fiona1

I have a Defined Benefit plan that covers bargaining employees only. I'm completing Form 5300 for a favorable determination letter. I'm confused on how I should answer Line 14, which asks "Is this a request for a determination regarding a design-based safe haror under section 401(a)(4)?" Does anyone know how I would determine how to answer this? Thanks much.

Thanks Blinky - Let me ask you this then... When filing the 5310, you are required to give notice to interested parties. Looks like the definition of interested parties are present employees of the employer with benefits under the plan, former employees with a vested benefit, and all beneficiaries receiving benefits. So if a plan has been paid out and a 5310 has not been filed yet, then there would technically be no one to give notice to - correct?

Thanks. Kinda what I thought. I work for a TPA and we prepare 5310's, but we charge extra for them. I asked the area who does them why we prepare them after the plan has been paid out, and they didn't really say.

If a plan sponsor wants to terminate the plan, they can choose to file a 5310 to receive a favorable determination letter. Upon receiving this letter, they can then distribute the plan assets. My question - if the assets have already been distributed and there is ZERO money in the plan, is there any reason to file a 5310? What would be the reasoning for filing a 5310 for a plan term if the assets have already been distributed? Thanks!

mlb - You make a convincing argument. But you said "But dont cite the EOB as authority for the principle that the deadlines under IRC 402g cannot be extended under 7503." I don't see anyone in this thread who said "you can't extend the deadline because the EOB says so". The EOB does not say you cannot extend pass the deadline. And no one said it did.

The 10% excise tax would still apply in the One-to-One method. So yes, a 5330 would need to be filed. There are other options in the Self Correction Program that does not involve the excess contribution refunds being made - and therefore there would be no excise tax and the high comp employees would get to keep the money in the plan. And 2003-44 is the most updated...

good question... bumping to see if anyone has an any input...

Joe is a participant in his 401(k) plan. His plan entry date was in 1990. He leaves for military duty in February of 2004. I am completing the ADP/ACP tests for the period of 1/1/2005 to 12/31/2005. Joe has no compensation and no contributions in 2005, as he is still completing military service. Is Joe included on these tests with zero salary and zero contributions?

401(k) plan w/ a match. There is an hours requirement and active at last day of the plan year requirement for the match. There are 5 participants who are not on the ACP test because they do not satisfy the match requirements, therefore they are not eligible for the match and are not included in the ACP test. They ARE however, included in the ADP test. Assume the ADP passes and the ACP fails. One option is to shift deferrals from the ADP to the ACP. If this shifting is done, is it okay to keep the 5 participants above off the ACP test? Since we're now including deferrals on the ACP test and these deferrals do not have a requirement, I'm wondering if these 5 people need to be included on the ACP test. Any thoughts?

Thanks for the response, but that does not answer my question. I understand that the regulations state 2 1/2 months. I am looking for clarification on the rule. For instance, on an 12/1 to 11/30 plan year, would the deadline be 2/14 or 2/15? If there are 28 days in February, then half of that month would be the 14th. On the leap years there are 29 days, so does that mean the deadline switches to 2/15 for leap years? Or is always 2/15? And what about "odd" plan years? 9/10/04 to 9/9/05 is my example. How are you supposed to determine the "2 1/2" months? 1 month is 10/9/05. 2 months is 11/9/05. Then count 15 days to 11/24/05? Or do you count 75 days from the plan year end? If you count 75 days from 9/9/05 you get to 11/23/05. 2 1/2 months is very vague. Is there not any guidance out there from the IRS regarding the 2 1/2 months? I would really appreciate any help. Thanks!

OK - so in order for an employer to avoid a 10% tax, ADP/ACP refunds need to be made within 2 1/2 months after the plan year end. So for a 1/1/05 to 12/31/05 plan year, refunds need to be made by 3/15/06. I have a few questions about the 2 1/2 months that I'm hoping someone can help me out - or point me to some regulations or guidance that verfies this... First of all - is it technically 75 days after plan year end? Or is it 2 1/2 months? If an employer has an 11/1 to 12/30 plan year, the deadline will be in February. Since there are 28 days in February, is the deadline 2/14? Or is it still 2/15? What about leap years when there are 29 days in February? Does that change the deadline? I've tried my best to find information on this, but haven't had much luck. The examples in the ERISA outline book always reference 2 1/2 months and always use the 15th of the month in their examples. They have an 11/1 plan year example and they use 2/15 as the deadline. What about plan anniversaries that don't start on the first of the month? For instance, a 9/10/04 to 9/9/05 plan year would have a deadline of what? Is this when you would use the 75 days? HELP!

