Mike Preston

On a quick read, the answer is no. Gateway contributions are only given to those who otherwise have a dollar in regular er contributions. If these folks are statutorily excludable, I can't see any reason to give them a gateway. However, it sounds like a longer read might indicate the answer is yes. Since this is a top-heavy plan, and since many, if not all, of these people come into the k portion of the plan, if they are employed on the last day of the year, how do you avoid giving them a th contribution of 3%? For those folks, I'd say they are subject to the gateway. I think.

I didn't think that distributions made for child support could be rolled over, directly or otherwise. And in this case, I think the net check is precisely what the participant should be getting credit for. Child support is an after-tax payment so it is entirely appropriate to have the taxes withheld, if any, go to the credit of the participant and not count towards whatever the agency is scoring on his/her behalf. Unless things have changed a lot since I last looked into this, which wasn't that long ago.

I would contact that agency and see if they would accept a check made payable to the alterrnate payee, but that the payment should be sent to them for delivery to the alternate payee. If they accept that, and then the alternate payee directs you to forward the check to the agency, I think it is case closed. If the agency wants the check made payable to them, I think the plan should ask an attorney for guidance.

Well, maybe the Plan Administrator is. But, then again, maybe the Plan Administrator isn't. I'm not aware of anything which makes it clear one way or the other. You would have the scale tipped in favor of ERISA unless something is "generally known as settled issue to which state law applies." I'm not sure it goes that far. Which was the purpose of my query. Maybe there is a cite that indicates that. But I'm not aware of it. In the area of beneficiary designation, I thought that it was generally a settled issue that one looks to state law for the determination. I thought that the post-death QDRO modification cases specifically revolved around state law being the determining factor. Wouldn't that push an attorney representing somebody other than the slayer to argue that it was generally known as a settled issue to which state law applies? In any event, all roads lead to interpleader, in my opinion, unless there is a specific cite that argues to the contrary. I'm not saying there isn't necessarily such a cite, just that I've not run across it.

;-)

While I agree with the comment regarding interpleader, I'm curious what the source of the first sentence is. We might *LIKE* it if we could advise our clients of such entitlement, but I'm not aware of one. Certainly we know about the ERISA preemption clause, but I'm not talking about that because there are enough issues not covered by that clause, including the ubiquitous paraphrase regarding "not having a material impact on the plan" rules that have allowed state courts to craft exceptions in certain circuits that don't exist in others. I think a more fair statement is that, in general, ERISA preempts state law. However, if the courts find that this issue is not covered by the preemption, the Plan Administrator may find that monies were paid to people not entitled to payment unless they take steps to ensure whether Federal or State law applies to this issue. And interpleading is just what the consultant ordered, in this case.

As pax has said, it isn't an issue. The rules that accountants follow are different from the rules that 5500 preparers follow. Happens all the time.

Works for me.

What is your question? It depends on which of the methods you want to use as to which is the correct accrual. But your comparison is misguided. Instead of saying that he should be compared against somebody who never quit, was hired the same day, and who had the same (17) length of service, you should be comparing against somebody who was hired the same day, who had never quit and would therefore have the 18 years of service. That is 18/42 = .42857. Hence, he is less accrued than somebody who had never quit. But it is absolutely expected that he would have a greater accrual than somebody who has 17 years in the bank and has 25 to go, because he has 17 years in the bank and only 24 left to go. If they both end up at 1.000000 when they work their last year, mathematically it is expected that at each point along the way, the person with one less in the denominator will have a greater fraction.

You can't deduct more than what is allocated. Whether you have a forfeiture or not depends on plan terms. It is truly an exercise in discovering what pain can be. Earnings, losses, weighting.... all of which can come into play.

No purpose at all.

Oh, I don't think there is any prohibition against depositing the monies into the account. Only with leaving them there if they end up not being entitled to them. In other words, you can do it, but it is foolhardy to do so, because the pain of undoing such a contribution when it turns out that the individual in question is not entitled to the allocation is not usually worth the gain one gets from having the ability to allocate funds early in the year. I have seen cases where this is done and unwinding allocations which need to be unwound is time consuming and expensive. Some clients insist upon allocating funds to HCE's early in the year, though, and in such cases I've seen counsel demand that they similarly fund the NHCE's and then live with the pain associated with undoing that which must be undone. And it is quite painful.

