Mike Preston

It sounds to me like she is reading the materials correctly with respect to the non-matching SH contributions. That is, those can be used to satisfy the gateway. I think everybody agrees with that. But the matching SH is not counted towards the gateway. All of the responders are in agreement on that score, as well.

And just to continue Tom's line of reasoning, which of course I agree with, if the document has complete flexibility to determine what percentage this person gets, that person's percentage is not restricted by the Code or regs. Hence, if the plan sponsor wanted to allocate 1%, that would not be a problem as: (a) this person does not need to get the gateway; and (B) as an NHCE being disaggregated into a testing group that has no HCE's, no discrimination can result.

Yes. 416 regs?

It cannot be used to help satisfy the gateway.

I agree with you jaemmons. It depends on the provisions of the plan. I know that DO thinks I'm being condescending when I ask if the plan document has been read or not. I'm not trying to be. But I know how "RTFD" (read the fantastic document) comes across as an "instruction." And in this case, all we can do is suggest that same instruction, but paying particular attention to the forms of benefit and the timing of elections for death benefit distributions. DO, I tend to think that you might be reading the document, but not the part of the document that is particularly relevant to death benefit distributions. For example, you mention optional forms of distribution. What kinds of optional forms of distribution are you reading in the plan document that are particularly applicable to death benefits? If you see things like "100% Joint and Survivor annuity" I can pretty much guarantee that such an option is not available to a beneficiary pursuant to a death. Maybe if you quote a section of two from the document which identifies the optional forms you are talking about it will become clearer.

The regs talk about it in the sense of a facts and circumstances analysis. But, there again, there is no specific relationship required. Maybe it makes sense to back up a step. If the individuals are not considered participants unless they are making contributions, then I would vote for the contribution not being a match. OTOH, if they are participants one way or the other, and if they make an employee contribution they then are eligible to share in the company contribution, it sounds like the plan sponsor might reasonably conclude it is a match, at least as defined in the Code and regs. I'll search my database of IRS Q&A's to see if there is anything else.

Unless the employer contribution varied with the level of employee participation, it doesn't sound like a match to me. Does the employer contribution vary with the level of employee participation?

I agree with the first scenario in that only increases are allowed to be recognized, so the resulting projection should be based on 20 until the plan year during which the decrease takes effect, at which point you would use 77-2 to guide you insofar as your choices go. As far as the non-413 plan, in all years before the effective date of the amendment, again I agree that you would not recognize the decrease and use 20. During what year? 77-2 says that I can recognize it in any valuation that was for a plan year that included 12/31/05, but not before. Again, for what year? I think the answer should be consistent with the answer given for (2). That is, if the valuation is for a plan year that includes the effective date of the amendment, you include the impact of that amendment, or not, as 77-2 provides. I think the common interpretation is that one uses the existing terms of the plan to perform projections. If those terms include a servce cap, then the existing terms impose the restriction and the amendment is effective when that restriction is first effective. It is not effective individually with respect to given participants only once they have been credited with service that equals the cap. I think a different example may be a tougher call. Say an amendment is adopted 1/1/2003 which limits compensation for benefit purposes to no more than $100,000. I would surmise that most people would have no trouble including the impact of this amendment in their 2003 valuations. Change the amendment just a little to provide that compensation in excess of $120,000 shall not be considered for years ending before 2004 and $100,000 after that. Is the $100,000 "cap" (or the additional potential $20,000 that would be ignored if earned between 1/1/2005 and retirement) to be used in the determination of final average salary for the 2004 (or earlier) valuation? Since I don't deal with any plans that have attempted to limit compensation in this manner, I can't say that I've researched this issue at length. But my gut feeling is that service related issues (service caps) are taken into account upon adoption. This additional $20,000 reduction in compensation would therefore not be taken into account until the 2005 valuation.

Tis my day for suggesting that people read the plan document, I guess. Let us know what you find in there on the compensation issue. If they ran it in 2001 on a basis that does not satisfy 410(B), you still have plenty of time to correct by amending the eligibility, retroactively, so that the plan covers a non-discriminatory group.

