AndyH

The reasoning (which I find peculiar) is that the person is considered an employee and employees must be in the test. An employee is a person who benefits under the plan. The person gets an allocation (albeit 3%), is therefore an employee, and therefore must be in the rate group test. Yup, thats someone's thought process.

TBob, you know you can allocate and cross test up to 9%, right? You only need to amend if you intend to give HCEs more than 9%. And if a "snap on" amendment is not available, you basically need to have an amendment that says "in order to comply with the final regulations under 401(a)(4), for the plan year ending _____ the employer shall provide an additional contribution solely to participants who would otherwise receive only 3% an additional 2% of compensation" or something to that effect. Nothing complicated.

Your situation is a little different, actually easier. If you can restructure into two subplans, each of which is a safe harbor and can pass 410(b) then it is my understanding that you have a safe harbor plan and you do not need to test under the general test. To answer your questions about what is reasonable, the only real guidance that I know of is in 1.410(b)-(4)(b) "reasonable and is established under objective business criteria that identify the category of employees who benefit under the plan. Reasonable classifications generlly include specified job categories, nature of compensation (i.e. salaried or hourly), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as enumeration by name is not considered a reasonable classification" But, once again, you do not need reasonable classes if you can pass ratio/percentage for each subplan. You can use names or ss#'s for example, for determining who is in a plan provided that you can pass r/p. And within a plan, you can use names or such for purposes of determining benefit levels if each subplan or benefit level passes r/p.

A partially vested person must receive a cashout; you can't deem somebody cashed out that has a vested benefit that hasn't been paid.

Well, thanks for the feedback Kirk, but that has not been our experience. Our DB documents say that a non-vested participant is deemed to have received a cashout upon the ocurrence of a one year break in service, and I am told by our "terminators" that the IRS has always accepted termination applications with those people non-vested and those not having incurred a break in service vested. Isn't this consistent with GCM 39310? This is certainly the first time I've heard that position.

Flosfur, first look at 1.401(a)(4)-9©(2) "A plan may be restructured into component plans, each consisting of all the allocations, accruals, .......provided to a selected group of employees. The employer may select the group of employees used for this purpose in any manner, and the composition of the groups may be changed from plan year to plan year." The key to that was "any manner" So assume you have broken the plan into 2 subplans in an arbitrary manner. Each subplan must satisfy 410(b). If your groups are chosen arbitrarily, you do not have a reasonable class of employees in each component plan. Therefore the ABPT is not available since the reasonable requirement is a prerequisite for 410(b) testing, specifically being in the Nondiscriminatory Classification Test ("NCE"). So, if your components are "cherry picked", the ABPT is unavailable. But, no problem. You just need to have each component plan pass the Ratio/Percentage Test. Once each component passes 410(b), the plan as a whole is deemed to pass 410(b). Now, on to 401(a)(4). 1.401(a)(4)-3©(2) says use the rules in 1.401(a)(4)-(2)©(3) , and under (2)©(3)(ii) , "A rate group satisfies the NCT test of section 1.410(b)-4 (including the reasonable classification requirement of section 4.110(b)-4(b)......." This gives you a free pass through the reasonable classification test for purposes of 401(a)(4) testing, NOT 410(B) TESTING, HOWEVER. But, you've already passed 410(b) by now. So, do your rate group testing for each component plan. Each must satisfy the midpoint, then the plan as a whole must pass the 70% ABPT (unless each rate group has a R.P of 70% or more in which case it is unnecessary). And here you can use different testing options because you've got different "plans". Not that tough once you've done it a few times. I happen to have been forced to learn this stuff because I had to test a DB/DC combo that Ed Burrows designed, and these techniques are essential to doing that.

I have done very little with terminations in recent years, but my impression is that GCM 39310's cashout/repayment rules allow us to avoid a lookback beyond maybe one break in service. I could be wrong, but that is my understanding, that the IRS lets us forfeit if the plan has a cashout/repayment provision and the termination date is later than the cashout date. But in this case that I'm dealing with there is no lump sum except under $5,000, and the plan is not top heavy and has 5 year cliff vesting, so there are virtually no cashouts due to the low GATT rates; thus I think we have a lot of 0% vested deemed cashouts.

flosfur, we had one of these a few years ago, benefits reduced based on service but accrued on participation. We submitted the general test using testing service as all service and it was accepted, but we never felt comfortable with this and considered ourselves lucky that it was approved. I think you are reading it correctly. Even the IRS is learning.

Company with underfunded DB plan (subject to PBGC if that matters) experiences financial distress in 2003 and freezes benefits. Withing a month or two of the freeze date, both before and after, 40% of the work force is laid off. Many are less then 100% vested. Plan is to be terminated in effective in 2004, about 11 months after the freeze. Sponsor will come up with the shortfall needed to terminate in a standard termination. Question: Do people laid off in 2003 who clearly would comprise a partial termination need to be fully vested as part of the 2004 plan termination, even though the plan was not sufficiently funded when the layoffs occurred? How is "to the extent funded" interpreted in these circumstances?

yup

Mike calc'd that faster than me. I'm shocked! Just shocked! But I agree. And, for the benefit of Michael O and possibly other viewers, if the sponsor had a 401(k) plan or feature and employees had deferrals, that would be included in the ABPT and might be enough to make it pass.

