Tom Poje

based on your numbers even HCE1 went over the limit of 5.42! you will of course have to live with whatever decision is made this year. after that I would definitely establish a policy defining what the max for the HCEs is (no matter what other HCEs defer) If you had something in writing that said the max you could defer was 5.42 and they signed off on it I would say that is pretty enforcable. You really don't want to get in the position of being a 'ref under the hood' and deciding which way to go. by the way, despite the fact that only HCE1 followed the rules so to speak, things like this happen. If you pretend real hard that we are living under the 'old rules' then you refund by who deferred the most by %, which is what you want in this case, but the IRS changed that to $ leveling so you probably can't get away with it. Last year I had an HCE that deferred 20% the first few weeks, looking to hit the max deferral limit early in the year. Then he up and quit, with only about $4000 total deferral. His 20% caused the plan to fail big time, and he doesn't get a refund because its who deferred the most $ amounts. so the test is simply not fair at times.

you are confusing an already mixed up individual. under one breath you said the plan had no deferral limit, but under another breath you said the document says participants can contribute up to the amount that will not cause the plan to fail. you further said last year's NHCE was 3.42 so this years HCE is 5.42. so how do you handle that (and still be definitely determinable?) suppose I have 1 HCE who doesn't defer then can the other 2 defer more than the 5.42? e.g. 8.13 because (8.13 * 2 )/3 HCE = 5.42??? but, as this years plan shows, you don't know what each HCE will defere until after the fact. or do you take the stance the max deferral by any HCE is 5.42??? since deferrals are made up until the end of the year I don't see how you can hold a policy 'contribute up to the point that will not cause the plan to fail, and then count the rest as catch-up', because you don't know how much one can defer until after the fact. unless one indeed establishes a policy the max one can defer is 2 points above last year's NHCE. ugh, how do you follow the terms of the document of limiting the people so the plan doesn't fail? again, the only way I know would be to ignore what any other HCEs may do and limit an HCE to 2 plus last years NHCE. all that being said I don't think option 2 is a choice, while that might be nice for HCE1 you are now penalizing HCE 2 Pension Pro indicated how I would handle things if you didn't have the clause "that the participants can contribute up to the maximum amount it will not cause the Plan to violate the ADP Test." I'm not a document expert, so I'm not sure how you handle that when you have multiple HCEs deferring at different rates. Again, I lean toward a policy of 2 point plus last years NHCE across the board for all HCEs, but who knows?

my only precaution to Austin's statement is to be careful about relying on software without having an idea of how to check numbers or even verify if things are run correctly. certainly bad data in = bad data out and "I think you do it this way..." is a dangerous road to travel. for example, one of the options available on the mentioned software is testing age = SSRA. well, the regs also specify testing age is normal retirement age, so whille SBJPA does permit SSRA as a testing age, you had better have it written into the document as to the testing age. In addition, my understanding is if you use SSRA then you have to do BRF testing which probably ruins using SSRA as a testing age. and don't get me started on 'grouping accrual rates'. so when David says use an 'actuary', I'll take it to mean 'be very careful when it comes to punching the keys that run the software.'

hmmm. Bill Cosby also worried about Tonto

despite what Dave may unintendedly imply, not all people who do cross testing are actuaries. I do cross testing, and I'm far from being an actuary. proof: I still have a sense of humor (it may be extremely dry, but I still have one)

if when cross testing you do not impute permitted disparity, then it really doesn't matter which table you use. theAPR will be a constant on everyone. the exceptions would be individuals who are past NRA or if the plan is 65/5 and they are past 65. If you impute disparity then it can make a difference as seen in this example (straight from my book) note, before imputing, the NHCE is not in the rate group. using UP 1984 8.5 % vs 1983 IAF 8.5% (sorry, I'll never get the headers to line up, but hopefully you can figure it out) age compensation contrib Total (E-BAR plus disparity up84) Total (E-BAR plus disparity 1983 IAM) HCE 60 235,000 49,000 4.158% (3.944 + 0.214) 3.474% (3.260 + 0.214) NHCE 44 20,000 1,000 4.139% (3.489 + 0.650) 3.534% (2.884 + 0.650) The APR for 1983 AIF 8.5% is 115.39 for age 65 for UP 1984 it is 95.38 in this example the NHCE would still not be in the rate group, while with 1983 IAF the NHCE would be. Hint: guess which mortality table I always use, and why I don't worry about what the orther mortality are!

