emmetttrudy

I know there are several strings on this topic but I couldnt find one that dealt with this situation exactly, and I always have to review these requirements. Assume for these purposes the combination of plans is NOT top heavy. The CB Plan has a 1,000 hour accrual requirement for a CB credit. The 401k PSP has a 1,000 hour and last day requirement for profit sharing. The plan is not safe harbor (just deferrals and profit sharing). Is this correct? Employee who does not work 1,000 hours but is active on last day of plan year does not need to receive an employer contribution in the 401k PSP. Employee who does not work 1,000 hours and terminates during the year does not need to receive an employer contribution in the 401k PSP. Employee who works 1,000 hours and terminates during the year does not need to receive an employer contribution in the 401k PSP. Now, assume the same things above, except the Plan IS top heavy. Is this correct? Employee who does not work 1,000 hours but is active on last day of plan year must receive the TH minimum, and thus the GW. Employee who does not work 1,000 hours and terminates during the year does not need to receive an employer contribution in the 401k PSP. Employee who works 1,000 hours and terminates during the year has accrued a DB benefit, thus must receive a TH minimum, and thus must receive a GW.

disregard the TH minimum comment since he's obviously terminated and doesnt need one. but the rest of the other details are accurate.

I understand what you are saying but I still think there is some confusion. The actual plan design is a 3% safe harbor nonelective with a discretionary profit sharing contribution and each participant is in his own classification (new comp). However, the plan document allows for a pro-rata allocation, which in this case we are trying to rely on because given the demographics and disparity between HCEs and NHCEs the new comp testing does not work out well. HCEs are excluded from receiving the 3% safe harbor contribution. So each of the 5 HCEs are getting a 15% profit sharing contribution. One of the NHCEs is getting a 3% SH contribution, and a 15% profit sharing contribution. The other NHCE (who terminated and did not meet allocation conditions) is getting a 3% SH contribution, which satisfies his need for the top heavy minimum, and 0% profit sharing.

But the HCEs are not receiving a different amount of profit sharing than the NHCEs are. A pro-rata allocation is a safe harbor allocation, it doesn't require additional testing, right? The only reason ONE of the NHCEs is not receiving 15% profit sharing is because he failed to meet the allocation conditions (he was not employed on the last day of the year and he did not work 1,000 hours). The other NHCE is receiving 15% profit sharing because he did meet both of the allocation criteria. Same as the 5 HCEs, 15%. So why is there clearly a need for additional testing?

i understand that but who is trying to get to cross testing without the gateway? that's what i'm confused about. the original question was if you do a pro rata allocation (no cross testing), does the terminated NHCE need the Gateway contribution, and I believe the answer to that is no. i'm not sure how the performing cross testing and not having to worry about gateway conversation started, but it wasnt realyl related to the original post.

Yes, it does. Coverage (410(b)) is not the issue. Non-discrimination (401(a)(4)) is the issue. OK. But I was responding to ERISATookKits response that this scenario would NOT pass coverage. And I'm still confused by his comments about cross testing. If I am allocating a profit sharing contribution pro-rata, what's the issue with 401(a)(4)? There are seven employees. Five of them key. Two of them NHCE. All five key employees and one NHCE receive 15% profit sharing contribution. The terminated NHCE, who did not meet either the last day requirement or 1,000 hour requirement, receives the 3% SH and $0 profit sharing because he did not meet the eligibility criteria. Pro-rata allocation of profit sharing. No cross testing. Passes 410(b), passes 401(a)(4). did not meet the "allocation" criteria...not eligibility criteria, that was a typo.

Yes, it does. Coverage (410(b)) is not the issue. Non-discrimination (401(a)(4)) is the issue. OK. But I was responding to ERISATookKits response that this scenario would NOT pass coverage. And I'm still confused by his comments about cross testing. If I am allocating a profit sharing contribution pro-rata, what's the issue with 401(a)(4)? There are seven employees. Five of them key. Two of them NHCE. All five key employees and one NHCE receive 15% profit sharing contribution. The terminated NHCE, who did not meet either the last day requirement or 1,000 hour requirement, receives the 3% SH and $0 profit sharing because he did not meet the eligibility criteria. Pro-rata allocation of profit sharing. No cross testing. Passes 410(b), passes 401(a)(4).

if the term'd NHCE is receiving a SH contribution doesn't that count as benefiting for 401a? so 2 of 2 NHCEs are benefiting and coverage passes? at least thats they way our testing software is doing it (Relius)?

401k plan ha a new comp design. But the testing doesnt really work out well. So instead they want to do a pro-rata allocation. There are 5 keys and 2 NHCEs. One of the NHCEs terminated part of the way through the year and has not met the allocation requirements (1,000 hour and last day). Assume all 5 keys and the 1 NHCE who is still active receive 15% of compensation as a PS contiribution. The terminated NHCE receives 3% SH nonelective. Must he also receive a 2% PS contribution to get him to the Gateway? Or because they are foregoing using the new comp testing, do they not need to worry about the Gateway test and the 1 terminated NHCE can jsut receive the 3% SH?

One person Plan defaulted on his loan. In reading Rev Proc 2008-50 it seems it can be corrected either by making a one time payment to catch it up, or reamortizing the loan over the remainign life of the original loan. Are either or both of these approaches considered eligible for the Self Corection program (SCP)? or do you have to go through VCP to make either one of these fixes?

