Mike Preston

I'm not sure we are disagreeing. I agree that it must be tested under a4 as an employer contribution. The only question is whether it satisfies the definition of a safe-harbor formula under (B). It is irrelevant whether it satisfies (B) if the other employer contributions don't. In that case, since you fail 1.401(a)(4)-2(B)(4)(vi)©, it doesn't matter. If the other employer contribution satisfies (B), however, now the question is whether the THM satisfies (B). If the THM is phrased as 3% of pay, then I don't think anybody would argue that as a separate formula it would fail (B). The question is whether a THM phrased as "3% offset by employer matching" satisfies (B). Maybe not. But what about phrased as: "That amount necessary under 416©(2)", which now has the employer matching amount automatically built in? As I said, I haven't gone through all of my source materials, but I think it is very possible that the IRS will eventually say that if the other employer contribution formulas satisfy (vi)©, then the superimposition of a provision which increases people to the extent necessary to satisfy 416©(2), as contemplated in (vi)(D), will not result in a claim that the plan fails to qualify as a safe-harbor design. I guess we will know when the IRS issues LRM's for standardized plans. If they allow the THM to be defined in standardized plans as the amount net of employer match, I will have been correct in my prediction. If not, I will of course think they got it wrong. ;-)

It is very clear that you are allowed to impute disparity on any contribution other than some very speciric contribution types. The one you mention is not one of those very specific contribution types. You can therefore impute permitted disparity. I'm not aware of anything that allows imputation of permitted disparity for one purpose but does not allow it for another. Hence, if you find an example in the regulations saying you can impute permitted disparity for one purpose, you can do so for any other purpose, such as the ABT.

As I said, I just briefly followed the logic, but, yes, (vi) doesn't seem to say anything other than if it is in response to the top-heavy minimum requirement of 416©(2), you are ok. And 416©(2) incorporates the match, so I think on a non-discrimination level you are ok. That is, of course, if the plan's formulas are safe-harbor. If they aren't, then you have to test and I agree with you that I think you would fail.

Yes, it is subject to a4, but is generally given a free pass if the only formulas available are safe-harbor and top-heavy. If the other formula was cross-tested, the additional amount would just be part of the testing. Presumably yes. I wouldn't think so, because you look to the answer to the first paragraph above and see that it is given the free pass. Of course, all of the above is based on a quick reading, not an indepth one, so I welcome other thoughts.

I live with three women, none related to me by blood, all eligible to vote and each of a separate generation.

The determination as to whether an individual is the "spouse" is determined under State law, I think. Once the person is considered the "spouse" it doesn't matter whether the spouse is because of the common-law, or not. You'd have to look into when the individual qualfied as the spouse and whether the plan has the one-year rule or not. When all is said and done, though, if the person is the spouse the spouse enjoys the protection of ERISA insofar as beneficiary rights. Now, I suppose somebody can claim that even if someone is a common-law spouse for State purposes, they still might not be a spouse for ERISA purposes. I'm not a lawyer so I can't say that line of reasoning is hooey. But it sure sounds like hooey.

My concern about discrimination issues goes beyond whether the amendment is specifically labeled an -11g amendment. Check out 1.401(a)(4)-5(a)(1) and (2). I think any amendment which adds a benefit solely for the HCE's is suspect. The way the IRS addressed this issue for -11g amendments was to state, in 1.401(a)(4)-11(g)(3)(v)(A) what the hurdles to overcome are. My question with respect to a amendment that you admittedly will be making retroactively (although not correctively) is how will the IRS logic be any different? If the answer is that this is the best section we have to judge the IRS' response, I think there may be an insurmountable problem. The title of the section doesn't thrill me, either, although I know that titles are not supposed to mean much: "Retroactive benefits must be provided to nondiscriminatory group." I agree with you, though, that the only thing we know for certain is that the IRS may object.

Alan, I'm not sure about your method. Consider the 401(a)(4) regulations that define how amendments are treated. Combine that with the -11g portion which allows for amendments after the end of the year, but mandates that the results attributable to those amendments stand on their own. Could it be argued that the impact of your amendment must be tested under a4 in some manner that excludes the plan's provisions other than the amendment itself? And, if what you are suggesting is deemed to fall under -11g, the deductibility of the contributions might be an issue, too. Something tells me that an amendment after the end of the year is problematic. I'm not sure I have a solution, though.

