ERISAnut

So, you are saying that the IRS is wrong on this one, right? You don't have to cherry pick statements made. I wrote my response in the entire post. I am stating that I will not run to the regs to research every single item posted on the forum. I will provide an answer as I understand it. If an understanding is not precise, or a little unclear, a simple question or a correction would suffice. The idea of posting different sections of code (or regs) in an attempt to grandstand doesn't really help anyone who reads this thing; especially when the code or regs do not properly apply to the question at hand. Take a look back at the original questions being asked. How did the become a debate about the gateway? The initial question was concerning how a plan is failing 410(b) because of the last day 1000 hour requirement and wanted an efficient way to correct the test. My suggestion was to bring additional participants into the plan formula that was already in place as opposed to creating a separate allocation group; because that may be aggressive and lead to other issues. Whether you agree or disagree is fine. It's not worth an argument or heated exchange of words. It's like I stated earlier, I have correct and have been corrected. Maybe corrected more often than I corrected. But I do not pretend to know something that I do not by tauting different sections of the regs on everything I write. It's not that serious to me. I did make an exception with the rule on the gateway. Perhaps you familiarize yourself with it and consider yourself educated. Glad I could help.

How do I get to 1.401(a)(4)-8(b) if my plan satisfies 1.401(a)(4)-2(b)? That is, assuming the plan as designed is a safe-harbor plan, why would I ever have to look at the rules on cross-testing in 1.401(a)(4)-8? Because in order to rely on cross-testing to satisfy any of the tests under 410(b), whether it be the coverage ratio test or the average benefits test, you must first satisfy the gateway. You do not, as you claimed, get an exemption from the gateway merely because you are using the average benefits test to pass 410(b). Again, are we learning yet?

I actually took about 2 minutes to find somthing for you. 1.401(a)(4)-8(b) Write this section of the regs on a napkin and use it to wipe the egg off your face.

The reason that I do not answer it is because I do not need to. Remember, this isn't about me. I do not feel inclined to run the the reg book prior to posting in the forum. I answer based on my understanding of the rules on items I previously research. The one thing that I don't do is wait for someone to provide insight into a question and then antagonize. We can share thoughts and ideas, nor not, and it simply makes no difference to me. I simply provide my input and give those of you who are less experience something to consider. I some cases, I may be wrong. In this case; I am not. I can, at least, admit when I am mistaken or mixed up on something in the spirit of learning. At any rate, I am way beyond the point of running to the regs to show everyone I can find a stipulation, because answering these questions do not increase my salary. With that said, I am glad to see you are still confused that the gateway is totally separate form of testing which must be passed in order to valid cross-testing. This is, of coarse, with the exception of benefits being primarily DB in nature or the broadly available requirement that I already mentioned many times before. Since you're so proficient at running to the regs, you shouldn't have a problem finding this one.

No retroactive effect as I know of. But you would have a distribution which would seem to count against any future tax credit. That's from what I remember on the 1040 instructions pertaining to the credit.

Wow, I stand corrected. The exception to the 20% withholding applies to only "certain" cashless distributions instead of "all" cashless distributions. Certain in this case would seem to mean anything other than life insurance (though there could be others). I never knew this; but it's good to know.

I took the position that NRA itself is a protection under the plan as opposed to being protected with respect to the accrued benefit at a certain point in time. Since this is incorrect, nothing else stated would make sense. I stand corrected.

No, you're fine. This is an operational issue that generally lies on the Plan Administrator since it is the plan adminstrators responsibility to operate the plan according to the terms. As Trustee, you have a fiduciary duty to ensure the participants "rights" under the plan aren't violated (i.e. plan administrator wants to take a participants account because the participant didn't show up to the Christmas party). This statement is said lightly and not to be antagonized based on the fiduciary responsibility of the plan administrator. What the IRS will do is treat the loan as taxable upon audit regardless of who did what (which led to the participant not knowing). Of coarse, the 10% excise penalty will apply and the partipant (no matter how irate) will have the costs. As directed trustee, you really have no way of knowing if there is an allowable delay which would prevent the loan from defaulting such has out of work on temporary disability for a year or Hurricane Katrina. All you know is that the payments are in arrears and you have informed the plan sponsor of that fact. You're fine on this one. As a rule of thumb, the DOL will generally audit for participant rights violations (which if you know something about that then you will have reason to worry) and the IRS will audit for taxable events such as loan defaults (which are generally out of your control as directed trustee). Again, these statements are made lightly in order to provide a mindset and not to be antagonized to the full letter of the law.

