Tom Poje

top heavy is a non-elective contribution, so anyone who receives top-heavy is considered as benefiting. what you end up with, for all practical purposes, is a 'class' plan - those at 3% and those at x%. you could test a(4) on an allocation basis, or even cross test (but watch out for gateway minimum) as you pointed out, see 1.401(a)(4)-2(b)(4)(vi)(D)(3) and the example #2 following involving top heavy that follows. for all practicallity, it achieves the same results as above. remember, the ees in question are still benefiting, you only treat them as 'not benefiting' temporarily to prove 'nondiscrimination. I suppose you could think of this type of situation as being a plan that could end up passing the 'broadly available allocation gateway" by the way, I realize you said "IRS Regulation 401(a)(4)..." if it helps the '1.' in front of the number indicates it is from the regs. without the '1.' implies it is from the Code.

well, 1.410(b)-5(d) only employee contributions are disregarded from the avg ben test. there is no exception that says "and also refunded deferrals/match". how come they would list one exception and not another? on the other hand, recall that 'catch-up' contributions are also not included. 1.414(v)-1(d)(3)(ii) in addition, recall that refunded deferral/match are still considered annual additions - it would be odd to consider them in one spot and not in another. yet catch-up contributions are not considered annual additions. we seem to have a pattern here. in addition, recall refunded deferrals are still considered in determining if a top heavy is due for the year - again, it would be odd to consider them in one spot and not in another. again, catch up contributions not used in determining if plan is top heavy. I suppose another argument might be that no major software I know of excludes refunded deferrals/match from the test, but I guess they could all be wrong as well. the only exception might be excess deferrals, which if refunded on time are not annual additions, and therefore there is some argument they should not be included.

Rcline: I don't think that is quite true. while you could have an effective date as of 1/1, you could certainly have someone enter the plan 7/1 and receive an allocation based on full year comp. for that matter, in a DB plan you give someone credit for up to 5 years of past svc, the document is the typical style giving only general language on eligibility/entry. e.g. 3 months eligibility. so, aside from specific language that says "entry date is retroactive to the begining of the year", or '1st day of plan year if hired in the first half of the year, 1st day of following year if hired in the 2nd half of the year" just when does someone enter in a new plan - does it back track to the effective date, or can it only be from the signature date if later.

plan is effective 1/1/07 but document not signed until 4/1/07, deferrals are ok because they didn't start until 6/07. now, does that mean no one was eligible the first day of the plan year (and therefore avoid a large plan audit) , since the plan itself wasn't in existence until after the effective date. certainly you weren't eligibile to defer until after the signing date. (Stupid plan in which only 7 people deferred out of many, many, many)

in this case no, it doesn't help, because comp can also be based on calendar year ending with the plan year. I had never thought about some of the things that happens if you use calendar year comp, but the plan year is something else. ee could 'have comp' from 1/1 - 5/23 and quit, but for the plan year which runs 7/1 - 6/30 he has no hours. by the way, I did try and submit your safeharbor question for the Q and A at the Western Benefits Conference, but that doesn't come up for awhile.(July) Granted its late for submitting stuff, but I do have a little influence at getting some questions submitted, so maybe I'll get an IRS response someday.

since my mind mentally can't handle how to calculate the following: Plan year runs 7/1/07 - 6/30/08 but comp for allocation purposes is calendar year comp. thus the comp for the calendar year ending within the plan year is zero. immediately eligibility. ee hired in 2008 and so enters in 2008. and is there on the last day of the plan year. plan is top heavy. so his top heavy minimum is zero? and if plan was tested for nondiscrim he shows as zero? and for coversge he got nothing though he is eligible?

according to Adam Pozec's notes from a few months ago, 'the answer is unclear'

if that like In "the big inning" A-Rod hit a homer. Fortunately the other team scored enough to beat the Yanks. Everything is always the beginning of the year except for the 415 limit, which is end of year.

