Mike Preston

Or call Derrin, of course. [Disclaimer previously posted.]

Tom, you are correct, at least on the first one! Since the imputation of permitted disparity involves the addition of a constant value (typically 0.65, 0.7 or 0.75), the underlying ratio certainly does matter! Maybe Fred was only seeing examples were no permitted disparity was in play? As to the basketball stuff, I'm pretty hopeless at that, especially considering that our alma mater is having a year almost as bad as the Tar Heels!. But you gotta come back to PIX to get in on the Football pool (and just in case anybody cares, it is for bragging rights only, no money).

Martin (?), no offiense taken at this end. I just see somebody trying to ensure that the original poster's question was indeed responded to. But I think the original question, as asked, was answered in the very first sentence: I don't see any problems with terminating and paying out. Go for it. QDROphile very appropriately brought up the issue of 1.411(a)-11(e) which merely requires that the plan participants be given the option to move the monies into the other plan of the employer. The vesting issue doesn't impact the termination and payout of the PS plan. Instead, it merely requires that the 401(k) plan take into account all service with the employer when either plan existed unless the PS plan is proven NOT to be a predecessor plan to the 401(k) Plan. I know this sounds weird, but I'm not talking about the successor plan rules that you alluded to (1.401(k)-1(d)(3)). Instead, I'm talking about the predecessor plan rules of 1.411(a)-5(B)(3) as Kirk mentioned. So, as long as the 401(k) plan credits all service with the employer, or at least from the time that the original plan was effective, there is no issue. However, if the 401(k) was set up with full knowledge of the predecessor rules and it still didn't credit service before its own effective date, then the operation of the 401(k) plan needs to be reviewed in a new light.

Fred, the reason you probably match everything published is that the actual APR at retirement doesn't matter in the typical case. It could be 50 for all we care. It just has to be the same for all participants at the same testing age and then if somebody is at a different testing age, the ratio between the APR's must be accurate. That might happen even if the APR's are taken from the wrong source. I've seen stranger things happen.

Then why amend the definition of comp?

But it can't, can it? Take the simple exaple of 2 ee's, an HCE with comp of 500k and an nhce with comp of 50k. If you recognize comp in excess of 170k (the pre EGTRRA limit) and allocate comp to comp, the allocation for the HNCE for any given level of contribution will go down. If you allocate on an integrated or new comp basis, then there is a chance that the increased comp wouldn't have resulted in a larger contribution. But it depenss on plan design.

Original messages: "(I have $100,000 vested in the plan.) " Most recent message: "(The new loan minus my current $49,000 vested amount.)" Never mind, I don't think I want to know. :-(

It sounds to me like the computer's program is just wrong. If you actually applied for another loan, one would think the "humans" would get in the way of allowing the computer to do something wrong. Call somebody (you might need to ask for a supervisor's surpervisor) and ask whether what you want to do can be done. I'd be very surprised if you got an answer that would in any way allow you to increase your existing loan.

I haven't looked it up today, but I'd be surprised if you did the 401(a)(4) testing before the 410(B) testing. Hence, if you choose to aggregate your MP and your PS for 410(B), then you aggregate the employer contributions from both in order to determine whether you have passed the gateway test. I don't think that QNEC's count towards the gateway; unless you can demonstrate that they aren't used as "real" QNEC's. That is, if they aren't used to help pass the ADP test, I supposed one could argue that they are to be taken into account as employer contributions. The only contributions that serve double duty are safe-harbor contributions. They are used in the cross-testing analysis even though they are used, in a sense, to satisfy the 401(k) tests. And they serve as top-heavy minimums, also.

You are stuck. He is an HCE. You are confusing 318 with 1563 attribution. The determination of who is an HCE in 414(q) references 416(i) which in turn references 318. Under 318 stock is attributed to parents. Under 1563 you only have attribution to parents of stock owned by their children in two circumstances: 1) the kids are under 21 2) the parents own more than 50% before attribution. 1563 attribution is used in the determination of controlled groups. For more on this subject, see the book Who's The Employer, published by Derrin Watson. He writes the column "Who's The Employer" on this web site, too, so you can check out the Q&A column. {Full disclosure: I have no interest in his sales of the book, although I am a partner with him in the Pension Information eXchange [PIX] BBS.]

