WDIK

Lori, I think you caught my disease of not noticing the forum the topic has been place in.

While I agree that a plan could use language as you described to tie an administrative cap to the ADP test, I do not think that such plan language is a requirement in order to take advantage of catch-up contributions based on the ADP limit. In fact, where a plan has more than one HCE, it appears to me that the HCE's lose flexibility by implementing the administrative cap. Such an approach may or may not be preferrable for a given scenario. Sal's cite does not mention anything about the ADP test.

I will give you my interpretation of the original post. Since the thread title referred to prior year testing, I assumed x% referred to the maximum ADP for the HCE's. Archimage's use of the verbage "on average" seemed to support that assumption. Based on that, I thought that Archimage was trying to find a way to communicate to the HCE's that they could contribute catch-up contributions based on deferring more than the maximum ADP. As has been pointed out, this becomes a moving target for an individual HCE based on all the other HCE's deferral rates which definitely makes the communication process more difficult.

I certainly agree.

Please excuse my confusion, but I don't quite follow. Under the Accudraft document, the employer would draft the notice, which is automatically an amendment to the plan, which requires the notice to be distributed. Is this to implement the safe harbor for one year only or in perpetuity? What if the notice is drafted stating that there is no safe harbor contribution? Is this also an amendment to the plan? Also, please elaborate on your statement that the two scenarios I proposed do not give the employer the same discretion. In each instance the employer uses its discretion to decide prior to the upcoming plan year whether or not the plan will be a safe harbor plan. How is the employer's discretion limited?

Doesn't the employer have the same discretion under either scenario? 1) If the plan language is as cited by No Name, the employer uses its discretion prior to the upcoming plan year to either issue the notice and apply the safe harbor option or to not issue the notice and not apply the safe harbor option. 2) If the plan language has the safe harbor terminology, the employer uses its discretion prior to the upcoming plan year to either leave the plan as is and use the safe harbor option or to amend the plan, remove the safe harbor language, notify participants and not apply the safe harbor option. As a side note, I believe that the IRS approved Accudraft prototype uses a similar approach as the Datair document described. Until the IRS changes its mind, would it be inappropriate to rely on these approved documents?

I thought that was what I did with the link. (Click on the underlined Third Circuit) P.S. Apparently other circuits have made similar rulings.

I did not get the impression from the original post that there was a plan imposed limit. I also did not mean to leave the impression that I was attacking your methodology. On the contrary, I quite enjoyed it. I was merely trying to add to the conversation and clarify other aspects of the scenario.

Can you somehow combine the correction principals under Sections 6.04 and 6.07 of Revenue Procedure 2003-44? The former section pertains to failure to obtain spousal consent and the latter to plan loan failures.

Unless you are the Third Circuit.

But obviously the "Midas approach" does not allow an HCE that wants to maximize deferrals the opportunity to take advantage of other HCE's not participating.

When you refer to "the 25% of participating payroll", I presume that you are referring to the deduction limit. Salary deferrals are not taken into account for the deduction limit. Salary deferrals (but not catch-up contributions) are taken into account for the annual additions limit.

Please note that just because the period is less than 10 years does not automatically mean that it is an eligible rollover distribution. You must also consider the life (or joint life) expectancy(ies) in making that determination.

I agree with this statement. It seems to be an easy out for a situation where reasonable people might come to differing conclusions. It is also my opinion (which has no legal authority whatsoever), this should not be considered a mistake in fact since: 1) There appears to be no system error, misplaced decimal point or other such error. 2) In this situation, the insurance company is not in the position of determining or mandating the allowable contribution. Although I can certainly see why there could be confusion in this case, the mistake was the employer not understanding proper procedures for the plan.

I agree that you should consult the plan document to determine the employee's participation status, however, I'm not sure that it necessarily ties in to the break-in-service requirements. For example, if the plan has 1000 hour/last day requirement to receive an accrual, the participant did not meet that requirement (even though there was no "break-in-service"), and the participant's account was entirely paid out prior to the end of the year, I would not consider that employee to be a participant as of the plan year end. Also, many plans contain language that specifically applies to terminated participants with a vested interest of $0. Such language may result in a deemed distribution as of the termination date for such a participant. Again, I would not consider that employee to be a participant as of the plan year end.

I realize that all the blood may have rushed from my brain to my stomach to digest lunch, but I thought that the gateway could be satisfied with a 5% allocation, even if the greatest HCE allocation rate was in excess of 15%.

I propose that Equus caballus has succumbed to the Pale Horse.

The following threads may be of interest: http://benefitslink.com/boards/index.php?showtopic=9579&st=0 http://benefitslink.com/boards/index.php?showtopic=28165

If memory serves, the annuity purchased was to provide a monthly benefit between $150 and $200 to commence within 5 or 6 years. I think the purchase was made during 1999 or 2000. P.S. The annuity cost was about $2,000 more than the lump sum payment would have been.

Surely we have some posters that are members of the Great Salt Lake Yacht Club in Utah or the North Flathead Yacht Club in Montana.

pax: Perhaps I misunderstand your comment, but I am aware of several sources for terminal funding contracts. We used one a number of years ago to provide a deferred benefit for the only participant of a defined benefit pension plan (out of about 150) that elected that option.

If I were in your position I would: 1) Maintain documentation of the correspondence already provided. 2) Emphasize in writing the penalties and other potential liabilities. 3) Include in the correspondence a cost analysis for the client's actions. (More than likely the client is profitable because they don't waste a lot of money.) 4) Consider myself lucky that there are no other issues. That being said, of course you have to be comfortable with your clientelle.

Who is "they" and why not? I am paranoid by nature, so comments like this tend to raise red flags for me, like there is more to the situation than someone is letting on. (By the way, is it paranoia if they really are out to get me?)

Sorry sherrycash. I've got to do a better job of reading the thread titles, especially on a Monday. It is my understanding that even though a plan with a 12/31 year end has until 12/31/2005 to adopt the amendment, the plan must still operate based on the automatic rollover rules. I don't know if there is a best time, but personally I would recommend completing the amendment sooner rather than later purely to avoid the potential problems of procrastination.

What is the purpose of the amendment?