buckaroo

I think this is an interesting question. I am unfamiliar with a signing bonus. That being said, I am going to ask a few questions/comments that may seem silly, but I am hoping for clarification. 1 Wouldn't it matter how it was paid and what type of entity? For example, what if the person was the hired as an owner of an S-Corp and the bonus was paid via the K-1? My understanding is that the W-2 is the only compensation available for retirement plan purposes for the S-Corp. 2 What if the signing bonus was paid on a 1099R? I think this is far fetched, but couldn't this happen? If so, would it be included in the compensation defined in the original post? I always thought it was not, but wanted calrification. 3 What if the plan in question is a calendar plan year and the new employee is engaged by the employer to work on 12/1/2007. But his true DOH is 2/1/2008? Does he get the bonus in 2007? If so, I would think that he would not be eligible for the plan until his actual DOH. Correct? 4 My recollection is that if he does not work actual hours, then it would not be included in compensation. (i.e. payment after the end of the year for services redered for the prior year.) How does that affect a signing bonus? One more interesting point. Is the ptp eligible for the plan immediately or is there some sort of wait? IF there is, it may be includable in 415 comp, but included for other purposes because the doc may allow for comp while a participant. (I think this is related to #3 above, but wanted to throw it out there.) Any clarification would be greatly appreciated.

A colleague recently asked me if the ABPT could be run netting out any ADP/ACP refunds (due to a failed test). I told him that it could not. While I am confident in my answer, he asked for justification. I have looked and the best I could come up with was that all employer contributions are included in the ABPT. Since it was a contribution, it must be included regardless of the subsequent action. Can anyone provide a better explination or a cite? Also, if anyone disagrees with me, please let me know.

My apologies, but I am having some trouble understanding your post. Are you saying that there are two 401(k) plans for a control group. And that there is a company which participates in the plan? So, are you saying that Plan A is a multiple employer plan? (Companies participating in plan A are unrelated?)

I as well was looking for good web sites/references for these plans. I have not found much. I did find an article in the May-June 2003 ASPPA journal by Amy Cavanaugh which was very helpful.

With the approval of our new EGTRRA proto-type document, we are now offering the NEw Comp allocation (and its associated testing) as part of our standard services. The proto-type allows for two different allocation possibilities: 1) HCes vs. NHCEs and 2) Everyone in their own rate group. (This is directly from the LRM.) My issue is as follows. Client is a doctor's office and all participants are in their own rate group (per the document). There are 10 physicians and 50 other employees. Lets say that all 10 are HCEs and 5 of the 50 others are HCEs as well. The remaining 45 are NHCEs. The client says max out partners and give 5% to everyone else. The plan fails. The client wants everyone else to get at least 5% (including the 5 HCEs who are not physicians). The have asked me to provide solutions to allow them to pass. AS always, they want the cheapest solutions possible (keeping in mind the max alloc rates under the prototype plan rules). My question is: The possible solutions are endless. I can try any number of things to make this work, but I don't know where to stop. Do I simply come up with a couple of solutions. Do I ask the client for what they want done in more detail? If I do present Ideas and the client wants to "tweek" them, how far do we go? How are others handling this situation? Thanks in advance

I also agree with the group. There does not appear to be a control group issue here. The key factor appears to be that the actual ownership percentage is only 60%. The rules state that it must be at least 80%. Therefore, no control group. Belgrath makes an interesting point about attribution. We are all in agreement that there is no attribution. However, the accountant may not understand the rules of attribution. In other words, may be the accountant believes that the attribution rules apply to brothers/sisters. (As always, another frightening situation regarding misinformation.) If this is the case, I would see where the accountant would think there is a control group issue.

Quinnfeld, Thanks for the response. it definately speaks to the basics of coverage testing. However, I was looking for specific detail on the three year coverage testing option. Do you have another option? Does anyone else have an option?