And we come full circle. Other than ensuring that service is credited in the 401(k) plan (for vesting in employer contributions like matching, etc.) for all periods when the profit sharing plan was in existence, do you see any other issues associated with the fact that the profit sharing plan is a predecessor plan of the 401(k) plan until the 401(k) plan has been in existence without the profit sharing plan for five years? I still think that most plan sponsors routinely credit service from the date that another existing plan was effective when they install a second plan.

"is it worth correcting this error when it benefitted only the NHCEs and no other problems exist" Only if you wish to have your plan be considered qualified. (g) I think a retroactive amendment which expands the match is just the ticket. Follow the IRS Correction procedure. Should be easy to accomplish.

mbozek: I agree with KCW. I believe that California will comply, it is just a matter of time. I am very hopeful that this is not just wishful thinking. Until they definitively decide not to comply or they definitively comply, everybody speculates. A collosal waste of time, but a necessary one when discussing options with clients. You are absolutely correct that the 457 issue tekes care of itself because the employers are self-limiting. In the 401(k) market I see a polarized result set. About 90% of the smaller plans, where administrative fees are a major concern, are not implementing catch-up yet. Giving up on the $1,000 available in 2002 (if it actually comes to that) seems like a small insurance policy against the issues of communicating the potential outcomes to participants and then dealing with those outcomes. Maybe the tide would turn at $2,000 in 2003, but hopefully we'll never have to worry about that. The larger plans truly believe that there is no way that California won't comply and they have not communicated a single thing about non-conformance. But this is just my small circle of contacts, so for all I know 99% of the larger employers actually have communicated this. Although somehow I doubt it.

Seems like it is right on the cusp, though. Assuming your numbers are 100% correct (more later), the 410(B) percentages appear to be (for the second plan): (6/50) / (5/9) = 21.6%. Assuming the average benefits test is satisfied (highly likely) and assuming the concentration percentage is: 50/ 59 = 84.746% == > 84%, then the Safe harbor percentage is 32% and the un-safe harbor is 22%. 21.6% is very close to 22%. In this case, I would think that facts and circumstances might very well lead to the use of the unsafe harbor. So, check your numbers very carefully (especially the concentration percentage) because if you can move the concentration percentage to 85%, the unsafe harbor becomes 21.25% and, with facts and circumstances, the plans just might pass 410(B) on their own, and therefore be able to be tested separately.

Isn't this a variation on the same theme as the change in compensation under EGTRRA? If changed after somebody is entitled to a 411d6 protected right in an allocation that is based on the HCE's having a lower compensation threshold, isn't that a potential violation under TAM 8735001?

They can use it to adopt another document. 2000-20 is pretty clear on this. Paul Schultz (head of the IRS documentation program) has confirmed this on tape at virtually every ASPA conference for the past two years. The certification extends the deadline for the individual plan sponsor that signs the certification. The extension is defined with reference to the prototype/volume sumbitter on that certification. In your example, we first look to the ABC Company to see when their "deadline" is. This is the end of the month that is 12 months after the date that the LAST letter was issued by the IRS, but not earlier than 12/31/2002. Let's say the last letter the got approved was for their Defined Benefit plan and the approval came through 1/30/2002 (as did mine). In this case the certification extends the deadline for your client to adopt a plan until 1/31/2003. They can adopt ANY plan and they will be ok. That can be a plan of RST Company, or they can go out and have an individually designed plan prepared by a lawyer. It doesn't matter.

I'm not aware of any requirement. It is a taxation issue and I think that means that the loan policies and the promissory note controls.

