Tom Poje

it is possible that you might not be able to include all the match of the NHCEs in ACP testing. for better or worse you might have to use the 'representative rate', etc in testing (see 1.401(m)-2(a)(5))

as for your item "a)" I did some research awhile back to see where this item even came up. All I could find was the following: "To meet the definitely determinable requirements, the employer will annually notify the Trustee in writing the amounts of the contribution it is making for each classification of participants for the Plan Year. "(3/13/98 IRS memorandum) Somewhere I believe at a Q and A at an ASPPA conference the IRS personal indicated this was not essential. It certainly is n't in the regs or the Code. I use Relius and generate a report indicating each person (as well as the division or class total) and a spot for the employer to sign indicating this is indeed the contribution for the year. The corporate resolution issue has come up (also at ASPPA conference Q and As) in cases where partners were involved, as if to say, "well, if you have a corporate resolution, then for the partners it can't be deemed a CODA because you have this resolution which 'proves' each partner received a 'contribution' and not 'what they wanted to put in'. And this area is one the IRS would have a hard time proving one way or another. consider a one person profit sharing plan. how come that is not deemed a CODA since the owner can vary the contribution each year? what you didn't mention but is described in the LRM is that... In order for plan benefits to remain definitely determinable, the plan document should specify which gateway minimum is used. It is not sufficient for the document merely to specify that one of the gateways will be used. I only mention that because I have seen documents which describe all of the gateways - these would seem to be in violation (even if they are not prototypes) I cant fathom that particular requirement only applying to prototypes.

well, look at it this way. an ee receives a 5% contribution (e.g. $1000) you impute disparity, which, since the ee is less than the TWB means his allocation w disparity is 2*5% or 10%. if you then were to cross test, you would still have the doubling effect. on the otherhand if you cross test first, then you are only going to tack on an extra .65% at the most, certainly much less than the doubing effect. hang in there. wait til you have to do db/dc combos.

sorry I haven't been able to respond. was up in Pittsburgh to give a talk at an ABC meeting on cross testing. And then since the people who invited me up use Relius I also did an in house session on Crystal reports. hopefully I didn't bore either group too much - the Otis Redding song "Sittin in a Four-o-one Kay" seemed to go over well. maybe this will help. you allocate a profit sharing contribution. for whatever reason you need to run the nondiscrim test. you can test on an allocation basis, and therefore determine an allocation rate. lets suppose the plan was 5.7% integrated (at 100% the Taxable wage base) If you test on an allocation basis you would fail. But if you impute disparity all the e-bars would be the same. try it. it will always work given those allocation conditions. it has to. the regs were, as far as I can tell written that way. note: imputing disparity is simply an adjustment to the allocation rate. now, you could have cross tested (or converted the allocation to an accrual.) divide by the comp and you have an E-BAR. same as with the allocation, you can now adjust by imputing disparity - but since you are using accruals you use the DB adjsutment rather than allocation adjsutments. in other words, since you are 'pretending' the dc plan is really a db plan, use the db rules. Below Ground: well, it is true I am responsible for some (but not all) of the stuff from the Coverage/Nondiscrim Answer Book. I'm a big one on examples, and probably did submit a greater portion of the book dealing with cross testing. attached is a copy of the IRS notes pertaining with nondiscrim. Based onm its title, it is primarily intended to be used for Demo 6. 106 pages worth!. they walk through examples - the DB with disparity is page 103 or something like that. could have simply posted the link, but I guess maybe this is easier for most people.

if ee is born before 1938 the SSRA is 65 between 1938 - 1954 it is 66 and after that it is 67. the tables of permitted disparity factors for different retirement ages are found at 1.401(l)-3(e) I am not a DB person either. You could impute disparity in the DC world as you indicated, but you would not then convert that value to a E-BAR. its detertmine the e-bar first then 'adjust' for disparity. e.g. if you were doing a combo dc/db you would determine cross test the dc to determine the 'accrual', add that to the db accrual and then impute disparity.

