Richard Anderson

If the person is going to get a match or ps contribution, move the deferral "overdeposit" to the match or ps account.

Need more details. Were any of the deposits made after the end of the plan year? Is there going to be a match or ps contribution? Were any deposits less than what was deferred by the employee? Does the plan pass ADP test? Will excess contributions need to be refunded or QNECs allocated? If this is a Safe Harbor 401(k) has the safe harbor contribution already been deposited?

I see no reason that the pre participation TH contribution couldn't have vesting attached to it, unless your document says otherwise.

My brain is not engaging properly. Tom, you guessed it, I was confusing terminees with < 501 hours with otherwise excludable. Thanks

Tom see last sentence of 1.410(B)-6(a) Excludable employees ...In determining whether a plan satisfies the average benefit percentage test of 1.410(B)(5), the rules of this section are applied by treating ALL plans in the testing group as a single plan. When participants are statutorily excluded two plans are created for testing; one plan with those excluded, and one plan with those who meet the staturory eligibility. So, you have two testing groups. The above says that you treat all plans in the "testing group" as a single plan. I have been interpreting that to mean that you would include all plans (401k, 401m, 401a, ESOP), but include only participants in that testing group. For what other purpose would the reg be referring to "testing group"?

Yes, it is allowed. If the plan allows loans, the document should address whether the loan is an investment of the plan as a whole, or a directed investment of the participant. The document that I am must familiar will state that loans are directed investments of the participant, otherwise they are investments of the plan as a whole. If loans are investments of the plan as a whole, then everyone in the plan shares in any participant loan. Each participant (irregardless of whether they have taken a loan) will have as one of their investments the plan loans. This loan account will be shown on any participant statements issued. Each participant will share in new loans, loan payments and interest and the amounts will be adjusted in this account at each valuation.

Tom, Are you sure that terminees with less than 501 hours can't be excluded when doing the ABT in a 401(k) plan? It would seem odd to me that a participant that can be excluded from the coverage test, would be included in the average benefits test. To me, excluded means excluded, and I would not include them in any part of the coverage test.

KJohnson You are correct. However, I find the result difficult to believe. An employer sets up two 401(k) plans. Plan A has only HCEs and provides a 100% match. Plan B has only NHCEs and provides 0% match. Everyone in plan A and plan B is eligible for a match, so when aggregated, the ratio % for 410(B) is 100%, since everyone is benefiting (eligible for a match), even though no match was allocated to the NHCE plan. I guess that the above result does not allow any abuse, since the plan could not pass ACP, or Benefits, Rights, and Features a4 testing. Since only participants who are eligible to receive a match are in the ACP test and those who are eligible for a match are benefiting, I now see the reason for the A or B choice in Mr. X's post. I now think that A is correct; they are benefiting and in the ACP test at 0%. Thanks Mr. X and KJohnson for the posts; I definitely learned from them.

Mr. X I don't think it would be A or B, but both A and B. A) Anyone who has met the conditions, if any, (1000 hours, last day, ect.) for the match contribution should be included in the ACP test. To be in the ACP test they must be eligible for the match. If the match is zero, then they are in the 401(m) at 0%. b) Anyone who is a plan participant (met eligibility for the 401(m) portion of the plan) is included in the 401(m) coverage test. Therefore, they are in the coverage test as not benefiting. You can of course, disaggregate for statutory eligibility. Treating them as not benefiting for the coverage test would not affect the ACP test. The two tests (coverage and non-discrimination) are looking at two different things. The coverage test looks at whether the plan is benefiting enough NHCEs, relative to the HCEs. The ACP test then looks at whether the amount of benefit to the NHCEs is discriminatory. In this case you fail both.

If the leasing co. and recipient co. plans are aggregated for coverage; wouldn't they have to be aggregated for ADP/ACP testing? That is, if the k portion of the plan is aggregated for coverage, then the k portion of the plan must be aggregated for non-discrimination testing. Same for the m portion of the plan. This seems to be in agreement with the first post of Mr. X. But, I see the correction for a failed ADP/ACP test in this situation to most likely be distributions of excess contributions and distributions of excess aggregate contributions. Mr. X's second post seems to disagree with this. If the k and m portions of the plans must be aggregated for ADP/ACP testing, then, the doctors should defer and match in their 401(k) only up to the amount that will pass testing. The remainder of their contribution should come from the cross-tested profit sharing plan. It would not make sense to max out 415 limits to the doctors using high deferral and match contributions, just to have to turn around and distribute a portion of those contributions.