if B had a non safe harbor plan, you could not aggregate for ADP testing, since one is safe harbor and one isn't. but if you can't aggregate for ADP testing, then you can't aggregate for coverage, since you have to test under the same conditions. now, since B doesn't have a plan at all, does that change the rules? I'd express the same concerns you have, since no notice was given, etc, I'd lean toward saying you cant. but if you cant then I dont think an -11g will help since you cant include the B folks. so it raises a couple of questions. 1. will plan A pass ADP testing if not treated as a safe harbor (I thnik you could actually give up the free ride and do that, and it might not matter if the plan can pass anyway) 2. can plan A pass the avg ben test (treating B as zeroes (non aggregated)) or if 1 is true, then aggregate the plans and then the QNEC is okay (I think, but since it is after my 4:15 limit my brain is melting down.) long live blinky!

if plan is top heavy, you lose your 'get out of top heavy for free' card if you use the otherwise excludable option. the advantage of the QACA is that you can use a 2 year cliff vesting for the safe harbor. therefore, it would seem to me to make more sense to provide the safe harbor to all, since there is no top heavy. you save on the fact the 3% is only provided on comp from date of entry. (or if you go with the match non deferring ees get the big fat zero.

there was some stuff here: http://benefitslink.com/modperl/qa.cgi?db=qa_davisbacon A short section in the Coverage / Nondiscrimination Answer Book some stuff beginning on page 91 probably a lot of crossover with the different references

same as ADP test. provide QNEC or QMAC to pass testing refund $ (plus earnings) to HCEs (or forfeit if not 100% vested) er pays penalty tax if distribution not timely made.

"I've never written a song in my life. It's all a big hoax." - Elvis, but I plan on being at the ASPPA Conference.

ok, since I have really been confused between ACA and EACA and QACA I see the preamable notes (last paragraph on page 10 of the attachment) says the following: The definition of an automatic contribution arrangement under section 514 of ERISA is generally THE SAME definition of an EACA under section 414(w)(3),(including the requirement must be invested in accordance with regulations prescribed by the Secretary of Labor under section 405©of ERISA, but the definition does not include a notice requirement. HOWEVER, section 415(e)(3) of ERISA requires a notice to be provided to each participant to whom the arrangement applies. As in the case for the notice under section 404©(5)(B) of ERISA, the specific timing and content requirements under section 514(w)(3) of ERISA are generally the SAME as the notice requirements under section 414(w)(4), but the interpretative jurisdiction for the notice is also with the DOL. so that sounds like there is no seperate animal known as an ACA as oppossed to an EACA. the preamble says they are generally the same! even looking at Corbel's cheat notes of the differences between the two it really looks like there is no difference between the two. the exception being if the ACA is a non statutory ACA - most often this would occur if the plan chooses not to comply with QDIA regulations.

Pittsburgh was a 'side trip' - the ABC group there wanted a talk on cross testing, so they grabbed me. but since I am originally from Michigan, the hockey results were perfectly fine with me. Andy way overrates any abilities I may have in regards to pension songs. at the moment I seem to be struggling with some ideas for Jimmy Buffet, "Jamaica Farewell" Along the way I will squander my pay For that fun that comes daily on the mountain top I'll take expensive trips on sailing ships I'll keep spendin' and spendin' and never stop Now its sad to say I'm in a four-oh-one K I'm not deferring or puttin' away My heart will be down When 65 comes around I'l have so little cash left to spend in town (maybe someday I can actually finish such nonsense. at the moment I understand that 'Elvis' may come out of hiding and make the fall conference)

In regards to that issue, I believe that is correct. hopefully I can get a chance to re-read some of that stuff again and clear my mind up on some other things.

the proposed regs 1.414(w)-1(b)(2) say that to pass uniformitty an EACA is permitted to follow the rules of 1.401(k)-3(j)(2)(iii) without regard to whether the plan will be a QACA. this sectiion (iii) is the section that pertains to current employees (e.g. those that have made an affirmative election, ot those that have chosen not to have elective contributions made.) I'd give a strong recomendation to reading the 2nd paragraph for "EACA under section 414(w)" of the preamble to the proposed regs (beginning page 17?)

just for the fun of it I tried typing minimum distribution factors in google and tried the very first choice, which was http://www.72t.net/MinDistribution/MdFactors.aspx those factors seem to match what's in any book I have, but I only did a quick eyeball on a few values.

