justatester

I have a plan that made a contribution to participants based on satisfying the gateway using the 3 times ratio. The contribution they made to participants was as follows. When calculating the contribution for participants, it was calculated out to three percentage decimal places as shown below. Calculated contribution Illustrated rounded several places Lowest NHCE% .635% .6349543249 Highest HCE% 1.905% 1.9050052640 Using the numbers above, it would appear that the plan satisfies Gateway, since the numbers in the first column satisfy the 3x1 ratio. The numbers in the second column would also appear to satisfy gateway if rounded to three decimal places. When using our testing software, the system is rounding to two decimal places and several participants with the contributions shown in the far right column are ending up as .63% for the lowest NHCE with a resulting failing gateway test. My question is this, is there any requirement that gateway testing be rounded to two decimal places? I have researched this and am unable to locate such a requirement any thoughts our guidance would be greatly appreciated.

We are running a 414s test. The client excludes certain items from their definition of compensation for allocation purposes. Is it possible for the "allocation" compensation to be greater than "gross" compensation. In one case, the participant is an Ex-PAT so their gross compensation is 0, but they still have allocation compensation and receive an allocation. In another case, the NQ plan contributions are impacting the definition. Any thoughts?

Plan has a last day requirement to receive the employer allocation. They are going to experience a lay off. They want to remove the last day provision for those impacted by the lay off. Is this possible? Any testing concerns.

Company was acquired effective 6/1/14. Asset Sale. Prior plan terminated. Acquired employees given prior service credit for eligibility and vesting. For testing purposes and applying the otherwise excludable rule, what DOH should be used? 6/1/14 or original DOH.

Let's suppose you have a company that was acquired in July 2013. In July 2014, the plans actually merge together and now you have 1 plan. (A is the surviving plan- Plan B merged in on 7/1) Testing: For Coverage, you would perform it as/of the end of the plan year. For ADP/ACP, you have the option of testing each one separately from 1/1-6/30/14 then together for 7/1-12/31.(option1) You can test plan B from 1/1-6/30 separately, Plan A's test runs from 1/1-12/31 but only includes Plan B from 7/1. (option 2) Or, you can test them together from 1/1-12/31/14. (option 3) Let's just say you go with option 3: From 1/1-6/30, participants in plan b received a match of 50% up to 4%. Then effective 7/1, they moved to Plan A's match of 100% to 5%. Would BRF testing be required? I believe yes. What happens if plan B does/would not pass BRF (high concentration of HCEs & very few NHCEs)? Now let's say they have other provisions that were different between the 2 plans, but as of 7/1 they all will follow Plan A's provisions-they were all more generous. Would other features need testing as well? Vesting, Distributions options, after-tax availability, etc. What if Plan A did not have a match at all during...what testing would be requried? Any help would be greatly appreciated!

It is actually a bit more complicated. Plan B was acquired in 2012 at that point became part of the controlled group. They feel since the plan terminated they have lost safe harbor status and are required to be tested for 2013. As of 4/1 they started participating in Plan C at which point the participants in the division being sold also left plan A and started participating in Plan C. The sponsor did not sell off the division until 7/1/13. Since they were part of the controlled group through 7/1, the sponsor directed us to test Plan B & C's employees through 6/30/13 in the Plan A's 2013 Full Year test. The problem is BRF testing is required because the SH match formula is more generous then all of the other formulas. The plan B's employees are mostly HCEs (17 HCEs and 8 NHCEs). The formula does not pass BRF. So we were thinking of carving out plan B and test for the short plan year and if it fails ADP/ACP corrections would be easier to correct rather than funding additional match to correct the BRF. If we test them separately, we can potentially utilize the transition rule for coverage.

Here is the situation: 3 Plans: Plan A: Regular plan Plan B was a safe harbor plan but terminated effective 3/31/13. Participants started participating in plan C effective 4/1/13. Plan C: was part of Plan A until 4/1/13 If plan B decides to test separately from 1/1/-3/31. Does HCE mandatory aggregation apply? In other words, do I need to combined the HCE comp/contributions made to plan C in the test of Plan B and vice versa?

If a plan has different vesting schedules depending on DOH, is it subject to BRF Testing? For example, if you are hired before 1/1/2013, you are 100% vested in your match. Anyone hired after 1/1/2013, you are subject to a 5 year graded schedule.

Plan has a 3 year vesting schedule for their match. The match is not available for hardship. Question; Can the admend the plan in 2014 to say that anyone hired prior to 12/31/2011 their match would be considered a QMAC and therefore 100% vested. I am thinking no since the amendment does not really change any benefit as those participants would be 100% vested at this point. However, if they wanted to 100% vest anyone hire prior to 12/31/2012 that could work since you are actually providing an improved vesting schedule. In the second example, you could then use the match portion for those employees hired prior to 12/31/2012 as a QMAC and then test that portion in the ADP.

I have a plan that has a portion of their match as a QMAC. We typically "reverse borrow" a portion into the ADP test to improve the results. In the past we only "borrow" a portion that does not cause the ACP test to fail. Is this a requirement? Or can we borrow more then Shift back a portion of deferrals to allow the ACP portion to pass.

When applying the otherwise excludable rules, there are 3 ways to apply it. (Statutory, Plan Entry, or Beg of Year/6 monts) Let say in year 1-The ADP & Coverage tests were completed using the Statutory option for applying the OE rule. Plan passes ADP & Coverage. The plan uses prior year testing. Year 2: Plan still uses prior year testing, so the average used for ADP is based on Statuory, but if in year 1 the plan had used the plan entry method, the NHCE ADP average would have been higher. Would you need to go back and run coverage in Year 1 using plan entry to be able to use that NHCE ADP average in Year 2?

