Blinky the 3-eyed Fish

Ah yes, the amendment that allows for those receiving the top heavy to in turn receive the gateway minimum must specify that those that are statutorily excludable do not have to receive the gateway. Without that exclusion you would have to give the gateway contribution to all who benefit.

I misunderstood by what was meant by nonparticpating employees. I presumed it meant a participant that terminated, but still had a balance.

You should be safe with the statutorily excludables. Even if there happened to be an HCE in there, all is well because all will receive 3% and no nondiscrimination testing is needed. This answers your second question as well, as the statutorily excludable employees are not required to get the minimum gateway contribution as long as their portion of the plan is not cross-tested. The plan does not and should not have language in it on how to perform cross-testing. The only thing to watch out for is if the plan DOES have language that precludes you from performing the testing in a certain way.

5500.00

Mike can you clarify for me what IRS correction procedure will allow the excess to remain in the plan? I am not aware of that availability in such a situation.

Top heavy contributions are made to active employees. In fact, the criteria for receiving the contribution in a DC plan (generally) is to be a participant in the plan and employed on the last day of the plan year. Your participants with balances you mention do not satisfy this criteria.

Let me try a numerical example. Valuation date: 1/1/02 2001 Earned Income (line 31 2001 Sch C): 100,000 1/2 SE Taxes: 6,324 2001 Deduction: 50,000 2001 Net Earned Income (i.e. Compensation): 43,676 Normally in this situation I would assume that the 2002 Compensation (with a 0% salary scale) is as follows: 2002 Earned Income (assumed same as 2001 EI): 100,000 1/2 SE Taxes (based on 2002 twb): 6,603 2002 Deduction: X (let's call it 45,000 so the numerical example can continue) 2002 Net Earned Income (i.e. Compensation): 48,397 Plan that am new to assumed the prior year's compensation (i.e 43,676) was the 2002 compensation. I am asking people's opinions as to whether this is acceptable.

A sole proprietorship has a DB plan with a beginning of the year valuation date. My question relates to what estimated compensation to assume for the current plan year. The salary scale is 0%. Traditionally, I have assumed the same earned income as in the prior year (line 31 of the Schedule C) and reduced it for 1/2 of the SE taxes and the current year deduction, the old circular calculation of fun. I have a plan I am new to this year in which the compensation assumed was last year's net earned income (last year's earned income reduced by last year's SE taxes and deduction). In other words, it is like a plan sponsored by a corporation, where the W-2 compensation is assumed to be the same as the prior year. Do you think this is an acceptable assumption?

Anyone? Anyone? Bueller? Bueller?

The only change is that now the defined benefit accruals are offset by the actuarial equivalent of what participants receive in the ESOP. The DB plan still has to maintain an FSA, pay PBGC premiums, etc. An example would be this: Person has an accrued benefit of X. This accrued benefit is reduced by the actuarial equivalent of ESOP balance Y. Net benefit in the DB is X-Y, but not less than zero. Hopefully, you have an actuary that is familiar with these sorts of arrangements to consult on the details.

I was actually unaware of the IRS' informal position Mike states but am undaunted. I will try and find some "proof" or at lease a detailed reasoning when I am able to find the time. P.S. No disrespect taken. I have been known to be very wrong at times.

If it were permissible to completely exclude from testing those that signed irrevocable waivers, that would be part of the paperwork small employers would have their employees sign when hired.

I have actually been leaning to what is described in 1.401(a)(4)-12 - (2) of the testing age definition. I am thinking I could consider the 2 plans as different uniform normal retirement ages and test using the latest of the two ages. Fortunately, the people being considered are inherently older and do not generally affect the outcome of the testing, but still it's nice to do things correctly, if there is such a thing.

This plan is made of neon? (Sorry, I couldn't help myself.)

A discussion in the works here:http://benefitslink.com/boards/index.php?showtopic=18708

You can't use a calendar year election for a calendar year plan. As for the original question, I don't believe you would consider compensation prior to the new companies formation dates in this situation, but I didn't look anything up. Perhaps someone else can weigh in on this.

I am permissively aggregating 2 plans for coverage and nondiscrimination. The plans happen to be a DB and a DC, although I don't believe that is important. Both plans define normal retirement age as the later of age 65 or 5 years of participation. Because one of the plans existed before the other, I have a case where some older people have different normal retirement ages. Therefore, my question is when I run the general test, what testing age do I use?

How many participants is big?

IAW Keith on this. In what appears to be a small plan one change to who is eligible would be a significant change and preclude the reliability of using a 3-year testing cycle.

Let me try again. 401(k) test is run separating the otherwise excludables (NHCE's only I believe, but I don't do these tests very often). Cross-testing is run with everybody in the test, otherwise excludables and all. The average benefits test also includes the deferrals of the otherwise excludables. This is what I thought you were saying Andy and that I agree this is allowable.

If the plan is top heavy and the HCE's are not key employees, they still need to get 3%.

Andy, I wasn't 100% clear on your answer but I think I agree. You are saying: that you can choose to separately test otherwise excludables for the ADP/ACP tests but not separately test otherwise excludables in cross-testing the nonelective contribution. When running the average benefits test while cross-testing the nonelective contribution, you would include the otherwise excludables' deferrals and match. For coverage and nondiscrimination within each component (401(k), 401(m), and nonelective) the treatment of otherwise excludables needs to be consistent. Right?

I am confused. Don't you already have a non-safe harbor plan? Wouldn't increasing the benefits for one of the NHCE's just help the testing?

At the LA Benefits Conference the panel that included Dick Wickersham and Jim Holland explicitly said they did not perceive adopting the EGTRRA increases in the 401(a)(17) and 415 limits after the right to an allocation had been earned a 411(d)(6) cutback. I realize this is not binding, but a look into what they are thinking at the IRS.

I reedited it to be clearer.