Fred Payne

With regards to EGTRRA in 2002, I read an article in a national magazine that said in addition to a $40K profit sharing contribution, it would be possible to also make upwards of $11K as a 401(k) contribution. Add in the catchup contribution for the participant over age 50, and a $52K contribution is possible. The author made a reference to EGTRRA's change in Section 404 which I had interpreted to state that for the purposes of deduction limits of Section 404, one no longer has to deduct deferrals from comp to determine the Plan's maximum contribution of 25%. But I thought each participant is still restricted by 415© to a total of $40K in 2002. Can someone clarify this for me? Thanks.

We successfully added a plan-specific link to the Web module but declined to do any additional customization. Our hope is that the forthcoming upgrade will include as standard features some of what we would like to customize. In any event were we to customize more now, we would undoubtedly have to redo it all once the new release becomes available. This is what we did do. On the menu bar in the left frame, we added a link that, when clicked, opens up a separate window whose content lists each Plan investment option, sorted by asset class, and its performance history over various time periods. This content is a document that gets created outside of Relius. This page needs to be an ASP page that has the coding to cross-reference to the planname as identified within Relius. The way we programmed it, every Plan will have such a link. I don't know whether it could be programmed such that a link would appear for one plan but not for another. We have a full-time programming staff and the inhouse expertise to accomplish this. I think someone with some programming knowledge would be required to duplicate our efforts I have asked my programmer to write up some tech notes on this topic and will post it once I get it from him.

Tom: I think I'm calculating EBARs correctly, even when there are some parts that cannot benefit from disparity. My question speaks to another issue entirely. (Or I just didn;t understand your response.) If I had a strictly profit sharing plan AND each rate group passed the Ratio Test, my understanding--from the ERISA Outline Book site--is that I need not even conduct the Average Benefits Test. But what if I have a 401k component? Eventhough the ratio test does not include salary deferrals, match or 3% SHNEC, can I still ignore the Average Benefits Test if, one, the 401k is Safe Harbor, and two, each rate group passes the ratio test? If I have a Safe Harbor 401k Plan for which there is no Employer contribution other than the 3% SHNEC, giving the 3% SHNEC to all eligible participants insures passing coverage. I'm finding that I can have a cross-tested 401k Plan where I pass the Ratio Test but fail the Average Benefits Test even though I use a 3% SHNEC. Do I need to increase the Profit Sharing contribution until I can pass the Average Benefits Test even though this additional contribution is not needed for the ratio test or the nondiscriminatory classification test?

In the ERISA OUtline Book, Tripodi says, "to pass 401(a)(4), every rate group must statisfy the coverage requirements of 410(B). Both the ratio test and the average benefits test are available for this purpose." But what if there's a Safe Harbor 401k Plan involved? The ratio test and the nondiscriminatory classification tests do not include salary deferrals or the 3% SHNEC. I've calculated scenarios for 401k safe harbor cross-tested plans in which each rate group passes both the ratio test and the nondiscrimantory classification test but the Plan overall fails the average benefits test with a ratio under 70%. Has such a plan passed?

When one or all Rate Groups fail the Ratio Percentage Test, passage of the Average Benefits Test is mandatory. The Average Benefits test has two parts. In Part 1, each Rate Group must pass the Nondiscriminatory Classification Test. A Rate Group does so if its coverage ratio is greater than or equal to the Midpoint Safe Harbor Percentage--the same percentage for each Rate Group. All Rate Groups MUST pass the Nondiscriminatory Classification Test BEFORE you can perform Part 2 of the Average Benefits Test. For Part 2, you are correct that passage is based on the entire plan and not any specific Rate Group. But you need to evaluate the coverage ratios of each Rate Group first. I am working on a third version of the spreadsheet that places the various component parts of the tests on separate pages in the worksheet to allow the user to "tab" to each test section, rather than scroll left-to-right.

The Plan document for this governmental plan gives the Plan Administrator the right to distribute the the vested account balance to the Participant after separation from service. Why woudn't IRC 411(a)(11)(A) apply, effectively precluding the Administrator from distributing assets without the Participant's election if the account balance is in excess of $5000?

