Mike Preston

If you use permitted disparity, they may not even need 8.6%. Just remember that all NHCE's have to get the gateway, which would be 1/3 of gateway comp time the highest HCE rate, which in your example appears to be 5.5%. EDIT: Misread the situation. Ignore the above. The 8.6% you are giving to NHCE 2 has no bearing on the percentage you give to HCE's 2 and 3. Whatever the highest percentage is to HCE's 2 and 3 must be provided to NHCE 1. My comment remains with respect to permitted disparity though.

Can't that provision be removed?

FGC, when I said re-structure, I meant re-structure. They have done the analysis and find it is cheaper to "give away" 20.01 percent of each entity (to an otherwise long term, deserving manager who will no doubt have to pay for it in compensation adjustments - thereby keeping the cost somewhat in check). Last I checked if the entities are not in the service industries (think about a group of Ace Hardware stores) then as long as there isn't an over-riding management entity you are pretty much free and clear of 414(b),©,(m) and (o), aren't you?

Hojo, Draper is talking about the floor stated in 404 that points back to 430. That is, the maximum is not less than the minimum using at risk rules. I don't have time to cross reference but I would think MAP-21 affects all things 430. So, if there is an at-risk bump up it will be muted due to MAP-21.

It? lol

I don't see why it needs to be retroactive.

And there are those that will move heaven and earth to restructure their businesses so that each separate operating entity will have less than 50 employees. This actually means more plans for me!

BG5150, there are so many more components to the top-paid group determination. Check out all of Q&A9 of 1.414(Q)-1T.

SoCal, I think you misread the OP. There is no talk of terminating the pension trust. They only want to terminate the inheritance trust. Personally, I don't understand how the provisions of the inheritance trust call for a 12/31/2012 "scheduled" close date when the trust has an asset that will not be fully received by that point in time. If that is the case, however, the inheritance trust should have provisions in it that deal with what happens. My guess is that the Trustee of the inheritance trust is already in a pickle because the inheritance trust should have closed and the provisions dealing with what happens with respect to amounts receivable by the inheritance trust after its close haven't been implemented properly. I would expect the inheritance trust to say that any monies received after the close are treated as additional funds payable to the estate and subject to the will's provisions. This might be a far cry from 50/50. The plan, on the other hand, has no reason to do anything other than pay the inheritance trust as long as it accepts payments. Once the representative of the inheritance trust tells the plan that the inheritance trust is no longer in existence, then the provisions of the plan kick in and no doubt call for distribution first to the spouse (if living), etc. If the provisions of the plan don't dovetail with the provisions of the inheritance trust it might be necessary to have somebody (like a spouse) disclaim in order to have them match up. Everybody involved in the inheritance trust needs to be represented by counsel and the qualified plan should follow the instructions of the Trustee of the inheritance trust until it doesn't exist. After that, it must follow its own terms. This is a complicated enough situation that the qualified plan should probably have its own attorney weigh in, as well. Things can get very expensive when estate plans go awry. And having the inheritance trust "scheduled" to terminate before it receives the complete benefit from the qualified plan sounds to me like something has gone awry.

I must be missing something. If the plan allows distributions in installments, then elect a series of installments that is not expected to last 10 years and then everything is rollable.

QDROphile and I usually agree. Not this time. I agree with MoJo that if the 3(16) named fiduciary enters into an arrangement with a service provider that accepts the mantel of fiduciary then co-fiduciary liability may result in greater exposure than if they had just hired the service provider to perform ministerial tasks. But gettiing back to the OP's issue, it is my opinion that no matter how complicated the code and regs are with respect to a given issue (determining HCE's, providing proof that the benefits are non-discriminatory, proving that coverage satisfies 410(b)) in the absence of a specific delegation of fiduciary responsibility the service provider is not a fiduciary with respect to the plan. Notwithstanding my opinion, it is helpful to state in one's engagement agreement that services are being provided in a manner that do not result in fiduciary status being conferred on the service provider.

Check plan document.

I would let an ERISA attorney adjudicate the wording of 93-52.

I can't. How can it be anything other than LY 1/1/2012 through 12/31/2012? The contribution was made on 6/25/2012 and presumably was allocated on 6/30/2012? Or are you saying that the 6/25/2012 contribution was somehow allocable on some date that falls within the 7/1/2010 through 6/30/2011 year? Note that this answer is predicated on a single allocation date in the plan. If the plan has monthly allocation dates then the regulation allows the contribution to be split over limitation years.

The purpose of 414(s) compensation is to use it in a non-discrimination test. If you do a non-discrimination test in Year X and that satisfies 93-42 for years X+1 and X+2 then there is no need to analyze anything with respect to 414(s) in years X+1 or X+2. What am I missing?