Consider the following, retirement age is 65. Calculation assume interest rate of 8.5% owner gets 20% contribution, the guy who does all the work gets 5%. Plan Year is 2005. HCE age 62, comp =210000, contrib = 42,000 NHCE age 47, comp = 20000, contrib = 1000 APR for UP 84 is 95.38, APR for 1983 IAF is 115.38. working through one of the calculations you get the following 42000 * (1.085^3) / 95.38 * 12 / 210000 = 3.214% assuming folks can work through the calculation you would have: HCE EBAR = 3.214 (UP 84) or 2.657 (1983 IAF) NHCE EBAR=2.732(UP 84) or 2.258(1983 IAF) in both cases, you would fail testing because the NHCE is not in the rate group. if you 'adjust' these EBARs by imputing disparity the NHCE has comp below the covered comp level, so the NHCE gets adjusted by .65 no matter what mortality table is used. the HCE has comp above the covered comp, so imputing disparity gets adjusted by the lesser of the C rate or the D rate. for lack of boring you to death and to save a step or two, the D rate produces the smaller rate cov comp for 2005, age 62 = 55464 permitted disparity factor for the HCE is .7 (since SSRA = 66) so the adjustment is 55464 * .7 / 210000 = .185 up84 HCE = 3.214 + .185 = 3.399 up84NHCE=2.732 + .65 = 3.382 NHCE is not in the rate group 1983 IAF HCE = 2.657 + .185 = 2.842 1983 IAF NHCE=2.258 + .65 = 2.908 NHCE is in the rate group!!!!!!!!!!!!!!!!

actually, the mortality table makes a difference if you impute disparity even if all have the same retirement age. 1983 IAF sometimes gets someone into the rate group while up 1984 might not. gentleman and scholar??? ha. you never met this idiot. as for Mike...I suspect he has already actuarily calculated Michigan's chances of winning the Big 10 this fall.

Below Ground: I am not sure exactly where you would find the 'factors' you want, for example the 95.38 is for UP 84 at 8.5% and age 65 and would be different if you used 7.5% or a different retirement age. the 'table values' just for ages 60 - 65 for UP 1984 are as follows: 60 0.014162 61 0.015509 62 0.017010 63 0.018685 64 0.020517 65 0.022562 and then somehow these are converted to an APR depending on interest rate and age (e.g. 95.38 at 8.5%). probably more importantly, the tables that you are allowed to use are found in 1.401(a)(4)-12 "Standard Mortality Tables" - I believe the tables which produce the greatest extreme would be 1983 IAF and UP 1984. as for Mike's explanantion, while it is true you can impute disparity, I'd hold the way the regs do - that would be an 'adjustment' to the accrual rate (found in 1.401(a)(4)-7), not the actual equivalent accrual rate. and it is true, in the DB would you would also have a further adjustment for the MVAR (most valuable accrual rate), but I didn't take your question as referring to that animal. As a side note, going one step further, the regs don't even use the term EBAR - they refer to things as 'eqivalent accrual rate' (see 1.401(a)(4)-8(b)(2), but then we would have to abbreviate them and call them 'EARs', and who would 'listen' to something like that?

Hey Rocky, watch me pull a rabbit out of my hat....nothin up my sleave...presto, an actuarial factor! awhile back someone asked where the actuarial factor came from, and I thought maybe Bullwinkle really did pull it out of the air. I'm used to calculating an EBAR another way, so I set the 2 equations equal to each other to discover where this mysterious critter came from, and ended up with the following: the facts that were given: For the individual age 55, the actuarial factor was .035155 and the years to retirement was 10. Where did the actuarial factor come from? This walk through will use the 10 years to retirement and solve for the actuarial factor. Allocation / (compensation * actuarial factor) = [(allocation * 1.085 10 * 12 /95.38) ] / compensation the 95.38 is UP 84, 8.5% at age 65 Allocation is in the numerator of both formulas, and compensation is in the denominator so those terms can be eliminated. This leaves one with 1/actuarial factor = (1.085 10 * 12 / 95.38) 1/ actuarial factor = .284460 or actuarial factor = 3.5155% or .03515. Therefore, actuarial factor is simply the (APR) / [(1.0I) yrs to retirement] * 12 I = Interest rate. APR is used to determine a monthly annuity. results will vary depending on the mortality table used and interest rate. Compensation is an annual figure, so the factor of ‘12’ must be used to keep things consistent.

the only thing in the regs is found in 1.414(s)-1(d)(3) which simply says the HCEs cant exceed the NHCEs by more than a 'de minimus' amount. the 3% is not written in concrete anywhere. according to some sources the 3% is a rough guideline used by some IRS folks, but at that point it probably boils down to a facts and circumstances test.

