Mike Preston

Doug, what is your cite for not being able to allow hardships?

Even though I agree with your conclusion, I don't see your logic in the last post. The example in the regs indicates that the balance of the 2006 catch-up allowance ($600) will be excluded from the ADP test done as of 10/31/07. What we were talking about was whether (using this example as a base) $600 could be used to eliminate a refund even if the $600 wasn't treated as a catchup in 2006. Slightly different fact pattern. Nonetheless, in re-reading 1.414(v)-1©(3), I'm convinced that the only reasonable interpretation is to treat the amounts deferred in 2005 (as originally posited by the OP) as catchups in 2006 even though there are zero actual deferrals in 2006. I asked the question of an ERISA attorney (who shall remain nameless unless he/she gives me permission to identify him/her by name) and s/he was quick to say that this is the correct result.

Thanks. I should have just looked at our SPD drafting specs. It would have said the same thing!

What an absurd example. Everybody knows you would have to have one NHCE in the HCE plan to make it viable.

Sorry to jump in so late, but I thought that the DOL had already opined that a plan may not charge a participant directly for determining whether a DRO is a QDRO? Did they change their position? Or is it a position that the world just ignores?

The only way Tom can end the discussion is to lock the thread. I don't think he is close to actually doing that (besides, I could unlock it ) Tom, I don't see where the example you cite gives any guidance on this issue. Rlb, I don't see where the regulations specifically agree with your assertion that providing FOR the refund is the conservative course of action. If there shouldn't be a refund, then making one is a violation of the catch-up rules. At this point, it seems to me that EITHER interpretation is reasonable and as long as a plan sponsor didn't flip-flop on the interpretation in consecutive years should be immune from attack. **NOTE BY MBP - I no longer hold this opinion. See the balance of this thread** That is, unless somebody comes up with something that tips the scales one way or the other more definitively than what we've collectively come up with so far. I did note the following from the 2003 Grey Book: Company X sponsors a 401(k) plan with a July 1 – June 30 plan year. The plan limits contributions to 5% of each month’s pay. The plan begins offering employees the opportunity to make catch-up contributions on July 1, 2002. The plan allows catch-up eligible employees to make contributions in excess of the plan limits by specifying a dollar amount of additional contributions each month. An employee with an annual rate of pay of $192,000 begins participating in plan on July 1, 2002. He elects to defer 5% of pay of each month’s pay, plus an additional $100 per month. From July 1 to December 31, 2002, the employee defers $4,800 plus an additional $600. The $600 in excess of the plan limit is treated as a catch up contribution for the calendar year in which the plan year ends, or 2003. The employee quits on December 31, 2002 and goes to work for an unrelated company, Company Y that sponsors a calendar year 401(k) plan. The employee elects to defer a total of $14,000 during 2003 (including a $2,000 catch-up contribution). Has the employee violated 402(g) for 2003? RESPONSE No. Although the employer treated the $600 deposited between July 1 and December 31, 2002 as a 2003 catch-up contribution, the employee treats it as a 2002 deferral. The individual’s limit is determined separately from the limit determined by the plan(s). Unrelated employers are not required to aggregate deferrals under the catch-up rules. ============================================================== Doesn't that lean in my direction?

No because it doesn't say that. Who told you that it did? I think there must be some context here that you have decided not to share.

Before a real answer can be given, you need to provide enough information so that a real answer can be given. What kind of plans? What kind of sponsor? Are the plan(s) ongoing? Are there employees? What are compensations for 2005, 2006, 2007? Is the tax return for 2006 on extension (is it a sole prop or a partnership)? In general, though, a contribution to a profit sharing plan is deductible in the tax year when paid as long as the trust is qualified. If the contribution was made during 2007 for the 2005 year and it was allocated to people who had no compensation in 2007, then there is a 415 violation. That doesn't stop the amounts from being deductible, unless the IRS disqualifies the plan for this, in which case my first sentence means that it isn't then deductible. What this all means is that if the allocation requires a correction under EPCRS then you must use that program or else the amount becomes non-deductible. Maybe if you gave some specifics it would be easier to say something more targeted.