The testing for a MP plan is identical to the testing in a PS plan. Separating into two groups based on date of hire is a "good" thing in the sense that it will very likely satisfy the definition of a reasonable grouping and therefore allow you to use the average benefits test and, if passed, a 70% threshold. I have some somewhat unkind things to say about testing being limited, in advance, to allocation rate testing. Does your client know that you are not in the mood to embrace testing which might be the best thing for the client? Believe me, there are much more harsh ways of saying this. Of course, if the reason you want to stick with allocation rate testing is that you have confidently concluded that it will always be the best result for the client, I withdraw the prior paragraph. But if the reason you want to avoid it is that your organization or you are not prepared to do so efficiently, I'm back to the now prior prior paragraph.

Have you run the average benefits test? I know it is a longshot, but one never knows. If so, and if it passes, then you pass coverage because your coverage percentage is well in excess of the safe-harbor percentage.

I'm fairly confident that "employees" incorporates "prior employees". It seems perfectly allowable to me.

Yes.

It should work. Submit to be sure.

Well, I'd prefer a specific number for 2. Will you settle for $32,958.53? In the absence of any other issues, you would normally look to the maximum that can be allocated at 9/30/2005 as being $32,958.53. Such that $32,958.53 + $13,041.47 - $4,000.00 = $42,000.00. This presumes that $4,000 is available to use as of 9/30/2005. I certainly think it is. As far as your conclusion goes, certainly if you use the full $4,000 of the 2005 catchup limit at 9/30/2005, that means that you don't have any left to use at 12/31/2005. Let's see if you need any: $18,000 deferred during calendar year minus $4,000 treated as catchup as of 9/30/2005 from deferrals made through that date, resulting in $14,000. This seems to work. I think the key is how much of a PS contribution you make as of 9/30/2005. That amount determines how much in of deferrals made in that plan year are treated as catchup deferrals. Once they are treated as catchup deferrals at 9/30/2005, they reduce the deferrals made for purposes of seeing whether your calendar limit is exceeded, don't they? But one thing I'm curious about. You say that the ADP test failed at 9/30/2005. But before you can run the ADP test at 9/30/2005 you need to determine what the PS contribution is, because by virtue of the PS contribution being in excess of a certain amount ($42,000 - $13,041.47 = $28,958.53) that excess turns deferrals through 9/30/2005 into catchup deferrals. So, if you actually contribute the maximum I started this post with ($32,958.53), you lower the non-catchup deferrals to $13,041.47 - $4,000 = $9,041.47. Since you said that $13,041.47 exceeded the maximum by $200, I'm guessing that you don't have an ADP violation at 9/30/2005 at all any more, if you do things in this order. I admit that the regulations are silent as to whether a 415 violation must (or may) be corrected before an ADP violation. I submit that it doesn't really matter much, and if the IRS had cared one way or the other they would have put in an ordering clause. But I don't remember there being one. Hence, I think the easier way to do things is to fix the 415 limit violation, to the extent one exists, by changing deferrals into catchup to the extent necessary. After that is done, one runs the ADP test based, of course, on the amount of deferrals not already treated as catchups. I'm glad you posted the additional detail because this is a case that draws the ordering issue out and places it front and center for all to see. In our world it isn't so much "Which came first, the chicken or the egg?" as it is "Which do you fix first, a 415 violation or a failed ADP test?". And the issue gets even a more fun if there is a plan imposed limit on deferrals that one needs to take into account. Do you fix a plan imposed limit before a 415 limit violation or after? Do you fix a plan imposed limit before an ADP violation or after? What if you have all three? Which do you fix first? Which do you fix second? Does it matter? Does anybody's document specify this? My head hurts. ;-) It took me hours to program Sal's spreadsheets, but having them programmed in Excel has been a lifesaver for me. I suggest you dig out the worksheets and go at it. It will certainly crystallize the issues for you.

