fiona1

Thanks pax - Looks like you didn't do so well in English class though since you evidently didn't read the entire post. I realize that 57 is greater than 55 - but my question centers around if you would use the 2005 compensation or not. Thanks Jay21 for "year of service" information. I'll take that information and go from there.

I was hoping someone could help me out regarding the compensation limit when determining 415 limits for a DB plan. The ERISA outline book says "The compensation limit is prescribed by IRC 415(b)(1)(B) and equals 100% of the participant's average annual compensation. Average annual compensation is the highest average of the participant's section 415 compensation over 3 consecutive years of service. Treas. Reg. 4.415-3(a)(3)." My question has to do with counting the compensation in a year in which a participant terminates. Let's say a participant has the following 415 compensation: 1/1/02 to 12/31/02: 55,000 1/1/03 to 12/31/03: 58,000 1/1/04 to 12/31/04: 62,000 1/1/05 to 10/12/05: 57,000 Would you count the 2005 compensation even though the participant terminated in that year? Thanks for any help!

I hear ya Midas - Thanks for the clarification.

Midas - Where do you see that the QNEC is based on 2004 compensation? The excerpt that you posted just says that the QNEC will be treated as an annual addition for the current year if it's contributed after 30 days after the tax filing deadline - even though they are allocated for the prior year. I don't see where it says that you base the QNEC on the 2004 compensation.

I know that the Bottom-Up QNEC provisions are being radically changed with the final regulations that are effective 1/1/2006 - but in the meantime I am pulling my hair out trying to figure this situation out... Let's say that a plan fails their 1/1/2004 to 12/31/2004 ADP/ACP test. The plan document allows a Bottom-Up QNEC to be made as a correction. According to the ERISA Outline book, in order for the QNEC to be treated as an annual addition for the 2004 plan year, it has to be contributed no later than 30 days past the employers tax filing deadline. So let's say that we're past that date - so the QNEC will be treated as an annual addition for the 2005 limitation year (assuming the limitation year is 1/1). Let's say that the NHCE with the lowest salary on the 12/31/04 ADP/ACP test has a salary of $3,200.00 and let's also assume this NHCE did not have any contributions in the 2004 plan year. If the QNEC was to be treated as an annual addition for the 2004 year - then we know that this NHCE can only get a QNEC of $3,200.00 - because anything more and they would exceed the Section 415 limit. But in this situation, the QNEC is being treated as an annual addition for the 2005 year, because it's not being contributed until after 30 days after the tax filing deadline. So how do we know how much of a QNEC to give this NHCE? We won't know their 2005 415 limit until 12/31/2005. Do we just give them the maximum amount as we can until it satisfies the ADP/ACP test(s)? What if that ends up being a contribution of over $10,000.00 ???

Can you exclude military pay for elective deferral and match? Or does that go against USERRA?

Here is the situation. 10/1 plan year changed to a 1/1 plan year effective 1/1/04. ADP/ACP test was done 10/1/02 to 9/30/03. Short Year ADP/ACP was done 10/1/03 to 12/31/03. Now doing the 1/1/04 to 12/31/04 ADP/ACP nondiscrimination test and the Prior Year Testing method is used. What are the PY Method rules in this situation? Do we use the short plan year NHCE average? Thanks for any help!!

Let's say a plan imposes a 6% limit to their HCE's. They have one HCE who contributes 6.6%. Some of that can be classified as catch-up contributions, but not all. Does the remaining money have to be sent back to the HCE?

Does anyone know where I can find the HCE definitions from 1991 to 2005? IIRC, it was in 96 or 97 when the ownerhip attribution rules were added to the definition. I'm looking for the definitions each year, including dollar amount changes. Any help would be appreciated.

A HCE is due to receive an ADP refund as the result of the 1/1/2004 to 12/31/2004 ADP test. The HCE would have turned 50 during the plan year (12/1/04), but died on 11/5/04. Can the refund be re-classified as catch-up deferral money based on him turning 50 during 2004? Or will the refund will be issued based on being deceased at age 49? Thanks for any help!