IRS 406? What is that? Do you mean 404(a)(6)? If so, it means it isn't deductible in 2005, that's for sure. Why it wouldn't be deductible (subject to all the appropriate limitations) in a later year?

Get your copies here: http://benefitslink.com/taxregs/td_9359_circular_230.pdf

The IRS is pretty adamant about not being able to change assumptions once a Schedule B is filed, even if it is filed by a different actuary. They seem oblivious to the obvious conundrums such a policy engenders. There is a Rev Rul "way back when" that lays out their position. Essentially, you are able to change assumptions only if the error you are correcting is directly tied to and renders the assumption being changed inappropriate. There are no specific examples given. For all practical purposes you just can't change, without being willing to fight the IRS' position.

No question about it: it is not *necessary* to pass the reasonable classification test. But it sure makes passing 410(b) for the restructured component plans much easier! Agreed that once one gets to the a4 portion of the test, the reasonable classification portion of the test is irrelevant. At that point, it is purely a numeric test. If "greater than 70%", then you may use the lowered threshold for rate group testing. I misspoke above when I used "rate group". I should have used "plan". I have edited the post. Note, however, that I was talking about a plan that had precisely one rate group and everybody in the plan was also in the rate group. At that point, you can technically use either expression (plan or rate group). Tom, I am 99.9999% confident that you and I interpret the rules the same way.

If you didn't misunderstand them, then they are asleep at the wheel. Silly example: 1000 life plan, 100 HCE's. Put 100 of the HCE's in with the 1 NHCE that has the highest benefit you satisfy the rules because you have 100% coverage? Boy, talk about aggressive! The reasonable classification test is defined in 1.410(b)-4(b). If you have 72 or 73 receiving the highest percentage, then if that group were tested on contributions you would have 73/1010 NHCE's (7.13%) and 11/108 HCE's (10.19%) = 69.97%. OK, maybe you need 74. But you wouldn't need the average benefit test in any way, since your **plan** (remove: "rate group") would satisfy the 70% test. I've never seen a large plan with "normal" benefits not pass. If the plan has a "plan within a plan", such as a plan intended to provide certain benefits just to selected management employees, then of course the test can be failed. But usually restructuring works. As far as suggestions, just to run more tests. Accrued to date with and without permitted disparity. Different salary averaging (3 years, 4 years....10 years). The basic methodology is to put each HCE in their own restructured plan. What you want to find is either 7 (if ABT fails) or 3 (if ABT passes) NHCE's that exceed the testing threshold for the HCE under some test, any test. Assuming each HCE is supported in that fashion, now you aggregate all the HCE's from each respective test (as you did in the primary example when you put all the HCE's tested on benefits in one plan and all the HCE's tested on contributions in another - this is just an extrapolation of that methodology). At that point you will probably have a whole bunchload of NHCE's that are either in no plan of any HCE or, are in a plan with an HCE and that plan has more than the necessary number of NHCE's. All of those people are wild cards that can be sprinkled amongst the restructured plans until they satisfy the 70% test. Done.

I would check the document very carefully for the definition of QNEC under your plan. It is most unusual to have any QNEC be made on behalf of an HCE. Assuming that you do, indeed, have a provision that calls for this HCE to receive an allocation of QNEC monies, keep in mind that the QNEC needs to satisfy non-discrimination as if it were the only contribution under the plan. Does it do that? I think you'll find that it doesn't (but I could be wrong on that one, you have to run the numbers, of course). Hence, you will first need to correct the QNEC itself. Once you do, you may find that the ADP test is now satisfied and the only problem you really had was a QNEC problem.

