Tom Poje

why not try section 414(s), definition of comp. you know that ADP test requires you to use a definition of comp that satisfies 414(s). and certainly buried somewhere in there is a consistency rule. for example, I could exclude deferrals from testing comp. now suppose I was using current year testing. would you hold that for HCEs you would test using total comp, and for NHCEs you would use comp less deferrals? both definitions of comp satisfy 414(s), but you still have to apply the same definition to all participants. just because you are using prior year testing method doesn't mean you can get away with using definitions of comp for different folks.

well, the gateway rules 1.401(a)(4)-8(b)(1)(vii) says allocation rates are determined under 1.401(a)(4)-2©(2)....which says ...allocation rates including ALL employer contributions and forfeitures allocated to the account for the employee UNDER THE PLAN for the year... now, as pointed out, you have to run the a(4) test twice - it has to pass both including and not including QNECs. so lets say I don't include them, and there are no other nonelectives allocated to this individual. when performing the test did he receive any nonelectives? no, so no gateway required. now I test with QNECs. did he receive a nonelective? yes. so he needs the gateway. does ithe QNEC count toward the gateway? I would say yes, since it is a nonelective. now the problem is if he receives any gateway, then the answer in step one (testing without QNEC) is wrong ong, that he reecived no other contributions. if I go back and look at step 1, it seems he received some nonelectives, therefore needs the gateway. now can he count the QNEC? I think the answer is unclear. all the regs say is that an ee must have an allocation rate = gateway minimum before performing cross testing. did the person in question receive that much? Yes. now I test and follow whatever rules are allocable. I think. certainly SHNECs have been given a blessing by the IRS to be used in testing and count toward gateway, and a SHNEC is a type of QNEC under the new regs.

not that I know of a match is a match is a match, whether it have a Q in front of it or not.

On Wednesday of this week, at two minutes and three seconds after 1:00, the time and date will be: 01:02:03 04/05/06

ah, I read the original question as being about the ACP test (e.g. you cant use 'top heavy match in the ACP' and that since EGTRRA, M-19 has been overridden. personally I think you could have problems with 401(a)(4) testing in the case of any HCE (whether key or non-key depending on the document) who receives any nonelective to satisfy top-heavy. Taking it one step further, suppose you have a plan that requires cross testing. One ee failed 1000 hours requirement, but received 3% match so satisfied top-heavy. for rate group testing I don't see how you could treat this in testing. but interesting question.

it is extremely hard to 'withdraw' $ from a plan - that is the law - the money is in there for retirement. so unless you meet one of the conditions for withdrawing funds it can't be done. e.g. doubtful you can claim hardship, loans have to be repaid, etc, and then the plan might not even permit these options. sorry.

in the old days if matching contributions were used to satisfy top heavy, you could not use them in the ACP test, as you so wisely note in the reg you cited. however, EGTRRA changed the rules, and the reg you have noted only applies for plan years before 1/1/2002, so unless you are trapped in a time warp don't worry about it.

I am drawing a blank. what is scp violation.

Registered member #15,000 today. no prize? no baloons? again, thanks for maintaining the site!

this question was asked at the 2005 ASPPA conference. It is question #20. Answer: This will be discussed from the podium. I was unable to attend the session. but hopefully there is someone out there who did and can provide some insight! ERISA Outline Book (2006) begining 7.398 gets into a discussion on the issue. in particluar 7.403 notes PLR 8743096 the IRS ruled that a participant did not cease to be a participant for purposes of 404(a)(7) merely because he longer received allocations of employer contributions under the plan. In that ruling, some DB participants had account balances in the profit sharing plan but were no longer getting contributions. The same paragraph then goes on to say the IRS has flip flopped on its answer at different conferences, finally suggesting at the 2003 ASPPA conference to transfer the balances of such people to the DB plan to be on the safe side, until the IRS formally rules on the subject.

if I understand the original question correctly, and trying to keep the numbers really simple I have a plan with immediate eligibility 1 hce has 2 years service 1 nhce has 2 years of service 1 nhce is so new that he doesn't even have dust and he doesn't even know where the supplies are kept. so I run the 401k using otherwise excludable option - 1 HCE 1 NHCE in the stautory includable group. I have a second test which consists of only oytherwise excludables. - 1 nhce I run the nonelective 'plan' including all ees - 1 HCE and 2 NHCEs. pretending that I fail ratio % test, I need to run the avg ben % test when I look at the 401k 'plan' who is included. when I look at the nonelective 'plan who is included.

can you put all that in english? you said "we treat the portion of a plan benefitting otherwise excludables as mandatorilly disaggregated from the portion of the plan that benefits those who are not otherwise excludable" ok, so running the avg ben % test it sounds like you say I have 2 tests. now, when I ran coverage I tested 401k using otherwise excludable options, but when I tested nonelective I didn't. so when I run the avg ben % test do I have one number for the 401k portion of coverage (should I fail ratio % test) and a different value for the nonelective portion.

if I understand things correctly, you always test union and non union separate. so if there are no HCEs in the non union group I don't believe the gateway would apply to that test.

well, guess I can write up a Q and A and toss it to the folks at the IRS for that session. gee whiz Andy, the Vegas talk has a different theme. when you get a free moment take a look at what I sent you.

