Blinky the 3-eyed Fish

It seems like we are talking about 2 different things here, 1) whether or not the change in amendment is discriminatory and 2) how the coverage testing should be done. 1) Addressed by Tom above. Fine and dandy. 2) Whether or not you classify it as consecutive or concurrent or dual eligibility or whatever, how do you do the coverage testing? If you have a provision that allows for all those employed as of X date, then effectively you have no eligibility requirement for those people. The coverage testing then for that year should be based on that eligibility requirement (or lack thereof). If someone terminated during the year, then how can you treat them as an excludable employee for the coverage testing? Of course there is the otherwise excludable option, but if an HCE is in that group, you still need to test it. Now what troubles me is the fact that prototypes allows this to occur, so maybe I am missing something.

Andy, I would like to see if we are on the same page. Can you prep a MVAR calculation not factoring in 417(e) or any special subsidies, but assuming the plan offers lump sums. I am hoping it is easier if you pick the figures to use. Thanks.

There are a lot of things you can do but you don't do, at least most people don't do them. I was just pointing out that it is possible. I have never seen it done. I would not recommend it without strong "you must not like your employees" caveats. I have not done many other things along these lines. Although, one time I told a doctor that he could treat his 10 person staff as independent contractors and that he could put in a maximum DB plan for just himself. - just kidding, I didn't do that either. But wait, there was that time a lawyer informed me he needed to lay someone off. There was a single 45 year-old mom with 4 kids and a 22 year-old fresh out of college. Both did the same job, so of course I demanded that he fire the older person so that the cross-testing would work better. - oops, I forgot that I didn't do that either.

...and election forms, and tax notice, and 1099's, and amendments that bring the plan into compliance with any recent legislation (if any), and possibly an IRS submission (optional). Honestly, if you are asking the question, which is good, then continue the goodness by paying someone that knows all of this.

Your document will have a fresh-start date as of 1/1/xx. Your document will define the benefit after the fresh-start date as well as the frozen accrued benefit. We don't have the document to be able to answer your question, although your choice #1 would be most prevalent. SoCal, do you agree that if the compensation definitions are the same in #1 and your version, then the benefits are exactly the same?

Yes on both accounts as long as the old plan is not terminated within 5 years.

To go into more detail a previous discussion is here: http://benefitslink.com/boards/index.php?s...hl=feeling&st=0 I would say you are in the extreme minority in your opinion.

That appears to be the reason for the IRS' position. As I mentioned before since the prior plan is not a predecessor plan unless it terminates within a 5 years to or fro the onset of the new plan, I don't agree with this statement. You can exclude YOS for vesting before the effective date of a plan where no predecessor plan exists. Is there another reason why you state this that I am missing?

No silly. Then it would be Grants' tomb.

It was correct. Otherwise excludable testing would not work because everyone would be in the OE category, which too has to be tested. I didn't know it was, but if so in your prototype, well I can't answer why. At least you recognized there was a problem. Well each year is a separate testing issue. For the next year the only eligibility that would apply would be the 21/1. The 9 month eligibility would only be for the first year. No dual issues any longer.

Maybe he could become schizophrenic and the one personality could not tell the other about a new business. Would that work as a viable way to double dip on the 415 limits?

You say "received contributions" like it already happened, but your first post indicates the plan has not been set up yet. I will assume the latest post is a misuse of the proper tense and the plan has not indeed been adopted yet. Your problem will then be solved, not by allowing for immediate eligibility this year, but by having say a 9 month eligibility requirement and entering the plan immediately. Then your one NHCE is ineligible for the year and your coverage ratio is 100% and all is happy and go-lucky.

I got a learnin' on this one a few months back, so I will try and explain. Basically, you need to run the 410(b) test based on the lowest eligibility requirements in effect for the plan year. In your case, there are no eligibility requirement, since you are making everyone employed on the adoption date eligible. So your concern is those that terminated employment during the year. Let's do an example . HCE's employed on adoption date and also benefiting: 2 NHCE's employed on adoption date and also benefiting: 10 Terminees during the year (all NHCE's): 20 Coverage test: 10/30 / 2/2 = 33.33% - could be a problem Of course you could test using otherwise excludables and if no HCE's are in that group then you pass at 100%. So in reality, you really only have an issue if an HCE is being let in by the more generous eligibility provisions.

Mbozek, to your posts above, no one is disputing that if you have 3 YOS for vesting that you don't have the right to remain on the old schedule. It is the IRS' position that no matter what number of YOS you have that the vesting percentage is grandfathered, not the vested benefit. Anyway, you could start up a new plan and exclude YOS for vesting before the effective date as long as you don't terminate the old plan. To be a predecessor plan you must terminate within the 5 years before or after the start-up of the new plan.

Then add this to the list because they have stated their opinion on the matter.

There are many instances where the IRS does not apply this concept. A quick list is TH, balances that trigger 404(a)(7), amendments to a PS allocation formula when the right to the allocation is accrued during the year.

SoCal, you are not wrong.

If the old schedule didn't apply to future contributions for those with 3 years, then there would be no point in having that rule. (But the question is probably moot since if they had 3 years of service for vesting they already met the 3-year cliff requirements.) But, I have heard that the IRS will argue that it's the vesting percentage that is protected for all participants at the time of the amendment not the vested balance. That interpretation would call for every current plan participant to be fully vested in all current and future contributions. Only new participants could have vesting applied. Of course with a 3-year cliff there are probably only a few people that are participants with less than 3 years of vesting service anyway.

I think you should read 1.401(a)(4)-5. Just because it's in different plan years does not make it immune from being considered discriminatory. You are correct that you are doing what is allowed to be done and in this year the HCE's are reaping the benefits of this provision being in place. But so too will NHCE's in future years if this defintion remains. That will not be the case if the definition of comp is changed.

Chris, read the first post. The corp started on 4/1, so everyone can only have compensation used for 9 months. By not having to prorate the compensation limit, the HCE's have the potential to utilize the full 401(a)(17) limit, which is the most they could have used in 12 months. The others are still using 9 months of compensation. Advantage HCE's. Now if this is changed next year and those who enter the plan are all NHCE's, well therein lies a potential problem.

Well let's not overstate it. Daily valued accounts are generally participant-directed accounts where the participant has access to the information himself, in effect providing his own statement. In balance-forward plans the participant gets a yearly statement that would too provide this information. Now I didn't read the code section and this might not meet the strict criterion, but it's pretty close I imagine. Also, I said follow the instructions the best that you are able. You are reporting a participant on the SSA if they terminated last year and haven't been paid out. It would be more accurate to use the EOY value in the year of termination rather than the current year's EOY value as "many plan adminstrators" are doing. I agree with being practical in the lengths that are taken to provide this information.

Many wrongs don't make a right. I would follow the instructions the best that you are able with the information available.

Could it be discriminatory? Yes. Is it discriminatory? I don't have enough information. Read 1.401(a)(4)-5 and make the call. I don't have any real-life experience with how the IRS would view it.

No, but more importantly there is nothing that says it is not proper. 411(b)(1)(F) is sometimes misinterpreted as the only way to define a 412(i) AB when it in fact is just one way.

Rev. Rul. 2001-62.