I think even Blinky agrees with your assertion. But I'm with him on this one. When a client asks me if a THM can be treated as a QNEC, my response is going to be: "No, not unless the contribution is subject to the distribution rules and is immediately vested and that isn't really a THM." It sounds like others might say: "Yes, as long as the contribution is subject to the distribution rules and is immediately vested." 6 of one, 1/2 dozen of the other. But when someone tells me that they made a THM contribution for the XXXX plan year, I will not, generally, ask them whether it was subject to the distribution rules and whether it was immediately vested. And if a question on an exam required me to determine whether a contribution described only as "a THM" contribution was subject to immedate vesting and/or whether such "THM" contribution was subject to the distribution rules, I would assert that the question on the exam was flawed. We have lots of contributions which are used to satisfy TH requirements these days. Matching contributions can do so, as well as QNECs. But I don't think that I will soon believe that a generic description of "THM" means anything other than a non-matching, non-QNEC, not subject to distribution restrictions, not immediately vested contribution.

401k deferrals are indeed included in the $40,000 415 limit. Catch-up deferrals are not included in the 415 limit. Hence, in 2003 and individual born on or before 12/31/1953 can get $42,000 if they are in a 401k plan that allows for catch-up contributions and if they have at least $40,000 in 415© income.

KJohnson, you have made my point. If the contribution is discretionary, then the approach of adding a new contribution type and then funding the original contribution type with no dollars is the same as replacing the original allocation formula with a modified version. It flies in the face of all logic (at least what I learned as logic) to declare that a discretionary contribution plan has some sort of protected benefit before a discretionary contribution is determined. In my opinion, it can be determined in a number of ways: resolution of the plan sponsor, actual funding of a contribution, forfeiture under the rules of the plan. But if there isn't a determined contribution/allocation, there isn't anything to protect. To the extent such a contribution/allocation is determined, it should be protected. A far more logical approach would have been to mandate that an allocation formula can be replaced as long as the "predetermined" allocation would have resulted in an allocation that is less than or equal to the eventual allocation. This would have allowed a comp-to-comp plan with forfeitures of 1% of pay to be amended to an integrated plan, for example, as long as everybody got at least 1% of pay (highly likely) or to a new comp plan where everybody gets at least 1% of pay (no problem, as the gateway would now push people up to more than that, in all likelihood). Note that it would preclude a new comp plan that attempted to exclude certain participants from the allocation entirely. It is helpful to look at the cite that MWeddell posted: "The CONDITIONS for receiving an allocation of contributions or forfeitures for a plan year after such CONDITIONS have been satisfied" is a 411d6 protected right. I agree. But that doesn't necessarily identify what the SHARE of those contributions/forfeitures must be. For the conditions to gel into a 411d6 protected share of the allocations, a contribution/forfeiture must be determinable. I therefore think the allocation language should trump, if you will, the conditions for eligibility. To show my age, remember when contributions, pre-401(l) being modified to reflect the 2-for-1 rule, could be allocated on a pure excess basis? What was a participant's protected right under such a plan? It was to share in the allocation and if that contribution resulted in an allocation, fine, but if not, so be it. The determining factor was whether the allocation formula satisfied the rules for non-discrimination. An excess-only plan did so at the time. But so would a comp-to-comp allocation, obviously. I can remember many an excess-only plan being amended after the end of the year, but before an allocation was made, to provide for a minimum benefit (this would have been pre-top-heavy), where those amendments were submitted (we were submitting all amendments back then, as I recall) and where LOD's were issued. 411d6 isn't a non-discrimination issue. It applies to both HCE's and NHCE's. If current day logic were to be applied to the amendment I just described, it would be disallowed, because each and every individual with compensation above the excess compensation threshold would be cut back. As I said, it is one of my pet peeves!

If the plan sponsor doesn't maintain actual hours for its employees it probably should insist that the provision of the plan that calls for using actual hours be replaced with one of the DOL equivalencies. What else would you suggest?

Hi, Alan, good to see you here. This is one of my pet peeves. I would like to agree with what you have written, but I can't quite get there. You may be referring to Q&A 20 from the IRS Q&A at the 2002 ABA meeting. Here is the whole thing: I think that it is very easy for somebody to see the above and assume the "proposed response" is, in fact, a response of the IRS itself. This is because of the language actually used (e.g., "The IRS will not..."). With all that said, the TAM is based on some very bad acts. That is, an attempt to amend an allocation after the end of the year and after the contribution has been made. Does the TAM actually stand for the proposition that one cannot do what you are asking about? I don't think anybody knows for sure. It might not. Certainly one would think that EGTRRA amendments adopted after the first day of the plan year beginning in 2002 should be subject to the same rationale, absent a specific 411d6 exemption. But the only 411d6 exemption the IRS gave us with respect to EGTRRA amendments has to do with the top-heavy issue. Not the 401a17 issue and not the 415 limit issue. If they are agreeing not to challenge the 401a17 issue and the 415 limit issue for EGTRRA amendments, are they tacitly saying that 97-35001 doesn't apply to amendments made before the end of a year? Or that it doesn't apply to amendments made before a contribution for the year has been made (as you are inquiring about)? Unless somebody can come up with a citation that is consistent with your recollection, I think the only safe course of action may be to file for an LOD and splash the timing of the amendment and the contribution over the submission to make sure the issue is addressed.