This is my day to make suggestions regarding the plan document. Hopefully, you won't find it condesceding, as somebody did earlier today. But, have you read the document? Not the adoption agreement. The plan document. Somewhere, buried in there, might be a provision that says what is really supposed to happen. For example, in one document I know (not the adoption agreement) it says quite clearly that a forfeiture suspense account shall be established and maintained as long as the plan sponsor does not declare a discretionary match.

Most plan documents state that if someone is self-employed then instead of W-2, you use earned income. Are you sure your document doesn't say that? If the plan has 2 year eligibility, then you do testing under 410(B) based on two year eligibility. If the plan doesn't satisfy the tests for 2002, you have plenty of time to do an -11g amendment.

Interesting. Most plans would declare a contribution equal to the forfeiture in order to eliminate the suspense account. Are you sure that your plan specifically authorizessuch a suspense account? I have seen at least one prototype that does so, but most don't have clear language on this issue. In the absence of such clear language I've heard that most advisors recommend not maintaining such a suspense account, and, instead, declaring a discretionary match at least to the extent of the forfeitures.

jemmons, I answered the question under the theory that this is a death benefit distribution to a beneficiary. If spousal consent is involved, isn't it a distribution other than a distribution to a beneficiary?

Have you read your plan? Do you know its options? Nobody can answer your questions without having read the document. A general response might be along the following lines: Non-spouse If no plan options as to form of benefit other than lump sum, then pay the benefit pursuant to the plan - in the form of a lump sum, withholding taxes. Spouse If no plan options as to form of benefit other than lump sum, then since spouse has a right to roll benefits, spouse must be given choice to roll benefits. If your plan has other options for either nonspouse or spouse, then those options must be presented to the nonspouse or spouse.

Yes, it did. But that is the version that applies to years before 1998. For years after 1997 the exception applies to both IRA holders and inidividually directed accounts, doesn't it?

With a BOY valuation, the compensation to use in the year is always a projection. Seems like the question is whether or not the projection is a reasonable one. While I dislike your methond (too complicated and gets to be way, way too complicated if employees involved), I see nothing that makes it unreasonable.

Only that you are right.

Code Section 401(B).

401(B)?

To the extent the plan provides for options, the plan must provide those options! Paying out the money without consent hardly constitutes providing options. Let's assume the plan provides the minimum options. That would be a rollover, if the beneficiary was the spouse. If not the spouse, and no options, you can just pay it out.

I usually agree with Katherine, but I respectfully disagree this time. 414(v)(3)(A)(i) has "415" in it. Yes, it is a chicken and egg thing. If the allocation of the PS was limited to $29,000 because the deferrals were $11,000, then the participant gets a bigger share of the PS contribution, but not in excess of $30,000 in 2002. Of course, the plan has to allow catchups and the participant has to be catchup eligible.

OK, lost sight of it being an NHCE. Retroactive document correction to allow NHCE benefit in excess of original plan document provision, but less than legal maximums is always an option under EPCRS. I think the phrase is "conforming the plan to its operation."

MGB: interesting scenarios. I'll try to get to them over the weekend. However, with respect to 77-2, my recollection is that you can, if you so choose, use the effective date for purposes of your pro-rata calculations. At least the IRS has accepted the use of the effective date in pro-rata calculations for many, many years. I think to do otherwise creates a situation where a 412©(8) amendment has no impact, since it is, by definition, adopted after the end of the plan year (certainly after the valuation date).

Don't have time tolook it up today, but if ADP test fails, and ER contributions needed to "prop up" the test are not made on a timely basis, you can file with the IRS to "correct" by making those contributions you would have made had you made them on time. Note that this is more costly than the "1 for 1" correction that allows the monies to be redunded late.

If you are happy with regulations as of 4/1/2000 (nothing newer) then you can try: http://www.access.gpo.gov/cgi-bin/cfrassem...gi?title=200026