Mike Preston

You just read about it in great detail when it is the latter.

We have agreed far more often than we have disagreed.

I'm not so sure I'd need ANY NHCE's to be limited before the plan would be "ok". Note that it isn't a BRF issue, it is an effective availability issue. At least I think that is the concern. But I would be concerned if 100% of the HCE's deferred 5% plus 100% of the catch-up limitation, while none of the NHCE's contributed more than 5%. Think of the movie Labrynth and hear these words: "Smells baaaaaaaaaaaaaaaaad." Again, I'm not saying I know where the line is drawn. I'm saying we have precious little guidance on how to draw said line. Are you saying there is no line?

Of course it is ok to enter here. Looking just at the 2006 EOB, there are two sections which bear on this issue. The question is which one takes precedence. The first was alluded to, above. Sal states that "A zero limit also could apply to a specific group of participants (e.g., only to HCEs or only to key employees)." But immediately after that he has the phrase "See Section XII (Part E.2.d.) of this chapter for details." In said E.2.d there is this little gem: E.2.d.5)a) Limits may not be based solely on whether participant is eligible to make catch-up contributions. The universal applicability rule *is* violated if the plan imposes a lower elective deferral limit just on catch-up eligible participants. In other words, the class has to be based on criteria other than whether the employee is eligible to make catch-up contributions. This way, a lower limit could not be placed on catch-up eligible HCE's in order to treat a greater portion of these employees' elective deferrals as catch-up contributions and, thus, exempt from the ADP test. I think you need to look to all of what is written, not just a small portion. The above seems cautionary enough for me, even without the elaboration in the 2007 EOB. I'm not saying I know where the IRS will draw the line. I'm merely saying that there is a line, somewhere, and the client should be made aware of the fact that if they draw it differently from the way the IRS draws it, there is a risk.

But it doesn't. See my prior message. I think you devolve into a facts and circumstances test.

Geez, Reed, you make it sound like it is a once in a lifetime event!!!!! Well, I will. I think that there is a fuzzy line here. Intentionally. If the plan sponsor draws this line (in any manner) then it falls on said plan sponsor to justify its use and be able to prove that it isn't a fake line, drawn for no purpose other than creating catch-ups where there otherwise might not have been any (or many). Not that I like this result, but I do think it is the natural implication of the way the rules have been crafted (and that we are stuck with). In essence, this falls squarely in the mjb camp of saying that the plan sponsor is assuming some level of risk by drawing the line and assumes more risk by drawing this line closer to zero allowed elective deferrals than farther from it. fwiw

Yes, it isn't an issue. At least not a qualification issue.

Somebody help me out, here. I seem to recall (famous last words?) that there was a requirement in the regulations which requires a participant to be eligible to make regular elective deferrals in order to be eligible for catch up contributions. Isn't a provision which limits elective deferrals to ZERO the functional equivalent of providing that such a participant is ineligible to make elective deferrals? Just testing the theories, ya' know?

You keep this up and I'm going to have to find the time to find what I intimated I might be able to find if only I had the time. <g>

Austin, bird, do either of you have an email or other communication from Sal (or any other source) that specifically talks about a 0% limitation applying to HCE's (or Key's or any other group OTHER THAN catch-up eligible participants, per se)? I would venture to say that every citation I've seen so far from Sal does not contradict what mjb has been saying. In fact, I would say that using what Sal has written as justification for allowing a lower deferal limitation to a thinly disguised group of catch-up eligible participants with a large overlap with those who are so defined is likely to result in exactly what mjb is sounding the alarm over: plan disqualification or unhappy EPCRS (or worse: audit CAP) plan sponsors. I'm fairly certain I have a citation from Sal that specifically says a zero limitation for HCE's is, at the least, inadvisable. If I get time (please, stop the cacophonous laughter), I'll search for it. With that said, if there is a significant percentage of HCE's who are not catch-up eligible and they, too, are subject to the same deferral limitation, it is unlikely that the IRS would raise the discrimination issue under the BRF provisions of the regulations under 401(a)(4). Remember, in order for a BRF violation to occur under a4 it must result in "significant" discrimination in favor of HCE's. It is a (much?) higher standard than "amounts testing" violations of a4. But with all that said, the fact remains that mjb's advice is spot on: there is a greater RISK of the IRS making trouble for a plan sponsor that chooses to implement an artificially deflated plan imposed limitation which can be, effectively, for no other purpose than to enable HCE's access to catch-up contributions where they would otherwise not be available. How could it be otherwise?

