AndyH

Thank you all for your comments. Even more comments would be great, because I know others use 417(e) in the calc. But, it sure is a lot easier without it. Amazing that we can't find an authoritative answer to something like this in print.

Thank you Mike.

Would someone mind elaborating on this subject, how a partial profit sharing waiver can affect a cash balance plan, or give me a cite so I can read up on it further? I understand the basic cash or deferred issue, but how does this translate to a future plan of the sponsor?

Her outline from the session (#60) "Walking step by step through the general test" does not address the issue, as far as I can see. The question came up during Q&A (the tape of which is available). I asked it a couple of different ways, since I had just heard Larry Deutsch specifically discuss the issue and reach the opposite conclusion. And, Scott Miller was with Carol, and Scott told me the previous year that in his opinion 417(e) lump sums would be part of the MVAR calculation. Carol's answer was quite specific, although nobody requested a cite. My impression is that it was simply an interpretation of the regs. Larry Deutsch was careful to caviat his comments with words such as "apparently" and "based upon my experience". His wording was careful on the subject but he quite clearly stated that a DB plan with a lump sum provision and AEQ assumptions equal to testing assumptions (i.e. no fixed rate for lump sums below 7.5%) had a MVAR equal to the NAR in tests he has submitted for IRS approval (and never had challenged). And I specifically asked him in followup Q&A about 417(e) rates and he said no, he does not reflect them, but he understands there is some uncertainty about the issue. Mike, can I infer from this that your opinion is no?

May I please get the opinions of people on this board who do general testing about the use or non-use of 417(e)-generated lump sum values on the Most Valuable Accrual Rate. Half the people I've spoken to ignore lump sum values artificially inflated by low 417(e)-based interest rates. The other half do reflect those values in the calculations. Last October at the ASPA national conference I sat in on two back to back sessions on DB general testing mechanics. One said no (Larry Deutsch) and the other said yes (Carol Sears). Both would reflect a fixed rate but they had opposite opinions on 417(e) "market" rates. Opinions please. Thanks.

Why would an election in one plan have anything to do with another plan, especially if one is a ps and one is a db? What, for example, if the new plan did not permit waivers?

Mike, would you please clarify your statement. What is the "it" that you are referring to? Are you referencing otherwise excludables?

jpod, I don't see how that could be a problem. Could you elaborate? There are no NHCEs affected by the new plan.

Interesting reaction, thank you, but I don't think that the gateway is a problem because the arrangement is "primarily defined benefit in character", meaning within the final regulations, that for more than 50% of NHCES benefitting, the normal accrual rate attributable to DB benefits exceeds the EBAR of DC contributions (since the NHCE EBARs are all 0%). So, as I read it, this would be exempt from the gateways.

I asked this question before here but did not get any responses, so I'm hoping that this time I will. Situation is inherited business and inherited (50 life) DB plan which was continued for employees. They also have an employee deferral-only K plan. The owners want to make up for not having compensation ($375k-$200k) covered in plan. I've determined that this could be done through a QSERP, but don't want to increase DB obligations with interest rates so low and market so bad. Instead of QSERP, want to consider DC plan covering just the two owners, with annual contributions for each of maybe $25,000. Plan would be aggregated with DB for testing. I've determined that the (a)(4) test would pass. Anybody see problems or complications with this? Seems to be exempt from gateways; BRF seems to not be a problem. Comments please. Thanks.

Mary, if it makes you feel any better, I recently had an old participant in a DB plan that absolutely refused to provide the employer with his date of birth!. Even after he retired, we could not figure out his entitlement (<$5,000 cashout) because nobody knew how old he was. He also wanted nothing to do with their DB and PS/K plans. Only when he received a threatening letter about minimum distribution penalties after he left employment did he provide his date of birth. I think you should just give him the safe harbor contribution and not mess with the possible alternative outcomes.

True because the ratio/percentage of each "rate group" must at least equal the "midpoint" (from a table in the 410(B) regulations) between a "safe harbor" and "unsafe harbor" percentages, again as defined in the regs. Each rate group consists of an HCE and all NHCEs with equal or higher EBARS (or allocation rates if the plan is not cross tested). If you have no NHCES with an EBAR higher than an HCE, you have a 0% rate group, so you can't possibly equal or exceed the midpoint. Therefore you must fail.

KJohnson, I'm not following your questions completely. But, yes, the gateway is either 3/1 or 5%, but with the dollars in this example, there is no way everybody would get 5% so I left that part out. MBCarey, your allocations will be tricky. You will have to follow your document regarding the top heavy, match, and discretionary provisions, in terms of which step to follow first. Your document probably doesn't have the gateway rules in it, so that won't be so easy. In the end, you'll just have to make sure the gateways are satisfied. But, don't forget, this is a 2002 issue so by then your document should provide you with some direction in terms of how to do the allocations in what order.

