Tom Poje

while the ERISA attorneys may say it is a 'reasonable' classification, I would agree with Andy in regards to 'short term employees' being used to pass testing. It smells bad, very bad in regards to that issue. I would wave the short term emplyee documentation in front of them so they can read for themselves that 'while possibly reasonable, it fails the short term ee test'

I happen to like 98-52 since I think it reads easier than the regs. and I don't believe the regs have really changed anything. they did 'clarify' and I am using the IRS lingo saying clarify, that to be a safe harbor discretionary match one had to look at eligible to defer rather than eligible for match. what could be described in the SPD was also modifed slightly, but other than that I think one could still reference 98-52. shoot, I got lost just trying to write the different cites. so, at best I conclude the following 1. plan passes ADP safe harbor requirements 2. plan does not pass ACP safe harbor, so a test must be performed. now, when testing what happens? VIII D seems to say you cant use the QNEC or QMAC but VIII F talks about special rules for testing and that seems to say you can include the match. 1.401(m)-2(a)(5)(iv) says if a plan satisfies ADP safe harbor but does not satisfy ACP is permitted to exclude matching contributions that do not exceed 4% of comp. since one is permitted to exclude those amounts it would seem to say one could include them. I will go no further than that - I leave it up to whomever to interpret the regs as to what they say, I won't run a plan that has basic match for NHCEs and then a discretionary for HCEs only (or even have eligibility restrictions on the discretionary) that is too goofy for me. I will send them to Mr. Cline.

My apologies. The Q and As are from the ASPPA conference just completed in November. I know I am not permitted to post the ASAP from ASPPA as they are copyrighted, I don't believe the same rule applies to the Q and As, but I am not sure so that is the reason I only referenced the item.

well here goes my best shot at it 1.401(k)-3©(1) [since it is in the 'k' this would be ADP safe harbor safe harbor is satisfied if a QMAC is made to each eligible NHCE that satisfies basic match or enhanced match. in addition, HCEs cannnot receive at a higher rate. ok, so only NHCEs get, so ADPsafe harbor is satisfied. now ACP safe harbor 1.401(m)-3 conditions satisfied if it meets ADP safeharbor 1.401(m)-3© with the following additions (2) matching rate doesn't increase - [My thoughts - thus if discretionary went to HCEs only at 100% up to 4% you fail if basic match was used] (3)(i) enhanced match capped at 6% deferred (ii) discretionary capped at 4% of comp (4) ratio of matching contributions of HCEs is not greater than that of NHCEs now VIII D of 98-52 says you can not use QNECs or QMACs that are needed to satisfy ADP safe harbor. now, the crux of the matter VI (1) of 98-52 says ACP is satisfied if Basic match is only match provided (2) says ACP satisfied if enhanced match capped at 6% and no other match (3) says other matches can be made and (i) in aggregate dont exceed 6% of comp (ii) rate doesnt increase (iii) hces dont receive at a higher rate now VIII F 2 says if you satisfy ADP safe harbor but fail ACP you must test VIII F 3 adds the special rules which says you can disregard all matching contributions if (1) ACP safe harbor is satisfied (I guess this applies to plans that provide match on after tax contributions) or (2) exclude match contribution that do not exceed 4% of comp (if basic or enhanced match is satisfied) except as provided under VIII D QNECs [i read SHNECs greater than 3%] may be used. so VIII D says you cant use the QMACs/QNECs if used in ADP safe harbor, and VIII F 2 seems to say you can use the match under the special rule. Gotta love that! VIII D only uses one example, that of a SHNEC at 7%, you cant use the first 3%. VIII F 2 appears to reference that.

one of the Q and As (#8) was as follows Q. Based on Rev Proc 2005-66, is it the Service's position that an amendment to change a plan's testing method or HCE definition for a particular year must be adopted by the last day of the plan year? A. Yes. Under section 5.05(3) this would constitute a discretionary amendment and must be adopted no later than the end of the plan year for which the switch is effective, and perhaps earlier to avoid 411(d)(6) cut back in accrued benefits. Particularly, HCE modifications must be carefully analyzed for 411(d)(6) anti-cutback issues. opinions expressed by agents as such Q and A's do not necessarily reflect official position, but of course, they seem to be very good guidance. In other words, this seems to answer the question that has been debated for the last few years - or at least answer the IRS leanings.

