rcline46

Argument 1. Because the IRS treats ADP failure as First In - then the related match would exist because it was 'related to' the first in contribution. Argument 2. If there is an ACP failure, the do the ACP test first - may reduce or eliminate any related match even under argument 1. Argument 3. There is no related match because the match was not made for the entire year OR the formula can be restated to an annual basis. In other words, I have no idea and would plan audit roulette.

I don't think there will anything on this particular issue. However, the ADP/ACP is an annual test. The fact that matching contributions may have been discretionary, calculated and deposited on a per pay basis and suspended/discontinued should have nothing to do with the test. Since I believe the test is independent, then any related match is independent. Now we know that the IRS THINKS if there is a failure it was either all year or the FIRST money in (cf. the tax return that must be amended if the failure is discovered within 2 1/2 months). But that is not important for related match, because related match must be forfeited, not given back. Now if you do the ACP test first and have a failure, then I would treat it the same as and ADP failure.

You are to report the Fair Market Value of all assets. The surrender value is the what the policy is worth, well at least a good approximation.

I don't have a problem with merging the PSP into the DB plan. However since all contributions have now ceased for the PSP, the IRS treats it as a terminated plan, therefore 100% vesting of all participants. That is what you get for not having the person paid out already.

The rules under 1.410(a)-7(a) require that the employee's hire date be used to calculate periods of service for vesting purposes when the plan uses elapsed time for vesting. For a new plan (not a successor plan) the law permits the plan to exclude for vesting purposes all service prior to the effective date of the plan. Therefore there is a conflict between these rules which seems to be resolved by 1.410(a)-7(a)(3)(ii)(B) which states the true hire date may be 'adjusted' for periods of service not required to be counted. Although this may create multiple 'hire' dates, that is just the way it is. Therefore, I conclude that if a plan uses BOTH elapsed time for vesting, AND excudes years prior to the effective date of the plan for vesting, then those hired before the effective date have an 'adjusted' hire date for vesting equal to the effective date of the plan. Any disagreement on this? Now to figure out how to make the software work!

regs 1.410(b)-7c3 and -6b3 make interesting reading. The word 'ever' is not in the regulations and so by a BBBIIIIGGGG stretch you might make the satisfaction of 21/1 an annual test. I don't buy it. Throughout the regulations the words 'satisfied' and 'employees who have not met' keep cropping up. An interesting note is that ONLY plans who permit early entry can avail themselves of this technique according to the regulations. With just this item, I don't see how terminees could possibly get into the test on plans using 21/1 as standard, therefore they cannot get in even if plan uses early entry.

Harry O - note that they ARE in the ADP test, but moved to statutorily excludible. I am hoping that someone who is doing this can explain their interpretation to me as right now I don't see it. What really scares me is that Andy H might be right. Does anyone see/get this interpretation from the Pension Outline Book? Regulations? Conversely - do you see anything that would argue against it? I have to read the sources again to see if any of them say something to the effect 'have never satisfied statutory eligibility'.

The trustee of a US pension plan must be a 'US person', either a citizen if individual trusteed or a US financial institution qualified to be a trustee (a state law issue). Don't remember exactly where in ERISA this is, and there was a change about 5 years ago clarifying this issue and we had to redo trustees on some plans.

After 22 years of doing ADP tests I stumbled on a new twist! Another TPA firm is using Statutory Exclusions in the year in which a previously eligible employee terminates. That is, an employee has been in the plan for several years, but since they worked under 500 hours in the year in which they terminate they are treated as statutory excludibles. The TPA refers to the statutory excludible regs. Now I know you can do this BEFORE an employee is required to be in (21/1 etc), but AFTER satisfying the rules? Willing to learn.

We are staying with the 5.5% knowing that we can always give more. We are concerned that the GATT rate just might give one a 110% Current Liability problem, and the Corporate Bond Yield Curve might give a smaller benefit. Of course doing nothing and letting the participant starve to death is always an option. I vote for all 4 options. Anyone got more?

Tom, don't you realized this is a character field, not a numeric field, and therefore the sort is 'correct'.

If he is an LLC, Sub S, or sole prop he cannot set up a plan.

