pass. (However, due to the leveling method, if the test is rerun, it would show a failing result.) Now in order to correct the ACP failure, deferrals will be shifted from the ADP to the ACP. Now, we know that the ADP is passing by virtue of the deemed passage because of the refunds. After we shift, we are required to pass the ADP. Do we actually run the ADP test again? If so, there is a great chance that the plan will fail (again because the leveling doesn’t “actually” correct the issues. Am I correct? Or do we simply take the ADP post corrections and utilize that in the aggregate and not recalc the actual tests. (I hope that this makes sense.) Any comments would be greatly appreciated.

I agree with both items. Yes, since it is for 2007, the client is stuck. I was thinking for future years. As for the three options, I had not seen the third option in the very few pre-approved documents that I had seen. The third option would certainly work. However, my option is more cost effective for the client as it would not be required to go to any HCEs. Also, with the NEC, it allows for allocation conditions and vesting. The main hurdle you would have would be employee realtions and if you wanted to guarentee the SHNEC to the non-owner HCEs. Just providing another alternative.

Thanks again. I appreciate the feedback.

Thanks for the quick reply. To summarize, it appears that you agree with my colleague that if the modified comp def fails to satisfy 414(s), then the plan is not SH for that year and must be tested using a def that satisfies 414(s). Agree?

I was under the impression that most pre-approved documents only allowed for either a SHNEC to all or a SH NEC to NHCs only. That being said, I would have the PS allocation written as a tiered allocation with groups being something like OWNERS, OTHER HCES, and ALL OTHERS. I would then allocate the 3% SNHEC to only the NHCEs and make a 3% NEC to the HCEs. This way, if the company has a cash flow problem, then they would not be required to make the SHNEC to the other HCEs. Additionally, they can have the NEC subject to a vesting schedule. Additionally, if they have a fantastic year, they can provide a 9% NEC to the owners with no additional cost (subject to passage of the required tests). Just a thought...

I have a plan where the definition of compensation excludes bonus and overtime. The plan is a Safe Harbor Plan with the 3% non-elective. The client has put in the 3% SHNEC on the based compensation during the year. The year has ended and the 414(s) compensation ratio test is run and it is failing. I am unsure of how this is resolved. I thought that the client would simply make the 3% SHNEC on a defition of comp that satisfies 414(s) (perhaps 415). My colleague states that the SHNEC cannot be corrected in this way and that the plan fails to be a safe harbor plan, still owes the 3% SHNEC on the base pay, and is subject to ADp/ACP testing. Comments? Additionally, I would think it should be different if the SH was satisfied by the SH match, but I do not think that it is ACTUALLY different. Under this scenario, I think it would definately fail to be a SH plan b/c the participants did not have the opportunity to make the deferrals on the poriton of the compensation excluded from the definition. More comments?

My question is does any one have any type of signoff exhibit/language they they send with completed tests that requests that the client review the data and/or the tests and/or the plan specs and sign off and send back for their records?

I have seen documents that state that the sponsor may limit the max deferral percentages based something outside of the plan (mandate, resolution). However, if the doc does not say this, then they cannot limit it by an exhibit outside of the plan.

I would think about restriciting all of the HCEs and then providing the 3 who want a contribution a regular NEC via a new comparability allocation. That way, the client can have that money subject to a vesting schedule and have the flexability to provide or not provide it every year.

John, This is a question that has been bantered about for quite a while. I think from the lack of responses that no one has come up with anything more that you have already stated. We have done exactly as you have stated in you e-mail. If anyone had anything else, I would be happy to hear about it.

I think there is an additional wrinkle here. When plans are aggregated for coverage, the aggregation for top heavy purposes is not always automatic. Assuming that there are no key employees in the Associates plan, it comes down to which plan is helping which plan to pass coverage. Specifically, if the Partners/Staff plan is helping the Associates plan pass coverage, then the Associate plan does not have to be aggregated for top heavy purposes and the associates do not have to receive any top heavy allocation. However, if the Associates plan is helping the Partner/Staff plan pass coverage then the Partner/Staff Plan must be aggregated with the Associates plan for top heavy purposes and everyone is entitled to the top heavy allocation. 2007 EOB 1.879

I have read the posts and I am still unclear what the question is. If the plans needs to be aggregated to pass coverage, then they need to be aggregated for the ADP/ACP. If they do not pass coverage separately, then they cannot be tested separately for ADP/ACP and it does not matter how the ADP/ACP performs for each individual plan. So, aggregated for coverage, aggregated for ADP/ACP and no ADP/ACP test would be run for each individual plan. Additionally, you must be careful with the top heavy analysis as well because of the required aggregation for key employees. In other words, if the associates plan has key employees (ownership threshhold or officers), then they will have to be aggregated for top heavy purposes.

I am not sure that I can answer this but I will give a try. My short answer would be no for a variety of reasons including: I would not think the 401(k) plan incudes the disability payments as compensation for plan purposes, but I would refer to the document. (Are the funds being paid via a w-2? Is it for work performed? Is the person actively employed?) If the payments are considered income to the employee, you are talking about making them employer contributions and deferring them into the plan. I would think that the employee would have to agree to this and that would be considered a deemed coda. How does the 401(k) plan allocate a non-elective contibution? If it is uniform, then I do not know how it would justify an allocation to one person.

Not so fast. You are correct about the issue, but not about the reference. My recollection is that the rule about passing the testing excluding the employees who only receive the top heavy minimum is not a coverage rule. The coverage testing is to be done including them as benefitting. It is actually used to determine wheteher the top heavy formula causes the plan to be a safe harbor plan under 401(a)4. If it fails a 70% ratio, then the rate group testing under 401(a)4 would need to be employed.

Not the answer that you are looking for, but I would do throught the plan document again. My recollection is that some documents state that if a participant makes a rollover contribution into a plan that they can take a distribution of that rollover account at any time. My guess is that it may be addressed in the rollover section and not the disttribution section.

I apologize, but I am not sure that I understand. Is the client stating the the taxable disability payments are considered eligible compensation to the employee and the employee can turn around and choose to defer the compensation into the 401(k) plan as deferrals? Or as an after-tax contribution? If not, aer you saying that the employer is permitted to take the payment and contribute them as a non-elective contribution to the plan for only that participant?