justatester

Strange situation.. We have 3 Employers A, B, & C. The ownership structure is such that AB are members of a controlled group and BC are members of a 2nd controlled group within the plan. We looked in the ERSIA outline book and this does seem possible. However, it does not offer much guidance on how to complete the testing. The attorney is suggesting running a two tests--one for each group. We have done that. Group AB test fails adp/acp and coverage. Within that group, they have employers that do not make a match and/or profit sharing contibutions. It also fails ABT. Group BC test fails adp/acp but passes coverage. How do we go about correccting? For the overlapping employees with Employer B. Do we run the test with original precorrected numbers? ie: a participant needs to have a $1000 ROE due to a failed test for group AB. Do we reduce their contribution in the group BC test prior to running? Any help/guidance would be greatly appreciated!

The deferrals on the w2's do not match what was posted into the plan? Is it possilbe that you had some cross year contributions?

ok, what if the classification of employees was stated like this..."Employees scheduled to work at least 35 hours per week" are eligible. If I start as one of these employees, but my status changes to "less than 35", I am no longer eligible correct?

Interesting question.... Effective 1/1/08 a plan was amended to exclude the following employees: “All Employees with the status code IPT (Interns/Interim employees who work on an as-needed or on-call basis).” If I was originally a full time "regular" employee and had been an active participant in the 401(k) plan, I then move to an "on-call" status am I no longer allowed to participate in the plan? Or since I was once eligible than I am always eligible?

Hi, We have a plan that has 415 excess? The match formula is 50% up to 100% of deferrals. (very generous these days!) A participant has $500 excess. If we return the $500 plus ATM of $250, I believe we have over corrected? Or would you correct $333.34 in deferrals and $166.66 in match? Any insight would be greatly appreciated.

Hi All, We seem to run into this topic every few years. March 15th falls on a Sunday in 2009. I seem to recall this is one of the few deadlines that does not get extended to Monday. So that means all distributions would need to be processed by Friday, March 13th. Does this sound correct? Thanks for your input!

I am looking for a little guidance. We have 2 plans: Hourly vs Salary. 2 Different matching Formulas. The salary group (with most of the HCEs) receives a more generous match. Due to coverage issues, the plans were merged together on 4/1/08 at which time, the Salary plan's match was decreased to the level of the hourly plan. So from 4/1-12/31/08, they are all on the same formula. Do I need to worry about BRF for the time period 1/1-3/31? If so, they would fail BRF. How do you correct it? Is it as simple as giving a more generous match to enough Hourly NHCEs in order to obtain a passing ratio? If so how do you select which NHCEs receive the additional match? Any help would be greatly appreciated!

Hi, Yes, the $5000 is the amount of the ROEs not adjusted for gains/losses...(of course mostly losses these days). So, it sounds like most people would pay the excise on the $4000 taking the position that the other $1000 was distributed prior to the 2 1/2 month deadline.

We are in the process of completing a 5330 for a client who did not make corrective distributions due to a failed ADP/ACP test by the 2 1/2 deadline. Total ROEs were $5000. One of the HCEs who had termed, took a rollover distribution and moved the money to an IRA account before the 2 1/2 month deadline. He was due $1000 of the $5000 in total ROEs. We have notified him that the $1000 was not eligible for rollover and the money needs to be removed from IRA account. My question is: what amount needs to be reported on the 5330? Is it the full $5000? Or would it be $4000 since $1000 was removed from the plan before teh 2 1/2 month deadline? Any thoughts would be appreciated!

We have a multiple employer plan, (8 separate employers) there is common ownership among them but not enough to be considered a controlled group. In 2007, we had one employer leave the plan and one employer join the plan. The question is for these employer, each wants to be tested under the plan for portion of the year that they were participating in the plan we recordkeep. Would the ADP/ACP test be considered a short plan year thus requiring the compensation be pro rated? What about the 415 limit? The employer that left joined another qualified plan and was tested for the time they were in that plan. The employer that joined was test during the time the participated in the other plan. I am not sure what the other recordkeepers did. Any help/direction would be greatly appreciated!

Thank you guys for your input! Yes, we did get direction in writing to use the 3 year rule and our package going back out to them outlines our concerns. Hopefully that will be enough. I will go back to the letter and add some stronger language.

Ok...I thought the purpose of going to the ABT test was to reduce the "ratio" for the coverage test. This would then allow you to not aggregate for all testing. Looking at is this way, the salary plan does not have a BRF issue since all employees are benefiting with match and aftertax. The hourly plan does not have an issue either since all are not benefiting for aftertax, but all are benefiting under the match.

I would agree they are not following the spirit of the "3 Year" rule. We have pointed that out to them but they have decided to go with the 3 year rule. They actually pass ABT for the Statutory group, but fail the "participants who do not meet statutory minimums". They have a HCE in that group. To further complicate things, they have a DB plan recordkept elsewhere.

Yes, the hourly plan has no HCEs...the salary plan has all the HCEs. Is there a BRF requirement since they are "separate" plans?

The Hourly and Salary Plan are two separate plans. Since they use ABT to pass coverage, we have completed the ADP/ACP as separate plans. By coverages issues, I mean that they do not pass the ratio test and need to utilize ABT testing. In 2005, they passed, but in 2007 they are not projected to pass which is why they are relying 2005 results. As far as benefiting, both groups are eligible for the match, but the hourly plan can not make after tax contributions. So for "coverage" both groups are "benefiting" for 401(m). I guess my question is...is there any further testing requirement since the hourly plan does not permit aftertax contributions.

