Mike Preston

AP's cannot cause a forfeiture by taking a portion of the participant's benefit. AP's can only be paid a portion of the participant's vested benefit. What is left behind is the participant's benefit.

Trick question? As to the controlled group issue, if the individual that owns C is not one of the individuals that owns A, then it isn't a controlled group. I didn't analyze it with the individual owning C being one of the individuals that owns A. However, you don't mention what businesses they are in so it is impossible to tell whether the two entities (B & C) are in an affiliated service group. As to whether the plans are aggregated before testing under ADP that would depend on whether the plans satisfy 410(b) on their own. Even if they are in a controlled or affiliated service group, the two plans might individually satisfy 410(b). If they do, you can test them separately. So, the questions back at you are: 1) Is the individual that owns C one of the individuals that owns A? 2) What are the forms of organization for A, B and C? 3) Are B and C in an affiliated service group? Or, what businesses are B and C in? 4) If B and C are affiliated or controlled, would Plan B and Plan C independently satisfy 410(b)?

SEP eligibility is pursuant to the options filled in on the SEP document. While it can be filled in with "3 of the last 5", it might be filled in with "2 of the last 5". So, check the document before assuming it is always "3 of the last 5". I agree that if the person is full time and was employed in 2001, 2002 and 2003 then that person first participates in 2004 assuming the document was filled in with "3 of the last 5".

I'm not aware of any *requirement* that specific fees (other than those that are rung up when a participant takes action) be disclosed in advance other than generically. That is, most plans (and Summary Plan Descriptions) state that allocations to participant accounts will be subject to additions for earnings and subtractions for expenses. Sometimes they combine these two into one statement indicating that net investment earnings (earnings after expenses) will be credited. Yes, sometimes net investment earnings are negative. Expenses in this context are not usually delineated in advance. This means that as expenses are incurred the fiduciaries must consider whether it is appropriate for the plan to pay the expenses. If the plan is supposed to pay the expenses then those expenses operate as a negative adjustment to the overall investment earnings allocation. At issue is a fiduciary decision over the proper treatment of plan expenses. The fiduciaries have a duty to make these decisions in a manner that does not violate their fiduciary duty to participants. Note that this does NOT mean that fiduciaries are precluded from making a decision that a given expense is appropriately borne by the plan. It is much more complicated than that. You did not give details as to the amounts being charged. To do so may require you to disclosre more on a public bulletin board than is in your best interest.

I would think not. However, the terms of the 242(b) under the light of the existing plan control what can or should be done. I would be very surprised if the 242(b) election mentioned augmentation of the plan's benefits pursuant to rollovers of any kind, whether spousal or personal.

Harwood is right. Unless there is something unusual going on such as if the brother had or set up another plan to which the beneficiary's entitlement was transferred, the fact that the money was paid out of the plan makes it all somewhat easy. The distribution was made. It wasn't rollable. Therefore, the brother owes taxes on the entire distribution. The fact that withholding wasn't done is water under the bridge. Ingore it. Now, turn your attention to the rollover. It wasn't allowed. Hence, if not distributed by 4/15/04 it will (to the extent not allowed - maybe around $2k?) constitute an excess contribution to an IRA. Excise tax and all that. It was rolled to an IRA, wasn't it? Was it rolled to a qualified plan? If so, there are bigger issues to deal with.

It does not matter. It is the direct result of applying the best estimate. To do otherwise (when the best estimate is that the retirement date will effectively be that funding takes place over the one year period beginning on the valuation date) would be a problem.

You didn't indicate whether B's entry is similarly 7/1/03. So, I will assume it was 1/1/03 or earlier. Similarly, you didn't indicate whether the 401(k)/new comp PS are separate plans or whether they are contained within a single plan. The answer to your inquiry is effectively "yes", but the technical answer is "no." The contribution to A satisfies the Gateway requirement and therefore you needn't boost A's contribution above what it already is to meet the Gateway rules. I agree that you needn't boost A's contribution to 5% of 415 comp in order to meet Gateway. What you have done for B is correct as far as the top-heavy minimum goes. And assuming the 401(k) PS Plan is a single plan, what you have done for B is correct as far as the Gateway goes (assuming the 5% threshold is what you need to satisfy - if the Gateway minimum is lower, say 4.667% of pay - then increasing B to 5% is not necessary). However, if the 401(k) and PS Plans are separate plans, unless the 401(k) plan's employer contributions are being aggregated with the PS Plan's employer contributions for purposes of 410(b) [don't laugh, it might happen] or the general test, there would be no need to increase B above the TH 3%.