I am with R. Butler on this one. I think the logic in the written Q&A was very difficult to follow. I also think that the response wasn't that one MUST include the receivable, only that doing so, based on the logic presented, was reasonable. It does not follow that excluding the receivable is unreasonable. It looks like one can do it either way. The best of both worlds. Now, if we could just get them to say that in writing...... Until then, though, the language of the regulation seems unambigous to me. And if I'm asked by a client, I have to tell them that NOT including the receivable in any year other than the first seems to be the only way to be faithful to the regulation.

You are referring to the DOL hours equivalencies. In the absence of keeping track of actual hours, a plan may credit 190 hours for each month during which an individual works, 45 hours for each week during which an individual works or 10 hours for any day during which an individual works. The document should specify what the method is, though.

I think Blinky can speak for himself, but in my mind, the term "top-heavy minimum" not only applies to the amount, but also the vesting schedule. That is, it isn't a top-heavy minimum if it is 100% vested and subject to the 401k distribution rules. I think we are into semantics more than anything else.

Yes, as long as compensation during that period is 415©(3) compensation. See 1.401(a)(4)-8(B)(1)(vi)(B).

Sounds like your third-party administrator is on the ball on this one. It would be a most unusual document that allowed QNEC's to be made to targeted owners.

If the money was contributed to the 401(k) plan, the question is what form of contribution was made? If it was a non-elective contribution, then the allocation of that money will be pursuant to the plan document provision that details who gets what portion of the non-elective contribution. What does the plan say happens to non-elective contributions? Are the funds being allocated consistent with the plan language?

I understand your ire, MGB, but I've seen some writeups that say the encouraging factors associated with this sort of access will actually increase retirement savings. Remember, the repayments go to the participant's accounts and the interest rates are much lower than other types of credit cards, thereby decreasing the out of pocket expenses for maintaining a credit card balance. Now, I'm not saying that I am endorsing them in all circumstances, but I think we won't know the impact until they have some sort of critical mass. And that may never happen.

Sorry, but the language dealing with "common owndership" negated the prior clarity! ;-( What makes you think it would pass coverage? Please answer my question in the prior post. As to the issue of aggregating plans, you don't have to aggregate them if both stand on their own (that is, pass coverage).

Won't that make the provisions applicable to the plan you are merging into a bit late? I'm not sure that any pre-approved document has perfect language to handle merged plans. You might want to consider identifying special effective dates in the resolutions adopting the amendment and restatement, or in the merger document, or both. It depends on the language of your pre-approved document as to how you word things, of course. As to the accrual, I think it depends on plan language and compensation paid through date of freeze. If no compensation has been paid, I don't think it makes a whole lot of difference, does it? If some compensation has been paid then you have to decide whether the formula applies to the individuals in question (that is, the active folks - as I believe the terminated folks would not have 500 hours by 1/15/2003!). If you don't have an hours requiremetn or an end of year employment requirement, and compensation has been paid, I think there are 411d6 issues you have to deal with.

FJR, there is more information needed in order to determine whether the plans you reference have a problem. First, you mention that the companies (A and b) have "common ownership". Do you mean to say that they are in a controlled group? If so, you should say so. Just saying that they have common ownership does not mean that they are definitively in a controlled group. Either identify what the common ownership is, if you are unsure whether they are in a controlled group, or confirm that they are in a controlled group. Assuming that they are in a controlled group, you are wrong when you state that Company A has no required testing. The first test you have to perform is whether the plan satisfies 410(B). Based on what you have said, it might, or might not. It seems to cover 100% of the HCE's and 33% of the NHCE's. That will pass coverage only if the aggregated plans satisfy the Average Benefits Test. Does it? If so, you are ok. If not, Plan A fails 410(B) and the fact that it is a safe harbor for purposes of the employer contribution means nothing.

1/15 looks ok to me. If you do this, the surviving plan will have its own GUST date, not one that is based on 1/15/03. What would the GUST date be for the PSP if you didn't merge the MP into it? Why would that change?

Seems perfectly reasonable to me.