Mike Preston

I think you will find such a list (although without the summaries you are looking for - at least not closely juxtaposed) in many of the CCH books and, as I recall, in many publications of Sal Tripodi (cyberisa). Even his annual updates and periodic seminars materials have this list, if I recall.

The bottom line is that you are clinging to your position, even in the face of evidence that supports the use of statutory entry dates. Again, as the client, you are entitled to take whatever position you want, as you will be the responsible party should the IRS ever light you up. But I find it particularly arrogant of you to use the phrase: "Because I believe it is the right way to do it." That implies strongly that you believe the use of statutory entry dates is the wrong way to do it. Frankly, there are some very talented, and in some cases brilliant, people who have travelled this road long before you have. And for you to reject their years and years of experience and their well respected views and come to your own conclusion is fine for you to apply to your own domain. But please spare us the language that implies your conclusions should supplant those of the people I just mentioned as it applies to others. After you have written a treatise comparable to the ERISA Outline Book, maybe you could come back and speak with a bit more authority. I'm not sure of the specific chapter reference you used, as I couldn't find anything in that section of the 2006 version (btw, it is called the ERISA Outline Book, not ERISA online). Here is a snippet from the 2008 version, Chapter 11 (401(k) and 401(m) Testing), Section XII (Special testing rules), Part D (Otherwise excldable employees): "Comments made on July 29 and 30, 2003, by IRS and Treasury representatives of (sic) the ASPPA Summer Conference in Irvine, CA, as part of a discussion of these regulations when they were in proposed form, suggest that, unless subsequent guidance provides explicit language regarding the entry date issue, that a reasonable interpretation of the law would include the assumption that either the plan's entry dates or the statutory entry dates under IRC Section 410(a)(4) are relevant to identfying otherwise escludable employees." And your quote here: "While there are better tax results achieved, mentally I just don't like the processes." says a lot about what you want to accomplish. You want to rewrite the rules to meet your own definitions of simple ("In my worldview, the process should be fairly simple and look to the plan.") and easy to understand. I wish you luck with that. This sort of naive approach to understanding the Internal Revenue Code and the regulations which are published thereunder is indicative of somebody who has very little stomach for the real world of benefits administration. Heaven forbid you should have cause to review Section 401(a)(4) of the Internal Revenue Code and be responsible for implementing its enforcement. It is 18 words long and sets forth one of the requirements to have a qualified plan: "if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees." The IRS has seen fit to publish regulations interpreting what that section means that are hundreds of pages long. As with any document of such length, there are some provisions that are unclear. And there are some provisions which required the IRS to make a judgement as to how best to implement the statutory intent. In your world, where things should be "fairly simple" you would reject options which are, I guess, "not fairly simple". In short, you would be a lousy consultant, because you would substitute your judgment for the IRS'. I'm coming to the same conclusion that Blinky already came to.

As I said, 410b may be right. Technically. Even though I don't think he is, that means very little in the long run. I am reminded of the story of 1.401a-20 which includes the requirement that the QJSA be the most valuable benefit. Now, it used to be that 1.401a-20 said merely that. I read it faithfully and opined that it meant we must offer lump sums that were not more valuable than the QJSA offerred. Sounds simple, right? Wrong. The IRS modified the reg and stated that what they had meant to write that the QJSA requirement applied to everything except lump sums determined under 417(e). Retroactively. Why? Because, in part, that is what their reps had been saying at various conferences. There is no question but that my reading was correct and the IRS announcement applying the "correction" retroactively supports my reading as having been accuate. But there are those who did it "wrong" for many a year who were found to have "done it right" by a stroke of the pen. I should point out that many thought my position was incorrect when I voiced it (even here on BenefitsLink, if I recall). Now, it turns out that it was merely "the conservative view." Certainly, 410b is free to take the conservative view, because the language is interpreted by him to be as clear as my reading of 1.401a-20 was to me. And even if the IRS comes out and clarifies it someday and proves him "wrong", it is hard to imagine the IRS beating him up for doing so.