Yes. Since you are asking about an amount ($200) which is less than the increase in the catchup limit between 2004 and 2005, you need less information to do the complete calculation. Nonetheless, in the future, when dealing with a non-calendar year 401(k) plan, in order to determine the catch-up eligibility as of the end of the plan year ending within the calendar year, you need to take into account the following information: 1. Plan imposed limit, if any, on elective deferrals. This is usually not applicable. I've assumed it is not applicable. 2. Annual additions through end of plan year (in this case 9/30/2005) from sources other than elective deferrals. I've assumed zero for this calculation. 3. The amount of the prior calendar year's (in this case 2004) catch up limit utilized at the end of the prior plan year. That is, how much of the $3,000 2004 catch up limit was used up at 9/30/2004. I've assumed zero, but since you are asking about recharacterizing less than the $1,000 difference between last year's catchup limit ($3,000) and this year's catchup limit ($4,000) it really doesn't matter for this particular calculation. 4. Elective deferrals for the relevant periods beginning on the first day of the prior calendar year: a. Deferrals from the beginning of the prior calendar year (in this case, 1/1/2004) through the beginning of the plan year starting in the prior calendar year (in this case, 9/30/2004). I've assumed zero for this calculation. Again, since you are asking about recharacterizing less than the $1,000 difference between last year's catchup limit ($3,000) and this year's catchup limit ($4,000) it really doesn't matter for this particular calculation. b. Deferrals for the period between the date above (in this case, 9/30/2004) and the end of the prior calendar year (in this case, 12/31/2004). For your plan, this amount was $13,041.47 less $10,458.35, which is $2,583.12. c. Deferrals for the period between the first day of the current calendar year (in this case, 1/1/2005) and the end of the plan year that ends in the current calendar year (in this case, 9/30/2005). You showed this amount as $10,458.35. 5. ADP limit for the plan year ending within the current calendar year. For your plan, that amount was shown as $12,841.17 (determined as $13,041.47 minus $200). Sal Tripodi has a great set of worksheets which ensure that if you know the above information you can fairly easily determine what the catchup limits are at various dates.

401(k) plans are not mandatorily aggregated for testing. The only reason to do so would be if one of the plans can't satisfy 410(b) on its own. Obviously, if the 25 employees who are leased are all NHCE's the plan covering the 2 HCE's and 2 NHCE's will not satisfy 410(b) and therefore the plans will indeed have to be aggregated. But you need to do the 410(b) test first, because if, for some reason, the leased employees include some HCE's or if there are a large number of employees amongst the leased employees who are statutorily excludable it very well may be that the separate testing is just fine and dandy.

I believe the answer key is FUBAR. I agree it should be $128,000. Anyone want to take a gander at the following (a subsequent question on the same sample exam): Given the IRC § 415 dollar limit of $170,000 for 2005 and the following table of values, which of the following represents the IRC § 415 dollar limit for a participant commencing benefits in 2005 at age 65 under the plan’s normal form of payment? The plan’s normal form of payment is a life annuity with 5 years certain. (Choose the answer closest to your calculations.) Plan Actuarial Equivalence Interest ....7% APR65, Life only ....110.91 APR65, Life with 5 years certain ....112.60 Prescribed Interest and Mortality Interest ....5% APR65, Life only ....128.22 APR65, Life with 5 years certain ....130.02 A. $167,449 B. $167,647 C. $170,000 D. $172,387 E. $172,590 Does anybody think that D. $172,387 is the correct answer? mike

LOL. Rather than the above website, you might want to try: www.CollegeOfPensionActuaries.org We hope to see the website expand over time (sooner rather than later), but even now you can find a bit more information there than I could/should lay out in a message here. The history of precisely why it was decided that "yet another actuarial organization" would be beneficial isn't as important as what the organization can do, in the future, for those who join. See the website for more insight. As indicated there (on the website), we believe that the time is right for an organization which exclusively represents the views, goals and needs of enrolled actuaries. This in no way means that any of the other organizations you mentioned aren't effectively and powerfully carrying out their own mission statements. Ours is just a bit different, that's all. I would be fibbing if I didn't say that I hope a significant percentage of the enrolled actuaries in the country eventually decide to join. mike

You guys see that great sign at the Packers/Vikings game? I think it was something like: "My 9-year old son is a Vikings fan. Needs new home." or something like that. Kid was a real cute 9 year old. Family looked like it was enjoying the game (the Vikings hadn't yet completed their dominating and game-changing drive.) Great sign. mike

You are correct.

I'll settle for unprepossessing.