this actually boils down to whether the plan has 'true-up' language.[not to be confused with catch-up] for example, a particpant might defer 4% the first half of the year and then 12% the second half of the year. if the plan contained true-up language, then one would expect adjustments to be made. Ior put another way, such a plan would be considered to provide an 'annual' match, but makes the match on a payroll basis to avoid one large contribution at the end of the year

the government's projections or estimates for cost of living increase and next year's taxable wage base can be found here (we know how accurate their estimates are) http://www.ssa.gov/OACT/TR/2010/V_programatic.html#246131

you are getting 'safe harbor' mixed up with 'safe harbor', which is an understandable confusion. 401(a)(4) refers to plans with safe harbor non elective formulas such as the same % of comp or the same $ amount to each participant (or even integrated within the guidelines. but the safe harbor 401(k) plans are a different animal, and thiose rule are found in 1.401(k)-3 a safe harbor must go to anyone eligible to defer, the only possible exception being the early participation rules

the 'proper' procedure is as follows: (how many people follow this, or simply make the distribution and hope the iRS doesn't notice, I don't know) step 1. You can't ask for the penalty to be waived until you have actually taken the distribution. This is proof you are trying to fix the situation as soon as possible. Step 2. Fill out form 5329. Participant writes letter begging for mercy, explaining the reason you didn’t receive the minimum distribution was the incompetence of the investment house or something similar. Years ago, it was required to send in the 50% penalty and hope the IRS would have leniency and waive the penalty and return the money. Now simply send in the letter with the Form 5329, and if they don’t accept your lame excuse they will bill you (the participant). .............. My experience, for whose fault it is that these things happen, is aptly summed up in a poem I tripped across years ago: It's not my job to run the train. The whistle I don't blow. It's not my job to say how far, the train's supposed to go. I'm not allowed to pull the brake, or even ring the bell. But let the damn thing leave the track, And see who catches hell!

to hear the first verse, click here http://www.vvc.edu/ph/TonerS/mathpi.html A long, long time ago Long before the Super Bowl and things like lemonade The Hellenic Republic was full of smarts And a question resting on the Grecian hearts Was "What is the circumference of a circle?" But they were set on rational numbers And it ranks among their biggest blunders They worked on it for years And confirmed one of their biggest fears I can't be certain if they cried when irrationality was realized But something deep within them died the day they discovered pi. They were thinking CHORUS: Pi, pi, mathematical pi 3 point 14 15 92 65 35 89 7 932384 62 6433832 7 (not rounded) VERSE: Well this kind of pie is different than most It hasn't got berries, ain't spread on toast And that's how it's always been We keep extending its decimal places Pushing our computers through their paces But we'll never reach the end So why the fascination with A number whose end is just a myth Whence the adulation For mental consternation It might have something to do with the stars To calculate distances from afar But that's just a guess 'bout the way things are Regarding the precision of pi I am pondering CHORUS: VERSE: Now I feel that I should mention Pi is applicable in any dimension At least as far as I know If there were no Pi we'd be missing things Like marbles and mugs and balls of string And sports such as soccer and curling The orbs in their celestial paths Navigate along elliptical graphs Ellipses have pi in them too Just one side of them has grew You can see pi in most everything It's in Cornell's Electron Storage Ring And also in slinkies and other springs And that's why it's important to know pi You should memorize CHORUS: Once one night I had a dream That pi was gone and I had to scream Cause all pi things had disappeared (pause) Can you imagine a world like that Circles aren't round and spheres are flat It's the culmination of everything we've feared 'Twas a nightmare of epic proportions One that gave me brain contortions Oh wait! I mean contusions They put me in some institutions But then I escaped and now I'm free To sing of the virtue of pi

I'd be more impressed if he was born on 3/14/15 at 9:26

well, 1.401(m)-2(b)(2)(iv)(B) says a plan may use any reasonable method for computing income allocable to excess aggregate contributions so if the match wasn't made yet, it would seem reasonable that there was no income (unlike deferrals which are made throughout the year and the IRS tends to view that as the first in should be attributed gains) but thats my opinion only in regrads to the match.