We have a Salary and Hourly plan. The hourly plan has non union employees. As one would think, there are coverage issues since the hourly plan does not have any HCEs in it. The plans do pass coverage using Average Benefits Testing in 2005 and are tested separately for ADP/ACP purposes. They are relying on those results for 2006 and 2007. My question is the Salary plan allows for aftertax contributions and the hourly plan does not. Both plans allow for match. Do I need to worry about the fact that the hourly people can not make after tax deductions?

If you did have a HCE is the "otherwise" exculdable group (those under 21/yos), would testing be required? If yes, which I think is the case, who would be tested? For example, suppose you have a participant who was hired on 8/15/07 and earned $150,000 for the rest of 2007. The participant is immediately eligible to defer for pretax. However, the Safe Harbor Matching provision has 1 yos/age 21, monthly entry. The participant is eligible to start receiving the SH match on 9/1/08. For the 2008 test, he would be considered a HCE. How would you "test" the "otherwise excludable group"? Would this person be in the "otherwise excludable" group or in the main group since he is receiving a SH match as of 9/1/2008? Any thoughts/direction would be appreciated!

That's what we thought...just confirming...Thank You!

Question: If a plan fails the 2006 NDT test and GAP earnings were not calculated, what is the appropriate action to take to "fix" the GAP earnings piece? Can they simply distribute the additional "earnings"? Or since we are beyond the 12 month 'correction' period, was/is the test not consider "fully corrected" and now must the plan correct under EPCRS-which then means you can not apply the "otherwise" excludable rule and do a one-to-one qnec? Any help/thoughts would be greatly appreciated.

Does a plan termination create a short plan year for testing purposes? Here is a little background: Due to an acquistion, the plan sponsor amends the plan to terminated the 401(k) plan effective 1/31/2007. The participants are now participating in another plan. All assets of the "terminated" plan are in the process of being distributed to the participants. (They may have the option of rolling into the other plan). For 5500 purposes, they would continue to file normally until the final assets are distributed. For testing, would they run a "short" plan year test from 1/1/-1/31/2007? If this is the case are the compensation/contributions(415) prorated for the 1 month period? Any help would be appreciated?

I would agree that the HCEs determination is a complicated issue. With that you get into serverance or separation of service and whether or not you have a continuation of the plan (especially in a meger situation). Based on some research we have been doing regarding the HCE determination...it seems likely in most cases, you would need to count compensation from the prior employer. Just one last clarification to summarize the transition piece..... If relying on the transition rule, then all testing during the transition period would be separate. If you merge the assets into a single plan, then the transition rule is out (unless the trust are not commingled). In the case of the merger, all testing would need to be completed as a single plan (coverage, adp/acp, brf, general etc).

Thank you for your response. So, in other words, if you are going to be relying on the transition rule..then all testing would be done as if the transaction never occurred...Correct? I am assuming if this interpretation is regardless of whether or not the assets are actually brought together. Or does the fact that the assets actually merge in the year following the initial transaction (although still within the transition period) impact your ability to use this rule? Any additional help would be appreciated.

If a plan is using the transition rule, ie deemed to pass coverage immediately before a corporate action, how does this impact how the ADP/ACP test is completed? Under the transition rule, the plans are treated as separate for coverage purposes, does that mean they need to be treated as separate for ADP/ACP purposes? Or can they be tested together and disregard any BRF/General Test issues that may result? Any help would be appreciated!

We have a client that is a member of a controlled group. As you know, for coverage purposes you must consider all members of the controlled group. We only recordkeep one of the plans. The group that is recordkept outside of our company does not pass coverage on its own and their ratio is so low that they do not pass using average benefits testing either. One would think the obvious solution would be to aggregate for coverage then aggregate all other tests as well. This is where the problem is. The plan that does not pass coverage is a "Safe Harbor" plan. Based on this, it is our understanding that while they could be aggregated for coverage, the Safe Harbor status does not permit them to be aggregated for ADP/ACP and other testing. In addition, the testing methods (current vs prior) are not the same. Our plan using the current year testing method for ADP and prior year testing for ACP. The plans have submitted a VCP filing to the IRS asking to amend the testing method and for the safe harbor plan not to be safe harbor which would allow for aggregation. The IRS's initial response was not positive. They have said they will not allow the plan to be amended not to be safe harbor. At the point the IRS has not made a decision on what correction method to use. The VCP filing covers plan years 2003-2006. For the plan that is recordkept here, the 2005 and 2006 NDT test fails, but would pass on an aggregated basis. Since they are not confident in having the VCP approved, the plan will be making return of excess distributions (ROE) for the 2006 plan year. However, they did not make corrections for the 2005 plan year. At this point, I believe it is too late to simply make a distribution and since it is beyond the 12 month period following the close of the plan year, and a QNEC contribution would need to be made. In addition, it is our understanding that the plan can no longer apply the under 21/less than a year of service option for testing. By not applying this option, the ROE amount jumps from about $11,000 to over $900,000. Is anybody aware of any relief for de minis amounts? The ROEs on a disaggregated basis is about $45 per person. Have you run into this situation before? Or do you have another suggestion that would allow the plans to be aggregated for coverage and then ADP/ACP?