You are confusing a number of issues. Slow down. First, top heavy has nothing to do with HCEs. Key employee is the critical term here. One of the first things is that you need to determine if the plan document states that key employees get top heavy minimum contributions or not. Top Heavy minimums are limited to 3%. You don't have to give anybody 4% on account of top heavy. So, under any scenario within the context you've described, yes, each Non-Key employee must receive at least 3%. You need to check and see how the document treats Key employees. Regarding cross testing, yes you then need to determine who the HCEs are. Under the situation you've described, each NHCE must get at least 1/3 of the percent alloction given each HCE. But, the match does not count towards this. Forget the match for cross testing. There you focus only on the profit sharing contribution. Hope this helps you sort things out a little better.

I agree completely. I'd say the average non-union, non-tax shelter db plan that I've seen is about 1% of average pay per year, with a limit of perhaps 35 years, or 35%. This, plus 30%-35% social security (in theory) would get somebody close to the desired replacement ratio. It's the old three-legged stool, personal savings being the third.

Thank you for your response and the cites. While it does appear that a match program must be tested for 410(B), it is still not clear to me that 403(B) deferrals would be included in an average benefits test because 403(B)(12)(A) (i) says "a plan meets the nondiscrimination requirements of this paragraph if ...... with respect to contributions not made pursuant to a salary reduction agreement, such plan meets the requirements of .......and 410(B) in the same manner as if such plan were described in section 401(a)." But, a 401(a) plan being tested on average benefits would not have 403(B) deferrals included in the test, thus the dilemna.

If you represented the plan to be general tested on the IRS submission, why would you be concerned as to whether the plan meets safe harbor status in form? I can understand a concern about the reverse, but I don't see the downside to a (potentially) general tested plan meeting the safe harbor testing standards. This interests me because I purchased a detailed "cross testing" document outline by Sal Tripodi where he mentions that one of the nice things about having a document design as you have indicated is that in any particular year, the employer could, by properly designating the right contribution levels, provide even allocations and avoid the general test (if so motivated for whatever reason). BTW (thanks Mike), I highly recommend the outline to all but the most advanced experts. Lots of good ideas. I don't have the link with me, but it's TRI Pension Services. And, I second your thanks to Tom for his great contributions to this Board, as well as (more recently) Mike's.

403(B) match fails ratio/percentage (coverage test), now we're trying to test coverage under average benefits test. Are 403(B) elective deferrals included in the test? Maybe, more basically, do we have to test a match for 410(B)? I think so.

I am referring to an accountant's opinion which is an attachment to Form 5500. One of the questions asked (on the 5500 form series) is how many participants terminated during the year that were less than 100% vested. I am wondering if the accountants have any responsibility for reviewing the standards by which this question is answered. Some accountants look at this stuff pretty closely. Others do not. I do not know what if any responsibility they would have in this situation.

Was this plan subject to (accountant's) audit, and if so (to the board members), do the auditors have any responsibility for looking at something like this? I've seen a rash of takeovers recently with problems that I would expect auditors to have detected. Where does their responsibility for looking at operational matters begin and end?

Thanks, Tom. It failed ratio. It may pass average benefits. I was more interested in getting an answer to this question than solving this particular problem. Plus, I'm not sure people always look at this when key employees get top heavy minimums. In addition to the qualification question it is a reporting question as well. Is there anything you can point to in your answer? Just the fact that it's not an elective deferral?

Yeah, Jeanine, but think about the bottom line to all those boring classes. Even though you still had to study 24/7 for the bar, having to revisit the same subject matter allowed you to target specific fields of expertise, and the people playing the games developed a unique synergy. And that's a BSbingo!

Thank you, John. That gives me reassurance that this is not a stupid question. Out of all the comments, only one person answered the specific question I have and it was a "my understanding" (yes) answer. Beyond that, I agree with you, this question is not answered. Looks like you stumped the panel. Opinions/answers still requested to my initial questions.

A 401(k) plan is top heavy and the sponsor does not intend to make a discretionary contribution, but is required to make a top heavy minimum contribution for all employees under the plan's top heavy section. Because the top heavy minimum does not go to terminees, it happens that the top heavy allocations would not pass coverage. Are top heavy minimums by themselves subject to 410(B)? Would they be reportable as a dissagregated money type for 5500 Schedule T purposes?

Meggie, I think the design is fine if you meet all the requirements above, plus each plan is either a safer harbor or passes general testing and the plans pass coverage. But, 401(a)(26) seems to me to be an obstacle which would be different to overcome. And, Lorraine's article is certainly in the book, but it's a re-print and it's old, so maybe that why she doesn't know it's there.