I'd put a clarifier on that and say that would probably only be true if each person was in the their own rate group

if everyone is in their own group, then yes, you can provide whatever contribution to each prson as you want so approximating permitted disparit per person is ok. ah, the joys of having an elderly NHCE show up. of course, you could also give, for example 10% to one NHCE, 5% to another, 8% to another, etc since each is in their own group, but explaining that is fun, especially if the people start comparing notes!

you are not forced into anything. you have the option of permissively aggregating plans or not. I merely used an example of not permissively aggregating. the answer really changes if the HCEs are the same, I read you question to say 2 companies and 2 HCEs at each company - in which case sometimes you are better off to test plans seperately. since I don't use a software whose sole purpose is to run different situations I can't comment one way or another. sorry.

again, check the document. the accudraft document has the following language (f) Excess Elective Deferrals and Excess Contributions Not Required to Be Matched. Notwithstanding the above, to the extent Non-Safe Harbor Matching Contributions (including Qualified Matching Contributions) are contributed on an annual basis, no Non-Safe Harbor Matching Contribution (including Qualified Matching Contributions) will be required with respect to that portion of an Elective Deferral which for that Plan Year is determined to be either an Excess Elective Deferral (unless the Excess Elective Deferral is for a Non-Highly Compensated Employee) or an Excess Contribution. Furthermore, Matching Contributions (including Qualified Matching Contributions) that have been allocated to a Participant's Account must be forfeited if the contributions to which they relate are Excess Deferrals (unless the Excess Elective Deferrals are for Non-Highly Compensated Employees), Excess Contributions, or Excess Aggregate Contributions. ................ If your document doesn't have such language I'd lean toward saying you have to make the match since your document implies a match will be made and provides for no exceptions, but then, what do I know. All this could get into some interesting issues. e.g. excess contributions and aggregate contributions are included in the avg ben pct test. they are treated as in-service distributions, so you have to track for 5 years for top heavy. they are annual additions so could effect the person's 415 limit. I'd lean toward saying that a document that contains such language that the ADP test is always performed first - otherwise how would you know if you had excess contributions that aren't matched?

as we wait and wait for the forms, here are the most recent topic discussions from the IRS website. having had to file a few 1099Rs using the FIRE system (the software we use for other purpose was too pricey for the very few that we have to do, though we have since switched what we use for govt forms) I find the topic somewhat interesting (or at least I have an idea of what they are talking about). I figure most govt forms software will handle these anyway, but this is a note to say it appears you will be able to file on your own as well. Topic 805 - Electronic Filing of Information Returns The Filing Information Returns Electronically (FIRE) System is designed exclusively for the electronic filing of the following information returns: Forms 1042-S, 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA and W-2G. FIRE is accessible at https://fire.irs.gov/. Benefits of electronically filing information returns include: cost-effectiveness, secure (supports AES 256-bit, AES 128-bit and TDES 168-bit encryption); and a later due date for filing most information returns. The electronic filing of information returns is not associated with the Form 1040 electronic filing program. If you are sending files larger than 10,000 records electronically, data compression is encouraged. WinZip or PKZIP are the only acceptable compression packages. The FIRE System is operational 24 hours a day, 7 days a week. Please note that the FIRE System will be down from 2 p.m. EST December 21, 2010, through January 3, 2010, to allow Internal Revenue Service/Information Returns Branch (IRS/IRB) to update its system to reflect current year changes. In addition, the FIRE system may be down every Wednesday from 3:00 a.m. to 5:00 a.m. Eastern Time, for maintenance. After you file your returns via the FIRE System, the result of the electronic transmission will be e-mailed to you if you provide an accurate e-mail address on the "Verify Your Filing Information" screen. The file status e-mail will include the IRS assigned filename, date received, count of payees, and file status for Forms 1042-S, 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8027, 8935, and W-2G. If the e-mail indicates that your file is bad, you must log into the FIRE System and go to the "Check File Status" option to review the results of your file and timely resubmit the file as a replacement file. If the file is good, it is automatically released for mainline processing 10 calendar days from receipt Topic 802 - Applications, Forms, and Information All filers must obtain approval from the Internal Revenue Service , Information Returns Branch (IRS/IRB), and be assigned a Transmitter Control Code (TCC) prior to electronically filing Forms 1042-S, 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA, and W-2G. Once you have received approval to file electronically, you need not reapply each year. There are two exceptions where you would need to apply for a new TCC: (1) you have not used your TCC for two consecutive years; or (2) your files were previously transmitted by a service bureau using the service bureau's TCC and you now have the computer equipment that is compatible with ECC-MTB and wish to prepare your own files. Form 4419 (PDF), Application for Filing Information Returns Electronically, must be mailed to the Internal Revenue Service , Information Reporting Program, 230 Murall Drive, Kearneysville, West Virginia 25430, or faxed to 877-477-0572, at least 30 days before the due date of the returns; do not do both (mail and fax). Upon approval of your Form 4419, you will be sent an approval letter and assigned a 5-character TCC used to identify payers/transmitters and to track their files electronically. If you file Forms 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G for multiple payers, only one TCC is required for each transmitter. However, if you file Forms 1042-S, 8027, or 8955-SSA you will need a separate TCC for each return. You may not electronically file information returns until your application has been approved and you have been assigned a TCC. If any information on the Form 4419 changes, please notify the IRS/IRB in writing so the database can be updated. Be sure to include your TCC in all correspondence.

