ERISAnut

Dang, should have added the question about why it's an amendment to bring someone above the TH minimum if the document says "at least"....I recognize that it's an amendment to bring one of the TH group to a higher level, but if I'm bringing the entire group up??? Say that only because based on hire dates it's actually cheaper for me to bring the entire TH group up to 5% than it is for those 2 members up to 8%. We'll you will likely be able to make such amendment, but there are other things to consider. If you are on a prototype plan, you may amend to change the accrual requirements with respect to the year without taking the document out of prototype status. Not sure, but think this would be safe. When you amend to provide an allocation that is not automatically supported by the non-standardized prototype, you may no longer rely on the Prototype's Opinion Letter and shoud consider filing the amendment for a favorable determination letter. Based on the dollar amounts involved and the future projections, you would consider the path of the least resistance. If you were to attempt to design the amendment based on the individual with the lowest compensation (I personally do not think that would fly). Using the hire date (given the fact that the employees are already eligible for the plan but merely failed to meet the accrual requirements) may not fly.

Look at it this way. Who amongst us would want to be held in high esteem by the Nut? His ideas are truly bizarre. He believes that regulations and Code are indecipherable. Do you? Of course not. He believes that regulations and Code should be ignored in favor of some ethereal principles that only he knows. Do you? Of course not. He sees language that is crystal clear and interprets it in a bizarre manner. Do you? Of course not. I have been called inexperienced and incapable by him. Austin, welcome to the club. I am happy to line up in your camp. More rhetoric. Please. It is always the weakest among us to challenge the teacher; but not the message. I am actually beginning to feel sorry for you; and I don't even know you.

Can I discriminate in that regard? Or do I use DOH and bring in earliest hires? And, if I amend to bring in someone based on hire...how does that not apply next year for people who are already employed? I guess..how do you word that to make it applicable to only this year? Without it being a loss of a benefit for others who are employed? Seems like it's changing the entry date to me... Even though they were employed on the last day, they each worked less than 1000 hours during the year. I doubt they would all have the same number of hours. So your amendment would simply bring in the employees starting with the one having the highest nubmer of hours during the year. Try that one for starters.

You're benefiting 100% of the Nonexcludable HCE's. In order to pass the compensation ratio test you only need to benefit 70% of the nonexcludable NHCE's (11 in this case). You are already benefiting 9 of the 11 needed to pass the compensation ratio test and not worry about crosstesting or average benefits testing. Likely those additional two employees would normally receive the 3% TH minimum; but this will not be a TH miniumum once you amend to bring them into the allocation formula for the plan. Another 5%, for a base allocation of 8% for the two brought into the plan would get you were you need to be. Others who are not brought into the plan will be left at the TH minimum of 3%. THIS IS IN RESPONSE TO WSP'S ADDITIONAL QUESTION.

I agree. This is a common process.

"Deeming" is more of a plan operation issue as there are some allowable exceptions to the making timely payments that only the plan sponsor would be aware of. When a loan is deemed a distribution for not meeting the exceptions outlined in 72(p), then it becomes taxable. Once it becomes taxable, then it becomes a 1099-R issue as this is how it gets reported.

Major props to MP for persisting on this. It's one thing to throw out opinions - which may differ - but to insist that regs don't mean what they say (or is the nut saying that it's cheating to cite regs?) is seriously misguided. Preston wins this hands down on reasoning, grammar, spelling, and politeness. You know, as I watched this board over time, I am often wondered where the experts are. Now I see. The experts would not bother to waist their time with a bunch of flunkies who have no real world experience with retirement plans. So before we go any further to insult each other, why don't you ask an expert that you may know personally to explain to you why I am right on this issue.

Yes, it must be reclassified; and leaves him a deferral limit of $20,000 (less the reclassified catchup amount) for 2006. This would be different had he deferred during the first part of 2006, as his deferral limit for the year would have remained at $20,000. I am scating around the numbers as I do not know the "earnings" portion of your figure.

Austin3515, I am not saying that you are stupid. You simply remind me of myself when I was inexperienced and stupid. There is nothing in what I wroted that came close to implying Sal Tripodi is wrong. We are merely discussing the meaning of a sentence. Let's leave the rhetoric aside from now a discuss the real issue. Some of us understand when the gateway rules apply and some of us don't. The fact this I understand the rules and you don't does not mean that I am thinking highly of myself; but instead means that I do not think highly of you. I am trying to teach you something that you have no interest in learning. All you want to do is attack with your weak interpretations of someone else's literature. You should grow beyond that.