I've previously gone through Tripodi's ERISA Outline Book and I think it does a great job on some of the basics of calculating EBARs, but there is not much information on cross-testing with 401k's involved--particularly if imputing disaprity. I'm certain there's no examples of calculations involving cross-testing 401ks. Maybe Tom can answer this best, but does Amy's book, The Coverage and Nondiscrimination Handbook, include examples of how to undertake the cross-tested calculations with 401ks? Does it cover the disparity issue well?

I'm a student when it comes to cross-testing in general and imputing disparity in particular. I need someone to teach me the rules for making the calculations and then I can incorporate them into the spreadsheet. My understanding is that one cannot impute disparity on salary deferrals or match contributions, but on all other contributions. Thus, disparity comes into play when performing the Ratio Percentage Test and the Non-Discrimination Class Test. However when undertaking the Average Benefits Test, disparity is not used. Is this right?

Several Users have been quite generous in their critique of my spreadhseet and have answered some technical questions for me. I also paid a local actuary to confirm many but not all of the calcs. I'm confident that the spreadhseet calculates cross-testing accurately for straight PS plans, including disparity. (I run my results against the Relius program and I get identical numbers.) I believe the spreadsheet will calculates cross-testing with a 401k feature BUT WITHOUT DISPARITY. All bets are off when disparity is invloved and I could use some help here. (I've been told that if the Plan is a 401K Safe Harbor using the 3% non-elective, disparity hurts you so don't use it in that situation.) The Zipped file you can download includes some instructions for the spreadsheet's use. It's real easy to use and includes quite a bit of automation. The output is intended for Client presentation. If you detect an error, I'd apprecaite you bringing it to my attention. If you can help me out in areas where the spreadsheet is deficient by answering my technicakl questions, that would be wonderful.

As I review cross-tests perfromed by different TPAs, there are two ways in which a participant's age is being calculated. One that I refer to as the Attained Age method is the age of that person on his or her birthday in the 12 months preceding the Plan's year end. The other method is one that I refer to as Closest Age: what is the participant's age as of the birthday that falls in the 6-month periods before and after the Plan's year end. Given the Closest Age method, some participant's have an age one year older than under the Attained Age method. I see nothing in the Plan docs that speak to the method to use. In the ERISA Outline Book, Tripodi seems to indicate it's a matter of preference. I've performed calcs in which a Plan can pass under one method and fail under the other, all other factors being equal. Can I use whichever method works the best? If so, could I change it from year to year if a demographic shift would favor one over the other?

Easy solution, but how does Treas. Reg 1.410(B)-4(B) come into play? Does this not preclude one from naming individuals as a reasonable job classification? Need there not be an objective business criteria to identify categories of employees? Naming individuals impacts negatively the Non-discrimination classification test.

My understanding is that the IRS would be the one to determine if a mistake in fact has occurred. Notwithstanding whether the Plan provides for it or not, such contributions as determined by the IRS could be returned.

I'm not sure why you make reference to the "5 years on the fathers retirement money." Once the assets are rolled into a surviving spouse's IRA, all Minimum Required Distributions are based on her beneficiary designations. The fact she was a beneficiary of her husband's IRA is of no relevance to the situation. The important question to ask is when did the IRA owner die? If it was in 2001, the answer might be different than if she died prior to 2001. Also, did she die before or after her Required Beginning Date (the April1 after the year in which she turned age 70 1/2)?

Do you have any Regs you could cite for me or Opinion Letters?

Client A has a paired, standardized MP and PS plan with a year end of 9/30. Sponsor is C Corp. Only one employee and one participant. Sponsor has already funded $30K of current year contribution. Sponsor now wants to install a DB plan for current year to make a $90K contribution. However, there's no way to take back the $30K contribution to the DC plan, precluding the $90K contribution. If the corporation does not take as a deduction the $30K contribution to the DC plans, the deductible $90K contribution to the DB plan is possible. Sponsor is subject to excise tax for the $30K to DC plan--and this is a small price to pay for Sponsor to get an "extra" $60K of deduction. But this excise tax continues each and every subsequent plan year because reoccurring DB contribution never allows for an allocation of the $30K DC contribution. Of the facts above I am certain. Now here are my questions. If we terminate the DC Plans and distributes assets, what happens to the $30K? It can't go back to the Corp presumably. Can it get rolled over to the participant? Does the Excise Tax problem simply go away, it being a one time event? So pretty good to me! Does anyone have experience with this? Can you give me a siting? Thanks very much.