Mike... I'm confused by the bolded part above (or at least, not understanding). In order to cross-test in the general test, don't you need to pass the APBT at >=70% first? Not at all; there is no tie between the two. The consequences of not passing the ABPT is that each rate group must satisfy a 70% threshold. You can reach that 70% threshold by testing on contributions or benefits. If you do happen to pass the ABPT then each rate group merely has to satisfy the mid-point of the safe and un-safe harbors.

OK, so we are back to new comp. Note that it is fundamentally impossible to have a plan satisfy 401(a)(4) as a 401(a)(4) safe-harbor formula (for example: comp to comp) when the plan's terms allow each participant a different amount. Even if the employer ends up allocating the same percentage to each participant it must be general tested. That is your major confusion. Now you mention that notwithstanding the fact that everybody is in their own allocation group the "document allows for a pro-rata allocation". Sorry to say it, but this means absolutely nothing. In order to be a 401(a)(4) safe-harbor formula it would need to mandate a pro-rata allocation, not merely allow for it. So, we are back to general testing the plan and you want to general test the plan on an allocations basis. Fair enough. If you pass your general test on an allocations basis you have no need to ever consider a gateway contribution. In the process of running your general test you might need to pass the ABPT (in this case "might" is "definitely" because your coverage percentage of the rate group where HCE's receive 15% of pay is less than 70%). You can run your ABPT any way you want (impute permitted disparity, cross-test, change the definition of 414(s) compensation used, etc.) and it will have no effect on whether a gateway contribution is required. If you fail to pass the ABPT no matter how hard you try, now you will need to cross-test in your general test and, if you pass, the only increase required would be the gateway. If you still failed, however, then you would need to save the plan by way of a 1.401(a)(4)-11(g) amendment. There are a myriad of ways that such an amendment might be structured, some of which would invoke gateway others of which would not (for example, one way to "fix" the broken test would be to give more money to the NHCE who is already receiving 15%. If you did that and the plan now passed the ABPT it would allow the plan to say that it passed the general test on an allocations basis and no gateway would be required).

Because we all fell into the trap of thinking that the plan was designed to provide for different percentages for each employee. This disucssion got off on the wrong foot because not enough detail about the plan was known and the first few questions didn't fill in the right gaps. In the case you are describing in #26, that is the first I've heard of it being a safe-harbor allocation formula in the plan (not to be confused with a 401(k) 3% SH, which is a totally different animal. In fact, you started out by saying the plan was a new comp design. Can't really blame anybody for being confused. So, let's start over. There are two cases here, one is terribly esoteric and the other is blatantly obvious. Both end up needing the same tests. First, let's assume the plan document calls for a 401(a)(4) safe-harbor formula (which is different from a 3% SH one finds in a 401(k) plan), you can allocate a pro-rata contribution of 12% to the 5 HCE's who satisfy the allocation conditions of the plan and 12% to the one NHCE who satisfies the allocation conditions of the plan. In addition, all 7 receive the 3% SH allocation. Hence, 6 end up with 15% and one NHCE ends up with 3%. All 7 are benefitting so the plan easily passes coverage. And most people think the plan automatically passes 401(a)(4), but it doesn't. In this case you have two separate allocation requirements. 6 people satisfy one, 7 satisfy the other. This means, unfortunately, that the plan, as a whole, is not eligible for 401(a)(4) safe-harbor treatment and must be general tested. There is an exception to this rule if the 7th person is getting an allocation of the top-heavy minimum only (like a person employed throughout the year who works only 100 hours and is given 3% of pay to satisfy the top-heavy rules). But there is no exception to this rule if the 7th person gets an allocation due to the 401(k) SH provisions. I know we argued a lot with the IRS and asked for another exception in the 401(a)(4) rules but if memory serves they didn't acquiesce. One way around this is to have the plan's top-heavy provisions match the plan's 401(k) SH provisions (that is, everybody gets 3% whether employed at EOY or not). Most plans don't even have that as an option. So, as far as I know, this problem can't typically be "cured" with a document provision unless you go individually designed (or treat the modification as not serious enough to bounce it out of pre-approved status). In any event, you should read 1.401(a)(4)-3(b)(6)(xi) for more information on this esoteric situation. Now, most of the time, when you have a 401(k) SH you don't have such skewed demographics, so it just isn't usually an issue. But the result is the same as if the plan were designed as a new comp plan to begin with. That is, if the allocation is pro-rata (and you are not cross-testing for anything but the ABPT - which I've already said doesn't count as cross-testing for purposes of determining whether a gateway contribution is required), the way you demonstrate that you have satisfied 401(a)(4) is that you restructure the plan into two plans. One plan gives everybody in it 12% (in this case everybody is 6 people). And the other plan gives everybody in it 3% (in this case everybody is 7 people). EDIT: I mis-used the term "restructure". I meant to use another word like "break" because "restructure" is a defined term that only allows a given participant to be in one of the "restructured" plan. I'm not talking about that sort of restructuring. I'm talking about "breaking" the plan into pieces to demonstrate how it would fail the "multiple formulas" section of the 401(a)(4) regulations. END OF EDIT Everybody agrees that the 7 person "plan" satisfies coverage and 401(a)(4). But the 6 person "plan" has a challenge to overcome when it comes to determining whether it satisfies coverage. There is only one rate group and the coverage percentage of that rate group is only 50% so the only way to satisfy coverage is for the plan as a whole to satisfy the ABPT. Running the numbers on the ABPT without using cross-testing we find that the HCE's average 15% and the NHCE's average 9%. That doesn't satisfy the ABPT because 70% of 15% is 10.5%, so it fails. You didn't give us enough information to determine whether running the ABPT by imputing permitted disparity would result in the ABPT passing (if it does, then everything works out fine). But let's assume that running the ABPT with imputed disparity still fails. The next step is to run the ABPT on a cross-tested basis and see if it passes. The bottom line is that you have to satisfy the ABPT to satisfy the 401(a)(4) non-discrimination rules in this case. General comments: 1) very few people are aware of this requirement 2) I think even the IRS thinks that if they were to re-draft the section of the 401(a)(4) regs cited earlier they would carve out an exception not only for TH but also for 401(k) SH. It is even possible that the IRS has gone on record saying that the addition of a 401(k) SH provision can't cause a plan to fail to satisfy the 401(a)(4) safe-harbor design test if it would otherwise do so. I'd love to see it if that is the case. I haven't paid attention to this issue in years since none of my plans have the skewed demographics that your plan has; but as I said, if the IRS has extended the safe-harbor rules to cover this situation, I'd be happy. WIth all that said, the above is based on a 401(a)(4) safe-harbor formula. You don't start a message with the words "new comp" and expect anybody to stick to an analysis which is focused on the document formula being a 401(a)(4) safe harbor design.

