Fred Payne

Almost every account we administer is participant-directed and valued daily. There are no "pooled" investment options from which we can deduct fees. Each is a publicly-traded fund. Thus, when a fee is to be charged against plan assets, there is an itemization against the participant's account for the fee deduction. Since the charge is pro-rated across each participant's holdings, there can be a dozen transactions recorded if, for instance, the participant owns 12 separate funds off the menu list. We try to hold off a deduction until there is a contribution, taking fees from cash rather than the proceeds of sales. But this is not always possible (and can be tough on cashflow). I'm all in favor of full disclosure and transparency, but I'd like to minimize the number of transactions that are of record. Can anyone share any creative ideas to consider? Or is this the "nature of the beast?"

Plan Year end 2001. Plan is Top Heavy and cross-tested. Contribution to NHCs is 3%. NHC Jones enters plan mid-year & thus is entitled to 3% top heavy based on full year comp. Q1. When doing the cross-test, I include full year comp in calculation of EBAR. Correct? Q2. Assume same scenario except contribution to NHC is 8%. NHC Jones gets 8% of 2nd half comp and I only include 2nd half comp in calc of EBAR. Correct? Thank goodness there are a lot of people a heck of a lot smarter and more experienced than me!!

Mike is right. I've never seen examples with imputed disparity. The only imputed disparity numbers I've seen have com efrom Relius. I'll have to double check with Relius to see if the anomloies I've uncivered occur with participants of age 65.

First a response to Tom's question. The mortality tables I currently use were furnished me by an actuary. And I assumed they were correct. And with these tables I get the same answers to every example of cross-testing I have seen published by PPD or the ERISA Outline Book. (Unfortunately, there is very, very little published information on cross-testing that I have found. One reason I make my spreadsheet available to everyone as a way to verify my calcs are correct!) I can get the same answers from Relius from my spreadsheet--most of the time. For example, within a census occasionally one or two of 50 EBARs don't agree. Truthfully, I don't know why such anomolies occur. But they haven't caused a failure to the cross-test. That all being said, I always pay attention to comments from Tom Poje and now I'm nervous. Where is the "Source" for annuity rates so I can verify the tables? Anyone, please? Regarding Crosseyedtester's questions, my understanding is that if the document does not specify the Table and Rate, it's at the discretion of the tester so long as it is allowable by statute. The PPD document specifies the Tables and Rates I incorporated into the spreadsheet. The Spreadsheet would allow a practitioner to incpororate any other table. Concerning the Safe Harbor for the NHC Concentration Ratio, I pulled this part of the calculation from the ERISA Outline Book, the section on Nondiscrimination Testing. If one fails the Ratio Percentage Test and must resort to passing with the Average Benefits Test, EACH Rate Group must pass the Nondiscriminatory Classification Test. To pass the NCT, "the coverage ratio must be equal to the midpoint between the applicable safe harbor percentage and unsafe harbor percentage in Trea. Reg.1.401(B)-4."

Blinky: Never knew that, and if I did, it was long forgotten!

You are correct, if EACH Rate Group cannot pass the Ratio Percentage test, then the Plan is subject to the ABT. I don't know about the either-or aspect, but I always operate on the premise that every Rate Group must pass the NonDiscrim/Concentration Test if any one group fails the Ratio Percentage Test. (That begs the questions as to whether a Rate Group that can pass its Ratio Percentage Test would fail the NonDiscrim/Concentration Test. I would bet not.) I occasionally lose sight of what the primary benefit of cross-testing is, that is to lower the cost of funding the NHCs contributions. In almost every instance, a cross-tested plan will result in a lower funding cost than a straight DC plan. However, we've seen instances where there's a better plan design than the cross-tested plan. If the demographics of the Plan is such that there will be lousy 401k participation causing problems for the cross-test to pass the ABT, we then opt for a 401k with both a Basic Match and Discretionary Match plus an integrated PS contribution. That design can for some groups beat a cross-test.

