Logan401

Can anyone confirm that effective November 1, 2011, the new disclosure regulations will affect the blackout notice requirements? I was informed that all eligible participants in a plan that is transferring are required to receive a blackout notice, & not only those that have account balances in the transferring plan. Any insight would be appreciated!

I would say yes, it's a problem. Plan says at least 3% and they told people it was going to be 3%. It sounds like the ER wants to give an extra 2% to avoid Top Heavy testing? But, if everyone is getting 3% Safe Harbor, it'll probably be enough for most of them to satisfy Top Heavy. (You may have a case where the SH is based on participation compensation, but the true up to 3% of full year comp will probably be less than the extra 2% across the board.) So why doesn't the ER just do the stated 3% SH and do a 2% PS on top? Why would it be a problem if they communicated 3%, but decided to make it 5%? i would jump for joy in today's economy! The plan is not in danger of top heavy, so that is not an issue. Even if it was, I do not understand how a higher NEC would cause any plan concerns.

For scenario # 2, the notice went out that they would provide a 3% NEC. The client is now asking if he can raise that amount to a 5% NEC instead. Would that cause a problem if another notice went out stating the increase?

No, we are not suggesting the SH is discretionary. For scenario #1, it would be written as the safe harbor formula. Must you run top heavy if you provide a 5% NEC instead of a 3% NEC? For scenario 2, are you allowed to increase the SH NEC during the plan year if you do not use the "at least 3% NEC" language in the agreement? Is it okay if you do use the "at least" language, or are you suggesting you cannot because it may cut-back discretionary ps contributions?

If the "at least 3%" language is included, that would keep the plan in safe harbor for both scenarios, correct?

Hello All, I have a 2 part question. 1) Can a client have a 5% Safe Harbor NEC formula, or would this be viewed as a 3% NEC with the remaining 2% discretionary? 2) Can a client have a 3% Safe Harbor NEC, and decide to increase the safe harbor to 5% during the plan year? I understand that you cannot change a match formula mid-year, as that directly affects some NHCEs that may have stopped deferring or have decreased their deferrals. I am not clear on the NEC, which is directly related to compensation, and everyone would get the same increase across the board.

What if they did not receive an employer allocation, but deferred? Would that still be considered benefiting?

I thought so. Sometimes I question myself as these rules sometimes do not make sense!

Client wants to give a QNEC to satisfy ADP testing. One of the employees eligible for the QNEC termed 1/08/2010. The QNEC would cost $50 to this termed employee. The client also does New Comp. PS at the end of the year. if the termed EE receives the QNEC, she would then be required to receive the minimum gateway. The minimum gateway is $46.94, less than the $50 QNEC. QUESTION: Since the QNEC cannot be applied toward the gateway, that would mean this participant would need to receive BOTH the $50 QNEC and a minimum gateway of $46.94. Correct?

Okay, thanks. I thought he had to reach the 402(g) limit 1st before it was considered a catch up.

Can a participant over 50 do the following?: total deferrals= $11,993.73 total match= $6993.73 total ps= $30012.54 This brings him to the $49,000 415 limit Can he then defer $5,500 as a catch up?

Good to know! Thank you All for your answers.

Are you saying that this type of allocation needs to be tested? What if the plan has children of > 5% owners of the firm that are young and have low wages?

Are flat dollar allocations allowed for profit sharing plans, or are they only allowed in pension plans? I can't seem to find much on this topic. Thanks!

Prior to January 25, 2005, the regulations required that the amendment to eliminate a periodic payment option had to be delayed until notice to the amendment was provided to the participants, or at least a minimum period of time had passed after adoption of the amendmnet. Specifically, the amendment could not be effective until the earlier of the following: 1) 90th day after the summary of amendment was furnished to the participants 2) 1st day of the 2nd plan year following the plan year in which the amendmnet is adopted. After January 25, 2005, the amendment may be effective on or after the adoption date. An amendment which eliminates a periodic payment option under a DC plan may be applied immediately after the amendment is adopted, or any later effective date specified under the terms of that amendment. This can be found in IRC §411(d)(6)(E) as added by EGTRRA §645. Of course, the amendment cannot be applied on a retroactive basis to those who have already commenced distribution. I also need to point out that disclosure to participants is still required. The disclosure is not required prior to the aqdoption of the amendment, and the deadline is 210 days after the close of the plan year in which the amendment is adopted. See DOL Reg. §2520.104b-3(a). When we work on merging a plna over & the successor plan does not have the periodic payout provisions, but the merging plan does, we inform the participants of the elimination in the 30 day blackout notice. Hope this answers your question..

I am working on a plan to plan merger for a client. In their prior plan, the client suspended their safe harbor match in March, 2009. They provided proper notice to the participants. The client reinstated the safe harbor match in September after holding a company meeting and informing their employees. The safe harbor match is funded annually. No particpnats stopped deferring or reduced their deferrals because of the notice to suspend. Does this client still meet safe harbor requirements, or can you not reinstate in same plan year?

I am also thinking "NO" because of 401(a)(4): Rules say that: The plan must provide that such contributions will be treated as elective contributions only if the additional requirements described below and specified in section 1.401(k)-1(b)(5) of the regulations are satisfied. 1. The non-elective contributions, including QNECs treated as elective contributions, satisfy section 401(a)(4). 2. The non-elective contributions, excluding QNECs treated as elective contributions for the ADP test and QNECs treated as matching contributions for the ACP test, satisfy section 401(a)(4). When you back the QNECs out from the 401(a)(4) test, the allocation no longer meets the safe harbor formula for an Integrated PS, and would be discriminatory. Am I on the right track?

The match would satisfy the minimum, but it depends on the pay that was used. You may have a participant that entered 7/01, and the plan doc may use date of entry pay as eligible pay. The discretionary ps will most likely cover the gaps though.

Participants can individually rollover their 401(k) accounts to a SEP-IRA. My question is, can a 401(k) plan be merged into a SEP-IRA plan?

A client has failed their ADP testing, and will most likely make a QNEC to satisfy the testing. They also make a year-end profit share, using the Integrated method. Can the QNEC be used as part of the Integrated profit share? I know it can be used to satisfy the gateway for New Comparability profit sharing, but wasn't sure about using it for an Integrated profit share.

" I think the IRS was right and kind of miss that challenge, but they caved in and now it's a lot easier and cleaner to just allocate to groups." Are super-allocated formulas still permissable today? I interpret the above as meaning the IRS only allows group allocations now. Or are the super integrated formulas using the different pay thresholds as the 2 groups?

Thank you for your answers. So, it appears that "super" integrated formulas are not truly integrated formulas unless they meet the safe harbor requirements. If they do not, they are really a New Comparability method in disguise.

I just ran across a plan that has profit share using the "super-integrated allocation formula." It is a 2 step formula, giving the following: Level One: At least 8% given to eligible participant's compensation not in excess of $65,000. Level Two: Any remaining contributions will be given to eligible participant's compensation in excess of $65,000. I was told that the client has provided in years past a 25% contribution for the 2nd level, and for the 2008 plan year they amended the $65k to $100k. Does the formula breach any contribution rules?