Michael, If you have a safe harbor then you are not subject to the gateway. You do not. If you can pass using the general test on a contributions basis, then you are not subject to the gateway. You might be able to do so. Need the details. If you must cross test but can meet the broadly available rules that Tom outlined then you do not need the gateway. If you must cross test but do not meet the broadly available rules, you must provide the gateway (unless you meet another exception that you don't, or at least don't appear to).

Now I feel much better. Just felt the need to get that one out of the way.

Absolutely. Both Q&As were addressing a different issue, one in which the plan has two allocation groups, those employed on 12/31 and those not employed 12/31. And the employer, by discretion, chose to give one group a contribution and the other no contribution. The IRS was saying that under this scenario the ABPT was not available.

All right. I've gotta ask. Is Effen your real name or not?

Blinky, thanks. I think we need your mediation. I think you and I see this the same way, so HELP please!

Merlin, I took a look at the EOB and oddly enough it cites an ALI-ABA Q&A (which I know I read) instead of the ASPA Q&A on the same issue and it is much clearer than the "Technical Tip", so reading that might help you accept my point. It addresses the availability of the ABPT, not the last day issue, however. It was under Reasonable Classification in the 2004 Edition. It might be in 2002 or 2003 as well for all I know. But it does not definitively answer your question about last day and reasonable classification. I just think you'd be on real thin ice because there is room for excessive employer discretion. Go for an FDL if possible; otherwise I would not take the risk.

Well, with all due respect to the firm, I think that there are two issues being confused by the question and the answer does nothing to clarify things. There is nothing technically stated incorrectly. But my opinion is that the entire question and commentary suggests an incorrect conclusion. The people who benefit under the plan must be determined based upon reasonable eligibility standards or the ABPT is unavailable. But within the plan, allocations can differ among different groups that do not have to meet the same reasonable standard. For example, a plan covering only John Doe would be a plan that does not have a reasonable standard for determining eligiblity. It better pass the ratio/percentage test because the ABPT is not available. But a plan that covers all employees and has two groups, one consisting of John Doe and the other consisting of all other employees does have a reasonable eligibility standard but does not have groups that satisfy the reasonable standard. If, however, all employees benefit, even at different levels, all employees benefit under the plan and therefore the ABPT is available. Consider the same plan with the same two groups, but John Doe gets a contribution but group #2 gets $0. This has the same effect as excluding from participation all employees other than John Doe, an unreasonable eligibility standard. The ABPT is unavailable.

Merlin, I do remember the question and answer but not the context. I just looked at Sal Tripodi's 2002 Cross tested sample language outline and he in facts suggests such a group as "participants who do not meet the allocation requirements of section ____". I don't know if this was written before or after the Q&A that your referenced, probably before. But the ABPT is not necessarily an issue anyway. Only in the case where a class that does not meet the reasonable standard gets $0 and others get something is the ABPT an issue. If terminees are their own class and they get 3% there is no issue. Why not simply condition the allocation on last day employment for everyone in all classes. Doesn't one of these options work? The ABPT is not precluded just because there is a class that is not reasonable; just when such unreasonable class gets nothing is this an issue.

yes, to #2. Your first question is not clear.

No, but I heard that as well and have accepted it.

Regarding your first question, you could impute on the entire EBAR except for any QNEC or SHNEC if that is part of it. If you have a SHNEC or QNEC included in the EBAR, you must break it out and inpute on the remainder, then add it back in. For the ABPT the same applies. Anything that Tom listed that is included must be taken out. Inpute on the remainder, then determine the benefit percentages attributable to the excluded items and add that back in.

ok, my last stab at this. The IRS said in a Q&A (and maybe elsewhere, but I haven't heard it) that providing an individual that is in his/her own class a discretionary class allocation of $0 has the same effect as excluding the person by name, which has the same effect as an eligibility requirement that does not meet the reasonable standard of the NCT test. Therefore, one may not proceed to use the ABT because a reasonable standard is a prerequisite.

But if the individuals that get $0 happen to be 3 eyed fish, that might not be reasonable, based upon objective business criteria, so the ABPT would not be available, the theory goes.

Fred, you include the MP in the EBAR only if you are permissively aggregating the two plans for both minimum coverage and nondiscrimination. This is a two way street-both plans are aggregating the other. You have certain requirements such as that the plans have the same year end (is this a problem for you?) and benefits, rights, and features would be subject to testing (or at least a look see). If you do that, then, yes, you combine for the EBAR and the MP would be a credit against the gateway. Your alternative is to NOT permissively aggregate. In that case, both would be in the ABPT but not the NCT ("EBAR part") of the a(4) test, and the MP contributions would be ignored for purposes of the gateway.