We are talking about an employer that sponsors only one DC plan, so not need to further confuse the issue. Also, we are distinguishing certain rules that should be communciated separately when speaking of testing a plan for non-discrimination. 1) Plan must pass coverage ratio test (this may be done either by allocation rate or cross-testing). 2) If plan fails coverage ratio test, then plan must pass both the average benefits test and the nondiscriminatory classification test. (these also may be done by allocation or cross testing) 3) We are still talking about only one plan that is a DC plan. 4) If you use cross-testing in any of these test (coverage ratio or average benefits) then you must satisfy the gateway into cross-testing provided that the allocation doesn't meet the broadly available exception. 5) Since we are talking about one DC plan, we know the benefits aren't primarily DB in Nature and we aren't testing a DB and DC plan under the average benefits test. See how clearly I articulate rather complex issue in simple terms. There's no need for confusion for those who are trying to learn what this stuff is about. Anyone can reference as they wish to arrive at their conclusions. My contention is that when it does get reasearched, these rules will begin to make sense. We have just taken 3 pages to explain something where my initial attempt was, obviously, to break the question down and analyze the different concepts that work simulateously to keep the plan qualified. This, again, is done through experience, not by running and research every statement for a challenge. This leads people who are knowledgeable about certain topics to "not post" because of being antagonized by simple terms. We have already gotten off the original subject for someone who had trouble articulating and simple situation. In my first post in the topic, I re-articulated everything to ensure everyone understood the question being asked to we should share thoughts. This is the experience which makes my career more enjoyable.

http://benefitslink.com/boards/index.php?s...ndpost&p=131957 Mike, I'm sorry that you find yourself in such poor company as mine. It's like I said. It's always the weakest among us.

Funny. 3 pages of post debating a simple issue. It is very easy to sit up and attempt to cherrypick statements. I find that type of activity to add confusion to those that are actually trying to make sense of processes that seem somewhat complicated. I find most of these processes simple and not worthy of debate. So I trying to explain in layman's terms and eventually misquote topics. When I do, there's always someone (obviously inexperienced) coming along with their book of regs and posting different sections. I've been there and done that. Now, to me, it is a process of operating a plan to meet the qualification requirements. This is my passion and I decide to share it. You remind me a little of myself when I first started out in the industry 15 years ago. Everything had to be antagonized and supported by regs. The problem with that, again, is that you sometime apply a certain reg to the wrong set of circumstances. This is a reflection of your weakness, not mine. Being experienced in the industry, I have corrected ERISA Attorneys, and have been corrected by ERISA attorneys; the latter more often than the former. But as you gain more experience, you realize it is not being right or wrong, but providing newbies with lesser experience explanations of processes that may otherwise not jive. This is clearly not your intent. Also, sorry about the egg that going to be on your face when you first realize that the gateway into cross-testing applies unless the benefits are primarily DB in nature or the allocations are made on a broadly available basis.

So we are talking about character now?

Your arguments are fine. The reality is that many people are doing it differently, and auditors never challenge it. When looking at the circumstances of the case, it was hard to establish what type of plan was involved and under what authority contributions were made. So, in response, the court went with the easiest interpretation to understand. Again, this is fine. But, there are hundreds of audits where the taxpayers have all their 'ducks in a row' and this never gets challenged.

