AndyH

Just a footnote to this discussion. Remember, target benefit plans are MP plans, and they may thrive under the new law and cross tested regulations. They work much like "new comparability" plans, but in some cases the required contribution for the rank and file can be substantially less than what would be required under the new comp. regulations effective 1/1/2002. This is because many versions (safe harbor and certain variations) of them are exempt from the gateway rules under the new comp. regulations. For example, if one HCE gets 25%, a NHCE would have to get at least 5% under a new comparability plan, but would often get less than 3% under a safe harbor target plan, which of course becomes 3% if the plan is top heavy. Having said that, some if not many targets may actually be replaced by age weighed ps plans, which before EGTRRA were less attractive in many cases due to the 15% limit. Other than these footnotes, I agree that most MP plans should be merged or terminated, depending upon the impact of the issues mentioned here.

Thank you very much.

Thanks for the clarification and the link. I'll check the guide, but would you know if the rules which you've cited for IRA withholding are the same as for qualified plan withholding? I wouldn't think that they would have to be the same. I understood that Mass state withholding was mandatory for a lump sum distribution, not something that could be waived. Is this incorrect, or has it changed?

Appleby, sorry, but I'm not following your logic. Can we try that one again? Which part of your answer was in the law, and which was your interpretation of the implications? I was unaware of such a law change, am also interested in the answer. Thanks.

I'm looking at a takeover "super integrated" non-standardized prototype which allows for several selectable correction methods in the event of 401(a)(4) general test failure. One of the choices, which was in fact selected, is what I'd call the "Robin Hood" method, that is reduce the allocation to the HCE in a failing rate group, and give that amount to the highest NHCE below the failing rate group to enlarge the failing rate group. Repeat with the next NHCE until it passes. The test I'm looking at fails badly, so a correction is needed. I have an internal opinion that the correction method in the document should be ignored and the plan should be amended within the 401(a)(4) correction period to adopt a method which allocates additional $. Clearly a corrective amendment cannot provide for a takeaway, but the existing language provides for such a takeaway. Any dissenting opinions, i.e. anybody think the takeaway method is acceptable if it is in the document?

David, that would be most appreciated. My email is ahartnett@angellcompanies.com, or if you don't have it in a form that can be emailed, my fax is (401) 435-5134. I still find this an uncomfortable area, so any such help would be terrific! Thanks!

Yes, I agree. Sorry, I got confused. A couple of days off has helped! My apologies to Richard Anderson as well. He was correct.

5% would pass. If an HCE got 12%, 4% would pass, so I guess it's the lesser of.

Doug, well, now I need to back off. I thought I was sure of my response, but in re-reading the regs, I'm not so sure.

Doug, the answer to your question in the first paragraph is YES. They must both be included if one is general tested on a cross tested basis. With regards to average benefits, yes both must be included. I'm not certain they both must be tested in the same manner, but as a practical matter that's the way a DB and cross tested DC would best work. I'll be back with some cites.

sdolce, do you mean "soon to be" finalized regulations, or did I miss something? P.S. Just saw the final regs. Thanks.

Tom, Ok, then I think we are in agreement. By cross tested, I meant testing a DB plan on a contributions basis, or a DC plan on a benefits basis. I've found that a lot of plans assumed to be "cross tested" can pass on a much simpler contributions basis, so I try to use "cross tested" in a specific, literal, sense. I was trying to say that testing a DC on a benefits basis, OR a DB on a contributions basis would cause both the DC and DB benefits or contributions to be aggregated in the a(4) test, but if neither were general tested this way, they do NOT need to be aggregated. dmb, if you want to provide some specifics of the situation, I'll try to back up my comments about not adopting a 10% db. For example, how many people, what ages, what's the objective, the pay and age of the key people. Maybe some examples might be helpful.

dmb, I don't see how it is in the client's interest to set up a db and cross tested combination now in most cases. Depends upon the situation, but I doubt a 10% DB would be cost effective in most cases if tax savings is the motivation. I think it makes less sense with the 25% 404 limit. Tom, what part of my earlier comment do you disagree with, i.e. "somewhat true"?