Mr.X If the 401(k) plan fails coverage (which, as you point out is likely to be the situation), won't the cure be QNECs to the NHCEs, since they were not allowed to defer. And then, I assume the cure for failing 401(m) coverage would be a match on the QNECs? Now, after "fixing" coverage, will those NHCES who received QNECs and match be in the ADP/ACP test?

The plan should have a loan policy that would say what happens to the loan after termination of employment. Is there is a loan policy, what does it say? What does the SPD say? Some loan policies allow terminated participants to continue making loan payments after termination; although, most don't allow continued payments. If your plan does not allow loan payments to continue after termination, then the loan defaults when a required payment is missed. At that point the loan balance (principal and interest) becomes a distribution. However, the plan may allow for a grace period for "curing" the default before it becomes a distribution. The maximum time for this "cure" to occur is the end of the calendar quarter following the missed payment. If the plan does not allow periodic payments to continue after termination, then, the "cure" is for the the employee to pay the loan balance in full. The plan does not have to provide for the grace period, but if it does, the grace period can be any time period desired as long as it does not exceed the end of the quarter following the first missed payment. So, to answer your question, 60 days is a perfectly acceptable grace period, even though it is shorter than the maximum grace period allowed.

Nancy you are correct, for the determination of whether a plan is a "successor plan", you look 12 months from the date of final distribution of assets from the terminated 401(k) plan.

Unless the plan allows post-tax contributions, you would include in the ACP test only those participants who are eligible to receive an allocation of matching contributions under the plan rules. If the plan has a 1,000 hour requirement for the match, anyone with less than a 1,000 hours is not eligible for a match, therefore, they are not in the ACP test. I would not call this "excluding" them; they are not part of the test. If the plan also allows post-tax contributions; then the ACP test includes anyone eligible to make post-tax contributions or is eligible for a match.

An employee terminated from employer about 50 days ago, and did not elect COBRA coverage, but now wants COBRA coverage. His prior employer told him that he can get medical, but not dental. He was told that the COBRA election period for medical coverage is 60 days, but the COBRA election period for dental coverage is only 30 days. Is this correct?

I seem to recall reading somewhere that you can't merge a standardized mp into a standardized ps. I could be wrong, my memory is not that good.

Service with any employer that adopts the multiple employer plan will count. Service with any employer that maintains the plan counts for plan purposes, so that transfers or terminations and hires by the different employers are ignored for plan purposes. So, once the person meets eligibility for the plan, changing from one employer that adopts the plan to another, does not change the status of their service for eligibility or vesting. What does the document say about reallocating forfeitures? If forfeitures are reallocated the same as contributions, does Company A's contribution go just to Company A employees, or does it also get allocated to Company B?

I think the 60 day period for retro correction is reasonable. It's difficult (maybe impossible) for recordkeepers to go back to the past and fix mistakes and then carry forward through all the possible tranactions that have happened since the mistake (transfers, loans, dividends, distributions, contributions, etc.) I doubt if they have the capability to go back several years to fix a mistake and then produce corrected statements for those past years. I believe it's reasonable, after a period of time has passed, to forget trying to correct the past; and make a reasonable calculation of gain/loss on the mistake, and make the correction in the current period.