What this means is that if the conversion of allocation rates into benefits is limited to testing under Section 410(b) [for the average benefits test], then the gateway doesn't apply. That is, if you convert for a reason other than 410(b) (which of course means 401(a)(4)), the gateway rules apply. I am saying that the term "sole purpose" has meaning. Otherwise, the author would've ommitted it from the statement. Your are saying that "This condition does not apply if the sole purpose for converting allocation rates into benefits is to run the benefit percentages for the ABR test" has the same meaning as "This condition does not apply if converting allocation rates into benefits in order to run the benefit percentages for the ABR test". I am saying that the term "sole purpose" has meaning. So who among us is providing the weird interpretations?

Here we are again. I'm mister bad character and you are savior of the board. I have just given you some valuable insight that you may choose to consider in the near future. When the regs are written, they are written to technical precision. Amatures such as yourself should not attempt to run there and quote them without being capable of determining the true meaning of what is being said. And then to attack my character for showing you how to articulate otherwise complex matters in layman's terms is weak. Hope you have your napkin ready.

Glad to see we have another confused one. Let me give you an illustration. An employer sponsors a DC plan and a DB plan. The DC passes 401(a)(4) as a safe harbor plan based on the fact that everyone received the same allocation and 70% of the NHCE's benefited under the DC. The DB plan fails the coverage ratio test; and now the Average Benefits Test will be used. Since the averge benefits test requires all plans of the employer to be tested, this will require the DB and DC plan to be included in the test. It is impossible to test these two plans under the average benefits test without crosstesting. (This does not mean that it is never possible to test under average benefits without cross-testing) Again, it is IMPOSSIBLE to test this DB and DC plan under the average benefits test without crosstesting (either convert the DB to an allocation or convert the DC to SLA at NRA). The sole purpose for converting DC into a straight life annuity would be so the plan can perform the average benefits test. This is where experience makes the difference. BOY!!!

Let me restate that is another manner. If is possible to perform the average benefits test without cross-testing, the the use of cross-testing in the average benefits test would not be for the sole purpose of performing that test. This is why I don't run to the regs to answer questions. They are written by attorneys (in many instances) and often require pension experts (such as myself) to break them down into layman's terms. Hence, bringing the regs into play often confuses the less experience who often struggle to understand simple topics. So my suggestion is tone it down with the regs and let's have a real discussion about how to operate a qualified plan in order to maintain its qualified status.

The SOLE PURPOSE in this instance would be where this type of maneuver is requirement in order to peform the average benefits test. It is impossible to perform an average benefits test where the employer sponsors a DB and a DC plan without crosstest. Hence, the sole purpose would be in order for the average benefits test to be possible. I know see your confusion. Glad I could help.

I would simply retrofit the loan to the new payroll schedule. Just reamortize based on the current number of payments remaining to the revised number of payments remaining through the end of each loan. This will keep the payments equal. A simple notice to the partcipants should suffice. This shouldn't be a major show stopper, but merely an issue of what the client finds more convenient. I wouldn't even see where a participant's signature would be a requirement since the payments will remain level and consistent thoughout the term of each loan. A notification of what to expect would seem appropriate however since they will automatically get notified of the change in the pay schedule.

Tom Poje, there was a simple question posted 5 multiple choice answers. Just provide your answer to clear it up. I agree with what you are saying; but just admit that the answer is "d"; and not "a". Give us that much.

Why do you say that I'm quoting regs based on circumstances that do not apply? Isn't it the other way around? YOU want to apply a portion of the regulation (the gateway rules) to the average benefits test under 410(b). You are the one that is quoting regs that do not apply, not me. I'm trying to say that the reg in question specifically does NOT apply, because there is no reference to it in the regs. Your loose use of the English language is contributing to your confusion. Correction, I never applied to use of the gateway to the average benefits test directly. I simply applied to use of the gateway to cross-testing, regardless of whether the coverage ratio test or the average benefits test is being used. Again, part of being an expert is knowing what train of thought you are on; and not running to the regs to bring in literature where the facts do not line up. It was you that brought in a reg where the IRS explained the gateway was exempted because the benefits were primarly DB in nature where the average benefits test was being used to test DB and DC together. You used that same reg as your argument that by the mere fact that the average benefits test was being used ( not because a DB plan was involved) negated a need for the gateway into cross-testing. You lack of understanding on such a simple topic in New Comparability has led to a 5 page discussion that will likely prevent those looking to learn from understanding this concept. Look back at my original post. While I attempt to break the question down into components and address each component to show the thought processes that pension experts apply on a daily basis, you bring in your own set of regs that apply to situations that aren't being address; just be you are confused.

