John Feldt ERPA CPC QPA

If each rate group passes at 70% or above, then the plan avoids the average benefits percentage test entirely. So the answer is: it depends.

Question 1 Must this Plan be tested under IRC 401(a)(4), The General Nondiscrimination Test? If so, must the General Nondiscrimination Test include “Rate Group testing”? The plan has allocations for HCEs and NHCEs, so the allocations have to satisfy 401(a)(4) somehow. There are many option in 401(a)(4) to prove a plan passes. Your situation seems to describe a typical plan that tests the contributions on a benefits basis (cross-testing), thus the gateway requirement. Keep in mind, the gateway only allows the plan to test the contributions on a benefits basis, it does not mean the plan will pass testing on a benefits basis. Sometimes additional profit sharing above the gateway is needed to actually pass the test. Many folks, consultants and advisors call the entire amount gateway even though, in your example, the 5% is really the gateway and the rest is profit sharing. Question 2 Are there any options available to pass general non-discrimination not using rate group testing? Look at 1.401(a)(4)-2(b). you'll find the testing is bypassed for plans that allocate pro-rata as a percent of pay, plans that allocate a uniform dollar amount per person (regardless of pay but not over 100% of pay), plans that use integration - an allocation formula based on permitted disparity, and plans that provide a uniform amount per unit of service in the plan year. Then look at 1.401(a)(4)-8 (cross-testing). In section (b)(1)(i)(B)(1) and (b)(1)(i)(B)(2), you'll see the broadly available allocation rates exception and the gradual age/service schedule exceptions. Question 3 What does it mean for an otherwise excludable employee to be “separately tested”? If the Plan required only 6 months of svc for a Safe Harbor Non-elective, would that same Otherwise Excludable Employee be entitled to a gateway contribution? Employees who are not age 21 and have not completed a year of service, or have done that but id not meet an entry date yet, are considered as "otherwise excludable employees" (the OEE group). Meaning, the statute allows those people to be excluded from the plan, but the plan chooses to let them in before 21 and 1 for some or perhaps for all purposes. These employees, if eligible for the plan, have the same rights as the other plan participants, but certain items do not have to be applied to them. For example, although the top heavy minimum does apply to them, the minimum gateway does not apply to them. So, if they are not eligible for profit sharing, then they will not get the gateway (does the plan require age 21 and 1 for PS purposes?). If the plan document you described gets them in after 6 months for PS as well, then since all of these NHCEs are in one group for allocation purposes, then they would have to get the same as all the NHCEs. They also could be describing a component testing option (restructuring) when they say "separately tested". That's in 1.401(a)(4)-9. Question 4 Is a Gateway contribution required for employees that have been employed less than one year/age 21 when the Plan requires a Safe Harbor Contribution for such employee? May those less than one year/age 21 employees be excluded from the 401(a)(4) General Test? No, the gateway is not required for the OEE group. If the plan has all NHCE in one rate group and it requires 21/1 to get into the PS portion of that rate group, then those only getting SH and or TH are not entitled to get the PS under the terms of the plan as you describe. Question 5 The General test shows that approximately 9% of payroll must be contributed for nHCEs in order to pass the rate group test. The employer , in 2013 and 2012 contributed less than the required 9%. The 2013 tax return has been filed. Can one make self corrective contributions for employees in 2014 to correct that error or must some other correction procedure be used. There are a lot of ways to pass nondiscrimination testing. Just because a report says 9% is needed, I'm fairly certain that someone could easily come up with a report that shows they pass at a lower rate, maybe even at just the 5% gateway minimum if enough historical data can be provided to run multiple testing options. Unless, of course, the report stating 9% was done by Tom Poje, Tom Finnegan, Larry Deutsch, Kevin Donovan etc. etc.

Understood, but usually the J&S requirements are not that big of an issue. A good point to mention though was the in-service age -- if you merge the MP into the 401(k), make sure the normal retirement age is not less than age 62. I am assuming the MP plan has a normal retirement age that is already age 62 or older. If not, you must have data that supports the lower age as being typical for the industry.

Termination of the plan requires that the plan assets all be distributed from the plan within a reasonable period after the formal date of plan termination. The IRS says 12 months or less is a reasonable time frame to distribute. Be sure the proper steps are taken to freeze and terminate, and then file the final 5500 after all assets are paid out. Consider the pricing for the new plan. A startup with zero assets tends to have a higher record keeper fee and/or a higher investment advisor fee than a plan that starts up with existing assets. If you establish a 401(k) plan and merge in the MP assets, you could probably negotiate a lower fee for the investment record-keeper/advisor.

Assuming you have a determination letter from the EGTRRA document: Based on what I am reading, and by looking at the 5310 for the same chart, I think they want almost all of the amendments included in the submission package. Exclude interim amendments that did not have to be adopted by the employer (I would think they had to have been adopted by the practitioner on behalf of the employer). Also, do not include any amendments that are effective after the PPA restatement period ends. As for the chart, I think the chart should only list the amendments that were interim amendments that had to be adopted by the employer or amendments after the EGTRA restatement that were not already part of the language in your pre-approved EGTRRA document when it was adopted. You are not to include amendments effective after the end of the PPA restatement period. Also exclude In-Plan Roth Transfer amendments (or any other interim amendments not covered by the cumulative list). If you did not get a Determination Letter with the EGTRRA document, you have more items to include in the submission package, but not in the chart. That's my guess, FWIW.

However, I forgot to mention that if an annuity payment gets elected, the present value of such annuity could easily exceed the cash balance account using current annuity rates. edit: to make it readable.

