Mike Preston

If the two plans stand on their own, and are separate documents, the 1% contribution satisfies the gateway, the way I read the regulations.

No word, yet, as far as I know.

kocak, would you mind posting it for download by all?

McGath v. Auto-Body North Shore, Inc., 7 F.3d 665, 670 (7th Cir. 1993) stands for the proposition that you can amend the eligibility up until the day before someone actually enters the plan. As many times as you can. I think.

pax is right on the money. Russ, somebody was confusing the additional 10% excise tax with regular income tax. There is a 10% excise tax, payble on top of regular income tax, if you are under age 59 and 1/2. However, that 10% excise tax isn't paid in certain circumstances if you are disabled. But the regular income tax is payable. Find that tax advisor!

Once a beneficiary's share is known, there is no need to wait for the other beneficiary to declare their intentions. There may be administrative desires to wait, though, especially if the other one might disclaim their benefit. In that case, the other individual may get a bigger amount.

I think it is a slippery slope. If you include the 401k deferrals, you then have to start including others, as well. Unless the IRS has something in writing stating that you include 401k deferrals that are accrued, I think the reg cite is still pretty clear in stating that they are not to be included.

Consider te EPCRS approach. 1) Amend plan to allow this person in when they actually came in. 2) Submit amendment for approval. Assuming the individual was not an HCE (hard to be in the first year, right?) then it should work, shouldn't it? If client doesn't want to do that, then I would lean towards the no sweat description.

I suppose anything is possible, but my reading of T-24 of 1.416-1 seems pretty clear to me. If the plan is subject to minimum funding, you include accrued contributions. If it isn't, you don't. Unless you are dealing with the first year of a plan, in which case you count everything that is allocated as of any date within the first plan year, even if it isn't contributed until after the end of the plan year. I really don't see any ambiguity. Famous last words, right? ;-)

If the plan is top-heavy, and they get 3%, then they are: 1) not statutorily excludible 2) getting an allocation of greater than zero percent right? If so, they must get 5% (actually, they must get the gateway, which might be less than 5%). Unless they are in their own standalone plan. If they are, then the rest of your analysis is on point. That is, if they stand on their own and don't need to be aggregated with another plan that is cross-testing, then no gateway is required.

I haven't checked the math, but the theory is correct. You can't add 5% and 2.5% to come up with 7.5% when the 2.5% is a cash balance allocation. Gotta convert the 2.5% to a benefit and re-convert it back to an allocation percent.

If you are happy with Schwab, and are willing to go along with dividing up the accounts, and you have always contributed the maximum (25%), I see nothing wrong with doing exactly as you have indicated.

99%? Have you ever heard of a participant actually taking an annuity when a lump sum is offered? I haven't. OK, maybe one in over 10,000. But that is at least: 99%+, not merely 99%. ;-) Strangely enough, with lower overall interest rate expectations, we might actually see a full 1% or even 2% elect annuities now. Maybe even more. It will be interesting to see.

I think you need to back up a bit and give some detail. Are you saying that you previously had a combined trust, with two plans, and that Schwab now wants you to create two trusts? If so, why? If the combined trust was ok before, what makes it not ok now? I've used combined trusts for years and there is no need to un-combine them that I am aware of. Maybe a different financial institution wouldn't require this?

In the first year of the plan they are counted in the account balance, but are they counted in subsequent years? That is, the accrued contributions not made as of the end of the year.

KMP, since this came up in another thread, I thought I'd throw it out here just in case it matters. Remember, the top-heavy determination date in the first year of a plan is the typically the last day of the first plan year. You test the account balances on that date, not just the contributions for the year. Hence, if some of these monies were contributed before the end of the year, then the account balances might be different from the total contributions for the year. That might require you to adjust the number somewhat.

I am so confused. We have already determined that the employer can make a regular profit shring contribution which would be allocated to the non-keys such that the plan would not be top-heavy for the first or the second year. Your suggestion only makes sense if the regular profit sharing contribution was "two-tiered" integration, resulting in the inability to make a regular profit sharing contribution that would be allocated solely to the non-keys. Unless you are driving at something that I'm just missing the boat on.