To be fair to the Nut, the IRS itself has said that it is possible (if you don't understand the history) to read the regulations themselves and come to the same conclusion that the Nut has come to. That is why the IRS saw fit to clarify this in the preamble to the regulations. And why the item I quoted from a conference specifically pointed this out. It is interesting to note that the NUT says he has done this hundreds of times. Well, the IRS certainly won't object if you raise benefits to the point required by application of the gateway rules where they don't really apply. The IRS will most assuredly issue favorable letters of determination on the basis that the Nut lays out. Rhetoric, rhetoric, and more rhetoric. You should try more fundamentals of why certain things are as opposed to quoting regs based on circumstances that do not apply. Let's not confuse the issue; as you have been confused from the onset. The question is here for your friend Tom Poje to answer. My answer above was "d" while your answer was "a". The discussion at this point is over as our differences of understanding have been laid out into a simple test question.

I think you are about to get an offer of a napkin, or eggs, or something similar, from the Nut. Hope you like eggs. They're about to be all over your faces

I wouldn't change it. In two months out of the year, the employees will receive 3 paychecks (instead of two). For these months, I would not deduct a loan repayment from the 3rd payroll. If you do this, then everything is left consistent. You are simply moving from 24 paydates to 26. All other months will remain the same instead of two. Don't do anything drastic.

This is the reason I am an expert and you are not. What I've been explaining all along is that under the New Comparability Rules, you must satisfy the gateway in order to use cross-testing. This does say anything about how to test under 410(b). You may cross-test, or you may not. But, IF, IF, IF (let me emphasize again, IF) you cross-test a DC plan in order to pass 410(b), then this cross-testing would not be validated unless you satisfy the gateway (or the primary DB or broadly available exception). This isn't that complicated; especially when you've done it hundreds of times.

I remain supremely unconvinced that the above is a true statement. There is a difference between "benefiting" under the plan and having the plan formula satisfy the safe-harbor requirements of a uniform allocation formula. For instance, if you have a formula that provides a benefit in excess of the TH minimum, then that formula must be tested under 410(b) while treating the participants who received only the TH minimum as not benefiting under that formula. If not, then you have to perform more testing to prove nondiscrimination. Tom Poje, your last comment about treating the employees who received the TH minimum only as receiving ZERO, and then testing the other formula; isn't that what I said earlier. (But I must have been totally wrong) Let's go ahead and give these antagonists some real knowledge.... What would exempt you from the use of a gateway when cross-testing? a) By testing under the average benefits test b) When the benefits provided are primarily DB in nature c) When the allocations are broadly available d) b and c only e) a, b, and c My answer is d. Mike Prestons answer is a. Tom Poje, what is your answer?

Hope you like eggs. You had the option of remaining silent and being confused, but you also stepped forward to show you have not understanding of some of the most basic rules of cross-testing. Tom has apparently performed cross-testing. Hopefully, he will fully explain (as I have) the meaning of cross-testing.

Outside of meeting the facts and circumstances for the "broadly available" exception, yes. Let say you have 5 divisions that allocate contributions separately to each division, and one division fails to pass 410(b) as a standalone under the circumstances you provided. This, and other facts (which you may research on your own) make deem the gateway unnecessary since the allocation are broadly available to a large group.

Okay Tom, your example here suggests passing the Average Benefits Test without cross-testing. My comments are clear on that one. But now lets address when cross-testing is used. When you do, please pass the napkins around. My comments are complete about the differences between Cross-testing and Average Benefits Test. Cross-testing is only one of several methods of passing the average benefits test (or coverage ratio test for that matter). When you cross test, you must satisfy the gateway unless you are exempted by the primarily DB in nature exception or the broadly available exception. All these amatures in the industry are quick to throw mud, but fail to understand one of the most basic principals of New Comparability. I'll leave it to you to put clear them up, because I don't care whether they remain confused on the issue or not.