justatester

Ok...Here is how the calculation works: 6% based on eligible compensation minus bonus amounts. (where eligible compensation is less than 415 due to other exclusions) 3% based on bonus amounts So, I making $200,000 in monthly eligble compensation, plus $52,000 "bonus/incentive pay" monthly. So as of March 1, I have $400,000 in eligible pay, plus $104,000 in bonus/incentive pay. For the 6% contribution, I take $250,000 minus $104,000 for a total of $146,000 X 6% for ER contribution of $8760. For the 3% contribution, I take the $104,000 x 3% for ER contribution of $4380. This is compenation as of 3/1/12. I then receive no additional ps contributions. At the end of the end of the year, I have $2,400,000 in eligible compensation and 630,000 in bonus compensation. So, but based on the YTD compensation being limited to 250,000, I would have expected to see $15,000 from the 6% contribution and $7500 from the 3% contribution...for a total of $22,500. The plan is on a prototype document with a discretionary formula. The document indicats it is to be allocated among eligible participants in porportion to Plan Compensation for the Plan Year. Hope this makes the question a little clearer...

Hi- I have a client that allocates the profit sharing contribution on a per payroll basis. The formula is 9% of compensation (6% on one definition of compensation & 3% of another definition of compensation). They have a number of employees (almost of them HCEs) who hit the $250,000 limit in March..therefore do not receive any ps contribution after that. So, on an annualized basis, they are only receiving 4.5% contribution. The formula in the plan document is discretionary. Is this method of allocating the contribution ok?

Ok..I finally found Rev Proc 93-42. And I see where you are saying about the 3 year testing cycle....I guess I am confused. In Sal's book, if you look and 410(b) & 401(a)(4) sections, you can clearly see a reference to 93-42 and the 3 year testing cycle. However, the sections that talk about 414(s) test talk about annual requirements and there is no reference to the 3 year cycle. If fact, there are several references to each year and annual requirements. . Was there another rev proc that changed 93-42?

I was under the impression that 414s is required annually. Based on this, if the test fails, would I run a 2012 General Test (based on 2012 comp/contrib) OR can I use the 2011 General Test?

The client has chosen to the option of testing the actual "contributions". I assume I would need do the General Test baseed off the 2012 compensation and contibutions. The client is asking whether or not they can rely on the 2011 General Test results to satisfy the 2012 414s requirement.

We have a client that fails 414s testing for the compensation definition they use for the profit sharing allocation. For the 2011 plan year, the client opted to run the general test to prove the compensation(based on 415 comp) was non-discriminatory. Since the ps compensation excludes large amounts of compensation, we are anticipating that the plan will fail again. (It was not remotely close in 2011). The question is: Do they need to run the general test again-since it was being completed to prove the compensation was not discrimintory as opposed to the formula? Or would you be able to rely on the 3 year rule? I am saying you need to run a 2012 General Test to prove the 2012 compensation is not discriminatory. How can you rely on 2011 test results to prove the 2012 compensation is non-discriminatory--especially since the 414s test has an annual requirement? Any thoughts or regulation references would be greatly appreciated!

Ok...Some wording from the document. Compensation: the total cash remuneration paid to an Employee for a calendar year by an Employer during the portion of the Plan Year for which he was an active Participant, as reported on the Employee's federal tax withholding statements (Form W-2). It also defines: "Annual Additions" shall mean, for each Limitation Year, the amount of Tax Deferred Contribuions, Employer Contributions, and Employer Matching Contributions allocated to the accounts of a Participant, if any, for any Plan Year. "Limitations Yar" shall mean calendar year. Based on this language...I guess it is ok for ADP/ACP testing to be run on a calendar year basis? For HCE determination, here is what I found in the document: "for the preceding calendar year received Compensation from Controlled Group members in excess of $110,000". Based on Q 14 in 414(q), when calendar year is elected, it seems to mean that the calendar year ending with or within...So for 7/1/11/6/30/12, the calendar year ending within the plan year is 2011...so HCEs are determined based on "calendar year" compensation for 2011. So, I am testing based on 2011 calendar year compensation/deferrals and deteriming HCEs based on the same compensation?

Here is a strange one... Plan year is 7/1/11-6/30/12: Client provides compensation and contributions for the period 1/1/11-12/31/11. So, basically, we are testing the plan as if it were a calendar year plan. Is this ok? HCE determination: the client is determining HCEs for the same plan year based on compenation from 1/1/11-12/31/11. Is this ok? Any thoughts...if this is ok...where would I find it in the regs? Thanks!

What if the situation was reversed? A non-safe harbor plan mergering into a safe harbor plan? The non-sh plan has a match of 50% to 3%, they are moving to a SH plan effective 4/1/13 with a 100% up to 5% match. Any problems?

This HCE was not eligible for the Safe Harbor contribution. So I think they belong in the disagg population.

I think that would put my safe harbor status in jeopordy. How would you suggest I disaggregate? Based on what date range?