Completely and dogmatically disagree. The act of selecting the assumption is a discrete act. It takes place once each year. The fact that it turns out to be less than 100% accurate (even repeatedly) doesn't change the fact that on the day that a best estimate was prepared, it was, in fact, a best estimate.

It is merely a matter of assumptions. If, at the beginning of each year, I believe that the most reasonable assumption is that this individual will retire at the end of the year in question, all else cascades from that assumption. The fact that the assumption turns out to be wrong doesn't bother me at all, as long as when it was made (and re-made and re-made) it was my best estimate.

Average Benefits is never "tested separately". But, yes, you can test average benefits on a cross-tested basis and, if it passes, you then can test your plans separately for 410(b) and therefore ADP/ACP.

It means you can pretend that you satisfy the 70% portion of the analysis, if you ever get to the point that it would be necessary for you to satisfy that portion. The other parts of the test are still in operation. Hence, if the group of people that have a BRF meet the 70% threshold, you are done. If they don't, then you need to establish that they are a reasonable classification and that the threshold exceeds the safe-harbor (in general - there are exceptions). You keep saying that we should assume that 410(b) is not satisfied, but without numbers I just can't imagine what you are talking about.

It is unlikely that -2 applies to the match component. -4 should be your measuring stick.

What are you trying to test under a4? The "separate Match" formulas?

Brian, Nabrin disclosed in another thread that the 20% which the plan allows to be deferred is only from base pay. Hence, an individual may have significantly more compensation than what the 20% applies to.

Your concern is valid.

First, let's repeat what Tom said so that it is understood that this plan does indeed satisfy the definition of broadly available allocation rates. Nonetheless, let's assume it had failed the broadly available allocation rates test. While it appears not to satisfy the general test if you are performing the ABT on the basis of contributions, you can perform the ABT on the basis of cross-testing without subjecting the entire plan to the gateway requirements. The ABT appears to be: HCE = 22.48% * 0.7 = 15.74% which is greater than (22.48% + 6%) / 2 = 14.24%, which is not satisfied. However, it is pretty close and if tested on a benefits basis may very well work. Hence, as Andy indicated: not enough information.

Seems that way.

3/15, unless the corporate return is put on extension, in which case it is 9/15.

The contributions made and identified should not be reduced. The "fix", if one is possible, is to provide for additional contributions, as necessary.

The governing rule for this sort of thing is in 1.401(k)-1(b)(4)(i) and (ii). Those sections basically state that the plan has flexibility in the way it treats the deferrals received from the first paycheck of the new year (and the corresponding match) when there are no services performed by the employee in the new year. However, most plans do not provide clarity on this issue; or, if they do, they provide that the employee's compensation, deferrals and match are to be treated as taking place solely in the new year. That is certainly the administratively easiest thing to do, because then the W-2's will match with the ADP testing. The concern is that an employee that has no employment relationship in the new year would have the deferral (and match) not counted at all in the new year's ADP/ACP tests. In order to avoid that result, the regs contemplate placing those monies into the prior year test if the plan drafters want to do that. In practice, however, the lack of an employment relationship in the new year hasn't stopped the IRS from allowing those deferrals (and applicable matching contributions) to be counted in the ADP (ACP) test. The bottom line is that you look to your document to see what it says.

Busy with 3/15 deadlines? I am convinced that it is a reasonable business classification. I can't imagine the IRS actually challenging it. If they did, I can't imagine a rational judge agreeing with them. Nonetheless, you should let the client know that the IRS appears to be on record saying that the ABT is not available in this case, although "on record" in this case consists solely of informal Q&A's. I think the IRS is wrong on this one. That, and $4.95 plus tax will get you a Frappuccino (sp?).

Well, I just noticed that in another message you clarified that the plan does provide for catch-up contributions. It also appears to be implementing the first method to comply with universal availability. Oh, well. See my comment in the other thread.