From what I've been told, if the Doc is allowed to "opt out," the IRS could view the Plan as a CODA: His decision to opt out impacts the amount of his taxable income. Our attorney has advised never to allow for this provision; but if it were to be exercised, it's best if it's prior to that Participant's Entry Date and the opt out is permanaent.

Thank you for the benefit of your experiences.

When calculating the 15% deduction limit for a PS plan in 2001, can I include the full-year comp of a new participant who enters the Plan on July 1, 2001? The Plan will only recognize this participant's comp from July 1, 2001 on for purposes of allocation of a benefit.

A fund company requires us, as a condition for receiving revenue sharing, to upload to them monthly certain census data on Plans and/or participants detailing such data as name, address, plan balances, etc. They inturn mail out semi-annual reports and propoganda semi-annually. To generate this data requires a special report from Relius. Has anyone developed reports for this purpose?

Paul: Thanks for the creative suggestion re: borrowing down to the accumulated PS58 cost and then transferring it out. This is the first plan we've ever had with life insurance in it, so I'm really in the dark on this one. I'll have the agent run an illustration that shows the resulting on-going carrying costs. I interpret your remarks to suggest that the accumulated PS58 cost is basis to the account beneficiary much like a distribution of after-tax contributions. Correct? Remember, I said this guy was a doctor, and as we all know, doctors always don't chose to do what is the wisest. I need you to clarify your comment re: your disdain for the "0% MP or PS without contributions." By definition, does a 0% MP not ever get a contribution? Is it that you don't like the 0% contribution idea OR just a 0% Plan when the Plan holds a life insurance contract? If there are premiums to pay, I can see where a 0% contribution plan would create problems. But if the policy has sufficient dividends to pay the premium and no contributions to the Plan are needed to pay the premiums, do yo have a problem in that instance with a 0% Plan?

Dr. A retired from his practice that his colleague is continuing; thus the Plan survives. Dr A has a life insurance policy as a Plan asset and has received a distribution of all of his account balance but for the life policy. It cannot be rolled over into an IRA, nor does Dr. A desire to take ownership of the policy and pay taxes on this distribution to him. So he's left it in the Plan hoping that his old collegaue does not someday terminate the Plan prior to Dr. A's death and force the distribution to him. Dr. A has a tree farm but did not want to set up a plan for the tree farm. But could he set up a 0% money purchase plan to accept the distribution of the life insurance policy? The policy has sufficient value such that premium payments are being funded internally by the policy itself. What is the downside of this approach?

Aside from font, background color, general links in the menu bar, has anyone had any experience in customizing the Web module, successful or otherwise? For instance, has anyone created a hotlink that is specific to the Plan of the logged-in participant? We'd be interested in having a hotlink to a report that lists the performance of funds specific to a Plan and a report that gives some information about the model protfoilios. A general link will not work for this purpose. What about a hyperlink to the fund name listed an investment option in the main window? We'd like to control the order on investment options listed in the main window other than alphabetically, i.e., US funds, foreign funds, fixed income funds grouped together. It'd be nice to show model portfolios in a separate group from the mutual fund options. Our programmer is going to investigate the extent to which the web module can be customized. We'd appreciate knowing if anyone else has made any attempts in this regard.

Per AndyH's listing of the Gateway's, is it the GREATER of, or LESSER of, 1/3 of the highest HCE allocation rate or 5% in the instance when there are two Allocation Groups and the HCE gets 21%. Does the other group get 7% or 5%?

Barry: Something I never knew about Roth IRAs: the deductability of losses. Where can I read up on this fact?

If, for example, a plan has 10 HCEs benefitting, is there automatically 10 Rate Groups? What if three of the HCEs all have the same Equivalent Benefit Rates (EBRs), are there then only 8 Rate Groups? The Ratio Percentage Tests and the Average Benefits Ratio Tests of the three separate Rate Groups of the HCEs with the same EBRs will produce identical results. So does it make any real difference (to the client or the IRS) whether results are presented as 8 Rate Groups vs 10 Rate Groups? I've seen such test results presented one way vs. the other by different TPAs.