there are examples given in the regs (they go back a few years when you could have 3/20 vesting, but they are still just as valid) even for those who have 3 years of svc choosing a vesting schedule the answer takes on some twists (i) Facts. Employer N maintains Plan C, a qualified defined benefit plan under which an employee becomes a participant upon completion of one year of service and is vested in 100 percent of the employer-derived accrued benefit upon completion of five years of service. Plan C provides that a former employee's years of service prior to a break in service will be reinstated upon completion of one year of service after being rehired. Plan C has participants who have fewer than five years of service and who are accordingly zero percent vested in their employer-derived accrued benefits. On December 31, 2007, effective January 1, 2008, Plan C is amended in accordance with Code Section 411(a)(6)(D) to provide that any nonvested participant who has at least five consecutive one-year breaks in service, and whose number of consecutive one-year breaks in service exceeds his or her number of years of service before the breaks, will have his or her pre-break service disregarded in determining vesting under the plan. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a), and thus violates Code Section 411(d)(6), because the amendment places greater restrictions or conditions on the rights, as of January 1, 2008, to section 411(d)(6) protected benefits for participants with fewer than five years of service, by restricting the ability of those participants to receive further vesting protections on benefits accrued as of that date. Example 9-3. (A) Employer O sponsors Plan D, a qualified profit sharing plan under which each employee has a nonforfeitable right to a percentage of his or her employer-derived accrued benefit based on the following table: 3/20% (B) In January 2006, Employer O acquires Company X, which maintains Plan E, a qualified profit sharing plan under which each employee who has completed five years of service has a nonforfeitable right to 100 percent of the employer-derived accrued benefit. In 2007, Plan E is merged into Plan D. On the effective date for the merger, Plan D is amended to provide that the vesting schedule for participants of Plan E is the seven-year graded vesting schedule of Plan D. In accordance with Code Section 411(a)(10)(A), the plan amendment provides that any participant of Plan E who had completed five years of service prior to the amendment is fully vested. In addition, as required under Code Section 411(a)(10)(B), the amendment provides that any participant in Plan E who has at least three years of service prior to the amendment is permitted to make an irrevocable election to have the vesting of his or her nonforfeitable right to the employer-derived accrued benefit determined under either the five-year cliff vesting schedule or the seven-year graded vesting schedule. Participant G, who has an account balance of $10,000 on the applicable amendment date, is a participant in Plan E with two years of service as of the applicable amendment date. As of the date of the merger, Participant G's nonforfeitable right to G's employer-derived accrued benefit is zero percent under both the seven-year graded vesting schedule of Plan D and the five-year cliff vesting schedule of Plan E. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a) and violates Code Section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits with respect to G and any participant who has fewer than five years of service and who elected (or was made subject to) the new vesting schedule. A method of avoiding a section 411(d)(6) violation with respect to account balances attributable to benefits accrued as of the applicable amendment date and earnings thereon would be for Plan D to provide for the vested percentage of G and each other participant in Plan E to be no less than the greater of the vesting percentages under the two vesting schedules (for example, for G and each other participant in Plan E to be 20 percent vested upon completion of three years of service, 40 percent vested upon completion of four years of service, and fully vested upon completion of five years of service) for those account balances and earnings. [Treas. Reg. § 1.411(d)-3(a)(4) examples 3 and 4]