Well, you have the instructions right, so if you have your counts right, you also have your answer. There must be something going on that leaves you a bit uncertain, otherwise you wouldn't have posted the question. So, what is it? Might even be an interesting story! I guess my only question at this point is how do you have a plan that has zero participants at the beginning of the year and then get to 120 by the end of the year? Consulting for Secretary Mineta in the establishment of training programs for airport security? Company established 12/28/2001, first employee hired 12/28/2001, 401k plan established 1/1/2002, first participant enters plan on 4/1/2002? i guess it is possible.

Reed, I'm not sure I agree. Here, somebody is asking about EMPLOYEES. Further, they are asking about employees that have not satisfied the age/service requirement of the plan. My answer is that you only need to provide top-heavy minimums to PARTICIPANTS. Under no circumstances do you need to provide top-heavy minimums to employees who are not yet participants. OK, there are some very esoteric situations I can see where an employee would need to enter the plan pursuant to an amendment in order to ensure that the plan satisfied 410(B), but they are very few and far between. So I don't think that is what is being discussed here.

The IRS regulations on catch-up contributions make the answer to your questions quite simple. Simply put, you look to the provisions of the plan without the catch-up rules. Whatever the participant would be limited to under those rules defines the floor. Then if the plan is amended to allow catch-up contributions, and the payroll system is therefore modified to allow a participant to make contributions in excess of what they otherwise would have been allowed to contribute in the absence of the catch-up rules, then and only then you count contributions in excess of the otherwise plan limit as catch-up contributions, and hopefully change your payroll system so that the catch-up contributions aren't allowed to exceed $1,000 in 2002. The key to all of this, when dealing with a plan imposed limit, is to have the payroll system appropriately modified/monitored so that the participant is allowed to contribute $1,000 more (in 2002) but no more than $1,000 more than the plan imposed limit. So, you asked about whether you count full year compensation in the plan imposed limit, and I will turn it around and ask you: does the plan imposed limit apply to full year compensation or not? If yes, then so does the rule on catch-up contributions.

Why would an employer want to make a contribution that is 100% vested if they could otherwise make a contribution that is subject to the regular vesting schedule?

Yes, it should be included. There is no question about that at all in my mind.

I don't disagree with the thought. It is just that in this case the numbers are too far from crossing the line to be close to the mark. Maybe in a few years, especially with the lookback being only 1 year after EGTRRA. But for now, he told us this is a new plan in 2001, hence the top-heavy determination is based on the account balance at the end of that first year. And, yes, it is theoretically possible that if his investments have gone up, while others have gone down, the plan could end up being top-heavy.

I see nothing wroing with the 410(B) interpretation being used for the 404 multiplier. We have been told over and over by the IRS that a participant that is merely eligible to defer is benefitting for 410(B) purposes. And the construct that we have been pointed to in the 401(a)(4) regs doesn't change that in any way.

Andy, thanks for the plug. Hope to get a few minutes to talk with you at the ASPA Annual Conference. Come say hello, if no other place, at the PIX Booth (I have no clue where it will be located because this is the first year at the Washington Hilton; for the past umpteen years the conference has been at the Grand Hyatt.) Anyway, let me come down firmly on the side of counting the compensation for all those who are eligible to defer in the 15% multiplier. Now, that is for 2001 and before. EGTRRA eliminated k contributions from the multiplier, which is now 25%. I believe that a logical interpretation of the rules for 2002 would exclude participants who received nothing in a plan other than their own deferrals from the 25% multiplier. But this is a far cry from excluding people who actually receive a top-heavy minimum! That is an extreme view of the language of the regulations under 401(a)(4). Just becuase the 401(a)(4) rules give you some lattitude in the way the non-discrimination rules are applied to a subset of participants does not carry over to the 404 definition which is always expansive to take into account all plans of the employer. Read that cite again, it is merely a hypothetical construction. It has nothing to do with the regular application of 410(B) and it certainly has nothing to do with 404.