jaemmons

This makes it pretty clear. Internal Revenue Manual: http://www.irs.gov/irm/part4/ch50s03.html#d0e452949 Section 4.72.2.10.1.6.2 - paragraph 8

Generally, any employee who does not meet the requirements contained in IRC 410(a)(1)(A) would be treated as a "statutory exclusion" and tested separately from the other participants. A year of service is defined in IRC 410(a)(3). If an employee has never been credited with 1,000 hours in any 12 month period (as defined by the plan document) they would be treated as a statutory exclusion under the aforementioned IRC section.

Kirk/pax, Thank you both for your comments. I thought that this did not pass the "smell test" but just needed to see if I was missing anything. My thinking is that if this were allowed, why would a company ever create a "wrap" arrangement. Again, thanks.

Plan fails adp testing. Client's nonqualified plan provides for a "transfer" of adp refunds to the nonqualified plan. Once they have made a qualified coda, I did not think that those monies could be transferred to the nonqualified arrangement because of the constructive receipt requirements under IRC 409A. Am I missing something?

Unless the two employers are related under IRC 414(b),© or (m), they are treated as separate employers and testing is performed separately. Per your statement that they are not a controlled group (I also assume they are not an affiliated services group), Joe's asset transfer appears to be an unrelated transfer to Employer B's portion of the plan, so it is excluded from top heavy testing. However, it is counted in the year of transfer for Employer A's top heavy determination.

Top heavy contributions are aggregated with all "non-elective" contributions for coverage purposes. If the lowest age/service condition for the plan is less than one year, you are allowed to permissively disaggregate the statutory exclusions, when determining gateway minimums. Therefore, only those non-keys (who are non-highly compensated employees) would receive the 4.5%. Of course, this is conditional on your plan document containing language for these "top-off" contributions.

Plan covers employees who are also subject to Puerto Rico tax law. Since these employees are not able to make catchup contributions under Puerto Rico law, does this mean that when they are tested in the US plan (US plan allows for these contributions), they cannot have catchup contributions apply to correct any excesses (e.g. - adp refund, plan limit excess)?

IRC Section 416(i)(1)(B)(i)(II): if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer. You need to look at both profits/loss and capital interest.

Thanks Tom, That is a wonderful idea, but unfortunately, the software we use cannot accommodate your suggestion, which is why we have a problem with the ABT in this cross-tested plan.

Bird, I still don't think this qualifies as a "mistake in fact" as outlined in Rev Ruling 91-4. We usually treat these as operational failures and forfeit the excess amounts from the affected participant. Thanks for the reply.

Thanks Reed. Unfortunately, I don't see this as a "mistake in fact". I did a little more reading last evening and came to the conclusion that the only attributable match forfeitures which may be disregarded from acp testing relate to failed adp test refunds, failed acp test refunds which relate to after-tax ee contributions and 402g violations. It does not appear that atm's relating to plan limit violations or 415 violations are taken out of acp testing. They may still be forfeited should a 401(a)(4) issue arise, but that does not appear to impact the acp test. Thanks again for the comments.

Participant exceeds 2004 415 limit for DC plans by $2,000. They are catch-up eligible and have the entire excess recharacterized as a catchup contribution. Their compensation is $205,000 and deferrals, prior to catchup, is $13,000. Employer does not match on catch-up contributions and their formula is 75% up to first 6%. Question: The match allocated to this participant was $9,225. Since the employer does not match catch-up contributions, is the attributable match on the recharacterized catchup contributions "forfeited" pursuant to correction under 401(a)(4)? If so, are they included/excluded from acp testing?

If a participant is not suspended "timely" after receipt of a harship distribution (plan uses safe harbor standards), are the deferrals and match, which are allocated during the suspension period, included in the adp/acp tests? Client is correcting this by refunding the deferrals and forfeiting the match, but this will not take place until after the plan year end being tested.

Thanks for the feedback Tom. I agree with your statements about comparing apples to apples, but a literal reading of the 410b regs makes it seem as if the nhce concentration % must include the same employees who are included in the average benefits test. It's definitely confusing and nowhere is it clarified, so again, I thank you very much for your comment.

Tom, This is from Reg. 1.410(b)-4©(4)(iii)(The bold face was added for emphasis) (iii) Nonhighly compensated employee concentration percentage. The nonhighly compensated employee concentration percentage of an employer is the percentage of all the employees of the employer who are nonhighly compensated employees. Employees who are excludable employees for purposes of the average benefit test are not taken into account. I know that you cannot aggregate mandatorily disaggregated plan parts when performing ratio/non-discriminatory classif. tests, but I am interested in the nhce who should be included in the concentration percentage determination. Based on the above Reg section, an employee can only be deemed excludable if he/she does not meet all eligibility requirements under the plan (plan has 6 mos for 401(k), 2 years for profit sharing). How can you have a different nhce concentration percentage for each disaggregated source?

Thanks Tom, Since the average benefits test takes into account all employees who meet any of the separate eligibility conditions within this plan, the nhce concentration % test must take into account the same employees (Reg. 1.410(b)-4©(4)(iii)). With this in mind, how could you have an option to count or not count terminees w<500 hours, as this statutory exclusion does not apply to the 401(k) portion of the plan? Our software defaults to not include them, but I think for a plan w/ a 401(k) feature, it should default to include them.

If a plan contains a cross-tested profit sharing feature and a 401(k) feature, when determining the NHCE concentration % for the average benefits test (plan is cross-tested), can you exclude terminees with <500 hours? I don't think you can, but just need clarification. Thanks for any thoughts.

Effen, I agree that if the FA is an unrelated party to the plan, that there is a clear violation of confideniality. However, I think in this situation, the FA is already servicing the plan, so to communicate with them regarding assistance with participant distributions does not pose any problem. Also, why would it be unprofessional?

Why would this pose any problems with confidentiality? It sounds like the FA is currently servicing the plan anyway, so how would this communication be a problem?

Lori, I stand corrected. It makes sense, since it is not taxable in the current tax year, to not require any withholding. Thank you for the clarification.

As this is a non-periodic payment, it is subject to a mandatory 10% federal withholding as prescribed in IRC 3405(b)(1), unless the participant makes an election to not have the withholding taken (IRC 3405(b)(2)). I agree w/ wmyer that the record-keeper might be confusing the federal withholding with the 10% excise tax prescribed in IRC 4979.

I've heard some use the timing of when 401k deferrals are technically plan assets, which is based on when the employer could have been reasonably expected to segregate them from corporate assets.

Plan is cross-tested. 401k eligibility is immediate entry Profit Sharing has a 2 year wait and allocation are based on compensation from date of entry. When running the average benefits testing with permissive disaggregation for statutory exclusions, shouldn't the ABT use eligible comp for 401k purposes, since this is the lowest age/service condition? For eligible participants who receive a profit sharing contribution, their AB% is being determined on their partial compensation (which was used to calculate EBARs). Thoughts/suggestions?

Take a look at http://www.expertplan.com

I agree with Austin. The elapsed time method credits years of service for every 12 month period that has elapsed from the employee's date of hire through date of termination. The provision questioned in this thread seems to discount the initial employment period, which does not comply with Regulations 1.410(a)-7(b)(1).