I'm not sure that the method described fails. It seems to me that somebody would need to have less than $15,000 of compensation from which to take catch-up contributions before the 20% limit would come into play. This plan might not have anybody with less than $15,000 of compensation while a participant. If the plan only provides for mid-year and beginning of year entry, it may very well be fine. It would seem that a re-hire, though, who is re-hired late in a given year might lead to a failure. Nabrin, your interpretation is correct, it seems.

Nabrin, a couple of points. First, with respect to 414(s) and the other things you are trying to tie together, the kudos go to you. Just for trying! Second, although QDROphile already indicated that the IRS qualification rules won't help you because you are an HCE (translation: it is ok to discriminate in certain ways against HCE's), even if you weren't, the "base pay" versus "total pay" concept of 414(s) doesn't really apply in this situation. I'll spare you the technical run-down, but in the specific case of what a company defines as compensation solely for the purpose of determining where deferrals are allowed to come from, the definition of compensation merely has to be "reasonable". That is, it doesn't need to satisfy 414(s). Again, because you are an HCE, even if 414(s) applied in this case it wouldn't help YOU. So, enough about that. However, your plan might be a bit behind the times and you might be able to goose the powers that be into updating it. It is not necessary for your plan to provide you, since you are a collectively bargained employee, with the ability to make what are known as "catch-up" contributions. They are provided to participants who will be age 50 before the end of the year. Hence, for 2004, if your birthday is on or before 12/31/1954, you are said to be "catch-up eligible." But check to see whether it does, anyway. For purposes of this discussion, it doesn't really matter whether you are catch-up eligible or not. The key is whether the plan allows for catch-up deferrals. If it does allow catch-up contributions, then there are new regulations (effective for plan years that begin on or after 1/1/2004) that require a plan to implement one of two methods for allowing these "catch-up" contributions. A plan must satisfy one of these two methods if it wants to satisfy what is known as the "universal availability" rules that apply to "catch-up" contributions. The first method is to modify the way that deferrals are elected so that if somebody is at the plan imposed limit (20% of base pay in your case), the plan must allow the participant to elect to put more in the plan in a way that will allow that participant to get the full "catch-up" for the year. The "catch-up" limit in 2004 is $3,000. The second method is to ensure that the plan imposed limit is not less than 75% of whatever the plan uses to define compensation. If the plan imposed limit is 75% of pay (as opposed to the more restrictive 20% that your plan apparently has at the moment) or more, then it is not necessary for the plan to provide a participant with the opportunity to put in more than the plan imposed limit. At 75% of pay, somebody needs to make only $21,333 to be able to max out in 2004 ($13,000 regular deferral and $3,000 catch-up). Most plans don't want to have a different way of determining deferrals for those under age 50. Hence, most plans (but certainly not all) are opting to increase their plan imposed limitations to 75% or more. As QDROphile pointed out, before 2002 there were good reasons to impose limits, like 20% of pay, to deferrals. However, after 2001 the law was changed and, typically, those limits no longer make sense to impose. That is why most plans are moving to the higher limit. I need to caution you about something, though. The new regulations seem to exclude collectively bargained employees. They do so, however, in a way that leaves a little bit of doubt in some people's minds as to how to apply them. The specific regulation section is 1.414(v)-1(e)(2). It says: "Certain employees disregarded. An applicable employer plan does not fail to satisfy the universal availability requirement of this paragraph (e) merely because employees described in section 410(b)(3) (e.g., collectively bargained employees) are not provided the opportunity to make catch-up contributions. " The question then boils down to whether the rules applicable to universal availability apply in the case of a plan that DOES allow collectively bargained employees to make catch-up contributions. The rules clearly allow a plan that covers collectively bargained employees to preclude catch-up contributions. However, if a plan allows catch-up contributions by collectively bargained employees, it is an open question as to whether the universal availability rules would force that plan to implement one of the two methods cited above for determining catch-up contributions. At this point, you indeed need to get your hands on the governing document for the plan itself. That is the legal "plan document", which includes amendments that might be applicable. See if the plan allows catch-up contributions. If it does, see if it has implemented the "standard" language which increases the base from which deferrals are made from 20% to 75%. It may be possible that the plan has been changed to reflect the new regulation, but that the administrative rules haven't been implemented, yet. If that is the case, if you point out that the plan now allows deferrals from a higher amount, you may be able to convince somebody to implement the new rules. Of course, if the plan does not allow collectively bargained employees to make catch-up contributions at all, this doesn't mean much to you. Keep us informed as to what you find out!