No, I don't agree. That is true if they are both safe harbor plans, but a cross tested plan is not a safe harbor. It must be general tested. When general tesing, both DB and DC plans must be included in the test if one of them is cross tested. For example, if you have a profit sharing plan that is not a safe harbor, i.e. it is general tested, the DB must be included if the profit sharing plan is tested on a benefits basis (i.e. cross tested), but need not be included if the ps plan is tested on a contributions basis.

First, the deduction limit is the greater of the DB required contribution or 25% or payroll, so if the DB contribution exceeds 25% or payroll, the profit sharing plan is useless. The cross tested ps would only be beneficial if the DB contribution drops below 25% or pay. But, then you've got a major hassle (in my opinion) by needing to aggregate the benefits and contributions. Usually, if a cross tested plan works, you would combine the EBARS and the DB accruals, i.e. test both on a benefits basis. But, this isn't always true. It is often beneficial to split the group into two and test one part on a benefits basis and one part on a contributions basis. This all depends on the demographics. But, if you have a DB contribution in excess of 25%, this exercise is useless since you can't deduct profit sharing contributions.

David, I'm not sure I can point to any specific guidance off hand, but the answer clearly is yes. The principal reason is that you have a top heavy aggregation group, so you need to provide a minimum benefit, and you have one or more people for whom you are not doing so throught the DB, so you must do so somehow. I remember this from a post - TEFRA ALI-ABA tele conference-long time ago. scary.

Please be more specific with your question. It's very broad. If you're asking about how to test a cross tested plan when you have a DB, the 401(a)(4) regs will be needed. You'll need to aggregate the DB accruals with the DC allocations or benefits. Not a lot of fun.

No, that is certainly not my understanding. Under the proposed regs, there are three acceptable approaches, 1. all eligible NHCEs get at least 5% 2. all eligible NHCE get at least 1/3 the allocation rate (contribution plus related forfeitures divided by pay) of the highest HCE OR 3. Allocation rates are "Broadly available" and "increase smoothly" at "regular intervals". I believe the 5% relates to the definition of the third option only. For example, allocation rates of 3% for one group, 9% for another group, and 12% for a third group are no good because 9%-3% exceeds 5%. Did Holland indicate when final regulations would be issued?

RCK, pax has provided you with some valuable information and/or cover for whatever you decide to do with this. I'll bow out of this discussion, with the opinion that if somebody ain't a participant, he/she ain't an active participant for purposes of Form W-2/IRA limits, with the correct exceptions of (thanks to pax' info): 1. Failure to participate due to failure to make mandatory employee contributions (now an archaic issue) 2. Failure to participate due to some phony (for this purpose) waiver. But, just one opinion, in closing. The box shouldn't be checked for the always under 1,000 hour crowd based upon the info you've provided.

Yes, you are right. It's $35,000 for 3/31/2002, although it seems that may have been an oversight, so you never know if it'll change, but it is $35,000 now.

But he is excluded from participation on the basis of a minimum service requirement that has not been met.

The sponsor should be aware that for the reasons mentioned by Alf and Stephen this approach is unworkable and is just a very bad idea. The sponsor can either realize the advantages of pre-funding or the advantages of having a last day requirement, but should not use both. The only way this works in my opinion is to put the money into a holding account and allocate it (and earnings) once the eligibility is known for certain.

Well, once again I agree 100% with Medusa. Note the Tax Management article cited references "even a participant who accrues .....". The people you've described are not participants, so that statement is irrelevant. Based upon the presented data, these people should not have the box checked. If these people once work the necessary hours, they remain active participants even if they never do so again. That's what the article says, and it is a true statement.

NO.

Well, I almost always say "ditto" to Tom's comments. Now, I'm finding the same about Medusa's comments. The ASPA comments were a valuable addition to this discussion.