Andy - I don't think I can chime in, probably closer to being a dull thud. Certainly all agree that each component of the plan must be mandatorily disagregated for testing 1.410(b)-7© 1.410(b)-7©(1) the wording in the regs says "..the portion of the plan ...is treated as a separate plan' thus ...a plan...is treated as three separate plans for purposes of coverage" therefore the conclusion by most is that you could test the 401k 'plan' using the otherwise excludable option and test the nonelective portion testing all 1.410(b)-7(e) says all plans in the tesing group must be taken into account. and the examples that follow show that means everything (deferrals, match and nonelectives) the problem is the regs give no clear cut examples of the situation in question. so, one is left hanging... I prefer the argument along these lines when testing coverage you split the plan into 3 'plans'. the regs say you do. so now you are looking at a 'plan'. what conditions are you using for that 'plan'? apply the same conditions to the avg ben % test. there seems to be consistency in this line of thought. another argument says if one of the 'plans' includes all ees, then the avg ben % test includes all despite the fact what assumptions were used for each separate plan. this interprets the regs to say the avg ben % test applies to the plan as a whole rather than separate plans. I have seen a further argument that says there is only one avg ben % test - that consists of all employees, even if otherwise excludable option was used anywhere. this would seem to fail based on 1.410(b)-5(d)(3) which says all plans included in the testing group under 1.410(b)-7(e)(1) AND ONLY THOSE PLANS are taken into account. Personally I think this statement also supports the idea you could have an avg ben % test for the 401(k) portion that is different than the nonelective portion. long winded enough for you Andy? Did you 'get smart' on cross testing?

does is matter? wouldn't you simply just forfeit the match regrdless of whether it was deferral or Roth?

you are under the misconception that ( I would hazard a guess) most Relius users have, or at least most users have for awhile. The term date is not always someones term date. term date is term date from the plan. since the ee is ineligible he did not term from the plan, so this field should not be populated. the census verification report I use shows both status date and term date. thus the ee may show status as term with a status date but no term date and that makes sense if category shows as ineligible. yes, I show that as well. in addition, if ee terms one year and is paid out another year the report will show status date different than term date, which makes sense sense his status did change to fully paid out, but his term date did not change. I have included 2 such reports, one for a 401k, one for a non 401k. I put the plan name in user fields 11 and 12 and you have to either delete the field 'name of plan' in these reports or put the plan name in those user fields in plan specs to make these reports work. sorry, I don't like printing company name on one line and then the company name attached to the plan name on another line. so for example my user field 11 will be Profit Sh and user field 12 will be aring Plan

except in the case of a brand new 401k, a safe harbor generally must be 12 months long. (exceptions being year of termination, or other short plan year) you can not amend a plan mid year to a safe harbor.

well, looks like I am scheduled to give a talk on "Cross-testing and the 401(k) Plan" at the Western Benefits Conference in Las Vegas (July 16 - 19) Actually I am down twice, once on July 18 and then repeat July 19, so there is your chance to come throw tomatoes or whatever. all kidding aside, always look forward to the opportunity to meet anyone who frequents Benefits Link, so stop by and say hello if you make it! (Yes, I will probably sing the Louis Armstrong 'pension song'.) Looks like I am also now the official 'scribe' for the IRS Q and As, so I guess if there is a real stumper of a pension question you can forward to me and I'll see it gets on the list. oh well, I can always give up sleeping.

the 2006 edition of the ERISA Outline book says "the plan may NOT apply the recharacterization rule first, and the determine how it wants to shift elective deferrals to produce different testing results. All testing must be completed, including the shifting of elective deferrals if desired, before determining whether there are any remaining excess contributions that would be distributable under IRC 401(k)(8)(C ) but are eligible for recharacterization as catch-up contributions." (page 11.220 2006 edition) I think what the first sentence says is that you wouldn't run the ADP test first. figure out some catch up amounts. then shift, causing the plan to pass ACP but fail ADP. then determine additional amounts as catch ups. That makes sense to me because the 'ADP test' has now gone through the 'leveling' method to determine how much refund was needed. Therefore I think the second sentence says go ahead and run both the ADP before and after any shift to determine the catch up. or put another way, calculate enough 'extra' catch up that the plan easily passes the initial ADP test. Then shift, and lo and behold the plan still passes the ADP test. but I could be reading that incorrectly.

that appears to be the same copy I have, so assuming the pages are the same you would find what you are looking for on page 222. (These regs are very important, I don't see how people do without them being handy. the preamble at the start explains some things very clearly as well - that is why, instead of simply providing a quick answer to the question I am encouraging as much as possible printing these)

this is explained clearly in the new regs 1.401(m)-3(h)

WDIK makes a good point, that might bear explaining further. plans have requirements regarding excess deferrals in regards to the plan itself. in this particular case neither plan is in violation of excess deferrals. general rule is if an individual is in more than one plan he needs to notify one of the plans of any excess. (But he would not figure the amount of gains/loss) it is entirely possible the participant is out of luck - that neither plan calls for a distirbution. that means the participant will be taxed twice on the excess.

plan has immediate eligibility, so everyone is a 'participant'. any 'participant' who is active on last day of the year must receive top heavy (profit sharing conditions don't matter) it does not matter whether they defer or not. top heavy is based on full year comp (415 comp), entry dates wouldn't matter. if you receive a top heavy contribution and the plan is cross tested then you would have to receive the gateway. ee hired in 2004, entered plan in 2004, should get top heavy in 2004. at that point I think things are unclear because such people are not eligible for the profit sharing, so what do you use for comp? however, you can test otherwise excludables separately, and then that person would not need the gateway, unless you have HCEs in the otherwise excludable group.

well, I will go out on a limb and take a guess M-7 of 1.416-1 A - the sum...is 3% of such comp for that plan year OR for the calendar year ending within the plan year. so hopefully you are making life easy and using the calendar year and satisfying things in one plan