John Feldt ERPA CPC QPA

I think an annual notice is required for each participant who remains defaulted (they've made no election to defer a contrary amount/percent). If the plan is Safe Harbor, we tend to send it along with the Safe Harbor Notice.

It is also possible to bump up everyone who is currently deferring below the automatic enrollment percent, if you want to (your amendment would need to state that). You should give them a notice and enough time to make/sign a contrary election (I would give them a 30-day period) before the automatic percent would otherwise apply.

If the NHCE ADP in 2005 was 2.50%, then under prior year method, the ADP for the HCEs have to be limited to: The lesser of: 2 x NHCE ADP or 2 + NHCE ADP Then, if greater, the NHCE ADP x 1.25 So, in your example, that is the lesser of: 2 x 2.5% = 5% or 2 + 2.5% = 4.5% Then, if greater 2.5% x 1.25 = 3.125% So in 2006, 5% ADP for the HCEs does not pass, 4.5% is their maximum. As for your question about otherwise excludable, I'll have to look into that further.

mjb means the first $97,500

k man, Check the post-egtrra tack-on amendment to the GUST document, or if done separately, the 401(a)(9) tack-on amendment, it should have the language there. We used Sungard and we chose to allow the beneficiary to elect the method, either the 5 year or the life expectancy.

I think that means 36% if they put 6% in the DC and yes, 40% if they put no employer $ in the DC.

I do not agree with the way you described Roth. Step #1: The employee decides how much to defer from salary. Step #2: The employee decides what portion from #1 is pre-tax and the portion that is after-tax Step #3: The employer provides a match based on the amount deferred under step #1. I do not see where adding the Roth enhanced the match. Am I missing something here?

I don't see a problem with adding Roth, it does not change the info in the Safe Harbor notice or in the Safe Harbor provisions. Under 1.401(m)-3(f)(1), the plan provisions that satisfy all of these Safe Harbor rules must be adopted before the first day of the plan year and remain in effect for an entire 12-month period. And a plan which includes provisions that satisfy the Safe Harbor requirements will no longer satisfy them if the plan is amended to change such provisions for that plan year. There are a couple exceptions for a short plan year and the initial year and for the reduction/suspension of the safe harbor match. That may seem overly strict, but it is what it is.

ok, thanks. I'll see if we know anything new by the end of Tuesday then.

Great post Blinky. Somebody needs to ask Jim Holland why he wrote it that way at the end of Q&A 9. I have some spare time on Friday, maybe I'll try to call him.

Well, it initially appeared to me that the 404(a)(7) limit disappears if the employer portion of the contribution to the DC plan is 6% or less. Then I read the second sentence. Then one more time, skipping the long parenthetical. This second sentence of Q&A 9 could mean that the combined plan limit (when a DC plan exists) will limit the DB contribution to the minimum funding requirement or, if greater, the DB maximum deduction limit (but not more than 25% of comp), but I need to look further.

Penman2006: Agree, per Q&A #8

I think Notice 2007-28 confirms that the 31% would be deductible. See Q&A #8. Make sure the DB contribution is only for mimimum funding and watch out for "eligible compensation".

I think Nationwide has a platform to handle 457(b) plans, but they usually use a TPA firm to do the admin work. Make sure the 457(b) only covers a select group of management employees, be careful. We use a law firm to draft the documents for the 457(f) plans. edited for typo.

Their plan document should have the language for this, in conjunction with its amendment for the final 401(k) regulations. 1) I think under the final 401(k) regulations, the ACP test is required if the plan imposes allocation conditions on any matching contributions, regardless of whether it is a fixed match or a discretionary match. But check the document/amendment. The pre-2006 rules had the 6% deferral matching maximum and the 4% maximum match amount, but the 4% limit only was applicable to discretionary match. 2) Safe Harbor contributions are 100% vested. You mentioned that they are doing the 3% nonelective contribution. If they are doing that, why are they also providing another Safe Harbor contribution (a match)? They would not need to do both to be considered safe harbor. If the match you mention is really just a fixed matching formula, and not a true Safe Harbor 401(k) match, then it would not have to be 100% vested.