Biggest problem with the sole prop idea is that the contributions must come out of their own pockets, not the business pocket!!! Close you eyes, hold your nose, clearly put in writing you are NOT opining on the situation and you suggested legal counsel.

SHoot their accountant. But before that, demand a detailed explanation of how 1099 income fits into the definitions available for compensation in the plan document and how the hours of service definition is to be satisfied. How is an EMPLOYEE paid on a 1099? On the other hand, you are only taking information, and they have to answer to the IRS and DOL.

Crosstested plans began in the late 70's. To clarify the rules, the IRS issued Rev Proc 81-202. The plans gained in popularity through TRA 86, in which Congress directed the IRS to rewrite 81-202. This gets us up to 1990 as mentioned in a previous post.

See that little down arrow between the back and forward buttons? Click that, then click 'Search Results', works like a charm. That is for IE explorer broswers, other browsers may have the current page history elsewhere.

mschwechter - I am uncomfortable with stating a -0- deferral for HCEs and then putting in a catch up contribution, because the -0- deferral implies they cannot make deferrals, and without making deferrals I don't see how they get to the catch up. Also, catch up contributions DO count in account balances for determining Top Heavy. They do not count in determining the % contribution for Top Heavy minimums.

Oh boy, Oh boy, Oh boy. It looks like: 1. An Actuarial Equivalence answer was derived from 417(e) (prescribed) rates. and 2. A benefit in excess of 415 was created, when the rules are that the benefits are required to be 'equivalent' in value to the Life Annuity. IE, the fraction was upside down! No, I do NOT think that is the correct answer!!!

I would have answered $128,000 also. ASSUMING the answer key is correct.... The 100% of pay limit is reduced 1/10 for service. $170,000 at 9/10ths is $153,000. The $ limit cannot be accrued faster than 1/10 per year of participation. Accruing $16,000 over 8 years is $128,000. The $144,000 can only be arrived at by doing 9/10ths of $160,000. Ok, I am stumped also.

Actually they have to defer $5,000 each, then fail the ADP test and have the $5,000 reclassified as Catchup. Unfortunately, if they do NOT do a Safe Harbor Match, I bet they are Top Heavy, and then a 3% will be due the NCE anyway! Now since a Catchup does not count as an HCE contribution requiring a TH contribution why would I say that? The answer is that it is reclassified as a catchup instead of being distributed, so the primary testing has a contribution, and THAT requires the TH contribution. The failed ADP does not eliminate the fact of the contribution. It only becomes a catch-up in lieu of a distribution. IMHO

ACP testing is necessary, but by ignoring matches not exceeding 4% of pay, there are now no matching contributions for HCE or NCE, so it passes. And that is the whole point of the process as it seems the regs are written.

If the companies are a controlled group now, merge the plans as of 1/1/06. See the regs for rules on using prior year testing. I would combine the 2005 tests to do it. And I hope under these conditions that each company is a valid 410(b) group. If they are not currently a controlled group you will have to test the disappearing plan up to merger date.

MWeddell - I disagree on the levels you state IF the NCE Safe Harbor formula were the Basic Matching formula because at levels of deferral over 3% of pay, the NCEs are receiving 50% and in your example the HCEs would be receiving 66 2/3 or 80 %. This violates 401(k)(11) which states the HCEs cannot at any point receive a higher rate of match. If the NCE formula was 100% to 4 then your examples would work.

Well now, I am seeing this: 1.401a(4)-4(d) - Aggregating B,R,F can be done if one of the BRFs is more valuable. The SH match being mandatory and 100% vested is more valuable than the discretionary match. But the IRS does not issue letters on BRFs? Notice 98-52 VIII D says throw away the SHMAC since it is used to satisfy ADP testing. 98-52 VIII F says we can ignore matching contributions up to 4% Therefore - assuming the BRF is ok, and the discretionary matching contribution does not exceed 4% of pay, and the discretionary matching contribution formula does not match contributions in excess of 6% of pay and does not exceed the Safe Harbor formula chosen (basic or enhanced) then it is ok (e.g. 30% of deferrals up to 6% of pay). I will strongly urge the client to submit the design to the IRS for their protection!!

Matt, this must have been discussed 50 times since you became a member. Do a search on the many threads covering this issue.