Below Ground- sometimes I get sloppy in my hurry posting calculations. the '.7' is really .7% which of course is equal to .007. (sorry, at the moment I've got enough other projects on my desk, before I look at the pdf file example)

I'd agree the question has me baffled as well, so you are not alone Belgarath. I seem to recall back in 2002 a concern about 'nonconforming' states - those that didn't update the state tax law to conform with the higher deferral rates permitted under EGTRRA, but eventually all the states conformed (as far as I know). gad, that issue brings back nightmares long since forgotten.

I believe the IRS goes beyond being a big brother in this case. more like a father (or the Godfather) in other words, too bad so sad your dad. see 1.410(b)-7(d)(5) 2 or more plans may NOT be aggregated and treated as a single plan under this paragraph [permissively aggreagted] unless they have the same plan year. thus for coverage you get 2 tests and people includable and not benefiting. since you can only nondiscrim test the same way you coverage tested (no permissive aggregation), you will have to run separate ADP tests. but of course for the ADP test you don't include the 'other' memeber of the controlled in the adp test, since they are not 'eligible' for that plan. if you have to rely on the avg ben % test to pass coverage, you include all contributions - see 1.410(b)-5(d)(3) how to handle.

doesn't change my opinion at all. for otherwise excludables, I still hold that since the plan could have had a 1 year wait. so I pretend it was and anyone who is now in that would have been been excluded if the plan was written that way is excluded. as pointed out some IRS officials agree, some don't.

I think the answer to your question depends on which IRS agent you are talking to. ignoring the fact the plan is elapsed time, consider a 410k plan with immediate eligibility and monthly entry dates. some IRS agents say the entry dates come into play, thus otherwise excludable are those who have been there less than a year. other agents lean toward the maximum statutory exclusion thus, 1 year plus a max of 6 months (ignore the plan's entry dates) I lean toward that, and every year they promise to tell us exactly how to interpret the regs on this issue. 1.410(b)-7©(3) refers to those employees 'who have satisfied the lowest minimum age and service conditions [of the plan] but not the greatest age and service conditions permitted under 410(a). note, there is no mention of entry dates, thus, as far as I can tell, the difference of opinion among different agents. 410(a)(1) speaks of age and service 410(a)(4) speaks of time of participation (1st day of plan or 6 months after meeting requirements) so, I would hold that even though the plan in your case is elapsed time, it could have been 1 year wait and 2 entry dates, thus anyone who never ever ever ever ever ever works 1000 hours would be otherwise excludable but my opinion only. again, it could very well depend on which IRS person you talk to.

