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The regulations in effect as of January 1, 2006 state that, to remain except form ACP testing, all matching contributions must be allocated on a nondiscriminatory basis. Placing an allocation restriction, such as a last day rule or a 1,000 hours-of-service requirement, on any matching contribution provided by the plan is discriminatory unless all non-highly compensated participants satisfy the restrictions. The plan I am looking at has the 3% nonelective safe harbor provision with an additonal discretionary match which has no allocation conditions for active employees but requires terminated employee to work 501 hours to receive the match. Someone in our office is agruing this regualtion would not apply to this plan. Your thoughts would be appreciated.

In the poposed 415 regulations, post severance compensation paid within 2 1/2 months after seperation from service can be counted for limitation years on or after January 1, 2005. Am I apply the guidelines correctly? A participant terminated December 28, 2004. On the 2005 census provided by the client, this participant has the same termination date, zero hours reported, salary of $300, deferrals of $25 and match of $5. Do I change the termination date to 1/1/05 and include this person in my ADP/ACP test??? Your thoughts would be greatly appreciated.

When you report the value of life insurance for the 5000, do you use the cash surrender value or the face value?

Now that the Schedule R has the coverage test information on it do you need to file the schedule if you do not have any distributions during the year?

Thanks for all the responses. I actually incorrectly posted my original question The plan I am looking has a 3% SHNEC with a 25% of 4 % match allocated to participants who are employed at the end of the year with 1000 hours. I agree with Tom. The ADP automatically passes and the match needs to be tested. Please note, I am saying I agree with Tom – not that my conclusion is correct! See below commentary from the McKay Hochman website: Within limits, a safe-harbor plan may make additional non-safe harbor matching contributions without triggering the actual contribution percentage (ACP) test, as long as: The discretionary matching contributions do not exceed 4% of compensation, The matching contributions are not made on deferrals that exceed 6% of a participant’s compensation, and The rate of match for any HCE is not more than that of any NHCE. Failure to comply with these restrictions will require the plan to run an ACP test. It is possible for a plan to be exempt from the ADP test but be required to run the ACP test for failure of any of the above items. The final regulations state that, to remain exempt from ACP testing, all matching contributions must be allocated on a nondiscriminatory basis. Placing an allocation restriction, such as a last-day rule or a 1,000 hours-of-service requirement, on any matching contribution provided by the plan is discriminatory unless all non-highly compensated participants satisfy the restrictions. Example: A safe harbor 401(k) plan with a 3% qualified safe harbor nonelective contribution (QNEC) and a discretionary match of 50 cents on a dollar up to 6% of deferred compensation will satisfy the actual deferral percentage (ADP) safe harbor test. There are 35 participants. 30 of whom are non-highly compensated employees (NHCEs) while five are highly compensated employees (HCEs). The plan has not made matching contributions in excess of 6% or allocated a discretionary match of more than 4% in total. However, the plan has a last-day and a 1,000 hours-of-service requirement applicable to the discretionary match. Three NHCEs left employment before the last day of the year and although 4 NHCEs were employed on the last day of the year they did not satisfy the 1,000-hours-of-service requirement. All five of the HCEs were employed on the last day of the year and all satisfied the 1000-hours-of-service requirement. All five HCEs would receive a 3% match. Only 23 of the 30 NHCEs would receive a 3% match. The final regulations made clear that this would result in a discriminatory allocation requirement and, thus, the ACP test would be required to be run. The surest way to avoid the ACP test in a safe harbor 401(k) plan is to eliminate allocation requirements on the discretionary match.

Tom, Thanks, I really appreciate your help.

Tom, Are you saying, if you have a safe harbor match with an additonal discretionary match that has EOY requirements, you still have a safe harbor plan design but have to test the additional match? The plan I am looking at a plan that provides a 100% of 4% safe harbor match and an additional 1% discretionary match with EOY requirements. So I would either have to test the entire match or the additonal 1% discritonary match and the ADP test would automatically pass?

Partners deferred into their plan during the calander year of 2004. They had a net loss in the partnership. What should be done with the deferrals and match contributions on behalf of the partners?

If you have a plan year ending February 28, 2006, can they add the ROTH 401(k) feature January 1, 2006 or do they have to wait until March 1, 2006 (the plan year begining in 2006?

Does anyone know of a good article that expalins the myth of double taxation of loans takent from a retirement plan?

Does the plan document have to state the match contributions can be applied towards the top heavy contributions?

If the particpant was in the ohterwise excluable group, would you still need to provide the gateway?

Our loan policy states the term of the loan may not extend beyond the participant's normal retirement age as dfined in the plan. Is this requirement specific to our loan policy or is this a requirement?

If the plan is cross tested and top heavy, do participants receiving the top heavy contribution need to receive the 5% gateway or can they be limited to the 3% top heavy minimum?

What do you mean by IMHO?

If the document states the interest rate assumption for testing is hard coded in the document as 7%, could an amendment be made after the plan year end to change it to 8.5%?

A participant in a salary deferral-only plan has inception-to-date deferrals of $25,000, an investment loss of $5,000, and therefore a balance of $20,000 at the time of a $10,000 loan (i.e., the loan was funded entirely from actual salary deferrals). All deferrals are post-1987. Six months later, the participant has repaid $300 in interest, $850 in principal, and the non-loan assets in the account have earned $1,000, so the participant’s balance (including the loan, now valued at $9,150) is $21,300. The participant has received no other loans or distributions. What is the current maximum hardship withdrawal available? A) Lesser of i) $25,000 (inception-to date deferrals), or ii) $21,300 - $9,150, or $12,150 (i.e., current non-loan assets); B) Lesser of i) $25,000, ii) $21,300 - $9,150, or iii) $10,000 + $850, or $10,850 (non-loaned deferrals plus repaid deferrals); C) Other (explain).

Plan is safe harbor match with immediate entry for 401(k) and 1 year wait for safe harbor match. Participant is hired in March, 2005. He earns $100,000 in 2005. For 2005, he is an otherwise excludable employee so he does not have to be included in an ADP test. In March 2006 he becomes eligible for the safe harbor match. For the 2006 plan year, how do you test his deferrals? He satisfies the safe harbor from Match - December, but does not satisfy it from January - February. He is also no longer an otherwise excludable employee, since he does have 1 year of service.

Can a plan routinely give a QMAC ontribution based on payroll period instead of a match contribution or do you have to fail testing before a QMAC can be given? Also, if the QMAC is always included in the ADP test can you use prior year testing?

Archimage - where in the instructions does it say you have to report the contributions in the second year?

If a plan had late deferrals in 2004 wich were all deposited by the end of 2004 but the lost earnings were not corrected until 2005, what amount would you put schedule I line 4a.

If non-key participants were given a top heavy minimum in a plan that had deferrals and the 4% safe harbor match only, would it okay to leave the top heavy contributions in the plan for participants.

Can a maximum deferral percent for the highly compensated employees be imposed after the beginning of the year.