I think I found my own answer in the ERISA Outline book. If the plan uses the prior year testing method, does the plan have one more year that it is deemed to pass? Since there are no eligible NHCs for the prior plan year, and the prior year testing method requires the plan to use prior year NHC data to perform the test, is the deemed pass rule applicable? This issue is not addressed by the IRS in the current guidance on the prior year testing method found in Notice 98-1, but the proposed regulations issued on July 17, 2003, say the determination of whether this deemed pass rule is satisfied is made in the prior plan year. Thus, if the plan uses the prior year testing method and, in the prior plan year, the only eligible employees were HCEs, the plan is deemed to pass the ADP test (or ACT test, if applicable) for the current plan year.

Let's say a plan has no NHCE's for 1/1/2003 to 12/31/2003. They are deemed to satisfy the ADP test. They hire a NHCE in 2004, and must now complete an ADP test for 1/1/2004 to 12/31/2004. If they use the Prior Year Testing method, what 2003 NHCE average would they use?

For 1/1/04 to 12/31/04 testing, Participant termed in October of 2003. They received stock options that was paid to them in 2004 - and they were issued a 2004 W2 for that amount. Does this person need to be included in the Total Participants for coverage? Thanks for any help.

ADP test for the 2000 plan year failed - but it was never corrected. Correction should have been made by 12/31/01. Self Correction Program allows QNECs and One-to-One contribution to correct the operational failure - but only by the end of the 2nd plan year following the year in which the failure occurred. Meaning, the SCP deadline was 12/31/03. Any thoughts on where to go from here?

Thanks again Tom. Looks like they're aggregating to pass coverage, so they need to aggregate ADP/ACP. I found the following in the Internal Revenue Manual, which pretty much says what 98-1 says: 4.72.3.6.1.2.2 (03-01-2002) First-Year Rule for Prior Year Testing For ACP testing purposes, the "first plan year" is the first year in which the plan provides for employee or matching contributions. A plan does not have a first plan year if for that year it is aggregated under the regulations with any other plan that provided for employee or matching contributions in the prior year. Appreciate it.

If catch-up deferrals are matched, the catch-up match is included on the ACP test.

Thanks Tom. Which scenario do you think is correct: 1) Both plans must use 0% as the prior year percentage - therefore 0% is used as the prior year percent for the aggregated test. 2) 98-1 is just saying you can't use the 3% and first year plan rule for the aggregated test? In other words, the prior year test percentage for the aggregated test can't be 3%. Therefore you'd use 3% for one plan, 0% for the other, and it would use the weighted average of 3% and 0%.

Concerning the 3% rule, I'm pretty sure that the first plan year for purposes of the ACP test is the first plan year in which the plan allows employee contributions or matching contributions under Code Section 401(m).

Does anyone know if regulations limit what can be refunded for exceeding the 415 Limit? Or is it the plan document that can limit what is refunded? For instance, if only ED contributions can be refunded to remedy a 415 Limit excess then any excess over that amount needs to be offset with future contributions.

Did I stump y'all? My guess would be a weighted average of 3% and 0% - but not positive.

Thanks for the help. We use the Relius forms and they won't let you enter negative numbers in the liability section - so I guess they're SOL.

Yeah - I guess the question could be rephrased to say "Can you report an asset as a negative liability". Don't ask why - because I don't even know - just wondering if anyone has ever seen it done or know if it can be done.

Are you allowed to enter negative liabilites on the Schedule H - lines 1)g through 1)j? I wasn't sure if that would result in a DOL notice or not.

Ok - 2 plans aggregating for testing. One plan is a 401K for salaried employees and the other is a 401K for hourly employees. Both 1/1 plan years. For the 12/31/03 test, no ACP was done because the hourly plan had no match, and the salary plan had a discretionary match that was not funded. The hourly plan added a discretionary match in 2004. That plan will be able to use 3% as the NHC prior year percent. If the salary plan makes a discretionary match, they'll have to use 0% as the prior year % since they've had the match, but have never funded it. So how does this work if the plans aggregate for testing? What prior year percent will be used? Thanks for any help!

Anyone?