The IRS audit guidelines for 403b plans are as follows: (ok, so I 'bolded' some stuff)based on these I'd say 403b deferrals are ignored. VI. NONDISCRIMINATION AND COVERAGE A. Technical Overview (1) General (a) TRA '86 imposed nondiscrimination and coverage rules on 403(b) plans under § 403(b)(12). These rules generally must be satisfied for plan years beginning after December 31, 1988. (b) These rules do not apply to churches, including qualified church-controlled organizations, as defined by § 3121(w)(3). © For tax years prior to August 5, 1997, governmental 403(b) plans are deemed to satisfy nondiscrimination (except for § 401(a)(17)) and coverage requirements with respect to non-salary reduction contributions. After that date, these requirements (except § 401(a)(17)) do not apply to governmental 403(b) plans. A governmental plan (within the meaning of § 414(d)) is one maintained by a State or local government or political subdivision, agency or instrumentality thereof. (d) Notice 89-23 1 Currently there are no nondiscrimination regulations under § 403(b)(12). 2 Pending the issuance of regulations or other guidance, Notice 89-23, 1989-1 C.B. 654 (extended by Notice 96-64, 1996-2 C.B. 229), provides guidance for complying with the nondiscrimination rules. a Notice 89-23 deems a 403(b) plan to satisfy nondiscrimination if the employer operates the plan in accordance with a good faith, reasonable interpretation of § 403(b)(12). One means of satisfying this test is through the safe harbors set forth in Notice 89-23. b Under the notice, salary reduction and non-salary reduction contributions are tested separately for nondiscrimination. Only non-salary reduction contributions (both matching and non-elective) are subject to the coverage requirements of § 410(b). See subparagraph (3) below. 3 Under § 414(u), a 403(b) plan is not treated as failing nondiscrimination or coverage requirements by reason of the making of employer or employee contributions(or the right to make such contributions) made pursuant to veterans' re-employment rights under USERRA. (2) Salary Reduction Contributions (a) Salary reduction contributions are tested separately from non-salary reduction contributions for nondiscrimination. See § 403(b)(12)(A)(ii). 1 The nondiscrimination requirement for salary reduction contributions is satisfied only if the plan in operation allows each employee to elect to defer more than $200 annually. Unlike a qualified CODA, nondiscrimination with respect to salary reduction contributions is not satisfied through compliance with the ADP test. 2 The test for salary reduction contributions focuses on eligibility and generally requires universal eligibility. However, there is no requirement that the opportunity to make salary reduction contributions be available; but once that opportunity is available to any employee, it must be available to all nonexcludable employees to satisfy nondiscrimination. 3 Until future guidance is issued, both public education institutions and 501©(3) organizations MUST currently operate their 403(b) plans in accordance with a good faith/reasonable interpretation of the nondiscrimination requirement for salary reduction contributions. No plan provisions are currently required, but faulty plan language may indicate an operational violation. (b) Excludable employees may be disregarded in applying the nondiscrimination test for salary reduction contributions. These include: 1 nonresident aliens with no U.S. source income, 2 employees who normally work less than 20 hours per week, 3 collectively-bargained employees, 4 students performing certain services, 5 employees whose maximum salary reduction contributions under the plan would be no greater than $200, 6 participants in an eligible § 457 plan, a qualified CODA, or other salary reduction 403(b) plan, and 7 certain ministers described in § 414(e)(5)©. Unlike a qualified plan, a 403(b) plan is not permitted to have any minimum age and service exclusion for salary reduction contributions. © Like elective deferrals under § 402(g), salary reduction contributions for nondiscrimination testing consist of employer contributions made pursuant to a salary reduction agreement. (d) Under Notice 89-23, "employer" means the common law employer (and not the controlled group) for purposes of testing salary reduction contributions for nondiscrimination. A good faith, reasonable interpretation as to the identity of the employer is sufficient for this purpose. 1 Salary reduction contributions made pursuant to a one-time irrevocable election at initial eligibility to participate in the salary reduction agreement, or pursuant to certain other one-time irrevocable elections to be specified in regulations, and pre-tax contributions made as a condition of employment are treated and tested as non-salary reduction contributions. See text V.A for a discussion of a similar definition for elective deferrals under § 402(g). EXAMPLE 28: Employer is a large public university located in City Y. Employer maintains an annuity plan ("Plan") intended to be a 403(b) plan. Both non-elective, non-matching contributions and salary reduction contributions are provided under the Plan. Under the Plan, only senior administrative staff and faculty are eligible to elect to defer a portion of their salary pursuant to salary reduction agreements with Employer. Employer also maintains a defined benefit plan for remaining employees. Employer maintains no other plans of deferred compensation. The salary reduction contributions are discriminatory. The Plan does not satisfy the requirements of § 403(b). EXAMPLE 29: Same as Example 28, except that all full-time employees are eligible to participate in the Plan. There are 40 part-time clerical employees who are not students and who normally work 29 hours per week (or 1,508 hours per year). Since the part-time employees in this example are not excludable, the salary reduction contributions are discriminatory. The Plan is not a 403(b) plan. EXAMPLE 30: Employer is a small private school which maintains an annuity plan intended to be a 403(b) plan. All eligible employees may elect to defer at least four (4) percent of compensation. An eligible employee, A, has compensation of $25,000 for 1998 and elects prior to 