Yep. 12/31/04 was a Friday. There are people who worked on this day. Contributions are posted to the participant accounts on the last day of every month. But contributions for December of 2004 were posted on 12/30/04 - probably to avoid doing any testing for the 2004 plan year (12/31/04 to 12/31/04).

Has anyone ever encountered a 1 day plan year? Plan year was 12/31 to 12/30. Amendement is changing the plan year to 1/1 effective 1/1/05. So there is a short plan year from 12/31/04 to 12/31/04. Does anyone know what kind of things to look for to determine if nondiscrimination (ADP/ACP, Coverage) needs to be done? 12/31/04 is a Friday and there were some employees who worked and who earned compensation. It is a 401(k) plan. The pay period end date that included 12/31/04 was in 2005 sometime and the contributions were posted to the members accounts in 2005. So I think it's safe to say that there is no testing that needs to be done. There was nothing allocated on 12/31/04. Anyone have any thoughts?

Thanks for the responses... No audit - thankfully. Multiple Use was repealed for plan years 1/1/02 and after. This is a 2001 test so the MU test is necessary because a) it's prior to 2002 and b) both the ADP and ACP pass on the +2 test. So I think it's safe to say that we're able to shift deferrals from the ADP to the ACP and then use those percentages to perform the Multiple Use. And saying we're grateful that the MU test went away is an understatement !

I have to run a 2001 nondiscrimination test because it was never done. The ADP test passes. The ACP test passes. However, the Multiple Use test does not. I know that in certain situations, you're able to "shift" elective deferrals from the ADP to the ACP test. I believe one of the requirements to shift is that you pass the ADP before and after the deferrals are shifted. If I shift some deferrals from the ADP to the ACP, then the results of my Multiple Use test are a little better. It still fails, but the refunds will be slightly lower. I'm trying to determine if it is acceptable to shift in this situation or not. The ACP passes on its own. So I don't need to shift to pass the ACP. I can't find anything on this topic. Anyone have any opinions?

I believe you can still use the Bottom-Up QNEC method. The final regulations just put a limit to how much of the QNEC could be tested in the ADP/ACP test. The Bottom-Up QNEC is usually made to pass the ADP/ACP test - so it's really not worth making if all of it can't be tested. But the final regulations did not "outlaw" them.

We signed our GUST restatement back in 2002 and we indicated to use the Prior Year Testing method. However, we just found out that we did not complete our 2001 ADP/ACP testing. So we're doing that now. 2001 would have been during the GUST remedial period - so I'm thinking that we can choose between the Current Year and Prior Year method. But part of me thinks that we're only allowed to use the Prior Year method since that's what our plan document indicates - even though this is a 2001 test. Any suggestions?

Let's say a plan fails their 1/1/2005 to 12/31/2005 ADP/ACP test. They have until 12/31/2006 to make a correction - whether that is in the form of a QNEC to the NHCE or refunds to the HCE's. Now, let's say that they DON'T make a correction by 12/31/2006. So now the plan is in an operational failure. One option is the Self Correction Program. There is the One-to-One correction method described in Appendix B of Rev Proc 2003-44. And there are some other options described in Appendix A. The Bottom-Up QNEC is not a safe harbor correction method, but let's say that this plan want to use this method to correct their operational failure. The Final regulations just limited Targeted QNEC's (including the Bottom-Up) to the greater of 5% or twice the plans representative rate. Since this doesn't go into effect until the 2006 plan year, does the plan have to limit the Bottom-Up QNEC when correcting the 2005 ADP/ACP test?

Our test is 1/1/04 to 12/31/04 and there is a HCE who is due an ACP refund. They were 50% vested on 12/31/04 and they are 75% vested now. Anyone know what vesting % to use to determine how much of the refund has to be forfeited? Thanks!