You may be wrong, buy you may be right (with apologies to Billy Joel). There are others who read it entirely differently. Keep in mind that the paragraph you are quoting is attempting to define a double exclusion. Those who are "under" are excluded and those who are "over" are excluded: only those who are neither under nor over are considered as part of the plan being tested in that paragraph. The problem, I suppose, is due to the language that the IRS uses. Let's see if I have this right: 1) we want to test those who are defined in the regs as "otherwise excludable" as a separate population. 2) to do that we pretend that those who are otherwise excludable are actually includable (which allows the IRS to not re-write any of the regulations that reference includables). But the code and regs don't actually define includable. Includable is really the entire population reduced by those who are otherwise excludable. So the IRS turns the whole world on its head and redefines who are otherwise excludable just so you can test the real otherwise excludables as includables. I *know* we are having fun now! Right? RIGHT????? 3) the language for determining, in this circumstance, the otherwise excludables defines two groups: a) those who are so young or who have so little service that they have not yet become participants in the plan, per the plan's actual rules. This is the group defined by the last sentence of what you quoted ("In addition, if the plan being tested applies minimum age and service conditions and those conditions are less than the maximum permissible minimum age and service conditions, employees who have not satisfied the lower minimum age and service conditions **ACTUALLY PROVIDED FOR IN THE PLAN*** are excludable employees."). b) those who have so much service and are so old as to be participants in the plan if the rules were applied to: "employees who have satisfied the greatest ***PERMISSABLE*** minimum age and service conditions with respect to the plan are excludable employees." Note the difference in language. In the first group, the really young or short service group must be determined using the "conditions" that reference the actual provisions of the plan. The second group (what I usually call the BIG group) is determined using the greatest permissible provisions; not the actual plan's provisions. At issue, of course, is whether the period of time "waiting for the next entry date to roll around after an employee has established the age/service requirements under the plan" can be part and parcel of the "greatest ***PERMISSABLE*** minimum age and service conditions with respect to the plan". I say yes, you say no. There are those at the IRS that will line up behind you, and there are those at the IRS that will line up behind me. Does the language of 410(a)(4) help any: "TIME OF PARTICIPATION: A plan shall be treated as not meeting the requirements of paragraph (1) unless it provides that any employee who has satisfied the minimum age and service requirements specified in such paragraph, and who is otherwse entitled to participate in the plan, commences participation in the plan no later than the earlier of (A) the first day of the first plan year beginning after the date on which such employee satisfied such requirements, or (B) the date 6 months after the date on which he satisfed such requirements, unless such employee was separated from the service before the date referred to in subparagraph (A) or (B), whichever is applicable." I'll let others carry the ball from here, I'm afraid, unless some time opens up that I'm not expecting. Good luck.

Unless the signing bonus is specifically for the transfer of property, I can't imagine it not being included.

I think the trustees need to engage LABOR/ERISA counsel to help them because it appears they have some LABOR/ERISA related questions that are best put to somebody in the legal profession.

Well, since both are service companies, the answer might be different than if one or both weren't. Now that we have all the facts, maybe somebody can give a quick rundown.

Just checking all the bases. One more thing, are the companies an affiliated service group? Well, ok, you said unrelated. Did you mean unrelated in the affiliated service group sense or unrelated just because they seem to do different things? That is, have you had a formal analysis done which confirms they aren't an affiliated service group? I admit to not giving this any thought other than to ask the question, in case somebody else seems to think that the answer is obvious.

Probably not. I think there is a proposed reg on the table that loosens their current stance (which is more akin to 1 or 2 days in most circumstance than anything else) to one week.

You are free to resolve the ambiguities the way you have described, because you are the client and have been made aware of the ambiguities. In addition, nobody can claim that your descriptions aren't faithful to the English language equivalents. However, please don't imply that others who have resolved the ambiguities differently, based on representations from IRS personnel, aren't also entitled to their positions. I believe that you will be able to find court cases that have held that when official guidance is lacking and a plan sponsor resolves an ambiguity in a manner which is consistent with positions taken publicly by IRS personnel, that the plan sponsor's position is not unreasonable.

Would kind of lay waste to the concept of LLC, wouldn't it?

The unions *will* object if this is being done without their participation in the process. I can't imagine any multiemployer plan and its advisors not already being aware of the requirement to involve the union in something like this. What is actually going on?

How old are the kids? Is it a community property state?

And I think you will find that the DOL has been fairly rigid in their interpretation. Whether the IRS would adhere to the DOL's interpretation is not known to me, but I would suggest that an actual entry date of Mar 1 and an effective entry date of two months later won't cut the mustard. The DOL has been, to put it mildly, on a rampage of late (the last few years) to "encourage" (through the use of excise taxes and audits) employers to ensure deferrals are forwarded to the plan within a very short period of time after those deferrals are withheld from paychecks. Language similar to the "as soon as administratively practical" language you cite has been interpreted to mean as little as two or three days. Lately, the DOL has come out with a proposed regulation that loosens that a bit, but two months would never have met their definition. Yes, I recognize that there is a subtle difference between the issues being discussed. In the case of the DOL example we are talking about already withheld monies; in your case we are talking about the timing of when the first monies will be withheld. I still suggest you highlight this issue to ERISA counsel and listen carefully to the response.

Yes, although you hardly have a choice in the matter.

Catch as catch can.

You can certainly use the rule, if it works. Have you tested it? It doesn't appear to me that it would pass, but I could be wrong on that.

Possibly. It is, quite possibly, a design that is desired by the client for, get this, employee benefit reasons. Tell us, Andy!

Yup, you could. See Code Section 401(k)(3)(F).

Yup, this is anything but a design-based safe-harbor and should have absolutely no problem passing nondiscrimination testing so long as you don't have any HCEs with fewer than 33 1/3 years at retirement! Or you have a PS plan that you aggregate with this plan, test on the basis of accrued-to-date and restructure until the darn thing works. Piece-a-cake.

