justatester

Our client acquired a company that had a DB plan. The client wants to "make up" some of the loss from the DB plan. Here is what they want to do: Current plan is Safe Harbor where they are matching 100% up to 5%. For the acquired group of employees, if the participant is over 50, they want to match an addtional 50% on the next 3%. Is this possible? Based on the current population, they would pass BRF on the design. With this additional match, they would be required to run and ACP test. However, my gut is telling me this may not be a permissible design. Any thoughts?

Do you happen to have the copy of the 2/1/2006 IRS internal memorandum that addresses this?

The situation is that we used 1 YOS & semi-annual entry dates for disaggregation purposes (max allowed), and the plan's entry date was not semi-annual. The IRS auditor is challenging this, saying that we should have used the plan's entry date for determination of the disaggregated group. Has anyone ever had an IRS auditor challenge this? Any suggestions to 'convince' the auditor this is ok.

Here is a strange one... Employer Matching Contributions. Employer Matching Contributions on behalf of a Participant shall be made at a rate of $1.00 for each $1.00 of Eligible Elective Deferral Contributions made by that Participant during the Plan Year, as determined under 5.4-1. 5.4-1 Eligible Elective Deferral Contributions. Only Elective Deferral Contributions for the Plan Year of less than or equal to the first four percent (4%) of a Participant’s Compensation that remain in the Plan through the Anniversary Date (the “Matchable Contributions”) shall be eligible to be matched by Employer Matching Contributions. Catch-up Contributions are not eligible for Employer Matching Contributions under any circumstances. Basically, if I am still employed and took an in-sevice withdrawal, the company is not matching my pretax contributions. Would you considered this an allocation requriement? Therefore would not be included in the ACP test and counted as not benefiting under 410b.

On 12/1/09, a group of employees spun out of a larger plan. It was an asset sale and the plan was NOT considered a successor plan. The new plan has immediate eligibility, immediate entry, 100% vesting. For 2009, No HCEs. For 2010 No HCEs. Now for 2011, we have HCEs. (Prior Year Testing). When applying the "otherwise excludable" option, do we use 12/1/09 as the DOH for all ees that came over as the date to apply the 'otherwise' excludable option? This would mean everyone would be considered "otherwise" excludable. Or can we use the original DOH from the previous employer? The document has the following language: The Plan Administrator will determine the appropriate manner in which the ADP test is to be applied In the enventof a merger, spin-off, or asset transer involving the Plan, based upon such authority (if any) as may be issued by the IRS. My gut tells me that they should use the 12/1/09 date since they decided not to consider compensation for HCE purposes. Any thoughts.

Thanks for the information...here is another question: Custom Plan document designates "Prior Year" testing for both ADP & ACP. It is a QACA, however, the match formula is 100% up to3% then 50% up to 9%. So it satisfies the ADP Safe Harbor requirement, but since they match above 6% it requires ACP testing. Do/Can I run it "prior" year? If I do, can I count the full 2010 NHCE match in the 2011 test? Or am I limited to counting only the match above 6% since the match up to 6% was used to satisfy the 2010 ADP test?

I did actually find reference in our prototype document that states current year testing would be used. If the document does not have specific language, would you use current? Or if the document indicates prior year when testing is required use prior? My original understanding is that if a plan is safe harbor it is deemed current in any year testing would be required. But, we have had many a discussion surrounding the issue. Is there a time when prior would be appropriate?

Ok...now I the question becomes... If a plan is deemed safe harbor for both ADP & ACP testing, but must still complete an ACP test for after-tax...which testing method is permitted? Plan Document states prior, but since it is safe harbor must it be current?

When you are testing a Safe Harbor Plan with an after-tax feature, you have the option of including or not including the match--correct? My question is can you change from year to year?

Plan is a safe harbor plan, but allows for after-tax. Plan ues the "prior" year testing method. When running the test, can we include and not include the match in the ACP test to achieve the best results. For example, 2009 testing: HCEs AT only compared to 2008 NHCE AT only 2010 testing: HCEs SH Match & AT compared to 2009 NHCE AT and SH Match 2011 testing: HCEs AT only compared to 2010 NHCEs AT only It would be eaiser if the plan changed to current year testing. Which we are working on! Any thoughts would be greatly appreciated!

Thank you for the comments...I realize in practice you would have a hard time not passing. I wanted to confirm in "principal" they technical are not a safe harbor formula.

Hi--I have a group of plans that are part of a controlled group. The formula is as follows: The global profit sharing is the same program across all participating plans. The amount is determined each year by the board. The 2010 Plan Year amount of $1026.53 award was for a person who was employed the full year. If an employee is hired during the year or they die or retire during the year they get a pro-rated amount based on the number of months that they worked at least one day. For example, someone hired in December would get 1/12 of the full award. Since not all employees received the full $1,026.53 would general testing be required?

It does not pass on an allocation basis...I have 2 rate groups failing...It would potentially pass on an accural basis...So I am trying to figure out who is in the gateway test population.

I have a MPP plan that is not passing the General Test. We want to cross test the plan. I know in order to cross test, you first must pass the gateway test. My question is who is included in the Gateway contributions? Is it only those who "benefit" (actually receive the contribution)? The MPP plan is part of a controlled group. It does not pass the ratio test on its own-but passes using Avg Benefits test. There are other ER contributions in the 401k plan. Do I need to consider those who do not receive the MPP contribution when performing the Gateway test? Thanks for your help!

