John A

If an employee terminates just prior to the end of a plan year but has deferrals taken out of the final paycheck, which is received in the next plan year, how is testing completed? Say the years are calendar year 2001 and 2002. Are the deferrals received in 2002 counted for ADP testing for 2002 even though the employee terminated in 2001? Are the deferrals counted in the 2001 ADP test even though the paycheck was in 2002? Does the answer affect employees who were eligible to defer during the payroll period, terminated in 2001, and did not defer from the final paycheck (which year's ADP test should include them)? Should the 2002 410(B) coverage test include either of these types of employees? Has the IRS ever provided formal or informal guidance on this issue when a payroll period crosses over a plan year end?

Yes, the 415 limit is applied separately to plans of unrelated entities.

Mike, Yes, that helps a lot. So that explains why the Average Benefits Percentage Test uses deferrals and match. Now where does it say that the rate groups are determined excluding deferrals and match (profit sharing and forfeitures only)? Thanks for you help. It is much appreciated!

Can anyone provide a cite for me that says that when the profit sharing contributions of a 401(k) plan are being tested for nondiscrimination under 401(a)(4), the Average Benefit Percentage test is done using elective deferrals and match? I know that the rate groups are determined using only profit sharing contributions and forfeitures, and the average beneft percentage test is done using those plus deferrals and match, but I cannot find where in the regs, Code or other guidance this is explained. Can anyone point me to the right place in the guidance?

Thanks, Mike!!! That's what I needed to know. It's great when someone has some experience with the point in question.

Tom, that answers the 5500 portion of the question - thank you. What about the 5300, Schedule Q and Demo 5?

How should a 5300 and 5500 be completed for a plan that passes the 410(B) ratio test but must use the Average Benefits Test to pass the 401(a)(4) general test? For example, consider a cross-tested plan that provides a profit sharing contribution to all participants, but in which at least one rate group passes only by virtue of the nondiscriminatory classification test and the average benefit percentage test. Does this plan complete the 5500 Schedule T indicating that the plan passes coverage by the ratio test or by the average benefit test? Does this plan complete the 5300 (line 13) saying Yes - plan passes the ratio percentage test, or No - plan does not pass ratio percentage test? Should or must a Schedule Q Demo 5 be done to show the Average Benefit Test, or is it enough to just do Demo 6 (the general test demo - which might need to include the Average Benefit Test)?

1) Does the matching formula on age 50 catch-up contributions have to be the same as the formula on regular deferrals, or can the document define a different match formula for age 50 catch-up than for match on "regular" deferrals? 2) If the match on age 50 catch-up contributions is based on the same formula as the match on the regular deferrals, is the formula applied before or after combining the deferrals? For example, if the formula is 100% of deferrals up to 5% of compensation, and a participant with compensation of $1,000 has $100 in regular deferrals and $100 in age 50 catch-up contributions, is the match on the catch-up contributions zero or $50? Can the plan document define it either way? 3) In a safe-harbor 401(k) plan, are matching contributions on age 50 catch-up contributions subject to the ACP test? If so, how is the ACP test done (include all matching contributions)?

Thanks, Mike. What I'd like to know is if others agree with your interpretation or not. There are some in our office that believe the interpretation should be: count all employees employed at any time during 1997 - call this x(1997). Count all employees employed at any time during 1998 - call this x(1998). The number to use is the result of max (x(1997),x(1998),x(1999),x(2000),x(2001)) [using pre-EGTRRA rules]. For an employer with a lot of turnover, this could create a very different number, although the exclusions will mitigate that somewhat. Under the method above, an employer who employed 100 different people during 1997 would use 100 for 1997, no matter what the number employed on any one day was. Under your interpretation, that number would shrink to the greatest number employed on any one day in 1997 (which might be 70,80, etc.). I'm curious which interpretation others take, and whether or not there has ever been formal or informal guidance on which approach to take.

pax, Thanks, but the definition of officer is not a problem. The main point of the question is how to interpret "the greatest number of employees it had during that plan year or any of the four preceding plan years." Does this mean at any one point in time during those years, so the greatest number would be 60 in the last part of the original question? Or does that mean to compare each year using all employees that were employed at any time during the year (with the exceptions removed of course), so that the number for 2001 would be 70 in the example above, and this (under the pre-EGTRRA rules) would be compared to the numbers in each of the 1997-2000 years? In other words, we know it has to be the greatest number from the 5 years. But how is the count done within a single year?

