Richard Anderson

You can also put in a discretionary match, up to 4% of comp.

As mbozek pointed out, I would check the document. It is not uncommon for language to be in the boiler plate section of a document to state something on the order of: the contribution "must be made before the time prescribed for filing the Company's federal income tax return (including extensions).

During the remedial amendment period may the plan administrator elect or not elect the top-paid group election for determining HCEs without specifying the election until adopting the GUST document.

Yes, must be pro-rated. 1.401(a)(17)-1(B)(3)(iii)

I think that your GUST remedial amendment period ends when you adopt a GUST approved document.

Some HCEs have less than $85,000 in comp.

What is the effective date of the merger?

Plans are not required to be aggregated because of a controlled group situation. The employers are required to be treated as one, but not the plans. If each plan can pass coverage on their own, then non-discrimination testing (ADP/ACP) can be done separately also. When testing more than one plan of an employer seperately, you include all employees of the employer, including those in the other plan. Basically, for testing you include all non-excludible employees of the employer (entire control group) in the demoninator and include in the numerator only those that benefit in the plan being tested. Non-discrimination testing must be done in the same manner as coverage testing. If tested separately for coverage, then test separately for non-discrim. If aggregated for coverage, then aggregate for non-discrim.

Are 403(B) plans subject to ADP testing?

My understanding is that if a plan document is not in compliance with current law when terminated, then that plan is not a qualified plan. This is true whether the IRS finds out about it or not. If the above is true, then I have a question. If Robin's clients refuse to bring the document into compliance; can or should Robin's firm help the client with the termination process? Help such as distribution election forms to rollover to an IRA? Robin's firm would be helping to rollover to an IRA (or possibly to a qualified plan) assets from a plan that is not qualified. A similar situation has occurred at our firm, and we have differing opinions about whether it is OK, as professional advisors, to help the client with the distribution of assets from the plan. Any opinions would be appreciated.

AndyH, Beginning in 2002 deferrals don't count towards the 25% deduction limit. Therefore a deferral only plan can be used in combination with a DB that has contributions in excess 25%. The Safe Harbor 401(k) will work. HCEs are not required to receive the SH contributions. Therefore, if no NHCEs defer, the plan could end up being a deferral only plan for HCEs. But, if any NHCEs defer and receive a match, (as Andy points out) that match might not be deductible if the contribution to the DB is 25% or more.

The 2001 MP contribution can be made to the PS plan after the merger, but the contribution must still be to a MP source within the PS plan. At the 2001 ASPA DC conference the IRS said that any future forfeitures of MP source accounts after the merger can be reallocated as PS money.

Why not include NHCEs in the 401(k) plan, but exclude them from the employer contribution?

A plan has 3 month eligibility for deferrals and 12 month for employer contribution. There has been a number of terminations during the 2001 plan year. In counting the number of participants, in order to determine if there has been a partial termination, do I count only those that are participants in the employer portion of the plan (met 12 month eligibility)? Or, must I also count those that are eligible for deferrals, but not eligible for the employer portion of the plan?

Does the document address this? I have seen some documents that specifically define compensation used for testing. In documents that do not specically address the definition of testing comp., but do have a general definition of comp.; we have been using that definition for testing also. Maybe, we should not be doing that. AndyH, if the document doesn't define testing comp, but has a general definition of compensation that is plan year compensation; do you think that it is OK to use comp from entry for testing.

If it is unlikely that the Ee will defer anything, use safe harbor match instead of the 3% non-elective. And have the safe harbor match contributed only for NHCEs. If the Ee defers nothing there will be no match required. And, if all other requirements are met (notice, ect.) the owner can defer the maximum. The $5,000 DB contribution for the Ee should easily satisfy top heavy minimum.

Andy, I have been doing my own analysis of the regs and I agree with you. 1.401(a)(4)-9© says that "If each of the component plans of a plan satisfies all of the requirements of section 401(a)(4) and 410(B) as if it were a separate plan, then the plan is treated as satisfying section 410(a)(4)." If component plan A is treated as separate plan, I don't think that would mean that you could exclude from testing (either 410(B) or rate group) all the employees that are not eligible for component plan A. All non-excludible eligibles (both A & b) are included in the testing in the denominator, but only those benefiting in the component plan are included in the numerator for that component plan. I have the 1998 version of "Current Topics for the Retirement Plan Consultant" at home somewhere. I'll see if I can find the article. After looking closely at this I see, as Mike points out, that the excluded HCE is a non-issue. In both the 410(B) and rate group testing this person will be in all denominators and will not be in any numerator. This is true whether he is assigned to component plan A or B. Thanks everyone for your help.