JanetM, Mr. Poje, AND Blinky!! What a group!! Since my last post, I have done some additional digging and here are a couple more thoughts: 1) From the EOB, Version 2007, p 1.158 – Actual Hours Not Relevent – “When an elapsed time method is used, the employee’s actual hours are not determined and will not affect the outcome…” (for vesting). While this only addresses vesting, it also states that four courts (and court cases) have supported the elapsed time method. I would think this would lend to not counting hours. 2) Additionally, below this section, there is another which states “An employer who is contemplating the use of the elapsed time method for eligibility, vesting and/or benefit accrual purposes should understand that part-time workers have a better chance of satisfying the applicable service requirement when the elapsed time method is used in lieu of the computation period method (where the number of hours within a computation period is important)…” This seems to say that the hours are irrelevant in the elapsed time method. Any further thoughts or opinions?

I have been debating a few of my colleagues for a little while on this topic and it has now come to the point where I need prove it. I have a client who has eligiblity requirements of 6 months of service. In a case like this (for any elapsed time eligiblity issue), my understanding is that employees can only be classified in the OEE group in their first year. In other words, it does not matter how many hours they work, the elapsed time is the only factor considered. Let's use my client as an example: Calendar year plan. 6 months elapsed time. Monthly Entry. We will use the plan entry dates for purposes of determining the OEE group. Participant is hired 4/10/2006. (She is well above age 21 on her DOH.) She will be eligible for the plan on 11/01/2006. She will be in the OEE group for the 2006 test. She works 800 hours from 4/10/2006 -- 4/9/2007. Regardles of her hours, she will need to be in the statutory employees test (the regular-over 21/1) for the 2007 plan year. This is the case beause the plan uses the elapsed time method for eligiblity and does not couht hours in any way. My colleagues believe that because the participant does not work 1000+ hours in the anniversary year, they can be put in the OEE testing group for 2007. Then, based on the anniversary years, going forward, my colleagues believe that the participant can remain in the OEE group until they meet the 1000+ hour requirement. Thanks in advance for any responses. A cite would be most apprecited.

Tom, Thank you very much!!! You were right on the money. It had to do with the Date or Retirement. It was coded 1st of month during. It made for a non-unioform NRA and that was the problem. I chaged it to 1st of month following and it worked. Thanks again!!!

My understanding of this rule is that a coverage test can be utilized for the two plan years following the plan year of the test. This can only be utilized if there has not been a change that would adversely affect the coverage testing results previously calculated. My questions are: 1) Is there any test that would indicate if a change in the population (other than running the actual coverage testing) would not allow a plan to rely on the preious coverage results? 2) Has anyone had a problem utilizing this rule? For example, has anyone been audited and required to provide a coverage test because the auditor thought the pop. change would adversely affect the coverage issue? 3) In two above, did the new coverage test fail? If so, what was the remedy? Was it the standard options? Was there any penalty? 4) Does anyone have a reference where I can read more about this topic? Thanks in advance for the responses.

All: Thank you for your replies. I appreciate your responses and I have a follow-up question. (It is a Relius question and does belong in the Relius board, but I don't know how to move it and I thought the history above would make it easier to discuss.) Utilizing the info above, I am trying to run my cross tested allocation. When I run the ABT, it shows the projection to age 65. It is NOT projecting to age 59 1/2. Can anyone tell me how to instruct the system to change the projection to the NRA? Any help would be greatly appreciated. Mr. Poje - Is this something you might have in your vast knowledge of Relius?

Tom, I have re-read the LRM again and I do not understand. I see and have seen in the LRM that the number of NCHE allocation groups is limited based on the number of eligible NHCEs in the plan. The problem is that I do not see the number of eligible NHCEs detailed in the post. 1) Is there something more I am missing in the LRM? or 2) Is there something more I am missing in the post? or 3) Am I correct?