If'n it had a 401(k) feature and SoCal didn't mention it, I would think aliens had invaded his body and taken control of his fingers.

Indeed, and that is the alternative mentioned in my now second previous message. Whether or not the test can pass! If it passes, of course. But even if it doesn't, the "damage" is usually less.

Yes, you are allowed. In fact, it is the default. With the exception of the allowable alternative testing method mentioned in my last post, any HCE which would be otherwise excludable falls into the otherwise excludable group. If, when you test your otherwise excludables, it fails because of the HCE (or HCE's) included, you either invoke the alternative mentioned or you abandon testing your population as two separate groups. First, you are continuing your confusion about what it means to be otherwise excludable. It isn't "the HCE group" that you exclude them from, it is the entire testing population that you exclude them from. So, it depends on whether said under 21 family member has deferred. If they made 2000 and deferred 1900 (not an uncommon thing) then it is usually best to have them remain otherwise excludable, have the test on the otherwise excludable fail and then refund this poor young person's deferrals. Otherwise, if the alternative mentioned in my last message is invoked or if the plan is tested as a whole (without segregating the plan into two populations) this individual's deferral percentage will no doubt cause the test to fail. And even worse, since refunds are based on "he or she who deferred the most", this individual will no doubt be allowed to leave all of their deferrals in the plan, while an older HCE who deferred more (such as the $15.5k limit) will suffer a refund when there might not be a refund to this individual at all if the plan were tested based on otherwise excludable/not otherwise excludable.

Oh, boy, you are gonna love this....... yes, you are allowed to put the HCE into the otherwise excludable group. However, there is a special rule, solely for testing the HCE deferrals against the NHCE deferrals which ALLOWS you (but does not require you to) aggregate the otherwise excludable HCE with the non-otherwise excludable group. Are we having fun, yet?

410b, first of all, let me say that this discussion is a breath of fresh air. It is wonderful dealing with somebody who doesn't have the taint of learning what a predecessor from within the industry has been doing previously. You are, quite rightly, relying solely on the actual language of the plan, the SPD, the Code and the regs. And you are insisting that they be taken as written. Bravo. On the other hand, welcome to our world. We are constantly dealing with ambiguities in the combination of the plan, the SPD, the Code and the regs and somewhere, somehow, we have to disambiguate. Sometimes it just ain't fun. This is one of those times. There are two issues, as I see them. First, you really need to get an opinion from counsel regarding the plan's administrative practice of denying a new participant the right to defer until the beginning of the first quarter after they are eligible. I will be so bold as to suggest that even if counsel can find room to support what you have done in the past, that you change that practice as soon as you possibly can; possibly by amending the plan so as to make clear that the change is being caused by a conscious decision and not just a seemingly arbitrary modification to the plan's administrative practices. OK, that issue is dealt with and needn't be discussed again, if you don't want to do so. The far more complicated issue is who can be considered "otherwise excludable" (let's use the real terms, if we can, since you are coming at this from a "let's use the real rules" perspective; it will help disambiguate as much as is possible). We agree that a NDT can be run based on segregating your plan's population into two groups, where group 1 is those that are "otherwise excludable" and group 2 is everybody else (or, if you prefer, non-excludable). The definition of "otherwise excludable" is found in the regulations under IRS Section 410(b). You might want to find Regulation Section 1.410(b)-6 and read it. It is kind of long, so I won't repeat it here, but it is entitled "Excludable employees". Here is one of the sections that bear on this issue: "The effect of this rule is that employees who would be excludable under paragraph (b)(1) this section (applied without regard to section 410(a)(1)(B)) but for the fact that the plan does not apply the greatest permissable minimum age and service conditions may be treated as excludable employees with repsect to the plan." At issue is how to determine "the greatest permissable minimum age and service conditions". You certainly acknowledge that the age conditions of your plan are not the greatest permissable. You have indicated that you think your plan's service conditions are identical to those that are the greatest permissable. You have indicated that since 410(b)(4)(B) doesn't mention entry dates that such dates can't be considered. I suggest you read 410(b)(4)© which specifically mentions entry dates. The regs carry this forward. But it is still less than perfectly clear what is meant because 410(b)(4)© states: "An employee shall not be treated as meeting the age and service requirements described in this paragraph until the first date on which, under the plan, any employee with the same age and service would be eligible to commence participation in the plan." Believe it or not, that section seems ambiguous to some. Some read it as you have asserted: you must use the plan's actual entry dates for dividing between those who are statutorily eligible and those who are not. But others read that section (and the corresponding regulation section) to incorporate a theoretical definition within the plan of that which would delay participation until the last legal moment; which would be the use of semi-annual entry dates. You need to decide which you are most comfortable with (you ARE the client, after all) after consultation with your advisors. I can tell you that many a test has been performed using the statutory entry dates as a substitute for the plan's entry dates in testing otherwise excludable. As I have stated in a prior message, there is not agreement at the IRS as to which is the proper construction. You are certainly within your rights to take the approach you think most conservative.