You're welcome. By the way, you may as well adopt a 2-years of service entry requirement and provide immediate vesting and base the "contribution credits" on years after date of entry. They will "miss" one year of benefit accrual that way. Since you can't use 6-year graded schedule, it appears to lower the NHCE true cost (the amount paid out from the plan). Well, this lowers the overall ultimate NHCE cost, except when they quit between year 2 and year 3. Do a projection for 5, 6 or 7 years and look at the total account balance at that time compared to the plan without the 2 years of service entry requirement. If most NHCEs will quit during year 2 for your employer, or if keeping the ultimate NHCE costs down are not your objective, then just put in the usual entry dates and a 3-year cliff vesting schedule.

At the Annual ASPPA conference, Larry Deutsch asked Jim Holland how the 2 years is counted when running the valuation, suppose the valuation is a beginning of year valuation. Jim appeared to indicate that the valuation date is when we are determining the liabilities, so any amendments in the 2 prior before the valuation year would be disregarded. I can't remember if it was Larry or someone else who pointed out that the 412(c )(8) would allow us to count amendment in the current year then? Jim said no, and this now made it look like 3 years of amendments cannot be included when the language specifically states two. Jim Holland then left it as needing formal guidance.

Thanks Austin, I'll verify what actually happened in 2006 wrt deferrals.

In order to do the initial calculation and produce such a low RMD, was the plan required to have a payment option of a "100% j&s annuity guaranteed for 26 years (per ULT) with 4.99% COLA"? Probably a dumb question, I know. Also, I assume ULT = Uniform Life Table (which is how the 26 years was chosen so that the gurantee period does not exceed the life expectancy), is that correct?

If they receive 5% of 415 compensation in the DC, then they have met the top heavy requirement based on the scenario you describe. Be careful about compensation, 416 requires 415 compensation which can be different from the definition used for allocations. So, as long as 5% of 415 compensation is allocated, then you have met the TH minimum.

At the 2006 ASPPA annual conference Lisa Morjiri-Azad, from the IRS Office of Chief Counsel, Washington, D.C. stated that you cannot use the semiannual dates unless the plan defines the entry date that way. Craig Hoffman (the moderator) disagreed very strongly, as did the audience. We have not yet seen anything official in this regard.

This is in section 701 of PPA. The effective date section at the end of 701 has this: (3) VESTING AND INTEREST CREDIT REQUIREMENTS- In the case of a plan in existence on June 29, 2005, the requirements of clause (i) of section 411(b)(5)(B) of the Internal Revenue Code of 1986, clause (i) of section 204(b)(5)(B) of the Employee Retirement Income Security Act of 1974, and clause (i) of section 4(i)(10)(B) of the Age Discrimination in Employment Act of 1967 (as added by this Act) and the requirements of 203(f)(2) of the Employee Retirement Income Security Act of 1974 and section 411(a)(13)(B) of the Internal Revenue Code of 1986 (as so added) shall, for purposes of applying the amendments made by subsections (a) and (b), apply to years beginning after December 31, 2007, unless the plan sponsor elects the application of such requirements for any period after June 29, 2005, and before the first year beginning after December 31, 2007. Assuming this really is a different plan, not just an amendment of an existing plan, then if your cash balance plan did not exist on June 29, 2005, it must adopt at least a 3-year cliff vesting schedule from the start of the plan. Cash balance plans established before June 30, 2005 can wait until 2008 to change their vesting schedule.

Thanks, Archimage, I like your answer (not just because I like the result of course)! Here's that section of the regulation: 1.401(k)-2(a)(1)(ii): "HCEs as sole eligible employees. If, for the applicable year for determining the ADP of the NHCEs for a plan year, there are no eligible NHCEs (i.e, all of the eligible employees under the cash or deferred arrangement for the applicable year are HCEs), the arrangement is deemed to satisfy the ADP test for the plan year."

I'm not sure about the 5%. In the client meeting last year, they indicated that their one employee would certainly not work over 1000 hours, and thus never become eligible. Our first reaction had been to suggest safe harbor, just to be sure, but they didn't buy it.

Thanks, your help is very much appreciated.