Mike Preston

Jason Alexander?

Yeah, that's the ticket! :groan:

Pigs get fat and hogs get slaughtered.

/pedant mode/ his own allocation group. /pedant mode/

I'm not sure I like the definition of "Rate Group". "Allocation Group" maybe, but not "Rate Group." Assuming you want separate allocation groups for all HCEs why not just state that all HCE's are in their own allocation groups? How the decision is made with respect to who gets what is not something that needs to be defined. If it isn't defined, then it MIGHT not violate the contingent benefit rule that Blinky mentions. If they really want to "tie" the contribution to the deferral then it must be a match. If it is a match it is tested as a match, along with other matches (unless it is a qualified match, in which case it can be aggregated with deferrals and tested there). Seems you can get to where you want to go, you just need to decide what rules you want to live with.

What would be the consequence if you didn't offset the loan?

It wouldn't.

I was talking about a plan that already provides for QNECs. The issue was the timing of an amendment to the already existing provisions.

Isn't there an issue of discrimination merely by allowing deferrals solely from compensation which is not 414(s) in and of itself?

Sounds right to me.

Your ERISA counsel needs to go see Spiderman.

Well, it has little to do with the deduction limit. The deduction limit is 25% of total pay and you are not likely to be bumping up against that limit. There are two issues to be concerned with: 1) Timing of amendment. There are some that believe you can not modify the QNEC language except prospectively. It depends on who is eligible for your QNEC, but if nobody is eligible for it with respect to 2004 then you should be ok doing so for 2004. Otherwise you might have to wait for 2005. I can't imagine the IRS being very happy with somebody trying to do this to a document for 2003, although you might find a few that think it is ok. 2) The IRS has stated that the increase in the 415 limit from 25% of pay to 100% of pay pushes the "targeted QNEC" from "acceptable" to "gee, we really don't like it". So, while it may still be available now, don't expect it to last very long. Watch for the finalization of new 401(k) regs to see whether they will scuttle the use of targeted QNEC's on only a go-forward basis, or whether they will find a way to scuttle such a provision retroactively. /ramble mode on/The proposed regs have an interesting theme on this issue. IIRC, they allow targeted QNEC's only if more than 50% of the NHCE's are receiving a certain threshold benefit. Sort of like the concept that currently exists in the gateway regs that allows a plan to escape gateway if more than 50% of the NHCE's have a DB benefit that is greater than their DC benefit. /ramble mode off/

Uh, yeah, what David said!

If not benefitting for 410(b) purposes, then 0%. Folks are still benefitting for 410(b) purposes in a DB plan if they bump up against plan imposed caps.

???

You did a great job of identifying the pieces needed to determine the catchups! Assuming there aren't any annual additions other than deferrals, so there are no 415 limits that would otherwise make this a more complicated calculation, A didn't defer more than $11,000 in 2002 and didn't defer more than $12,000 in 2003. Hence, A has no catchups because A didn't violate 402(g) in either year. You therefore still have his entire catch-up available when determining whether or not the failed ADP test results in his having to get a refund or not. Assuming there aren't any annual additions other than deferrals, so there are no 415 limits that would otherwise make this a more complicated calculation, B deferred more than $11,000 in 2002 (B deferred $12,000 in 2002) so $1,000 of his 2002 deferrals are 2002 catchups (this assumes that none of those would have been considered catchups as of 7/31/2002 - seems reasonable to me, since he contributed only $10,931.03 from 1/1/02 through 7/31/02). He deferred more than $12,000 in 2003 (B deferred $12,956.38 in 2003), so $956.38 of his 2003 deferrals are catchups. Hence, as of the end of the plan year in 2003, B's catch-ups related to his participation in the plan from 8/1/02 through 7/31/03 are $1,000 + $956.38 = $1,956.38. Subtracting $1,956.38 from his total deferrals for the plan year of $14,025.35, leaves you with $12,068.97 as his "base" for determining whether or not he gets a refund due to a failed ADP test for the 8/1/02 through 7/31/03 plan year. Of the $1,956.38 treated as catch-ups, $1,000 was for 2002. Only $956.38 is a catch-up that reduces the otherwise available catch-ups for 2003. The amount of unused catch-up at 7/31/2003 is therefore $2,000 less $956.38, or $1,043.62. If, after using $12,068.97 as his deferrals in the ADP test you end up needing to refund this person, you subtract $1,043.62 from what his refund would otherwise be (before consideration of earnings that must be credited to his refund).

That the catch up provisions are not universally available and therefore not allowable in controlled group #1's plan. Correction would be required under EPCRS. At that point, your guess is as good as mine. I'm sure there are those that could come up with some interesting correction mechanisms. Or, of course, you could just let the plan be disqualified, but something tells me that isn't something you want.

No.

The fact that you haven't seen it is a pretty good indication that it isn't allowable. But if you need more, try 411(b)(4)(D). The reg cite is 1.411(b)-1(f) [which, incidentally, indicates that the provisions are not applicable to DC plans], and that points you to DOL regulations under 2530. See 2530.204-1. But the whole of 2520 and 2530 are indeed a wonder to behold. I think you'll find that an accrual must be provided for anybody that works at least 1000 hours. See 2530.204-2©. There can be a higher threshold for full accrual (such as 1800 hours). Hence a plan can be designed so that if somebody works precisely 1000 hours they can receive an accrual of something like 1000/1800 of the "full" accrual for the year. However, if that is done, then compensation has to be annualized. See 2530.204-2(d). Hence, pro-ration just isn't done in many plans. 'Nuff?

Well, on that we, of course, cannot disagree! ;-)

Geez, you must be an actuary. ;-) If the OP says the ADP test fails, can we not assume that the ADP test fails? I know, I know.......

The IRS has said that you can use the plan's entry dates or statutory entry dates, so if you believe what they have said, you are ok including those who enter on 5/1. The problem with the whole thing is that sometimes entry dates other than statutory speed up when someone would be considered non-excludable. That is certainly the case with your more frequent entry dates. But it can also go the other way. It only does so, though, when the service component is more generous than statutory. Take a plan that has no service requirement and therefore is allowed to have a single entry date. Let's assume calendar and assume the entry date is 1/1 following hire. Now, if you apply 21/1 and the plan's entry dates you will find that you will push people into excludable you never thought were excludable. Only by using statutory entry dates along with 21/1 will it make "sense". I think this is part of the reason that the IRS hasn't published detailed guidance on the issue. I would expect them to come up with rules that say something like you can do what you want as long as less people are excludable than what you would get with statutory rules (21/1 **AND** 1/1 and 7/1 entry). But then again, there is no guidance so maybe they think it is just fine having some people defined as excludable who would otherwise be non-excludable! Talk about a lot of words that don't say much, that is exactly what the above is. Until we get real guidance, though, we are all left in the dark as to what is really acceptable and what isn't.

No.

Never noticed this name before, so it should get honorable mention, at least: §#$%! Certainly reflects how I feel frequently. Doesn't hurt that the location is local to me, too. Probably know the person. Whoever it might be.

I don't equate the 5500 filing with funding. A plan sponsor can make a contribution in January, deduct it on the tax return due 3/15 and then not file a 5500 until 10/15. To restate, I certainly wasn't saying that the tax return can be filed claiming a deduction for a contribution that hasn't been made at the point in time that the return is filed. I know some accountants that have had their clients file as long as they know that the contribution will be made by the due date of the tax return. I have never been comfortable with that, but not being an accountant, it is something I just watch from afar.