I've been running stuff for years, even have my name on the Coverage and Nondiscrim Answer Book. generally its simply not that easy an answer but lets suppose you test the plans separately group B has the fewest NHCEs (and only because the # of HCEs is the same) it could be looked at as follows: 3 NHCEs / 9 total NHCEs = 33.3% 2 HCEs / 4 total HCEs = 50% 33.3% / 50% = 66.6% for coverage purposes. since less than 70% would fail. if documents contained fail safe language you would be stuck so plans would have to be tested together (permissive aggregation). for nondiscrim purposes: if the profit sharing contribution % was different to each plan, then you would probably have to cross test and at that point ages become important. Its possible that the plans still could be tested on an allocation basis using permitted disparity, but you would only know this by actually running some numbers to see what would happen.

lets take 2 NHCEs one with over 1000 hours and active another with either less than 1000 hours or not there on the last day. since plan is safe harbor, both receive the 3%. since both receive the safe harbor both now must recieve the gateway. if plan still fails testing, the active, greater than 1000 could receive more under the formula, but the terminees or less than 1000 hour wouldn't in the DC plan

the famous "What does the document say?" applies here. for example (and example only since there is no indication in your question what break in svc rule to use) , here is sample language from the definition section of a plan under the rule of parity.sometimes the rehire language is found in the eligibility section (g) Reemployment of an Employee After a Break In Service and Before the Entry Date. For any Plan Year in which the eligibility requirements in Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer either prior to or after satisfying the eligibility requirements in Section 2.1 (but before the Employee's Entry Date in Section 2.1) and the Employee is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee's Years of Service that were completed prior to the Break in Service will be recognized, subject to the following provisions: (1) Determination of Years of Service for Eligibility Using the Rule of Parity. Any Years of Service completed prior to an Employee's Break(s) in Service will not be counted in determining an Employee's eligibility to participate in the Plan if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee's Year(s) of Service are disregarded under the Rule of Parity, then (A) the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 and (B) the Employee's Eligibility Computation Period will commence on the Employee's Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable). If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and such former Employee's Year(s) of Service are not disregarded under the Rule of Parity, then the Eligibility Computation Periods will remain unchanged. If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and such former Employee's Year(s) of Service are not disregarded under the Rule of Parity, the reemployed Employee will enter the Plan as of the Employee's Reemployment Commencement Date.

ok, you said no age/svc requirement for deferal or match, but then said 1000 hours for match. I will assume you mean last day/1000 hours for profit sharing. for coverage you have 3 tests: 401k - once enter the plan you can always defer, so are always considered benefiting even if you don't defer. the only exception would be a plan amendment excluding a group of people from futire participation, in which case for coverage you would be includable and not benefiting 401m - same as above - includable and benefiting if there is no svc, hours - last day provision. doesn't matter whether you dfere or not. nonelective - doesn't matter if eligible for deferal or match. if quit with less than 500 hours and there is no way you could get a profit sharing, you can be excluded. again, its 3 different tests (or as many as 6 if you had immediate eligibility and tested otherwise excludables separately

1.410(b)-6(f) if the person does not 'benefit' in any way (receives a contribution or forfeiture) then they can be treated as excludable for coverage. A person who defers 0 and receives a 0 match is considered benefiting, unless there is an hours or last day requirement. this is optional,as long as you treat all people equal. If you had HCEs that terminate with less than 500 hours and receive no benefit, it might help to include them. If plan is a safe harbor with a 3% SHNEC, than no matter what the hours aor last day rule, since the person received they would be benefiting for nonelective purposes. a person must actually be eligible to participate. in other words, if this was controlled group testing and the person terminated from plan B with less than 500 hours, you could not exclude the person from coverage testing unless you were aggregating the plans.

That's the way I see it, show the full amount (no liability) and the following year indicate the distribution of excess deferral.