1998 to defer 1.5 percent of compensation. The plan administrator declines to process the election and informs A that the minimum deferral is four percent of compensation. The salary reduction contributions are discriminatory, and the Plan fails to satisfy 403(b). EXAMPLE 31: Employer is a private hospital maintaining an annuity plan ("Plan") intended to be a 403(b) plan. The Plan provides only a salary reduction arrangement. Under the Plan, all medical doctors and senior administrative staff are eligible to participate in the Plan immediately upon hire. Remaining employees, including nurses and other support staff, are eligible only after two years of service and attainment of age 21. Employer maintains no other plans of deferred compensation. The salary reduction contributions are discriminatory, and the Plan loses its status as a 403(b). (d) Examples 28 through 31 illustrate that salary reduction contributions are tested separately from other contributions for nondiscrimination and that these contributions must be offered universally to non-excludable employees. The effect of violating nondiscrimination is the loss of § 403(b) status. Contributions to the Plans are therefore subject to income tax, employment tax and withholding. (3) Non-Salary Reduction Contributions (a) salary reduction contributions are all contributions that are not salary reduction contributions. salary reduction contributions are basically all non-elective and matching contributions. 1 Salary reduction contributions are tested separately from salary reduction contributions for nondiscrimination. 2 Non-elective (non-matching) contributions, and matching and after-tax employee contributions, are also tested separately for nondiscrimination. Section 403(b)(12)(A)(i) requires compliance with §§401(a)(4) (nondiscrimination), (5) (permitted disparity), (17) (the $160,000 ceiling on compensation, as indexed for 1998), and (26) (minimum participation), 401(m) (matching and after-tax employee contributions) and 410(b) (minimum coverage) for salary reduction contributions. (b) Salary reduction contributions of 403(b) plans maintained by public education institutions, or governmental entities which qualify as 501©(3) organizations, are not subject to the nondiscrimination or coverage requirements (other than § 401(a)(17)) beginning in tax years on or after August 5, 1997 (prior to that date, governmental plans are deemed to satisfy these requirements, except § 401(a)(17)). © For 501©(3) organizations, under Notice 89-23, nondiscrimination requirements for salary reduction contributions are deemed satisfied if the employer operates the plan in accordance with a good faith reasonable interpretation of the above Code sections. The safe harbors in the notice are one means of satisfying the good faith/reasonable interpretation test. (d) Excludable employees are those employees who have not satisfied any permissible age and service requirements of the plan, in addition to those listed above in section VI(A)(2)(b). (e) Employer is generally defined for purposes of nondiscrimination with respect to salary reduction contributions under §§ 414(b) (controlled groups), © (groups under common control), (m) (affiliated service groups) and (o) (other organizations or arrangements described by regulations). Until further guidance is issued, a good faith, reasonable interpretation applies in defining the employer for this purpose. See Notice 89-23 for more detail. (4) Highly Compensated Employee For years beginning after December 31, 1996, the definition of an HCE means any employee who: (a) was a five percent owner at any time during the year or the preceding year, or (b) for the preceding year has compensation from the employer in excess of $80,000 (as indexed for COLAs), and if the employer so elects for the preceding year, was in the top paid group of employees for such preceding year. B. Examination Steps (1) Ask the employer for the number of HCEs and NHCEs, which of these participate or are eligible to participate in the 403(b) plan or other plans of the employer, and annual compensation and contributions records. (2) Using employment records, check to see who can make salary reduction contributions and when they can be made. Check to see whether salary reduction contributions are in fact available to all nonexcludable employees. Because the definition of salary reduction contribution and elective deferral are similar, refer to the Examination Steps in Section (V)(A) concerning whether contributions are elective or non-elective. Nondiscrimination requirements may be violated if the employer fails to properly characterize the contributions. (3) Ask the employer which employees were excluded from participation and the basis on which they were excluded. (4) Find out whether the employer aggregates plans to pass coverage under §§ 403(b)(12) and 410(b). Ask which test the employer uses to pass coverage, ratio percentage or average benefits. (5) Consider whether employer contributions satisfy the safe harbors. If not, see if there is another basis on which employer contributions satisfy good faith/reasonable interpretation. (6) See whether matching contributions satisfy the ACP test.

you raise an interesting question - most of the time you read that QNECs and QMACs that are used in nondiscrimination testing are not available for hardships. and you are talking about a contribution that is being used to satisfy the ACP safe harbor. if you dig into your all that material you printed and saved regarding safe harbor 401(k)s I am sure you will find your copy of Notice 98-52. under Section IV (Definitions) you will see ...excuse me while I blow the dust away, I can't read the it...oh, its item H Safe Harbor Matching Contributions...(1) are nonforfeitable within the meaning of section 1.401(k)... well, the discretionary match could be subject to forfeitability, so I'd say that unless your document states otherwise, there isn't a restriction on the discretionary match. see also 1.401(k)-6 definition of QMAC which also require 100% vesting. or, put another way, I'd hold that the unavailability of hardship applies only to those safe harbors that are 100% vested. or a discretionary match, while it satisfies the ACP safe harbor is not a QMAC.