Rickw: When I refer to the "cross-test," I am referring to the Ratio Percentage Test. The Nondiscrim/Rate Group Coverage Ratio is a test one performs IF the Ratio Percentage Test fails and is a test EACH Rate Group must pass as a pre-condition to passing the ABT. I misspoke in my first reply. The Doc's spouse will NEVER have an EBAR of 0 since the Safe Harbor 3% non-elective is an allocation that is included in the cross-test. But with a 3% allocation, the wife's Rate Group almost always passes the Ratio Percentage Test. We have run across a few cross-tests that stop at the Ratio Percentage Test. Since it's all a matter of census, Mwyatt's experience won't be uncommon. Employing the Safe Harbor 401k can help lower the HCEs' EBARs and will sometimes allow the Ratio Percentage Test to pass. If it doesn't, the Safe Harbor 401k will complicate passage of the ABT, forcing either a lower allocation to the HCE or a higher allocation to one or more NHCs. It's important to get the NHCs to defer. THeir participation makes a huge difference in the ability for the plan to pass the ABT (when passage is necessary.)

I think your Doctors can remain excited! In many situations, the ability for the Doctor's wife to defer $11K of a $12K salary is no problem. The Average Benefits Test--which does take into consideration salary deferrals--need only be undertaken if the cross-test fails the Ratio Percentage Test. If the spouse is in her own allocation group and gets allocated a low percentage or none at all (she is an HCE and this poses no problem), then her EBAR for the cross test could be as little as zero. Her rate group can always be made to pass the Ratio Percentage Test. Admittedly, the existence of her as an Employee may adversely impact the Ratio Percentage Test of her husband. But let's say it doesn't. Probably the only way a Doctor's wife can defer $11K of $12K is if the 401k plan is a Safe Harbor Plan. When setting up a cross-tested plan with a 401k feature, ALWAYS use the 3% non-elective contribution to pass the Safe Harbor ADP since this 3% is a credit against the Gateway contribution. (The only downside here is that you cannot impute disparity on the 3%.) If you use the Basic Match, it's not included as part of the Gateway nor included in the cross-test, just the ABT. If the Employer Allocation passes the Cross-test on the Ratio Percentage Test, one only needs to determine if the rules of the 401k Safe Harbor have been met. No ABT need be performed! (Remember a 401k safe harbor plan will almost always fail the ABT.)

I regularly encounter a group of doctors who "share" employees--all of whom work full-time. One common scenario is that each doctor separately W-2s the employees for the respective time the employee directly works for that doc. The other scenario is that one doc W-2s each employee for 100% of their comp and then the other docs reimburse that Employing doc for their respective cost of wages and benefits. This creates some issues over eligibility and testing when each of the docs have different plans (or when not all docs have a plan). How are practitioners handling this? Is there a cost-effective way to access a multiple-employer plan?

In a defined contibution plan, a terminated participant with an account balance in excess of $5,000 can opt to leace his or her account balance in the plan and not accept a distribution. Does a terminated participant in a 457 plan have the same right? Thanks.

Eligibility is 1,000 hours and year of service. Entry dates are 1/2 and 7/1. Break in service rule does not appply. John is hired 6/1/2000 and quits 3/1/2001 after having worked 1,500 hours. He is rehired 9/1/2001. Is he a participant as of 9/1/2001? Or must he work 1,000 hours in calendar year 2001 and enter 1/1/2002 if does work that many hours? Thanks.

Here's my third version of the spreadsheet. It should allow the user to more easily follow the calculation of the EBR and the mechanics of the cross-test. Many thanks to those who downloaded the program and critiqued it. Any incorrect calculation that has been brought to my attention has been fixed. The cell references are quite complex. DO NOT ADJUST YOUR DATA BY DELETING A ROW! DO NOT SORT YOUR CENSUS DATA ONCE IT IS ENTERED INTO THE DATA PAGE OF SPREADSHEET! A page is included in the spreadsheet on which census data can be modifed and sorted, then manually copied to the data page. Do not hesitate to email me directly if you have any questions as to its use or suggestions for improvement at fredp@RetirementAssets.com. I am working on a version that will allow for the earned-income calculation when one or more of the HCEs are self-employed.

I'm looking for an easier solution than having to research procedures for each state and having my client-sponsor being burdened with implementing multiple procedures for various states. I recollect seeing some literature on a service that was available for handling distributions and payment of taxes.

One of the custodians we use for our plans will not make deposits to a state for withholding taxes on distributions as they will for Federal tax withholdings. This custodian will only issue a check payable to a state's Department of Revenue and send it to the Sponsor for the Sponsor to make the appropriate deposit and filing. That works OK when the state is the same state as the Sponsor and as an employer they are already making deposits to the state. But when the participant is now living in another state and wants state taxes withheld (or is required to have them withheld), the logistics become difficult. Does anyone have a good solution for deposit of out-of-state withholdings? Thanks.

