Blinky the 3-eyed Fish

We are definitely in agreement on how this provision should be operated. However, regarding the language, it would be nice if it spelled out 411(d)(6) and that this is a prospective limitation, as it certainly is not clear wording. I especially think the phrase "...may elect for any Plan Year..." is quite misleading.

I would assume nothing if I was you, but in this case there is a plan frozen for 6 years, under 50 people with accruals, people receiving distributions upon termination, and a decent amount of turnover over the years. A combination of trouble in this case of 401(a)(26). Regarding how to do the valuation, what doesn't make sense is that I am doing a valuation knowing it fails coverage at the valuation date. But I don't see a method to change that, so I guess you are right Mike.

QNEC.

Rickw, we have some plans in which language has been adopted where there are allocation groups, the contribution is based allocated pro rata on compensation within each group, but there is a discretionary flat dollar amount that can be given to each participant in a year. None of them have received approval letters yet from the IRS, although research was done prior to achieve some satisfaction of acceptibility. In short, I don't see a problem with it, especially since plans have determination letters that allow each person to be in their own allocation group.

Calling all actuaries... A plan I am working on for the first time has been frozen for 6 years and appears will not pass 401(a)(26) on prior benefit structure. It also appears that this year will not be the first year of the failure, as the issue was never brought up by the prior actuary. The plan will need a corrective amendment, but for past years' failures it is too late under 1.401(a)(26)-7© and a VCP submission will be needed. Thus my question is how do I perform the valuation? Do I consider any sort of corrective amendment or not, or do I run the valuation as if it is still frozen? It is already past the 412©(8) deadline, as this is a June year-end. Any opinions are welcome.

Here is section 1.410(B)-7©(3) If an employer applies section 410(B) separately to the portion of a plan that benefits only employees who satisfy age and service conditions under the plan that are lower than the greatest minimum age and service conditions permissible under section 410(a), the plan is treated as comprising separate plans, one benefiting the employees who have satisfied the lower minimum age and service conditions but not the greatest minimum age and service conditions permitted under section 410(a) and one benefiting employees who have satisfied the greatest minimum age and service conditions permitted under section 410(a). See section 1.410(B)-6(B)(3)(ii) for rules about testing otherwise excludable employees. 410(a)(1) defines the minimum age and service conditions to be 21 and 1 YOS, except that 410(a)(1)(B) allows 2 YOS for certain plans. 1.410(B)-6(B)(3) says that otherwise exludables are defined without regard to 410(a)(1)(B). 410(a)(3)(A) says that a ""year of service" means a 12-month period during which the employee has not less than 1,000 hours.." So, following this train of logic, it seems as if you can consider this person as otherwise excludable.

Dividing related employers into QSLOB's is only used for coverage and nondiscrimination testing, so I don't think it has any bearing here. That being said I say Company A definitely has over 100 participants for 412(l) purposes.

This language is copied from one of our restated DB plans within the definition of compensation. Compensation Limitation Election Available To Certain Participants: Except for purposes of determining Minimum Top Heavy Benefits in Section 4.7 or Code §415 limitations of Article 6, any Participant who is a Key Employee, an Owner-Employee, a Self-Employed Individual, or a Highly Compensated Employee may elect for any Plan Year, on a form prescribed by the Administrator, to limit his or her Compensation for all purposes under this Plan. I thought the ability to limit compensation, which effectively reduces a person's accrued benefit, was not allowable anymore, yet I see this language in this document with a determination letter. How can this be or am I mistaken?

I agree again.

OK, I must have taken too much crack this morning. Tomorrow I will try Wheaties. I agree with jaemmons. The only thing I hold to is that the allocation of the contributions from the plans will not consider compensation from the other employers. For example, if the profit sharing contribution is 10% of compensation for plan A and 5% for plan B, the contribution for plan A will only be based on compensation earned while employed for the sponsor of plan A, and the same for plan B for comp earned while with the sponsor of plan B.

My opinion is that each plan's deferral or contribution allocation needs to be based on the person's compensation while working for the entity that sponsors the plan. If you want to use compensation from one of the other entities, you must have that entity adopt the plan. (Unfortunately, you will also bring in a whole lot of people you didn't want to.) If each plan is able to pass coverage on it's own and you are not permissively aggregating them, then you will only do the testing for each plan based on the compensation, deferrals and allocations for that plan and that company. If you choose to permissively aggregate the plans for coverage and testing, then you have one big test that includes all the compensation, deferrals and allocations from all the plans and companies that sponsor the plans.