Tom is real good at citations. :-) But the fact is that this issue has long been put to bed. Not thrilled with your tenses ("rate groups already been defined"). I don't think you start with the rate groups. You could just as easily start with the ABPT, note that it passes and then do a rate group analysis dependent upon the mid-point. All tests must pass and the order of performing them shouldn't cause concern.

Yes, it does. Coverage (410(b)) is not the issue. Non-discrimination (401(a)(4)) is the issue.

Agreed

I'm with chc93, you can run the ABT on a cross-testing basis without invoking gateway.

Though not an attorney, I don't think the draftiing is incompetent. It merely parrots the regulation granting a permissability of certain payments. I know many an ERISA attorney that argue vociferously for ambiguity, thereby leaving the decision to the Plan Administrator when possible. This is why individually designed plans are so much shorter than pre-approved plans. Sure, some things in the plan must be unambiguous, but if something can be left to a later day (and an Administrative Policy) many would prefer that course. In the case above it seems clear to me that neither (1) nor "middle ground" is defensible in a transparent environment. Admittedly, communications between Plan Sponsor and ERISA counsel are not intended to be transparent, but if they were transparent the only interpretation I can see is a literal one, applied based on an Administrative Policy, which is a slight modification of (2). The non-assignability clause is clearly trumped by the Permissable Acceleration Events clause. But the PAE clause merely allows acceleration and does not force it. Therefore the Plan Administrator might develop a document which identifies when it will and when it will not comply, thereby defining an Administrative Policy for this purpose. I note that the regulations do not even require the PAE clause be included in the document for the Plan Administrator to invoke it. The only requirement is that the Plan Sponsor not have discretion with respect to whether or not to honor an individual DRO. The only way I can resolve the tensions created by these rules is by the adoption of an Administrative Policy which binds the Plan Sponsor as if the language were included in the plan; changable at will. Note that the regulations allow the acceleration clauses, even if included in a plan, to be removed without invoking the change in the time and form of payment rules of 1.409A-2(b).

But the regs do seem to be silent on treatment of payments that continue notwithstanding RE-employment. This is one for the proverbial ERISA counsel. Nonetheless, I woruld think ETK has it right.

Agree that it is too broad, but most of the time I refer questions like this to the court case "North Shore Auto Body". Usually, this question is asked about excluding employees who have not yet met eligibility. And that answer to that is certainly yes (as long as the amendment is not discriminatory).