Plan Sponsor is considering terminating their Plan. Their used to be three owners. One terminated 9/30/2011 and they have not been able to pay him out the lump sum due to the 110% restriction on HCEs. They are considering terminating the Plan. Normally how it would work in an underfunded status I believe is they either fund the shortfall or they pay out all the NHCEs and then the owners split pro-rata what’s left in the Plan (essentially taking a haircut on their benefits). Does the fact that one of the former owners is no longer an active employee change that? Would the former owner still share in the shortfall, along with the two owners who are left? Or would he be lumped in with the other employees who get paid out first. FYI, this is not a PBGC Plan.

A client we provide document services to has a non-discretionary Trustee (TD Ameritrade). TD Ameritrade refuses to sign the Volume Submitter document as Trustee of the Plan. How does this affect the Plan Sponsor's reliance on the Opinion Letter for the VS document? Could they use an external Trust Agreement? If so, would they need to submit this with the application for a DL, and they could leave the Trustee signature blank on the actual document?

A one person DB Plan "distributed" a notice (to himself) on 12/15/2011 that basically said 'The Plan Sponsor wishes to and will be freezing the DB Plan effective January 1, 2012". But then they never actually amended the Plan to freeze it. Can he still amend the PLan prior to the end of the year 12/31/2012 so the plan freeze is effective 1/1/2012? Assume 1,000 hour accrual requirement has been met already.

So are you saying there would also need to be a 401k PSP that benefits the NHCE?

Company has 4 employees - one owner, owner's wife, owner's father and one NHCE (not related). To pass 401a26 they just need to benefit two employees right? So if they had the owner in a Plan with his wife, or with his father, they would be ok? No need to include the NHCE?

A plan sponsor has adopted a pre-approved Prototype DB Document. Are they on a 5 year cycle or 6 year cycle?

Thanks.

A Plan Sponsor has an age graded schedule set up for their Cash Balance credits which are flat dollar amounts. They would like to change the lowest age group amount to be equal to the 401k deferral limit. For example, the 2012 credit would be $17,000, the 2013 credit would be equal to $17,500, etc. Does anyone see a problem with stating in the Plan Document that this agre group's credit is equal to the 401k deferral limit in effect for that year, as opposed to possibly having to amend the PLan each year the limit changes?

OK so based on my understanding of that, since these are indeed "employee contributions" that are being made after-tax, the amount of employee after-tax contributions the participant has made to the Plan would not be subject to the 20% withholding rule. However, the remainder of the lump sum would be, assuming a cash distribution.

A governmental Plan requires employee contributions. When the participant terminates he/she receives the larger of the Plan Benefit and the Employee Contributions (accumulated with 2% interest). In general, the longer service participants always get paid out the Plan Benefit, since that lump sum is much larger. My questions is about the taxes on the cash distributions. Let's say the accumulated employee contributions are $30,000. The lump sum of the Plan benefit turns out to be $100,000. And the employee had made $20,000 in employee contributions during his tenure. The payout amount is the $100,000. If the participant takes a cash distribution is the full $100,000 subject the 20% mandatory withholding? Or is it only $80,000? Taking into account his $20,000 in after-tax contributions.

They have one HCE who is currently restricted from taking a lump sum. Someone put it in their head that they can terminate the Plan, pay everyone out, and start a new one. It's a terrible idea, I have a list of all the reasons why it's bad including the cost.

We have a client who has got it in their head (from who, I have no idea) that they would like to terminate their Cash Balance Plan, pay everyone out, and start a new one right away. Without going into all the details, there are obviously many reasons they should not do this. One reason I am unsure of though is how quickly could they could establish a new Plan? Are there rules about waiting a period of time before setting up a new plan?

Follow up development to this topic...there is a large group of employees that will be entering the Plan on 1/1/2013. The current Plan will be counting service for vesting for these employees from their prior employer (it was an acquisition). But when these 70 employees enter on 1/1/2013 they will do so with a FT = 0, right? Since as of the valuation date of 1/1/2013 they will not have accrued a benefit? So this should not affect the test, unless it is run part of the way through the year after the new entrants have accrued a benefit, at which point we would need to take this into account.

For a Defined Benefit Plan distribution, is there a requirement to provide a state withholding election form to the participant with the distribution packet of information? For many states state tax withholding is not mandatory and those who choose to voluntary elect it are few and far between. Just wondering if we can simplify the packet of information and remove this form altogether.

OK so here is a follow up question on this. Typically if the test is being performed part of the way through the year we'll take the January 1 FT and TNC numbers and roll them forward at the plan's effective interest rate for however many months the projection is being doen in order to come up with the Plan's total liability. What if the calculation is being done say in March of the year PRIOR to anyone accruing a benefit for that year (assume 1,000 hour requirement for accruing a benefit). Should you add in the Plan's and participant's TNC when doing the calculation? Or should those be zeroed out because at the time the test is being run no benefits have been accrued at that time of the year? For example, if we're testing at October 1, 2012: Total Plan Liability = FT at 1/1/2012 plus interest at EIR for 9 months PLUS TNC at 1/1/2012 plus interest at EIR for 9 months Total Participant Liability = same just on an individual basis. If the test were being done as of April 1, 2012 would the second part of that equation (after the PLUS) just be zero?