I agree with your last post, although it doesn't apply to Doombuggy's situation where he clearly says that his plan does not satisfy the requirements to be exempt from TH.

I understand now what you were saying in your last paragraph. But regarding the top heavy, a plan is exempt from TH if the safe harbor contribution is the ONLY contribution other than deferrals. This is the quote from Doombuggy, "I have a plan that contributes a match, profit sharing and a 3% safe harbor."

I don't agree. I know that hours must be considered for related employers for determining eligibility. I know that if 2 401(k) plans are maintained by related employers any HCE's that participated in both plans have their deferrals/match aggregated for the ADP/ACP testing regardless of whether or not the plans are permissively aggregated. You don't count the compensation and hours otherwise for related employers that have not adopted the plan. (Note that in a standardized document, they would be considered to automatically adopt the plan.) That is the distinction of whether they adopted the plan or not. Chris, you don't mention whether or not the other related employers have plans. You could always aggregate them for testing and then all the compensation and annual additions would be combined for testing.

Jaemmons, a plan is exempt from providing the top heavy minimum is it's a safe habor 401(k) plan and that is the only contribution for the year. It doesn't sound like that is the case here. Also, what do you mean when you say the former key's balance is still counted for TH minimum allocations?

Your p.s. is correct.

Without looking at the cites, I don't agree with this. My understanding in a cross-tested plan is that anyone who benefits under the plan under the nonelective portion (cross-tested alloc, safe harbor nonelective, TH contribuiton) must receive the gateway, EXCEPT, if the person is statutorily excludable and the testing is performed excluding the statutorily excludables. Thus, someone who is not statutorily excludable, received a top heavy nonelective contribution but has yet to meet the 2 year eligiblity requirement still must get the gateway. I have never thought about it until now, but I presume a similar participant whose TH min was satisfied through the matching contribution would not need to get the gateway. Doesn't seem to make sense, but I don't know of anything to refute this.

Assuming this arrangement is being legitimately reported, the answer is yes. If she has >50% ownership in the corporation, there may be 415 issues, but otherwise she can have at it.

Some documents have the option when drafting to allow the key employees to also get the TH minimum.

Another note, if you are restructuring the plans to those that are and are not statutorily excludable, you do not have to give the gateway to those that are statutorily excludable. They only need to get the top heavy minimum.

I thought that too, but with the new range for RPA in 2002 there is this new language. 412(l)(7)©(i)(III) For a plan year beginning in 2002 or 2003, notwithstanding subclause (I), in the case that the rate of interest used under subsection (B)(5) exceeds the highest rate permitted under subclause (I), the rate of interest used to determine current liability under this subsection may exceed the rate of interest other wise permitted under subclause (I); except that such rate of interest shall not exceed 120 percent of the weighted average referred to in subsection (B)(5)(B)(ii). So, under the old range of 90-105% the RPA limit would be 5.99% as of 1/02. 6% exceeds that amount, so you can go up to 120% of the range. What am I missing that makes this not allowable?

This question or more a search for understanding then having any real practicle value, but here goes. For a calendar year plan would it be permissible to have a OBRA rate of 6% and an RPA rate of 6.85% for the 2002 valuation. Please read 412(l)(7© for your interpretation. I think it's OK, but am curious others' opinions. I ask the question because a colleague prepared it this way, although I would usually use the high-end of the corridor on both rates.

You cannot deduct contributions in excess of the 415 limit. See 404(j)(1)(B). I have more I need to add. Depending on how the document reads you may have 2 scenarios. 1 - you have to remove the contribution from the plan because the document only allows contributions that are deductible; 2 - you have to set up one of the corrections methods under 1.415-(6)(B)(6) (this is probably more likely from what docs I have seen). If the scenario is number 2, then I believe the contribution is deductible because it is not treated as an annual addition during the year and is therefore not a contribution over the 415 limit.

You have a determination date of 12/31/02, so you don't care about his status in 2003. He is a key employee because of his status from the determination date to the lookback period of 1 year.

The 1997 effective date depends on what document you are using. Our document provider specifically has dated the sections that are retroactive, thus we can use a 2002 effective date. I would confirm you truly need to use a 1997 effective date. But if you do, then you are required to have the document language correspond to language from 1997 and will need to reference those past amendments.