Thanks, Mike. One thing - since I used 12/31/01 as the determination date, I think I'd have to use only 2001, since plan years beginning in 2002 with a 12/31/01 determination date use the EGTRRA rules. I agree with having to go back another 4 years if the determination date was prior to 12/31/01. I would be curious if others agree with Mike that the proper number would be 6 rather than 7. Anyone else?

When doing a top-heavy test, to determine the officer limit, do you count employees that were employed at any time during the plan year, or only those that were employed on the determination date? For example: Say there are 10 officers (with $130,000 in comp.) in a plan with a determination date of 12/31/01. The employer has 50 active employees on 12/31/01. The employer has 10 employees that terminated on 1/15/01. Those 60 are the only employees employed at any time during 2001. How many key employees are counted due to being officers, 5 or 6? For this purpose, assume that all 60 worked the full year in 2000. Also, change the above so that, after 10 employees terminate on 1/15/01, 10 new employees are hired 1/31/01. Then 10 more employees who worked in 2000 terminate employment on 2/28/01. Would this increase the number of officers counted to 7 (since 70 employees worked at some time during the 2001 calendar year, even though the employer never had more than 60 employees at any one time)?

http://www.ebia.com/weekly/articles/2001/4...orativePay.html Note the "real and demonstrated threat" requirement, not just "participant dissatisfaction."

Say a 2000 calendar limitation year is changed to a limitation year of 7/1/00 to 6/30/01. Is the 415 dollar limit prorated for the period 1/1/00-6/30/00 or 1/1/01 to 6/30/01? Before you answer, please read the following excerpt from IRS Reg. 1.415-b(4): (4) Effect of change of limitation year. ... (ii) Any change in the limitation year must be a change to a twelve-month period commencing with any day within the current limitation year. (iii) For purposes of this paragraph, the limitations of section 415 are to be applied in the normal manner to the new limitation year. Moreover, the limitations of section 415 are to be separately applied to a “limitation period” which begins with the first day of the current limitation year and which ends on the day before the first day of the first limitation year for which the change is effective. The dollar limitation with respect to this limitation period is determined by multiplying (A) the applicable dollar limitation for the calendar year in which the limitation period ends by (B) a fraction, the numerator of which is the number of months (including any fractional parts of a month) in the limitation period, and the denominator of which is 12. This adjustment of the dollar limitation only applies to a defined contribution plan. ----------------------------------------------------------------------- It appears to me that "the day before the first day of the first limitation year for which the change is effective" in my answer above is 6/30/00.

smm, My understanding of this is that, for a plan that adopts catch-up provisions effective for tax years beginning, 1/1/02 and has a plan year 6/1/01-5/31/02, the plan would need to be careful when doing ADP testing for 6/1/01-5/31/02. Deferrals that were made on or before 12/31/01 could NOT be treated as catch-up contributions due to an ADP test failure, but the applicable deferrals made from 1/1/02 to 5/31/02 would HAVE to be treated as age 50 catch-up contributions due to an ADP test failure (up to the $1,000 limit of course) rather than being returned as excess contributions.

What 415 limits would applyfor a short limitation period (due to a change in limitation year) beginning and ending in 2002? Would the post-EGTRRA limits (pro-rated $40,000 and 100% of compensation) since the short limitation period begins on or after 1/1/02? Or would the pre-EGTRRA limits (pro-rated $35,000 and 25% of compensation) apply since the 415 limit applies based on the calendar year limit for the limtation year ending in that calendar year?