Thank you. But do you have to give PRIOR notice about the elimination of the election as part of the GUST restatement process? If you were eliminating the QJSA and QPSA benefits for PS balances, a a 90-day notice is required, I beleive.

We're having a lively discussion in our office over what our recommendation should be to clients who merged their MP balances into PS plans. Should we recommend that all balances now be subject to the QJSA or only the merged MP balances? One concern expressed is that we screw up and not get the spouse to sign off on a MP distribution if the wrong form is used since new participants, not having MP balances, won't have any portion of their distribution subject to QJSA. Another concern is if the PS exception is maintained, there presumably would be two distribution forms, one for the PS with no spousal consent and one for the MP with spousal consent. (And a lot more work.) Could one form be used for the particpant with MP and PS balances in which the spousal signature is required even if the exception applies for the PS balance? Would one form be acceptable if a caveat was added that the spousal consent only pertains to the MP balance?

I agree with Aplleby, but was PJW really asking a different question? You can eliminate a Participant's (other than a more than 5% owner) right to receive in-service distributions on April 1 of the calendar year following the year in which the participant attains age 70 1/2. What are the notice requirements for this?

The Relius recordkeeping software included a participant's full-year comp in the calculation of the Average Benefits Test even though the participant didn't enter the Plan until 7/1. Relius' calculation of this participant's EBAR differs from mine since I had only used comp while a participant (as the Plan docs stipulate) for calculating both the dollar allocation and the EBAR. Did I err in my calculation of the allocation and EBAR, or do I possibly have a setting incorrect in Relius?

The Prudent Man Rule of ERISA has long been a much higher standard of conduct than for the fiduciary managing the assets of the poor widow. My recollection of my studies of this issue was that the "Prudent Expert" rules were an attempt to codify conduct of the non-ERISA fiduciary at the same level of expertise as that of the ERISA fiduciary. In other words, for all practical purposes there was no difference in the standard of conduct that would apply to the ERISA vs non-ERISA fiduciary.

There's such a thing as the "Maybe Notice." At the time one would normally give the Safe Harbor Notice, a Sponsor can state that they may or may not make a 3% non-elective contribution to qualify for the Safe Harbor. The Sponsor would have up until November 30 of the year in doubt to make a subsequent notice of its decision and make the Safe Harbor election effective for that entire year. The Maybe Notice only applies to the indecision about the 3% non-elective contribution and not as to a Basic or Enhanced match.

My complaints with Corbel have nothing to do with their billing practices... If you're speaking of the PPD prototypes, Corbel changed their policy and made available by download the technical commentary at no cost. If you had previously paid them $400, they would be issuning you a credit. An email re: this was sent to all PPD subscribers. Apparently, such commentary in the past had come at no charge. When subsrcibers were asked to pay for it, a big enough ruckus resulted that Corbel rethought their policy.

Employee A is hired January 2, 2001. During her first employment year which ends January 1, 2002, she works more than 1,000 and turns age 21. Adoption agreement states "an employee will become a Participant on the Plan Entry Date immediately following or coincident with the date Employee completes the eligibility conditions." If Entry Dates are January 1 and July 1, when does this employee enter the plan? When did the Employee complete the eligibility conditions: January 1 or January 2?

That's certainly a logical explanation, Tom. I infer from your answer then that it is really the midpoint that is the threshold for passing the test. Thanks.

In the current issue of the PPD ERISA NEWSLETTER devoted to cross-testing, an example is given inwhich the allocation fails the Ratio Percentage Test but passes the Average Benefits Test. It notes that the rate group tested satisfies the nondiscriminatory classification test because the NHCE benefitting ratio "at least equals the safe harbor percentage." Given the NHCE concentration ratio in the example, PPD used the safe harbor percentage, not the midpoint. In the ERISA Outline Book, Tripodi states that the coverage ratio "must be at least equal to the midpoint between the applicable safe harbor percentage and the unsafe harbor percentage..." I've always used the midpoint, but PPD's comment gives me caution. Can anyone explain the difference in the statements?

In 2002 when calculating the maximum contribution possible for a self-employed individual, will one need to subtract elective deferrals from gross income? When determing the maximum deduction for a corporation in 2002, one no longer subtracts elective deferrals from gross comp. I'm wondering with this latter change if there's a change for the self employed.