OK, I lied. I'm back. The above needs clarification, lest somebody stop by and actually believe it means something. "There is safe harbor and unsafe harbor." Uh....ok....I think I can get on board with that sentence. "Anything above the safe harbor is fine in the avg. benefits test." If that sentence is meant to convey meaning, it hasn't done its job very well. The average benefits test is a simple, straightforward comparison of the average, uh, benefits. If the average for the NHCE's is at least 70% of the average for the HCE's the avg. benefits test is satisfied. It is only once someone has satisfied the average benefits test that a ratio-percentage of less than 70% can be used in other tests that need to be done. Consider it this way: 1) Do I pass the average benefits test? If no, when performing a 410(b) test I am stuck with 70%. If yes, I can use the safe-harbor percentage. 2) Do I pass the average benefits test (same one as above)? If no, when performing rate group testing under 401(a)(4) I am stuck with 70%. If yes, I can use the mid-point in my testing. We aren't talking about (2). We are talking about having the "plan" satisfy 410(b). If it does, then there is absolutely no need to test under 401(a)(4) because the formula is a safe-harbor formula. My point was merely to explain the fact that the Midpoint between the Safe and Unsafe Harbor is used when there is rate group testing. That's all. You know, We've all read the rules and many of us have applied to rules more than others. I will not run back to seek statute on anything I say because I am speaking from my experience in the industry. I, too, sometimes jump the gun and missapply some provisions. But when you bring a rate group question into play as your argument that the mere use of an average benefit test exempts you from the gateway requirement, then you may need more actually testing experience.

What exception are you talking about? I'm not talking about an exception. I'm saying that the gateway requirements do not apply. You don't need an exception when the gateway rules don't even apply. Remember, I'm not running my rate group testing on the basis of crosstesting. I'm just using plain contributions rate testing. I don't know, are we? At this point, I'll not endeavor to educate you any further, as I believe the issues have been exposed for all to see and people can make their own judgments. If others want to chime in, that is fine with me. Apparently not. The key is not to attempt to read regs applying to one issue and gain a false interpretation of an entirely separate issue. It is easy to make that mistake. I even inadvertantly misapplied the corrective amendment duration period for Benefits, Rights, and Features to a corrective amendment for a failed test without thinking. It happens. But the point is it to be careful of what is being intended. The entire purpose of the gateway was eliminate abuse of easily passing tests without providing significant benefits to NHCE's. If you would simply run a average benefits test in order to avoid the gateway, then it would defeat the purpose of having a gateway requirement. Once you work through the complexity of how the regs are written, it will actually begin to make sense; thereby reducing the tendency to apply one answer to an entirely different set of circumstances.

Here's another: (IRS Q&A's 2002 ASPA Annual Conference) 29. An employer maintains only a profit sharing plan. The contributions under the plan do not satisfy any of the gateways under the cross-testing regulations. The plan passes the average benefit percentage test on a benefits (cross-tested) basis, but not on a contributions basis. In applying the general test to the amount of contributions, may the rate groups be tested by comparing their ratio percentages to the mid-point of the safe and unsafe harbors? Yes. There is safe harbor and unsafe harbor. Anything above the safe harbor is fine in the avg. benefits test. Anything below the safe harbor is not fine. Anything in between is subject to facts and circumstances. Whenever you are rate group testing, you MUST use the midpoint between safe harbor and unsafe harbor. That does not say anything about being exempted from the gateway.

Can you take it to a bank and cash it? Just poking fun.... Anything other than a check made payable to the participant would not be considered a cash distribution. This includes a Loan offset, Life Insurance Policy, Employer Securities taken in-kind, etc... It would have to be "cash", not something that cash is used to purchase. Otherwise, there is nothing to withhold from without liquidating. The idea is that if it is liquidated into cash, it would be rolled over, leaving no more cash.