1. I assume that the plan year that you are doing ADP/ACP testing on ends 12/31/2000. If you use prior data for testing, then you are using data for the NHCEs from the plan year that ended 12/31/1999. In order to use QNECs in the prior year data, the QNEC would have to have been deposited by 12/31/2000 and allocated to the plan year ending 12/31/1999. So, the answer is no, you can not allocate QNECs to the 12/31/1999 plan year, in order to use for prior yesr testing, unless they were deposited by 12/31/2000. 2. I believe that the QNEC would be able to be used for TH minimums in the year allocated. I don't think that you could allocate the QNEC for one year for ADP testing purposes, and then since the deposit was in the year following the allocation, use it for TH minimums in a different year from the year of allocation. 3. I'm not sure I understand this question, but, I'll answer anyway. If you mean for example that the QNEC to pass the ADP is 4% and you only need 3% for TH, can you use 4% of the QNEC for the ADP test and then also use 1% for the ACP test, then the answer is no. But, for example if 4% is allocated as a QNEC, and only 2.5% of it is needed to pass the ADP test, then the other 1.5% can be used for the ACP test. 4. A QNEC, as any other contribution, is allocated per the plan document. Read the document. it will tell you how to allocate QNECs. It may even say that QNECs are not allowed. We have a few plans where the documents say that the only allowable correction for a failed ADP/ACP test are distributions of excess contributions.

I am taking over a plan in which the 401(k) safe harbor notice that was distributed to the plan participants says that the employer will not make any other contributions. (only contributions will be deferrals and safe harbor contribution). The employer now wants to make a discretionary non-elective contribution. The document allows discretionary non-elective and discretionary match contributions. If the employer makes a discretionary contribution after distributing a safe harbor notice that says that there will be no other contributions, can the safe harbor still be used? Or must ADP/ACP testing be done because of the discretionary contribution? Is there any guidance on this? What if the notice says that the safe harbor will be the basic match, but later the employer wants to do an enhanced match? Would that be allowed? My thinking is that in order for the plan to have safe harbor status for a particilar year the employer must abide by what the safe harbor notice says, even if what the employer later wants to do is more generous than the contribution specified in the notice.

Kevin, You are correct that matching contributions can be used to satisfy the top heavy requirements, but cannot be included in the ACP test if used to satisfy TH. I have an additional question. If the plan document says that both Key and non-key participants will receive the top heavy contribution, then, for the ACP test, should you not count both Key and non-key match contributions that went to satisfy the TH requirement? Example: Key and HCE participants are the same (no non-key HCEs). Plan matches 100% of first 3% deferred. The ACP of HCEs is 3%. The ACP for NHCEs is 1%. Match is used to satisfy the 3% top heavy requirement, so that the HCEs receive no further contribution for TH, but the NHCEs get an additional non-elective contribution to bring each to the 3% TH minimum. If you exclude the match used for TH for both Key and non-key, then you will be excluding all of the match in this example. The ACP for HCEs would be zero and the ACP for NHCEs would be zero. If the above example is correct, can the employer then do an additional discretionary non-elective contribution? Also, how specific does the document need to be about where TH minimum contributions will come from? In order to use match to satisfy TH minimum, would the document need to specifically allow that?

Since this discussion concerns a discretionary match in safe harbor 401(k) plans, can someone confirm (or disconfirm) my understanding of the following. In a safe harbor 401(k) plan that otherwise satisfies both the ADP and ACP safe harbor,a discretionary match can not be greater than 4% of comp. This is true whether the plan satisfies the safe harbor with a 3% non-elective or the matching safe harbor (100% on 1st 3% deferred + 50% on the next 2%). If the discretionary match is over 4% of comp., then the ACP safe harbor is not satisfied, even if the safe harbor contribution is made. But, the over 4% discretionary match will not affect the ADP safe harbor status. Therefore, if a discretionary match is over 4%, the ACP test will always have to be performed. That ACP test will include both the discretionary match and the safe harbor match (if a safe harbor match is used to satisfy the ADP safe harbor).

Most of the time when I try to do this only HCEs (or maybe one NHCE also) are in the group with the longest service. Also, the ACP test is not the only non-discrimination issue with tiered match rates. Each different match rate is considered a seperate benefit, and must be tested under the non-discrimination rules for Benefits, Rights and Features. This is where I usually have trouble, because the people in the highest tier seem to always be HCEs. I work with small plans and the owners for some reason stay with the company longer than most of the employees.

What action should be taken to terminate a SEP?

Achilles Since you asked how to fix this, here is what I would do. I'm sure there will be other suggestions. Since the original note has mistakes in it, I would replace it with the correct one and amortize at 256 or 257 weeks, instead of 260. That should get you within the 5 year period, and you can still use the 2/16/01 date for the first payment. The difference in weekly payments should be very small.