Most of the plans that I work on have a normal retirement age (NRA) of 65. When I process their cross testing, the EBARs are calculated by calculating years to retirement on the basis of 65 as the testing age. I recently got a plan that contains an NRA of 59 1/2. My questions/comments are as follows: 1) My assumption is that I should be using age 59 1/2 as my testing age. Is this correct? 2) If, so, I would assume that I base the calculating years to retirement on the year the participant turns age 59 1/2. Correct? 3) Or do I simply drop the 6 months requirement from the calculation of the exponent when calculating years to retirement? (Essentially makign the testing age 59?) 4) Am I permitted to use age 65 as my testing age? 5) Am I permitted to use a different age entirely as long as I do not exceed age 65? (I do not know why I would actually do this, but I am curious.) 6) What if the NRA in the doc was age 65 and 5 YOS? Is the testing age different for anyone who would not have 5 YOS by age 65? (66,67, etc...) 7) If the answer to #5 is that the ages would be different, would I not have a problem with some sort of uniform retirement age? 8) Is there anything else I should be aware of regarding NRA? Thanks in advance for the replies.

Tom, I saw your reply and I am not clear as to why the NHCEs would be restricted to two allocation groups in this case. My undersanding is that the number of allocation groups is based on the number of eligible NHCEs. I did not see that number provided. Do I not understand the rule or did I just miss something in the post? As always, thanks for your reply.

I completely agree with you on OEE not falling in the definition of component plan. My post was just trying to clarify the phrase "whole plan" I justed wanted to make sure that people understood "whole plan" was not necessarily whole plan. (Confusing when top heavy min allocations are discussed and all eligible for any component of the plan must receive the allocation.) Maybe I was reading too much into it. Sorry for the confusion.

We (along with the most of the rest of the retirement world) received the approval of our EGTRRA prototype document in the past couple of weeks. During the process, we attempted to make the section on New Comparability a bit more restrictive than LRM94 outlined. However, our modifications were rejected at every turn. Therefore our document contains the exact language from LRM94. Now that we are re-reading it for the 100th time, we have come up with a new view. From our reading, it appears that the LRM allows for two options. One is divided between HCEs and NHCEs. The other appears to be each participant in his/her own group. There does not seem to be any other options. Is this the way others are interrpreting the language? (This differs from the volume submitter which allows for specific groups of participants to be named in the document.) If this is the case, I am concerned on a number of levels including: a) My recollection is that some sort of corporate resolution is to drafted each year detailing each group and the contribution amount allocated to each group. Does anyone have a suggestion how this should be done for a plan with each person in their own allocation class? b) An oldie but goodie, the deemed CODA issue. It certainly appears now more than ever that this type of arrangement would lend itself to being a deemed CODA? Any thoughts? How do we help clients avoid this issue? (Especially is each person is in their own group.) c) We plan on billing our clients on an hourly rate for processing the New Comparability allocations and associated testing. Even with the billing, we are concerned that clients will request multiple re-runs by making changes to one or two individuals at a time. Again, any thoughts? d) From reading LRM94, it appears that there can be upto 25 allocation rates for the HCEs (one per HCE) and upto 25 allocation rates for the NHCs (based on the chart). My guess is that a number of clients will either use way less for the NHCs or simply say each percentage up to 25% is a allocation rate. Is this what anyone else has heard? Also, does 0% have to be considered an allocation rate? (If on the off chance that the plan can pass on allocation rate?) e) Are the counts for the allocation rates based on total population or Statutory employees vs. OEE employees? Do they each get their own number of groups where, in the aggregate, they cannot exceed 25 (for NHCEs)? Pertaining to D above, if a client wants to give 0% to the OEEs, does this then reduce the allocation rates available by 1? My apologies for the length of the post (and I am not sure that all of it makes sense.) Any help would be greatly appreciated. Also, if anyone has more information (or where to get it) I would appreciate the source.

I agree with a caveat. If the "Otherwise Exclduable Employees" (OEE) are tested separately for 410(b) and 401(a)(4), they may not have to receive the gateway. It is dependant if there is an HCE in the OEE group and, if so, the gateway to the OEE NHCs will be based on the HCE in the OEE group. If there is no HCE, then the OEE NHCs do not have to receive the gateway.