I'm as slow as the correction on this one. I thought you were permitted to determine the earnings using any reasonable method. if you use the 'alternative method' for gap period earnings where you simply multiply by a number of months, then I guess you could end up 'in the whole' so to speak after a number of years. even at that point I would conclude "that method of calculating gains/losses makes no sense" use another method to determine gains. you are not calculating a 'penalty' for being late. I still think it is simply impossible for a plan to lose more money than it is worth. again, the only way that might be possible would be to be using an alternative method of calculating gains. all that being said, I can see an adjustment being required under EPCRS, but I don't think I would use the term 'gap period'. I think that is a pretty specific term which disappeared for a number of years (unless the document specifically requires it) and then it came back for 2 years, but only for ADP/ACP failures and not excess deferrals.

something doesn't sound right. lets suppose the only $ involved at att was $400 and it was invested anywhere. you are saying that that amount is now worth $ -30? I suppose that is possible with bank charges and the account was overdrawn or something, but how did it happen with a retirement fund? (Stopping short of a prohibited transaction or something)

well it sounds possible, but... on what comp are you figuring the 2%? the prior year? while it shouldn't be a problem with NHCEs, is there a 415 limit issue? I am assuming the 'QNEC' was deposited 30 days after the taxable deadline for the 'prior' plan year. you may have a(4) testing to do - one with QNECs and one without QNECs. interesting, Notice 98-1 says you can use 'prior year testing' and yet use current year data the first instead of the 3%. OI hadn't relized that.guess that depends on how you write your document.

Apparently you have never looked at the regs, most of that is gibberish to me...

I can not tell from your description if you have 1 or 2 issues you are asking about. certainly if match was calculated incorrectly those $ are probably best held in suspense to reduce future contributions. or at least that is the way the self corrections under EPCRS seem to read in most cases. now, if you have a second issue as how to handle excess aggregate contributions (failed ACP test) then let 1.401(m)-2(b)(2)(vi) be your guide the only time these would be forfeited would be if the particpant was not 100% vested.

what? You've never read 1.401(k)-5 Special rules for mergers, acquisitions and similar events. I will take the time and trouble to reproduce it for you: "Reserved" .......................... ok, thats it. there are no rules. no suggestions. no nothing. I'd say the comments you received follow a safe conservative view if you wish to guarantee maintaining safe harbor status for the one group of employees. If you don't merge, how do you test? you can't aggregate a safe harbor with a non safe harbor. if you merge, what do you do with the deferrals from the first half of the year? there are simply no guidelines. sorry

in Relius there is a plan spec item for top heavy "include contributions with trade date on or before", the default is 1/7 for calendar year plans, I guess assuming the last of the year deferrals are given a week for deposit, so it all depends on how you run the software.you run

my logic says step 1 would be to first allocate the top heavy to ees who fail the hours requirement, and subtract that amount from the 100,000 then allocate the remainder to all eligible. hopefully the software you use can handle that. hopefully the remaining amount would be sufficient to cover at least 3% (and therefore you wouldn't use match to help satisfy top heavy)

before saying yes or no, it was unclear from the initial question just what was going on. you said the profit sharing was going to be 3.08% of compensation but then that the plan was also integrated and was top heavy. the 3.08% is an odd amount - or at least I would consider it an unusual amount. or are you saying the employer contributed, lets say $50,000 and it turns out that it is 3.08% of pay?

but if it is less than $100, (and other conditions are met) then there is no notice requirement and the tax can be paid to the plan. I think you still file the 5330 and then write a note something to the effect that mom said it was ok to pay the plan. this is described in detail under the VFCP program - 'De Minimus Excise Tax'

the regs are silent on the issue. it would seem logical if you are improving things rather than taking away you should be able to do something like that. but the key word is 'logical', and you are dealing with IRS so... why not just make it discretinary match, trued up over the whole year with a cap at 6% deferral up to 4% of comp? (or didn't the safe harbor notice mention the possibilty of a discretionary match?

I doubt the main document addresses the match in regards to top heavy. I believe you would find that in one of the amendments - I don't recall if it is in the EGTRRA amendment. or it could be it is only described if it is not used for top heavy.

I'll post the 415 regs again. on this version, look at page 13, middle column, paragraph begins "As noted above, the final regulations... While this issue is one that most would agree how to handle, this is one of the very few places it is actually in writing in any way shape or form by our friends at the IRS. It may be implied elsewhere, but this is pretty definitive. (I can understand this question still cropping up from time to time) welcome to the bored....er the board!

I guess the first question is whether or not match can be used to satisfy top heavy, which could result in some odd looking allocations. if someone received 2% match, then they would only need 1% profit sharing to satisfy the minimum.

for example, read the first sentence of 1.410(b)-2(a) "A plan is a qualified plan for a plan year ONLY if the plan satisfies section 410(b) for the plan year" or from the code 401(k)(3)(A) A cash or deferred arrangement shall not be treated as a QUALIFIED cash or deferral arrangement unless...