This is a question of how to properly complete Schedule T for a unique situation. The plan is a Defined Benefit plan that was established to cover employees that are collectively bargained (within the meaning of Treasury Reg Section 1.410(b)-6(d)(2)), as well as employees that are not collectively bargained. Effective 12/31/2003, the plan became frozen with respect to the employees that are not collectively bargained. The plan remains active for collectively bargained employees. Therefore, collectively bargained employees benefited under the plan in 2004, but employees that are not collectively bargained have not accrued additional benefits since 2003. Under the mandatory disaggregation rules, the portion of the plan that benefits collectively bargained employees is treated as a separate plan from the portion of the same plan that benefits noncollectively bargained employees. Under the Schedule T instructions, it states that if a plan is disaggregated solely because it benefits both collectively bargained employees and noncollectively bargained employees, to complete the Schedule T with respect to the portion of the plan that benefits noncollectively bargained employees. It also states that no information is required for the part of the plan that benefits collectively bargained employees. For 2003 and prior years, Schedule T was correctly completed for the portion of the plan that benefited noncollectively bargained employees. The portion of the plan that benefited bargaining employees was not reflected on Schedule T. For 2004, how should one complete Schedule T? 1. Since no noncollectively bargained employees benefited under the plan in 2004, do we ignore the mandatory disaggregation rules (for bargaining and nonbargaining) since this plan does not benefit employees that are noncollectively bargained? Would we treat this as a plan that benefited only bargaining employees and mark Line 3c only? 2. Do we continue to view this as a plan that is subject to mandatory disaggregation for the collectively bargained and noncollectively bargained portions? If so, is it correct to complete the Schedule T with respect to the noncollectively bargained employees? If so, would it then be correct to mark Line 3b (No HCEs benefited) because that is a true statement if no employees accrued a benefit in 2004 (because of the 12/31/2003 freeze date)? 3. Would it ever be correct to mark both Lines 3b (with respect to the nonbargaining employees) and Line 3c (with respect to the bargaining employees)?

Well, wait a minute. Tom, you said that it's possible to give 12 NHCE's 11.20% and the other 12 0.00%. 11.20% x 12 = 134.40%, so that satisfies the QNEC percentage needed to pass the test. But I don't think it satisfies the new rule. The definition of "representative contribution rate" is: the lowest contribution rate of any eligible NHCE among a group of eligible NHCE's the consist of one-half of all eligible NHCE's for the plan year. Therefore, in the example above, the lowest contribution rate is 0.00%. I think we need to at least give half the group 3.89%. Then the other half can get 7.78%. I don't think giving half of them 11.20% and the other half 0.00% satisfies the new rule.

Thanks Tom...I guess there could be a million different combinations. Guess I'll try to make buddies with a programmer to help me come up with an application that will determine the lowest possible QNEC that will 1) equal 134.40% and 2) satisfy the new rules!!

I'm going to stay on the topic of Targeted QNEC's... What's the easiest way to determine a plan's representative contribution rate? Let me just use an example to make this easier. Let's say I have 24 NHCE's and 10 HCE's. They all make ED contributions and those are matched. So the ED contributions are tested in the ADP test and the matching contributions are tested in the ACP test. To make it simple - there are no other contributions. We'll say the ADP test fails. The HCE average is 12% and the NHCE average is 4%. So in order to pass the ADP test I need a NHCE average of 9.6%. That means a 5.6% QNEC (9.6% - 4%) to 24 NHCE's which equals a 134.40% QNEC. The new rules say I can give the greater of 5% or the plan's representative contribution rate. If I give all 24 NHCE's 5%, then I'm only at 120%. So that won't work. Here is where I'm stuck. How do I determine what the plan's representative contribution rate will be? I know that the plan's representative rate is equal to the greater of: 1) the lowest contribution rate of any eligible NHCE among a group of eligible NHCE's the consist of one-half of all eligible NHCE's for the plan year or 2) the lowest contribution rate among all eligible NHCE's under the arrangement who are employed on the last day of the year. So I'll start with the #1. I'll work with the formula of: 12x + 2(12x) = 140% 12x + 24x = 140% 36x = 140% x = 3.89 2x = 7.78 12(3.89) + 12(7.78) = 46.68 + 93.36 = 140.04 So if I give half of the group a 7.78% QNEC and the other half a 3.89% QNEC, then I should meet the requirements of #1. I think I'm making this way more difficult then it should be though. Anyone want to help me out?

Forgot about the fact that, like you said, it's nearly impossible to use the prior year method and QNEC's. My bad...

So with that line of thinking - if a test fails the 1/1/2006 to 12/31/2006 ADP/ACP tests and uses the Prior Year Testing method......then the new QNEC rules don't need to be applied since the NHCE percentage is attributable to the 2005 plan year, correct?