If the cash balance plan is not the plan providing the top heavy minimum benefit, and if the plan was not converted from a traditional plan, and if it does not have some other inherit larger benefit formula that might apply, and if it uses a crediting rate that is not greater than a market rate of return, then it is highly likely that the lump sum payable is equal to the cash balance account. edit: typo

I think both apply - one for the missed EGTRRA restatement, and another for the interim amendments needed after the EGTRRA restatement.

Regardless, the 10% penalty exemption can apply by attaching the proper schedule to the 1040. The 10% is not assessed or even withheld by the payor.

It's the IRS that waives the penalty. Even if the normal distribution code is used on the Form 1099-R, the participant can attach a schedule to their 1040 to claim that they are exempt from the excise tax. If you are the payor of the benefit, I do not think you are required to determine whether or not the 10% penalty exemption applies.

Well, then in that case I have seen some documents that have a "Lazy Amendment Writer" clause, and inside the plan document somewhere you might find a paragraph that says something like: If the vesting schedule is amended, the new schedule only applies to participants with one hour of service after the effective date of such amendment unless the amendment specifically provides otherwise. Absent that, I think you look to the section that gives authority to someone to interpret the provisions of the plan (usually the Plan Administrator). Then have them use that authority.

The document and its amendments will answer this one. Usually, an amendment that provides improved vesting is also written such that it only applies to employees who have at least one hour of service with the employer after the amendment's effective date.

A plan has immediate eligibility and only allows deferrals. One job type is excluded which consists of NHCEs (normally about 18% of their workforce). The size of that group doubled in 2013, making them become about 36% of the workforce. There is only one HCE. The HCE did not defer last year. Can the plan test the deferral portion of the plan for coverage by using the average benefits percentage test? All of the NHCEs are benefitting at the same rate or higher as the HCE (HCE rate is zero) - this seems too good to be true - what am I missing?

Perhaps if you inquire about the participant's family history - did they descend from a line of mermaids? Thus eliminating any question about the principal residence?

Substance generally means that you can't provide an allocation to a nonvested terminee and then forfeit the benefit. Doing that would have no substance. What you describe doing seems okay to me, including cherry picking NHCEs, unless it goes so far to violate the unapproved unwritten regulations otherwise known as the Carol Gold memo. In that memo, all of the regular full time employees were excluded from the plan and only the very short time people were covered just to get the plan to pass. The Carol Gold memo indicates that certain words written in the 401(a)(4) regulations about discrimination might have to be ignored, in particular: "In making this determination, intent is irrelevant. This section sets forth the exclusive rules for determining whether a plan satisfies section 401(a)(4). A plan that complies in form and operation with the rules in this section therefore satisfies section 401(a)(4)." Basically the memo says that as long as the plan is not primarily designed to benefit mostly short service part-time employees, then you are okay, probably. Otherwise the design is violating "the spirit" of the regulations. Where do the regulations support that idea you ask? Well, although it seems to contradict the quote above from 1.401(a)(4)-1(a) above, here's 1.401(a)(4)-1(c ): "(2) Interpretation. - The provisions of §§1.401(a)(4)-1 through 1.401(a)(4)-13 must be interpreted in a reasonable manner consistent with the purpose of preventing discrimination in favor of HCEs." So, although the exclusive rules are spelled out and intent is irrelevant as stated under 1.401(a)(4)-1(a), 1.401(a)(4)-1(c ) says, "but not really." edit: for clarification

Also, read the PPA document. I know some documents were framed in such a manner that the forfeiture offset for SH remains in place under the PPA document until the first day of the plan year after the PPA document is executed. Yes, the IRS allowed some plans to be approved with that language.

Yes, when all of the top heavy exemptions are met, it is still possible that some non-key EEs are not getting a top heavy minimum (the HCEs who are not key employees). And the plan still meets the TH exemption when that occurs.

As for the 5% gateway. Since the terms of the plan require the 5% without certain plan compensation exclusions, then you must allocate as such.

Exclduing pre-tax deferrals is a safe harbor 414(s) definition that would not require the compensation definition to be tested - is that the plan's definition? Anyway, if it truly fails, you ALWAYS allocate according to the terms of the plan document. If the definition of compensation does not satisfy 414(s), that means that you still allocate using that definition of compensation, but then you now must test those allocations using any definition of compensation that DOES satisfy 414(s). Or, if you have a very inflexible plan document, you must test using the required testing compensation required by the plan document (payroll provider document or large MEP documents tend to have this). The testing of those contribution caould be done on a contributions basis of a benefits basis, or depending on the situation, some of each perhaps. If you still can't pass, then probably a -11(g) amendment might work to change the definition retroactively to the beginning of the prior year, as long as no one's benefits are reduced.

Actually, the tantrum is later when taxes are due.

Roll it to an IRA. Withdraw it all from the IRA and elect no withholding. No tantrum.

Agree with yes - who wants to deny a an employee on military leave the option to withdraw some of their plan money?

It won't make a difference in the results for most plans, but what does 1.401(a)(4)-12 say under "Testing Age"? It says if the plan provides the same uniform normal retirement age for all employees, the testing age is the normal retirement age.

No. Having an opinion letter covers you.

Using May's 237.9 as a projection for July, August, September, I get (unrounded): catch up 6,042 deferrals 18,126 compensation 267,660 DC 415 53,532 DB 415 214,128 Key EE 173,979 HCE 120,944 SIMPLE 12,547 edited: for an error noticed right after posting