What line item on the 5500 do participants receiving RMD's get reported on? Are they included in the terminated entitled to future benefits, or terminated receiving benefits?

Hi... I am not exactly where to find this in the regs. When running an ABT test, can you use the net amounts after the NDT failure? In other words, plans fail the ADP/ACP test and make ROES, can I use this reduce contribution amount when running the test? Thanks for you help...

Just want to double check... I have a plan that has a 10% contribution that goes to all employees-meets all the Safe Harbor requirements. They want to make an additional contribution to 2 HCEs (replacing a db arrangement). So, I know I need to perform the general test/new comparibility test. The question is: can the plan make this 10% contribution a Safe Harbor contribution and still use that amount to satisfy the general & gateway test?

When running a BRF test, can the test be disaggregated? (apply less than 21/1 YOS rule) Does it need to follow the same method as coverage & ADP/ACP? In other words, if the coverage & ADP/ACP test use the 'otherwise' excludable option, is that required in the BRF also? Or are they separate? Thanks for your help!

A plan I am working on has a service based match. 0-5 years 33 1/3% up to 6%, 5-10 75% up to 6%, 10+ years 116.67%. The plan spun out of a much larger plan effective 1/1/11. Their projected ACP test is HCEs 6.11% vs 2.26%. So a pretty large ACP failure. Since it is a service based match, BRF is also going to be required. They will not pass the 70% ratio, but will pass using the "safe harbor ratios"...which I believe you then need to look at effective availability and facts and circumstances. I realize this portion is not mathematically....but any guidance on what would be reasonable? Does the fact that the ACP test fails need to be considered or when its corrected no longer a factor? The HCE population has 162 employees, all but 7 receive the top 2 tiers. In fact 137 receive the top tier. If they use the safe harbor ratios, can they still rely on testing every 3 years? It just seems to favor the HCEs. Any thoughts/concerns would be greatly appreciated!

Hi-I am working on a plan that is in the process of setting up franchises. My question: are franchises considered Affiliated Service Groups for coverage purposes? If yes, is there every a time that they would not be? They are trying to determine the impact of the NDT testing. Can they exclude those employees from the plan?

I have a plan that has several different vesting schedules based on employee classification... Group A: 3 Year Cliff with zero vesting until year 3 Group B: 3 Year Grade- 0-1=0%, after 2 =20%, after 3 = 100% Group C: 3 Year Grade- after 1=25%, after=2 =40%, after 3=100% Group D: 3 Year Grad-after 1=25%, after 2=50%, after 3=100% Would BRF testing be required? Or since everyone is vested by after year 3, the vesting schedules would be considered nondiscriminatory? Question 2: Plan changes vesting schedule for all new employer contributions. New contributions vest at a 3 year cliff. Old contributions vest at a 5 year cliff. Would BRF be required? In my opinion no, since all old money vests at one schedule and all new money vests at new schedule. Question 3: Is a 6 year graded schedule deemed equivalent to a 3 year graded schedule. My thinking is yes since the 6 yr graded and the 3 year cliff are deemed equal and if you are using a 3 year cliff you can partially vest prior to year 3.

ok...so I can "run" the test to get the ADP averages...Are you saying for ACP, I can not include the safe harbor match...so if that is the only match my prior year average for acp would be 0.0%? Is that what you mean by double counting? Wouldn't that then be the case for all plans that switch from prior to current?

Need some help... Plan has been safe harbor since 2002. Prior to the start of 2011, plan decides to remove safe harbor provision. They also elect to use the prior year testing method for 2011. Can they do that? Which I think they can...but what average would you use for the NHCEs in the test. Would you have to go back and "run" a test for 2010 to get the NHCE average? Any thoughts would be greatly appreciated.

I have received direction from a client that seems a bit strange... Plan A: was acquried in 2009 the participants began participating in Plan B on 2/20/2010. Plan A uses prior year..Plan B uses current year. Client wants to test HCES under Plan A with full year comp/contribution using the prior year method. Plan thinks need to test full comp/contrib because of HCE aggregation rules. Of course that plan fails. Then they want to test HCEs from plan A using full year comp/contribs in Plan B's test, but only include Plan A's NHCEs from 2/20/10 through 12/31/10. The plan sponsor thinks that can't run one full year test because of the different testing methods. BTW, all assets from plan A were completely merged in prior to 12/31/10. Is there any reason they can't just run 1 test for all of plan A & B as of 12/31/10? Any help would be greatly appreciated!

In paragraph 1, if I applied the 21/1/semi, would I test both deferrals and match even though the match is safe harbor. In paragraph 2, does this still apply with QACA plans? Also, if the requirment was 12 months of service it would be easier...however, the requirement is 1000 hours...so I have, for example, a participant who was hired in may 2010..complete 1000 hours by 10/1/10 and was then match eligible....so where would he be tested? Also have participants who were hired many years ago and NEVER worked 1000 hours...so have never been match eligible. Since the client tells us who is match eligible...does treating only those match eligible as part of the "safe harbor" plan and therefore not subject to ADP/ACP testing...and treating those not eligible as a separate plan and subject to ADP testing make sense?