Thanks AndyH and merlin. Andy, you stated: "2. With respect to 410(B), if your component selection is arbitrary, the NCT conditions (objective business reason/reasonable classification) standard is not met. Therefore you must use the ratio percentage test and each component plan must have a r/p of 70%, counting all (non excludable) NHCEs and HCEs in the denominator and only those benefitting in that component in the numerator. " When you say "counting all" do you you mean all from both component plans A and B? Also, when doing the rate group test, do you also count all (both A & b)? Also. if the component plans pass coverage at 70%, then when testing rate groups of the component plans, I can use the mid-point %. The rate groups do not have to pass at 70%. Is this correct? Also, in calculating the NHCE concentration % (in order to get mid-point %), is this calculated on a component plan basis, or on the plan as a whole. BTW, the 2 HCEs that are benefiting are father and son. The son's component plan includes older, lower paid NHCEs. That component plan will be tested on a contributions basis. The father's component plan includes younger higher paid NHCEs, and that component plan will be tested on a benefits basis. merlin, Are saying that the component plans must each pass coverage by including all eligibles (both A & b)? But, once coverage passes, then the rate groups of the component plans are tested using only the eligibles for that component plan?

For 401(a)(4) testing, the plan will be restructured into component plans A and B. The plan has 3 HCEs and 5 NHCEs. One of the HCEs is excluded from participation by the plan document. Component plan A will have 1 HCE and 2 NHCEs. Component plan B will have 1 HCE and 2 NHCEs. I assume that the excluded HCE may be assigned to either of the component plans. Is this correct? Both component plans must pass 410(B) coverage on their own. In testing component plan A for coverage I assume that I include participants in both component plans in the test, but with only the participants in component plan A as benefiting. Is this correct? Also, in testing the component plan for coverage, are all options available (70% and ABT)? In performing the ABT for a component plan, is the ABT test preformed as if the component plan was the only plan, or are all component plans aggregated for the ABT. When performing rate group testing on a component plan, are there any special rules that I should be aware of? When testing component plans, each employee is cherry-picked for one component plan or the other. Does this make the classification not "reasonable", therefore the rate group must pass 70% and not the mid-point %? Also, in performing rate group testing for component plan A, I assume that I include all participants (including component plan (B) in the rate group test, but with all participants in component plan B as a 0% benefit. Is this correct? Thanks.

The point is: SBJPA changed the way the ADP/ACP is performed; and the method used must be in the document, But, the remedial amendment period allows the plan to operationaly comply with the law, but not have to amend the plan until the end of the remedial amendment period. Now that period is approaching and plans must now state in the document how they operationally complied with the law. Someone should be keeping records for the plan. If the plan were subject to audit, I don't think that the IRS would be satisfied with "The ADP test was done, but we don't know the testing method that was used." Neither would it be acceptable for the document.

Does the document have "fail safe" language for failure of 410(B)? If so, you must correct by the method specified in the document.

Tom, Accrued to date: he had contributions in prior years, but none this year. I also am under the impression that if you use the last day 501 hour rule to exclude people from the test that you must exclude all. Even though the language says that ypu "may" exclude, I don't think that means that you may treat some differently than others.

Also, we have several new comparability plans that the owner's sons or daughters are in the plan. These son/daughter HCEs by attribution are in a separate allocation class and they would trash the a4 testing if they got the 3% safe harbor contribution.

We have a few 401(k) Safe Harbor plans that are cross tested, that have several non-owner HCEs. We use a class allocation (new comparability) and do not give the 3% safe harbor to HCEs. The HCE classes get a high contribution rate (well above 3%), but none of it is 100% vested, as would be the case if they got a 3% safe harbor contribution. So if these non-owner HCEs quit after a few years, the owners are not stuck with fully vested contributions.

I believe that the YOS, age 21 requirement must be stated in the document. You could amend year to year, but I don't think that it is something that can be elected outside the document.