I don't think the Outline Book is disagreeing, but it depends on what year is being referenced. it stresses the idea 'plan year beginning'. so I think it would say the following: plan year 7/1/05 - 6/30/06. plan fails ADP test so $1000 refunded. it then says this refers to plan year begining in 05. if ee had excess deferrals in 05 as well, then the two are coordinated and one refund can offset another. in the particular example, the excess deferral was not in 05, but 06 but the refund related to deferrals in a plan year beginning in 05, so cooridnation does not come into play.

I'm not sure about the cross referenced site. the 1.401(k).... refers to Roth deferral the 1.402(g) site refers to the coordination of excess deferrals and excess contributions -the amount of excess deferrals that may be distributed is reduced by excess contributions. The ERISA Outline Book has an excellent example (11.302 - 2005 edition) ee deferred 14,000 in 05 and 15,000 in 06. plan fails adp test, 8000 refunded. so now ee defers an additional 8000. ee has an additional 8000 in excess deferrals. reason: under coordination rules the 8000 refunded for failed adp test relates to plan year BEGINNING in 2005. the additional 8000 in excess deferrals relates to 2006, because excess deferrals are always calendar year. ugh, I got a headache just reading the thing.

I would think of it this way: what shows up on his W-2. the amount of deferrals is never reduced by any refund.

mWeddell - you almost convinced me by saying that your cite comes from the 401(k) regs. however, under those definitions, there is no mention of discretionary match - only the basic match and the enhanced match. the discretionary shows up in 1.401(m)-3(d)(3)(ii), so I would still hold any limitations (e.g. last day) would apply only to the ACP test. zoinks, making me read the regs!

MWeddall: personally, I think there are times in which people are smarter to disagree me anyway. I am unclear on your response. are you saying the entire plan fails safe harbor, or just the ACP? If just ACP, then we certainly agree. If entire plan is deemed to fail, then I think you would have a problem with an enhanced match at 100% of the first 8% because that would fail ACP testing, but there is nothing I have ever read that says the whole plan fails. I think you raise an interesting point when it comes to ACP testing. Is it: Basic Match passes ACP, so it can be excluded from testing, disretionary fails safe harbor because of eligibility conditions, must test that. or is it the sum of the two fails safe harbor, therefore you have to test all. as a general rule, you would probably better testing all anyway, though I can think of some examples where you might not want to. certainly with after tax contributions, you are entitled to test just the after tax, or you can combine with the safe harbor match as well.

if it makes your mouth water, the label on the Brussel Sprouts (in order of course) carbonated water, salt (ugh, the 2nd highest % of ingrediants in a soda pop), artificial flavors, glucono delta lactone, ... what the heck is that stuff? looks like it is used in gluten free products. also used in fush food! guess Blinky would like this soda!

Gold Star to the smiling face in the back row. though the actual order works something like this plan has basic match, so plan passes ADP safe harbpr. since plan passes adp safe harbor proceed to acp test. plan has some match that does not meet requirements for safe harbor. (but has some that does) so either test on all match (as if no safe harbor) or only on amounts that do not satisfy safe harbor (e.g. the 1%) no requirement to be consistent from year to year whatever woks.

