Blinky the 3-eyed Fish

The "0" is for beginning of the year valuations and the "1" is for end of the year valuations. I don't see how you code it any other way. I am not sure why your software wouldn't pick that up from another field that spells out the valuation date, but then again, I don't know what software it is. As for the terminees, I have seen many a program blanketly group all terminees as having just AL and no NC. It doesn't have much of an effect in a large plan but certainly can in a small plan where most of my clients range. Though I think if you look at unit credit as defined in Rev. Proc. 2000-40, it says the NC is the NC for active participants. Thus the fact that terminees are having all liabilities classified as past service isn't incorrect necessarily. Try reading the definition and see what you think. I am going on memory.

Kirk, no the 5500 does not ask if the ADP test is passed. Midas, of course you need to follow your document. But this is a bottoms up QNEC, which often gives QNEC's to the 415 limit or until the test is passed. This effectively could eliminate the consideration of current year compensation in determining the QNEC because the 415 limit is based on the following year's compensation. But if your point is to read your document, well then I always agree. I suppose it could have language that limits the allocation to the current year's compensation even though it doesn't need to.

Good clarification Tom. I assumed he was talking about the ABT% since this is a common question regarding that test but that could have been a poor assumption.

Well since you have up to 12 months to make the QNEC and consider it for the prior year's ADP test, why not wait until near the end of 2005 to figure out what can be given? And don't forget to tell the boss to be nice since you surely don't want him/her to quit.

Yes they are included in the ABT because the plan is a 401(k) plan, deferrals are part of the ABT, you can't exclude term <500 hours when a person is otherwise benefiting and that is the case with deferrals.

Only legitimate ones with over 50 people, thank you very much.

No, on either the deferrals or the match. The 415 limit is the LESSER of 100% of pay or $42,000 (in 2005). His annual addition limit is therefore $0. I should add to this answer just a bit. Obviously a catch-up contribution, if the person is 50 or over, doesn't count as an annual addition, but of course with no salary you can't defer anything either.

First, I agree with QDRO and GBurns. Mk, you have to first understand the definition of compensation. True, if an employee worked for both the partnership and the corporation, their compensation is the sum of the two. (I am assuming that both entities adopted the plan or it's a standardized prototype.) But these employees are receiving W-2 from both entities. This is a much different situation that for the owners of the corporation. From the partnership they either have W-2 wages or nothing. They are not owners of the partnerships and do not have earned income. Instead their corporations have the ownership and the income flows through on the corporate level. This could perhaps allow them to take more W-2 from the corporation, but earned income certainly does not flow through to them personally. Think of it this way. Take Microsoft which surely owns many other entities which let's assume are part of a controlled group or ASG. Do the shareholders of Microsoft have wages because of the income of the entities owned by Microsoft? Of course not. It's the same thing here.

I agree. Though Grumpy, you realize that the prevailing wage can count toward the gateway requirement since it is a nonelective contribution by definition. I don't have much experience with these plans, but the ones I have seen have provided quite generous prevailing wage amounts that easily satisfy gateway even if the person splits their time.

Lucky on one hand, out of business on the other?

Fund at a lower rate then.

Rcline, your question is not clear as to your purpose. First, PFEA did nothing to change 417(e) for purposes of MINIMUM lump sums. What did change was the calculation of MAXIMUM lump sums where 5.5% replaced the previous use of the 417(e) interest rate. You correctly stated that 2004 had grandfathered issues, but that is now past the wayside. For 2005, 5.5% is the rate to use instead of 417(e). I won't go into the details of the rest of the calculation in hopes that you have an understanding of them.

I think the children are picking up some old slang foshizzle. I remember Vanilla Ice saying, "Word to your mother" about 15 years ago. P.S. No, I wasn't a fan.

The entry date issue aside, I disagree with the conclusion that you cannot make eligibility more restrictive. There have been other posts on this subject, but basically, eligibility is not a protected right. You could even raise the eligibility requirement after a person has entered the plan. As long as you aren't cutting back a benefit earned, you are fine.

No, not interpreted differently, just not clear on my part. QDRO is correct on the cite that interprets the code. It is the termination in the year of attaining age 55. Either way though, it's not the date of distribution.

The person must terminate after attaining age 55. The distribution date is irrelevant. You could look in the code for guidance if you feel the instructions to the 1099 forms aren't clear.

It was a new provision with EGTRRA. You do need to be careful though because the nondeductible will carryforward, which means that a nondeductible that is exempt from the excise tax one year may easily become subject to excise tax in another year. For example, if the assets do terrific, you may have a very low full funding limit in a following year and that may cause you problems. Try and get the nondeductible deducted as soon as possible.

You did understand it properly.

Good cite. I can't see anything to dispute it offhand.

That I agree with.

Penman, I don't agree with this statement. There are many mechanisms in the testing you can change year to year (assuming your document doesn't restrict you of course) - how 414(s) compensation is defined, what standard interest rate and mortality table to use, whether or not to test using otherwise excludable employees, etal. Do you have a cite that would help your position?

You didn't espouse an opinion either way, only that "The conservative approach would be to exclude (make ineligible) (the NHCE)." What you did espouse is that it isn't clear on what to do. I just said I think it is clear. What I didn't say was that you had an opinion either way on what to do. I am obviously not saying it makes sense to do this. I was saying that if you want to show the absolute worst testing results, then this is what you would do. It must be semantics in our definitions of conservative and aggressive. Being that the basis of any testing is to check discriminatory in favor of HCE's versus NHCE's, I take aggressive to mean you are showing results that are more likely to be considered favorable toward HCE's. That is why I define showing a 0% for an NHCE as ultra conservative. I wouldn't consider anything that hurts the testing results to be aggressive.

Although there is no official guidance it is clear (at least in my mind) for 2 reasons. The first is the continued unwavering opinion of IRS people, particularly Jim Holland, in many a conference that espouses these people with no compensation are not in the test. I realize again that is not official, but it's as official as unofficial can get. The second reason again goes back to my question. What number would you use in the testing? You can't give me a valid answer to that question, so how could you possibly include them in the test? It simply cannot make mathematical sense. Lastly, I do not understand your reasoning for conservative or safe. If you are truly trying to provide worst case results (i.e. in case the IRS has been hit by a mysterious ray and is suddenly and retroactively wanting people included with no comp), you would include an NHCE and put 0% and exclude an HCE.

Mmc, you didn't read Tom's or Fred's post carefully. They realize that the greater of 6% on comp from date of entry or 3% of full year comp must be given. Yes, you can test the 3% allocation using comp from date of entry, as comp from date of entry is a definition that satisfies 414(s).

I think it is absolutely black and white unless you can tell me Midas what percentage to use in the tests? If your answer is 0%, I would ask you why you think it's conservative to exclude a NHCE's 0%?