I believe that the safe harbor provisions could be effective for the plan year beginning 3/1/02 as long as the notices are provided by a "reasonable" period of time before 3/1/02 (30 days would definitely meet the requirement) and the amendment is adopted prior to 3/1/02. You might also consider providing a "maybe" notice to give the employer a longer time to decide for sure.

wolfman and Tom, I believe practioners are using election forms for age 50 catch-up. However, the forms probably have to contain a caveat that the age 50 catch-up may have to be "recharacterized" to "regular" 401(k) deferrals. If you don't provide an age 50 catch-up election form, then how is a participant allowed to defer above the plan-document provided limit? For a plan document with an employer-provided limit (say 10%), can an employer limit the age 50 catch-up that a participant is allowed to defer? [Ridiculous example to make a point: Participant, age 51, is on unpaid leave and so gets no compensation from 1/1/02-3/31/02. Participant gets a $20,000 paycheck on 4/15/02 for work from 4/1/02 through 4/15/02, and terminated employment 4/16/02. Participant chose to defer the plan document maximum limit of 10% of comp. - $2,000. Does this participant have to be allowed to make a $1,000 age 50 catch-up (over and above his $2,000 "regular" deferral) from the 4/15/02 paycheck? How much does he have to be allowed to make as an age 50 catch-up? If you say 0, then you have a participant that was eligible for age 50 catch-up and has not been allowed to make an age 50 catch-up contribution, so you may fail the universal availability requirement.)

Can a group of entities each able to have a 457 plan use a master trust?

The code is clear that a "safe-harbor 401(k) plan" is required to provide the safe harbor match or safe harbor nonelective contribution only to NHCEs. In your experience, do most plans also provide the safe harbor contribution to HCEs?

Tom, are you saying you can choose whether or not to use the age 21/ 1year requirement each year for this purpose, and you do not have to have the age 21/1 year requirement stated in the plan document?

My understanding of the off-calendar year plan issue is that deferrals made in 2002 not only can but MUST be considered age 50 catch-up deferrals if the plan adopts age 50 catch-up effective 1/1/02 and the 2002 deferrals exceed the ADP limit for a plan year ending during 2002. For example, let's say the plan year ends 1/31/02, and the ADP test limits HCEs to $5,000. If Employee A contributed $6,000 during 2001 and nothing in January of 2002, none of Employee's A's deferrals through 1/31/02 may be treated as age 50 catch-up contributions. However, if Employee B contributed $4,000 in 2001 and $2,000 in January of 2002, and the plan adopted age 50 catch-up contributions effective 1/1/02, then $1,000 of Employee B's deferrals MUST be reclassified as age 50 catch-up contributions whether Employee B wants them to be or not. Agree? Disagree? Why?

So do people agree that the 2001 deduction limit is 15% for a plan that is the result of merged money purchase and profit sharing plans as of 12/31/01? Did anyone attend the Corbel seminar - was this question addressed?

Let me change the question slightly: If a client is using a prototype document sponsored by TPA V or a partner of TPA V, and the client leaves TPA V to go to TPA W, does TPA V or the partner of TPA V have any responsibility to the ex-client regarding notification of future changes to the prototype? At what point, if at all, does the ex-client now have an individually-designed document if the document is not restated onto a document that TPA W supports in some way?

The Corbel article specifically mentions that plans merged 1/1/02 will retain the 25% deduction for 2001. Does this mean plans merged 12/31/01 will NOT maintain the 25% deduction limit, and must use the 15% deduction limit for profit sharing plans? Also, does anyone have a response to wymer's question about the Schedule R for the money purchase plan's final 5500? Finally, Lynn Campbell, the new timing of the 204(h) notice has not yet been determined since it will be in "regulations to be issued" that have not yet been issued. So it seems that we are in a "good faith" situation, and I would guess that 15 days would be a pretty safe "good faith" guess until regulations are issued.