Here's one: QUESTION 20 (IRS Q&A's Grey Book 2003) Nondiscrimination: New Comparability Regulations Do the new comparability regulations apply for purposes of the average benefits percentage test? Assume an employer sponsors both a defined benefit and defined contribution plan, each of which is tested for coverage and nondiscrimination separately, but uses the average benefits test for demonstrating compliance with the coverage requirements for one or both plans. Do the new comparability regulations affect the employer’s ability to do the average benefits percentage test on a benefits basis? RESPONSE No. Although Treas. Reg. 1.410(b)-5(d)(5) may be interpreted to suggest that the new comparability regulations do apply for purposes of the average benefits percentage test, the preamble to the final new comparability regulations clearly states, "These rules do not apply ...to the situation in which plans are aggregated solely for purposes of satisfying the average benefit percentage test of section 1.410(b)-5." Let's compare apples to apples. This exception to the gateway would be because the benefits provided are primarily DB in nature. Your example here includes the existence of a DB plan which makes a world of difference. Are we learning yet?

I don't know about this one. It appears to be a plan provision which violates the definitely determinable allocation formula rules. It would be very convenient to arbitrarily misclassify an HCE as an NHCE to provide a matching contribution one HCE but I don't think that would be appropriate. You could write the provision that anyone who becomes HCE during the year by virtue of the 5% owner would be considered as NHCE for up to the date he first becomes a 5% owner. The compensation calculation is just too easy to say missing it would be good faith on anything. Just my take.

The withholding rules are in Section 3405 of the Internal Revenue Code. Remember, when the policy is distributed and all cash is directly rolled over, there is no cash received from the distribution.

Tom, I was suggesting using cross-testing to confirm that the average benefits test is satisfied. I was not suggesting the use of cross-testing for satisfaction of rate group testing under 401(a)(4). Hence, there would be no gateway requirement. Not exactly correct. You can apply the average benefits testing without cross-testing. But when you cross-test, the gateway automatically applies (unless a broadly available exception or primarily DB in Nature exceptions applies). No exceptions to this would seem to be applicable here. ERISAnut, please, please, please review prior threads on this issue. It is a settled issue and your understanding is incorrect. The use of crosstesting in the average benefits test does not, in any way, shape or form, cause the gateway requirements to come into play. The regs say it. The IRS has confirmed it at many, many conferences. If you think otherwise, please provide a citation. Mike Preston, what do you propose the "gateway" is to. It's a gateway into "cross-testing" when benefits aren't made on a broadly available basis or the benefits aren't primarily DB in Nature. The term "gateway" means gateway into cross-testing. You and I will agree to disagree on this one.

I do not agree with two parts (one seemed to be a typo). 1) The formula would be 8% up to the wage base and 13.7% above. The excess amount cannot exceed the base amount. The additional excess is limited to 5.7%. I am assuming this was a typo. 2) You just performed a partial calculation of the nondiscriminatory classification test (which is only one of two requirements for the average benefits test). The rule is you must pass the coverage ratio test or both the nondisc class and avg benefits test. Regardless of which test you run, you are comparing the PERCENTAGE of the HCE's who benefit to the PERCENTAGE of the NHCE's who benefit. Just saying that 67% of the entire population benefited doesn't say anything. Now, if you had proven that 70% of all nonexcludable NHCE's benefited, then I would agree with you. For now, we disagree.

I couldn't imagine what this would have to do with the Qualified Plan. If anything, her issue would be with the decedant's estate. She would have to prove that the Plan Administrator had actually breached it's fiduciary duty. This will be hard to prove since most statement or forms received by the Plan Administrator are notarized or witnessed by the plan administrator. Her burden of proof would have to be that the Plan Administrator either failed to follow procedured designed to enforce her rights or failed to establish procedures designed to enforce her rights.

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, I was suggesting using cross-testing to confirm that the average benefits test is satisfied. I was not suggesting the use of cross-testing for satisfaction of rate group testing under 401(a)(4). Hence, there would be no gateway requirement. Not exactly correct. You can apply the average benefits testing without cross-testing. But when you cross-test, the gateway automatically applies (unless a broadly available exception or primarily DB in Nature exceptions applies). No exceptions to this would seem to be applicable here.