5K to an IRA or 2.5k?

Thanks, Doug. I'll try to review that when an opportunity presents itself. At first glance, though, it appears that the projection is based on 100% of Scale G for males and 50% of Scale G for females. I think that is inconsistent with the original notes as published in the Transactions. FWIW.

Does anybody have a copy of the Transactions where the methodology was described? I seem to recall it wasn't straightforward. That is, without the writeup, if all you have to look at is the projection factors, there is a high likelihood that you would not duplicate the intended use of Projection Scale G.

q's != APR's

Did you hear the one about the client that walked into a bar? ..........

My plans frequently provide for employer contributions in the year of termination along with a vesting schedule. There are usually compelling reasons for both when dealing with a plan that is set up as a new comparability plan. When those two circumstances exist, an employer pays out immediately after termination of employment only if they wish to pay out again should there be a requirement for a contribution in the year of termination.

Might I convince you to make your comment in the other thread, as indicated by the wonderful post just before yours? I'm going to lock down this thread, just in case anybody else wants to continue the discussion here.

A true thread-hijack. Care to put your comment into a new thread?

Me thinks she meant her "401(k)" plans, not her "4" plans. Maybe.

Maybe I'm just not understanding things, but just because somebody is terminated doesn't mean that they are eligible for a distribution. They might have JUST terminated and the plan has a one-year break-in-service rule, along with a "pay after the end of the year during which said break-in-service takes place" rule. That would mean that distribution might be as far off as sometime in 2009.Also, you are implying that by taking the loan from this plan, rather than from a new employer (which may not exist, and, in fact, its non-existence may be the catalyst for the loan in the first place) that the individual in question will definitively incur tax sooner than if they borrowed from a new employer's plan? I don't think that is necessarily so, either. Can you explain the circumstances you are implying?

Your instincts are good. Take them further. Not only would the loan policy and promissory note need modifying (assuming they both reference mandatory payroll withholding for loan payments), but it is possible that the plan document and SPD (via an SMM) would need modification, too. Monitoring the loan will usually be additional effort, because the lack of payroll withholding means it is much more likely that the borrower will default. One final thing: if the modification is being made in order to assist a former HCE, the plan could have non-discrimination issues, too. None of the above, other than the last comment regarding non-discrimination, precludes the plan sponsor from going down this path. At least you will have warned them!

Nobody puts q's into documents. Not of fairly well established tables, anyway. I think it is commonly known that I was the source of the original calculation "way back when." Not that it was particularly rocket science. I just used the article published in the Transactions of the Society (green books, back then) which detailed both the projection factors and the methodology for using them. I had my calculations peer reviewed by at least 3 other actuaries who all agreed with my projections. Alas, I have lost the spreadsheet I used to do the projections. However, the APR's for common ages (55,62,65) are well known to those of us who have used the table for many, many years. You can probably find confirmation of those APR's on BenefitsLink if you look hard enough. Or, you could just ask.

The tracking between ABO and funding used to be a very critical plan design consideration. Now, the tracking between PBO and funding is a very critical plan design consideration. Sometimes an "affordable" plan in the context of minimum funding standards becomes an "unaffordable" plan on the financial statements. Same thing can happen in reverse, as well, especially in the case of a conservative management group and an aggressive employee representative.

Much as we like to communicate openly and freely, I want to caution people that this is a public website. Not only can the government monitor postings here, but they invariably will do so. Especially when the issue of fees is discussed. Please do not suggest specific levels of fees for specific services. There are many governmental rules against discussions of that sort. I don't know where the line is drawn, technically. That means that should it even appear to have been crossed, BenefitsLink will have no choice but to delete the discussion.

Rarely do I read a message that I wish I had wrote verbatim. SoCalActuary has produced one. WHAT HE SAID!