We were recently contacted by one of our clients who told us that they just purchased a foreign company. (I do not think which country is important, but if it is let's say Mexico or Canada.) They wanted to allow the employees of the foreign company (all are citizens of the foreign country) to participate in the plan. I was told by one of my colleagues that this could be done, but I was asked how this would affect the testing of the plan. Specifically, they wanted to know about ADP/ACP, 410(b) coverage, and 401(a)(4) non-discrim. My thought is that the employees would be considered NRAs. As NRAs, they could be specifically excluded from the coverage group. However, since they are permitted to participate, this fact is not relevent. Now they are in the plan. My next thought is since they could be a statutory exclusion, they could be treated as Union employees. If this is correct, does this mean that they would be in their own ADP/ACP test? (Do they get an automatic pass on ACP?) Do they get any sort of automatic pass on coverage? Or because they are eligible for the plan, are they simply treated as any other non-union employees? Any help would be greatly appreciated? Also where to learn more about this (EOB, answer books, etc...) would also be very helpful.

I am 99% sure that I know the answer to this question, but thought it was interesting enough to put out for comment. 100% Owner decides that he want to retire. He sells the business to his two children and takes a full distribution from the plan. 2 years later, he decides that he want to come back to work as an employee and now wants to roll his balance back into the plan. (We have already tried to stop him from doing so, but he still want to do it.) The question: Is he a key employee? My thought process is that he is because he was a key when he sold the shares and remained a key because his children own the company. When he comes back, he would again be a key because his children still own the company. (The joy of stock attribution!!) Additionally, because he was and is a key, he was never a former key. Therfore, his rollover balance would count in the top heavy test in both the numerator and the denominator. Agree or disagree? If disagree, why?

Glad I could help.

I believe that I misspoke in my original post. I understand that the OEE group needs to tested for coverage and non-discrim, but that group is done so separately, without regard to the Statutory group. They are considered excludable employees and not in each others coverage group. See 1.410(b)-7©(3). Also 2007 ERISA Outline book, page 8.4. Since this is the case, from your comment, there are two HCEs in the Stat group and the coverage would be 2/2. There would be one HCE in the OEE group and his coverage would be 1/1. As long as 70% of the NHCEs in the OEE group are benefitting, then coverage for the OEE is passed. IF those same OEE people are getting a comp to comp allocation, then the (a)(4) test will pass and, essentially, there is no need for the test for the (a)(4) test. For the Stat Excludable group, I would think you would have a similar test to last year. Obviously there many be some differences, but nothing like a young HCE to muddy the waters. I hope this helps clarify.

I would think it would depend on the detail of the amendment, but I am not sure. Does the amendment state that Employee X is eligible for the plan as a whole or does it say the profit sharing component? (Is he already eligible for the plan and not the PS component?) Also, was this guy being brought in from some sort of excluded group? Did the amendment detail his inclusion in such a way he would be the only person brought in to receive an allocation? I know that we had a plan that excluded so many people from the 401(k) portion that it failed the ratio test. The attorney for the plan allowed a contribution to people who terminated under the age of 23. This allowed us to give a big % cont to these people and run the ABT utilizing the accrual rate. We then had enough to pass the test. Don't know if this help, but thought it could not hurt.

Just read this and had a thought. You said that the son is messing up the test in his first year of eligibility. Before you go through the work of splitting this into component plans, can he be excluded under the Otherwise Excludable Employee rules? If so, he will get the same allocation as other people in the OEE group. As long as it passes coverage, you get an auto pass on 401(a)(4) because they are all getting the same thing. Then the upper group would be cross tested and, if the pop has not changed very much from the prior year, odds are you should be able to pass.

Client has a 401(k) plan and uses prior year method for 2006 and 2007. Definition of Compensaiton in 2006 excludes bonuses. For 2007 year, client amends definition of testing compensation to 415 comp Does the 2006 test need to be re-run with the amended definition of compensation when calculating the ADP for the NHC group (which will be used in 2007 test.) My opinion is it does not, but wanted to see what others thought.