Mike Preston

Maye I'm just not understanding what you are attempting to do. I don't understand why we would be talking about QNECs at all. If the monies were not excluded from income, they were after-tax contributions. If, operationally, the payroll department treated everything over $11,000 as after-tax, then you need to decide whether that was consistent with the document. If it was, I don't see anything to correct. If it wasn't, then you have a payroll issue. In either event, the document controls what actions you take.

How can you have NHCE's in a SH 401k plan that are only eligible to defer and aren't eligible for the SH contribution?

Aw, Tom, it is obvious they intended to make it work through a QNEC. Probably not even bottom up. You should at least tell them the number. It will make all your other suggestions look soooooooo good.

David, this is pretty interesting. I agree with you that the Code was only changed in the "DC" section (415©). However, the definition of compensation under 415©(3) is defined in regulation section 1.415-2(d). Further, when you look at 1.415-3(a)(3), the high 3 year average for defined benefit plans, it specifically references 1.415-2(d). So, the question is whether the latest change to the Code renders the regulation's cross reference no longer applicable. I don't think so, or else the IRS would have identified it to us by now. Do you have anything that indicates what the IRS position is on this issue? I find it hard to believe that they would take the approach of modifying the cross-reference. Take a participant in both a k and a DB that makes $10,000, but defers the entire amount. That person's high 3 year average will be pretty close to zero (payroll taxes only) and their DB 415 limit will be inconsequential as well. I just don't think the IRS will institute a regulation that disenfranchises this person. We weren't talking about 404a8c (at least, I wasn't), but this is as good a time as any to do so. When you track that backwards to the definition of "earned income", I'm not seeing the corresponding change as I would have expected with respect to 404n. Hmmmmmm. That cascades back to the regulation under 415 (1.415-2(d)) so it may very well be that I will need to modify my prior answer to AndyH. But it is getting late, so I'll take up the search tomorrow.

"In a cross-tested db/dc combo, 40% of the eligible participants (including NHCE's) are covered under the DB plan. The other 60% of eligibles are in a safe harbor 401k plan, providing a 3% non-elective sh contrib, and 4.5% employer contrib. Further the HCE's in the DB plan make maximum salary deferrals to the 401k plan." The above is unclear. Who is in the k plan? "The other 60%" only? Well, that can't be because there are HCE's in the DB that are also in the 401k. Care to clarify?

I'll go futher than Steve. You can argue it, but only if you want to eventually end up with a disqualified plan.

Check the language dealing with 415 violations and corrections related thereto. The plan has to have something. Yes, you can go over 100% of comp between deferral and ER contributions. If you are only talking about deferral, you can't defer from income you don't have, so you are effectively limited to no more than about 93% of pay (FICA taxes, and any other taxes, make up the difference) if pay is low. I would be somewhat surprised if by the time you read every word in the document you don't find language that will make those people who contributed the maximum "unmad."

20k is correct into the MP. Yes, he would still be able to put 20k into a PS (or MP) plan, with a 10000 deferral. So, his DC limit with 100k net income is really 31k for 2002, 32k for 2003 each 1000 higher if age 50 or older. I'll change your last sentence to something like if he defers 10000 or not, the compensation that goes into the high 3 year average for 415 limit purposes is 100k in the absence of any other PS or MP contribution.

I'm quoting myself, because the answer to your last post is a repeat of what I previously said. At the end of the day, it is the Plan Administrator who must decide whether the governing language supports their actions. I think it is fairly obvious that there is near unanimity (with your voice being the dissent) that the governing language does not support it. If you choose to give advice that says otherwise, nobody is going to stop you. The question is whether you are willing to assume the responsibility for that advice.

Yes with the former, no with the latter. However, if the former is accomplished by way of an -11g amendment, the Yes changes to No.

I don't think there are any restrictions on moving from one residence to another. I think the participant would have a pretty good position against the plan if it denied.

I don't think it is anything that has special rules associated with it. If the loan is part of the rollover, then the loan is treated as any other asset that is rolled over.

