AndyH

It just so happens that the test that prompted this question passed using 3 decimals but failed using 4! It was the 70% average benefits ratio part of the 401(a)(4) test. It's a little too iffy for me considering the 4 decimal ratio percentage cite, but it's interesting and potentially useful information nontheless. And yes, the 3 decimal pass was after all the tweaking I could think of.

Now I'm second guessing myself (with some help from both of you, which I very much appreciate); maybe this is not an issue. The profit sharing a(4) test shouldn't be affected by the 401(k) 410(B) test, even if the k peice has to be brought into the average benefits test portion of the profit sharing a(4) test, I suppose, because it's the profit sharing portion that's being tested.

Thanks, both, for your response. My question wasn't as clear as it could have been. Tom's final comments hit it on the nose (and believe me I do understand time constraints this time of year!). What I was trying to get to is the average benefits portion of the 401(a)(4) test. For some reason (and it's the book Tom is referencing), I'm under the impression that if you permissively disaggregate for ADP, you need to do the same for the average benefits portion of the a(4) test. Is this true, and is the contrary situation also true is what I was trying to ask.

As I understand it, if separately testing otherwise excludable employees is used for ADP testing purposes, we must do the same for 401(a)(4) testing purposes. True? If true, is it also true that you may not separately test otherwise excludables for 401(a)(4) if you do not test for ADP/ACP on the same basis? What if the ADP/ACP testing is done by using prior year results, does this have any effect on your 401(a)(4) options?

Regarding the rollover, my thinking was that the lump sum would be part of a series of payments extending over more than 10 years, therefore not qualifying for rollover treatment. This isn't 100% clear (at least to me) because the payments are not equal; thus I said "may" not. I was trying to raise the question. I'm not completely sure whether it would or not. Plus, anything I can do to confuse a Yankee fan is a plus from where I come from!

And, the "lump sum" portion may not qualify for rollover treatment.

Thanks for the comments. Pax, we're not trying to steer the answer one way or another. We're just unsure of the answer. The issues are not related to the amount of the pension; they are (1) whether the Plan would be violating the law by issuing a retirement check to a person who did not meet one of the distributable event conditions of a pension plan, being attainment of normal retirement, termination, death, disability, or plan termination and (2) if the sponsor wished to prohibit such payments, could it?

DB plan allows employees to collect their monthly pension upon attainment of NRD if they work part time (under rate of 1,000 hrs/year) Plan obviously does not allow part time person under NRA to collect because it's not a distributable event. An early retiree wants to return to work and continue to collect. Should this be permitted? Plan is silent on issue and has no suspension of benefit language. Can the plan deny future pension payments? Can the plan be amended to not allow payments in such situation? If so, does this have to follow the suspension of benefit rules, or can the plan say that someone younger than NRA cannot collect at all, regardless of hours. Any help on this would be appreciated. Real situation.

Maybe I'm misunderstanding, because I haven't found Tom to be wrong yet, but I don't think I agree. I agree that each calculation can be separate and can use separate comp, but I think that any 414(s) comp can be used for either plan for testing purposes, and they don't have to be the same, nor do they have to have any relationship to comp for allocation or accrual purposes. With regard to pre-participation comp, I think you can use this if you use the annual testing method, but probably not the accrued to date.

Thanks again, Mike. I hadn't noticed the Ratio Percentage definition in 410(B)-9. I guess that provides a little guidance.

What governs rounding of the EBAR or Employee Benefit Percentage for Average Benefits testing purposes? Is there a requirement? I haven't found one.

Interesting. I've seen inconsistent accounting treatment of off-fiscal year plans many times, and always wondered about it. Are there any accountants out there who can point to any concrete standards or IRS procedures?

Thanks. As a followup, wouldn't the plan need to be signed by 12/31 to take a deduction for the first 12/31?

What are the deduction rules if, for example, you are a calendar fiscal year and put in a 2/1-1/31 plan? This has always been foggy to me.

Makes sense. Thanks.

Thanks for the quick response, Tom, but I'm not sure it matters what the document says, unless the document mandates the testing procedure. Can't we test on any comp definition that satisfies 414(s), regardless of what comp the allocations are based on?

I have a cross tested PS/401(k) plan that fails 401(a)(4) on first attempt. I'm now looking for alternatives. Plan allocations are based on gross wages (unreduced for elective deferrals). The one owner has gross pay of $225,000 and defers $10,000. Almost all other employees defer to both 401(k) plan and to 125 plan. I want to switch (for testing purposes only) to compensation less deferrals, which also qualifies as 414(s) comp. Under this approach, all employees have lower comp, thus higher EBARS, except the owner, who would still have the same EBAR because his comp for testing would still be $170,000, because $225,000 less his deferrals still exceeds $170,000. This significantly improves my results. Anything wrong with this approach?

That's not true. The gateways apply to employees who benefit only. Anyone who gets an allocation (top heavy minimum for example) is subject to the gateway, so 3% might have to go to 5%, but a 0% does not have to become 1/3 or 5%. And, the final regulations allow the 5% gateway to be based on post participation comp. That was a change ASPA pushed for.

Too late. You cannot do it now. The only thing you might be able to do is a corrective amendment under 1(401)(a)(4)(11)-(g) if the allocations under current document provisions fail 401(a)(4), and even then you have to give somebody more, not take something away. Maybe you could have done what you propose pre-Erisa. Not now.

The question seemed to be amend the plan into a ps, not merge the plan. Yes, of course you need the 204(h) notice. It does not have to say the new formula is 0%. It can simply say that there will be no further pension contributions, and that any further contribution will be discretionary ps contributions. And, now, you can't do this retroactive to 1/1/2002, but if participants haven't earned the right to the MP contribution, that's not an issue. You need an amendment, board resolution, and SMM or new SPD. I very much doubt that you could do this with a non-standardized prototype, however. There is some question as to whether or not you must vest the current account balances. The safe approach is to do so. And, yes, the plan as amended must preserve the J&S stuff, at least for the MP balances.

Find a good ERISA attorney and follow their guidance.

You always could, but you had some complications that make it very unusual to do so.

And accounts must be 100% vested upon a "complete discontinuation" of contributions, so if you go 3 years without contributing, somebody forfeits in the interim, and then the plan is terminated, you may be required to 100% vest that person.

True, but, the definition of "unrelated entity" is different for 415. If I recall correctly off the top of my head, the 80% threshold for one of the controlled group definitions, parent/subsidiary I think, is reduced to 50%. Someone can correct me if that is not precise, but I am certain that there are different aggregation rules for 415 that you need to be careful of.

Top heavy K plan with discretionary contribution uses the match to satisfy top heavy minimum. The match used for the top heavy minimum must be tested under 401 (a)(4). Exactly what does this mean? I understand that the match used for 416 is not a match for 401(m) testing. Clearly the match used for 416 would be subject to general testing in amounts. Does it also mean that the match is not a match for benefit, rights, and features, in which case there would be different rates of match?