You are immediately eligible for pretax if you are hired as a full-time employee. This HCEs was not eligible for the match. It is the pretax portion of coverage that is not passing. For part timers, "the last day of the employee's inital 12 month period of employment, provided he is credited with at least 1000 Hours for such period." Based on this, I need to count all my part-time employees as non-excludable, not benefiting for the pretax portion of coverage. With 1 HCE considered benefiting, it is causing my ratio to be at 19%.

Here is the plan specifics: Full timers: Immediately Eligible, Daily Entry Part Timers: 1000 Hours, Daily Entry Plan Year: 2/1/11-1/31/12 Safe Harbor Plan: 1 YOS required to receive SH match Here is my problem, I have 1 HCE that is in my disaggregated population (under 21/less 1-YOS). Hired 4/19/10. Termed 2/2/11. The plan has an extremely large part time workforce. The ratio test is at 19.53%. We have confirmed all the information with the client and it appears to be accurate. With a ratio that low, Average Benefits does not seem to be an option. We typically run the ratio test on an Annual basis. We are looking into running it on a snapshop basis. Is this possible? What date would be "reasonable"? Is there anything we should be concerned about? In past years, we have not had any HCEs in the under 21/less 1 YOS group. Any thoughts?

Yes, the HCEs are union employees and are part of the CBA. (at least that is what we are being told by the client) It has always been my understanding that unions are exempt from coverage and 401(a)(4) testing since the benefit is part of the CBA. It makes sense they are still subject to ADP since that is the individual's contribution. Thanks for all the help. I will definitely let the client know it is aggressive and to check with counsel.

Ok...So this is a union plan that is subject CBA. So, would 401(a)(4) testing be required on the remaining QNEC?

We have a plan that is union only plan. The plan makes a QNEC contribution to its members/employees. The plan is currently not passing the ADP test. If I bring test the entire QNEC for both HCEs & NHCEs, the plan still does not pass. If I test the QNEC for NHCEs only it will pass. Is this possible? Since it is a union plan, it is not subject to coverage or other 401(a)(4) testing. Thanks!

I have 4 plans merging into 1. All 12/31 PYEs. All memebers of the controlled group for all of 2012. Plan A & B merge effective 10/1/12. We believe plan A is going to be considered the surviving plan. Plan B was a safe harbor plan. Plan C merges in effective 10/2/12. Plan C is also safe harbor. Plan D will merge in effective 12/31/12. Surviving Plan A is not a safe harbor plan. Quesetion: Are Plans B & C considered Safe Harbor from 1/1-merged date? Or since it was a short plan year, do they lose SH status?

Ok...I am not finding anything in the regs that say you can or can't do this. I find it interesting in the regs and in the ERISA Outlne book-all the examples begin with a "passing" ACP test. So it seems to me it might be a requirement? Also, it appears this issue may have been addressed in the 2011 Q&A Session. (question 30) Does anyone have a copy of that question?

Is there a rule that ACP portion of the test must past prior to applying "reverse" borrowing? If so, do you know where I can find it?

Trying to clarify the use of QMAC in the ADP Test. Here is the situation: ADP HCE=7.0 NHCE=4.10 ACP HCE=2.0 NHCE=0.9 (this is a QMAC) Can I reverse borrow/shift the .9% of the NHCE Match to the ADP test? Result would be NHCE average of 5.0..So my ADP test would pass. Then "Shfit" 2.0 from both the HCEs & NHCEs over to the ACP side so that would pass at 4/2? Something seems fishy. I didn't think you could "reverse borrow" if it cause an ACP failure? Something also tells me bring the NHCE acp down to 0.0% is problem as well. Any thought would be greatly appreciated!

Ok, I understand that everyone is benefiting under 401(m), but do I need to be worried about benefiting at a different rate of match? correction IS benefiting.... Yes, I would agree that the BRF ratios are much lower making it easier to pass. Yes, it would negatively impact the ACP test, (having to include a bunch of zeroes) but I should have enough room on that to pass. So are you saying, technically the plan would need to perform a BRF, but most likely would pass?

Ok, I understand that everyone is not benefiting under 401(m), but do I need to be worried about benefiting at a different rate of match?

Plan currently has 2 groups of employees who are eligible to defer but NOT eligible for the match. They are not passing the ratio coverage test. Of course we can run average benefits testing, but that is challenging as well. One of the options we are considering is adding an after-tax feature and making all employees eligible for after-tax. This would solve the ratio problem. But, would the plan then need to run a BRF Test? Our thought is yes, since you have 2 groups of employees receiving a 0 benefit, and the rest receiving a match. Thoughts?

Hi, We have a plan that does not pass the ratio test for match & prrofit sharing so need to go to average benefits testing. Also needs general testing since profit sharing is a service based allocation. Can the average benefits portion be run on an accural basis to use lower thresholds? Then run the General Test on an allocation basis. Then General can't be run on an accural basis since it does not pass gateway.

Here is the situation... Client has a MPP plan with an ER contribution of 2%. In the MPP plan, they also have a matching contribution of 3% if the employee contributes 2.5% to the 403(b) plan. The plan is part of a larger controlled group and Average Benefits testing is required. Would the pretax deferrals in the 403(b) plan need to be included in the ABT test? I am including the ER contribution and the match in the ABT test.