As everybody else has indicated, the prior service provider does not understand how component plans operate, or you have misinterpreted what they said. In all likelihood, component plans never pass the ABT. The third prong of that test - the reasonable group test - is almost never satisfied. With the numbers you have cited, the number of NHCE's needed in the second component plan, along with the 11 HCE's, is either 72 or 73 (depending on how one rounds). But you would then need to pass the APBT in order to arrange your rate groups such that the passing percentage was roughly 23.5%, rather than 70%. Does your plan pass the ABPT? If not, then instead of merely needing 72 or 73 NHCE's in plan 2, you would need 72 or 73 NHCE's in each rate group. That is a tougher row to hoe and you would most likely need a few hundred of the NHCE's, not just 72 or 73. Luckily, you can cherry pick. I would be surprised if the plan actually failed non-discrimination, such is the nature of restructuring.

Net, not gross. Big oops, I'm afraid.

I guess I'm not understanding why you say that the "blended calculates BELOW either the management and the bargaining unit." By definition, you say that the person who has transferred to union can determine their pension by using strictly the union formula. If that is so, how can it calculate "BELOW"? I note that the same provision applies in reverse. Again, you say that the person who has transferred from union can determine their pension by using strictly the non-union formula. What am I missing?

Here's a link to the post. I have no idea whether the information on the list is current or not. It also appears to be a list of attorneys that specialize in litigation, rather than QDRO's. I suppose there are some in there that overlap. http://benefitslink.com/boards/index.php?s...st&p=152793 I wouldn't limit yourself to attorneys in San Francisco. Anybody in California can deal with anybody else in California as easily as the next. Your fears are justified. A plan can, and most likely will, delay distribution of your funds once they are aware that there are multiple claims against the money. They would be kind of silly to do otherwise. Nonetheless, they may not. So it is in your best interest to see if they will or won't as soon as possible. I suppose you could just request your distribution. Or, you could recognize they are already on notice and ask them for a copy of their "QDRO procedures" which they should be willing to send you and which may give you guidance on what they will or will not do. As an alternative, you could just ask for a current copy of the Summary Plan Description and, if you are lucky, it will have a copy of the plan's QDRO procedures in there. Of course, you might want to engage an attorney before doing ANYTHING so that you can be as sure as you can be that you aren't doing something that will jeopardize your ability to get your money. I don't think there is any one course of action which stands out as THE correct thing to do at this point. That is a two edged sword, of course. It means that you need to decide which one is best and then do it as quickly as you can. Only in consultation with an attorney can you decide which of the options you have available is best. Good luck.

Whichever one the plan sponsor wishes to disqualify. Although in the context of 457 plans, I believe the net result is just that the amounts in excess of the deferral limitation are treated as taxable. Joel, I don't know why Congress decided to put 457 plans on an unequal footing relative to other plans (403 and 401), but they did. A 457 plan is generally referred to as a "plan of deferred compensation". No profit sharing. No pension. Simply no true "employer contribution." Hence, all contributions to such a plan, whether they are made by the employee or the employer are TREATED as the same thing: deferrals. Those deferrals are subject to the general limitation on deferrals ... the 402(g) limit (or its equivalent in the context of a 457 plan). If you don't like the result, you should find a member of Congress and see if they have a sympathetic ear.

Great. You should be all set.

I'm not sure what you mean by "how it should be stated". Do you mean how should the document be drafted to accomplish what you want? If so, the answer is document dependent. Suffice it to say that any document provider should be able to tell you how, if at all, they can implement a provision which calls for a matching contribution for HCE's to be defined independently of a matching contribution for NHCE's. Some document providers will be able to accomodate this, some won't. If you are having your document drafted by an attorney, it is as simple as saying to that attorney that you want to have provisions in your plan that implement separate matching rules for HCE's and NHCE's.

And Tom's example is perfect. Therein lies the rub.

I interpret deemed equivalent as removing the other requirements.

JRN, I think you would do better to start a new thread, rather than try to hijack this one. I see almost no similarity between the question asked here and yours (well, ok, maybe a tiny bit).

I believe that trying to apply 74-166 would be a bit difficult after the 401(a)(4) regs were issued in 1993. Have you done so in the last, oh, 14 years or so?