It depends on the definition of compensation in the document. However, there is no statutory requirement to have the deferrals reduce compensation taken into account for benefit purposes in 2002.

Stange as it may seem, I've seen approved documents that indicate the employer's contribution will be the first source limited to the extent necessary to satisfy 415. I would think that most plans would say the opposite. What does your plan say? If it doesn't say that employer contributions will be the first source limited by Section 415, then it must say that employee contributions will be limited instead. In either event, you follow the plan terms. If you end up limiting employer contributions, I see no provision in 401(a)(4) that gives the employer a free pass. While this doesn't seem to be a problem in the above case since the employee will get at least 2000 on a base of 13000, if the resulting employer contribution will not pass the general test, the only solution is to limit employer contributions in total. For example, if the 72 year old is the only NHCE and any of the HCE's is younger (a pretty good bet) then the maximum allocation to any HCE would be that which would result in an EBAR that is not greater then this employee's EBAR.

Take a look at example 6 of 1.401(m)-1(e)(6). Then see what the provisions of the plan are, to the extent they mention the issue. If the plan is silent, the regulation at 1.401(m)-1(e)(4) seems to provide that if you can identify the "unmatched" amounts, you can correct by first refunding those unmatched amounts. Only once you end up refunding matched amounts do you need to make a corresponding correction of matching funds.

No, it doesn't clarify things at all for me. Maybe somebody else can take a crack at it. I think it may very well be possible that the language of the plan is such that it is consistent with the regulation. The regulations provide that you determine catchup contributions after the end of the year by superimposing the plan and statutory limits. You will have to have somebody read the actual document provisions to see whether they are compatible with the regulations. If they are, or can be made to be under advice of plan counsel, then it may very well be that the catchup contributions are as intended: pre-tax.

You'd have to look to the plan document provision that implemented catch-up capability to see whether it automatically covered the first dollars above the 402(g) limit as catch-ups before it handed off responsibility to the after-tax area of the plan document. If there is any ambiguity I would tend to resolve it in favor of just that.

The match attributable to the excess contributions must be refunded. However, it is possible that the match attributable to the excess contributions is indeed zero. In the case where the ADP was 5.52% before correction and the plan matches up to 6%, I don't know how it is possible to have no match attributable to excess contributions.

Well, if our goal is to determine that the regular allocation is a safe-harbor, I can't seem to find anything that says we can test 401(a)(4) on the basis of 410(a)(1)(B) when the "plan" itself includes people who are in the plan who would otherwise not be in the plan if 410(a)(1)(B) were applied to the whole plan. This whole issue of having a k plan that is top-heavy combined with a 2-year eligibility PS plan leads to results that are not necessarily desirable to the client. If we could use permissive disaggregation to bifurcate the 410(a)(1)(B) eligible participants into their own plan for testing purposes, that would work, but the restructuring rules preclude that, don't they?

Guess it depends on your defintion of "the test". If "the test" was merely a 414(s) analysis, AndyH's original suggestion was on point.

MR, I think it is an extraordinary stretching of the plain language of the statute to presume that "purchase of a primary residence" means "puchase IN SOMEBODY ELSE'S NAME a primary residence".

jaemmons is of course right. Howeer, I thought that Belgarath had indicated that 401(a)(4) testing had already been done and that the result of that testing was that the plan failed.

I would feel more comfortable with an amendment that spells out what you are attempting to accomplish. If the "net effect" of what you want to do is to provide for an allocation of "10% of bonuses", then I would suggest they adopt an amendment which says exactly that.

No, as mbozek said, you can arrange to have a substitute resting place for the monies. If you do, and the participants are given the option of moving, then you have done all you can do.

If you are saying that the -11g amendment is "10% of bonuses", and the effect of that amendment is that the non-discrimination tests are satisfied both after givng affect to the amendment and, in isolation, just considering the "10% of bonuses" amounts, then your -11g amendment is fine. There is no "automatic bounce" to "all compensation" in the case of a failed general test which is then perceived to be a cutback when something less than all compensation is used under the final, post -11g amendment, plan terms.