Boy, 72(p) is confusing. The relevant regulation citation appears to be 1.72(p)-1, Q&A-4 and Q&A-10. At least, that would be the cite if dealing with a loan that was issued 1/1/2002 or later. The key issue appears to be the timing of a default, if any, under the loan. Under the reg, the actual default takes place on a date defined as the date that a payment was missed moved forward with reference to a "cure period." The cure period may not extend beyond the last day of the calendar quarter following the calendar quarter in which a payment was missed. So, if the loan was taken out sometime in June of 2001, with quarterly payments, and the first payment was due on 10/1/01 (not likely, but it is worth checking), the end of the cure period could be as late as 3/31/2002. In this case, you look to the loan's provisions to determine how much the participant must pay to bring the loan current. Have that payment made by 3/31/2002 and the participant should be ok. However, if the loan was taken out in June of 2001 and the repayment provisions of the loan call for the first payment to be made on or before 9/30/2001, then the last date the cure period could end would have been 12/31/2001. But the reg wasn't really in effect for this loan, because it was taken out before 1/1/2002. So we are back to where we started: how does the plan define a default? If a default took place in 2001, the 1099 must be issued. If a default didn't take place, the loan should be attended to so that a default doesn't take place. Look at the loan document and the plan's loan procedures. See what they say about a default and how to avoid a default. I would not think that reamortization, whether over a new two-year period, or ending on the original due date would satisfy the definition of avoiding a default. On the other hand, if the participant is incapable of paying the amount of money that would allow a default to be avoided, maybe the participant can take out a new loan. Now it gets fun. You would think that since the new loan is being negotiated after 1/1/2002 that the new regs would apply. But the new regs didn't specify how to treat multiple loans, etc. That Q&A (number 20) was "reserved". At the same time that the IRS issued the final regs under 72(p), they also issued proposed regs under 72(p) that dealt with, among other things, Q&A-20. So it seems that you can, if you want, follow the rules of Q&A20 in the proposed regs to decide whether a new loan, to replace the old loan, would satisfy the rules. In that case, a reamortization that doesn't extend beyond the due date of the original loan would certainly meet the criteria. But that, in and of itself, unless you can avoid a default under the original loan, won't avoid the 1099.

Why would it?

I don't see any problems with terminating and paying out. Go for it. There is only one issue I can think of and it is so esoteric that I'd be surprised if it applied to your plan. Just confirm one thing and you should be free of the esoteric issue I'm thinking of: If, with respect to vesting service, the second plan credited all periods of time with the employer, then you are fine. However, if the second plan only credits service since the inception of the second plan for vesting purposes, the esoteric issue needs to be addressed. Most plans (like 99.9%) will have been drafted to credit service before the effective date when there was a prior existing plan.

Choices, choices, choices. 410(B) testing, 401(a)(4) testing, 401(k) testing and 401(m) testing all allow for separate testing of excludables and non-exculdables. There is a slight difference in definition between who is a non-excludable under 410(B)/401(a)(4) than under 401(k)/401(m), but that is a complexity that doesn't always matter. Who is included in what test is defined first by the selection one makes under the optional rules. So, you can test 410(B)/401(a)(4) separately for those who satisfy the definition of non-excludable. But you don't have to. Hence, choices. But, assuming you do choose to separate them for 410(B)/401(a)(4) testing, there is still the average benefits test to consider. Some people, including some at the IRS, have been known to say that there is one, and only one, average benefits test, the results of which are then used to determine whether one is stuck with the 70% test in the required rate-group tests. There are some, however, that read the code to allow (in fact, force) two separate average benefit tests when the optional election under 410(B)/401(a)(4) is made to test the excludables separately from the non-excludables. So, in answer to your questions, it is an optional thing to test separately. If you decide not to, then all are included in a single rate group analysis. If you decide to, then, well, you test the groups separately.

This design can get thorny, rather quickly. In general, you are correct. However, if the plan is top-heavy, you have to include everybody in the group that gets a top-heavy minimum. If the plan uses the average benefits test to prove that the rate groups satisfy the rules, there are questions at the highest levels as to whether the average benefits test should be run without considering the under21/1 participants.

My comments were intended to address plans without otherwise existing deadlines; i.e., profit sharing plans.

This question has been asked of the IRS a number of times, and never had a complete response. There appears to be no deadline. However, as you point out, contributions made after the date which is 30 days after the extended 404a6 deadline do not count as annual additions for the period allocated, but instead for the limiation year contributed. As we move into post-EGTRRA where the DC limit is 100% of pay, that will have almost no impact. I have heard some muse that the deadline for making a top-heavy contribution is the day before one receives an audit notice. I think the IRS might be able to make a case that the plan is not being operated in accordance with its terms if that were to take place. But I haven't seen any documents that specify a deadline for top-heavy contributions. So exactly where the deadline is, well, is anybody's guess. Until somebody can come up with a cite, that is.

1. No. 2. It is a partial termination, but that does not, in and of itself, mean anything other than the requirement to consider all affected employees 100% vested. 3. Shouldn't be a problem. If you think you have any issues, submit the plan for a letter of determination on termination (Form 5310). In fact, even if you don't think you have any issues, submit the plan for a letter of determination on termination.