We have a plan that has 2 employers (A&B). On 4/1, Employer B spun-out and created a new plan. On 7/1, Employer B was sold and Employer A & B were no longer related. For testing, we would like to test the Employer A plan from 1/1-12/31 including Employer B contributions from 1/1/-6/30 (Q1 made under plan A and Q2 made under plan B). Then test Employer B as a separate, unrelated plan from 7/1/-12/31. Is this reasonable? If yes, how would you handle compensation for those very high paid HCEs. For example: Employer B employee earns $300,000 from 1/1-6/30 and contributes $10,000. Then from 7/1-12/31 earns another $300,000 and contributes $7,500. Can I apply the $255,000 comp limit separately for each plan and test the contributions as if contributed to two unrelated plans (A: 10,000/255,000 & B: 7,500/255,000)? Do I need to worry about HCE mandatory aggregation post 7/1? Any thoughts would be greatly appreciated!

I guess my question is more like...since my plan does not require 1000 hours or employed on the last day, can I exclude those who termed with less than 500 hours? For example, for the employer that does not participate in the DB plan, can I exclude all those who termed with less than 500 hours? Doesn't seem like you should be able to since it is not a requirement to receive the allocation. For those in the DB plan, they are getting a serviced based allocation even if they term on 1/3/12 for the 2012 plan year. So I am not sure why you would want to exclude those since they are benefiting.

We are working on a DB ratio test. It is part of a very large controlled group that also has DC plans. We are not using snapshot testing. We are performing a ratio only test...so basically treating anyone as entitled to the accural as benefiting. Question: If the DB accural does not have an hours or last day requirement, can I exclude those who termed with less than 500 hours?

Fun topic for a Friday afternoon.... We have a client that wants to include employees working in Guam in their US retirement plan. Is this permitted? Their outside counsel seems to say yes, but they would need a separate trustee for distriubtions (similar to PR plans). Assuming it is permitted, how are they handled for non-discrimination testing? Are they included in the US plan? Do they need separate testing? Related Question: If a US employer has employees in Guam or other US territories (besides PR) and they are "excluded" from the US plan, do they need to be considered for coverage? Would they be non-benefiting, non-excludable? Any thoughts would be greatly appreciated...

Group A contributed to their 410k plan from 1/1-3/31/12, they had pretax, roth and match. As of 4/1/12, they contributed to Group B's plan, but no longer had Roth and started following Group B's match. Group B has their own 401k plan, they had pretax and match (but a different formula) For the 2012 plan year, we are testing all employees for the entire year. (Group A & B) together. My question is: Do I need to complete a BRF test for the different match formulas and the fact that Group A had roth as an available option? Any help would be greatly appreaciated!

I am not sure what the client's reasoning is. This plan does not use auto enrollment. It is just a general plan provision that if you defer you are required to defer at least 3%.

I thought about that...which is why I am leaning it is ok...but something is bugging me about it.

A plan requires that your deferral rate be at least 3%. (So, you can't defer 1or 2%) Is this ok or would it need testing? If testing is needed, I am assuming BRF, but how would that be run?

I was thinking 402g first ($3000) since that is reported on the w-2s. Then in this plan's case..it would be pretax first (No aftertax in plan).

First off, I realize this should not happen, but it has so now I need to fix it. 2012 Plan Year Participant Contributions $20,000 in pretax...Not catchup eligible. They receive a $40,000 ER contribution. (This is a Taft Plan so multiemployer.) Which Excess do I correct first? Do I reduce the $20,000 to $17,000 and then remove an additional $7000 for pretax for the 415 failure? The difference if done by April 15th, 402g would be taxable in year contributed. If done as all 415 excess, all would be taxable in year distributed. Any thoughts?

What compensation is used to determine whether or not a person is a HCE? Example: If a person receives compensation of $60,000 from one employer from Jan 2012-May 2012, then works for another employer from June-Dec 2012 and earns $75,000 all under the same collectively bargained agreement and the same plan document, would they be considered a HCE for 2013?

We have plan the is part of a large controlled group. They acquired another company through an asset acquistion in 9/2012. They use the top 20% rule to determine HCEs. For 2012 HCE determination, do we need to consider this group? They acquired group did have a 401(k) plan and it is not merging into our plan at this point. It will remain separate.

I think the answer is yes...but just want to double check. I have a plan that have a 50% to 6% match with no hours or last day requirement. The plan has decided to make an additional discretionary match of 100% on 1%, but has an hours last day requirement. For coverage we are good since the first match everyone is eligible to receive. However, I believe the plan now will need a BRF test since not all employees are receiving the second match. Is this correct?

Ok...So I finally figured out what the client is doing...They are not allocating the ps on two different rates...they are just using a complex calculation to get to the allocation. The ps compensation is "eligible compensation" less 50% of the bonus amounts...so in my example: As of March 1, I have $250,000 in "eligible" compensation less 50% of my ytd bonus (50% of 122,134 ytd bonus) = 188,933 of ps compensation. Total allocation = $11,335.98. So, I get what they are doing...now the question...is this allowable on a prototype? Also, we need to run a 414s test. Would this been done on "Plan Year" definition of compensation? Or what the allocation was actually made on? In my example above, they have total compensation of $5,000,000, bonus compensation of $630,000 of which only $315,000 is ps eligible. Which leaves $4,685,000 in PS eligible compensation. So for the 414s test, would I use $250,000 as Total compensation and $250,000 as plan compensation? Or, would I use what compensation was actually used for plan compensation ($188,933-from above)?