before people disappear I certainly wish all a good time. yeh, thats me all right. with only one soul to cook for, looks like it will be cornish hen and stuffing. of course, Target makes things easy by selling the complete thanksgiving dinner in 5 bottles of soda pop. Turkey and gravy, wild herb stuffing, brussel sprout, cranberry, and pumpkin pie. the review can be found at: http://www.x-entertainment.com/articles/0943/

but the plan still has what I would see as a failure to follow the terms of the document - namely ee wanted to defer 6% but they only took out 3%. the example from EPCRS of course is for someone excluded entirely, not 'sort of'. but again, nothing in this is to be taken as in concrete, there are examples as guidlines, and I think the QNEC sounds reasonable. now, how much? If you are talking 2005, there is still 1 1/2 left. I thought there was some provision in there regarding if an ee was excluded part of the year and had a chance to make up part of it through the rest of the year, then no QNEC was required. but I dont recall where that is. yes, the employee gets a windfall, and I agree, employee should have some responsibility, but I don't know if there is anything in the regs about that.

It was never possible to use discretionary match for ADP testing. and to get to ACP testing under safe harbor you must pass ADP safe harbor, so that implies you have either a SHNEC or a SHMAC plus a discretionary match. now, if you have a SHMAC, then you can run your ACP test on all match, or match above 4% (since that would be the amount of Basic Match that would satisfy ACP safe harbor. see Notice 98-52 VIII F 3. This of course applies to plan year beginning 1/1/06. the IRS has basically indicated they will not enforce things in a prior year as the new regs are a clarification of how they want things done in regards to safeharbor. no shifting is permitted

that would be my understanding. the calculator is at http://www.askebsa.dol.gov/vfcpcalculator/ the instructions are there as well, but maybe it depends why you are calculating lost earnings. I know late deposits of deferrals is covered, not sure what else.

now you make me turn even more red my biggest regret is that I never get a chance to meet some of the wonderful people who use Benefits Link.

oooh. you are nasty. thinking I have all the safe harbor regs memorized. though this must have come up, or I probably even had it in my presentation, but I have the cite listed in the margin 1.401(k)-3(h)(2) and to clarify, the SHMAC would be used in the avg ben PCT test portion of the avg ben test. whether it helps or hurts is another matter.

I think the 'change' is that a few years ago your deductible contribution consisted of deferral + match + profit sharing. therefore could anyone who benefited under those (even if no deferrals) now the deductible is match + profit sharing. therefore the group benefiting under deferral only is tossed out. this idea seems to be further borne out by a Q and A Q 21 at ASPPA IRS Q and A gave an example of combo db and dc. the only ee common to both plan had deferrals only (excluded from match and profit sharing). the question was whether that would still trigger the combo limit. the answer was no, as long as the ee has elective contributions only you dont have to worry about combined limit under 404(a)(7) ...................................................................... I have the printed notes. Again to those who attended, what was the IRS discussion for #2 (the second part. the answer says discussed from podium.

well, you certainly cant keep someone out of a testing group, he has got to show up somewhere. my logic, which is often twisted and mixed up would be as follows: coverage testing does not care about how much, only who gets covered - this usually would not require the use of compensation. nondiscrim testing involves comp, therefore if the ee has less then 1 year of service, but you are invoking the special adp test rule as treating him as having 1 year of service then I would run my 414s test under the same conditions. again, that is just personal opinion. An interesting question arises if the plan would fail ratio % for coverage and relied on the average benefits test to pass coverage. now you would have to run avg ben % test. now everything falls apart because this guy would be otherwise excludable.

song lyrics, though I should make you buy the tape. (and 'suffer' with the best I could immitate the raspy voice) if you can't figure out what song it is adapted from, well, you are not trying hard enough. Another pension song by Tom! you are lucky I can even find this thing. I think one of the disadvantages to being single is I am a disorganized mess. anyway, hope you can enjoy it! I see skies of blue Clouds of white The bright blessed day I’m in a 401(k) And I think to myself, what a wonderful world. I defer wads of green Get a match too They put it in For me and for you And I think to myself, what a wonderful world. The number of investments They reach up to the sky Reflected in perspectives They keep passing by I see the trends of the land Saying I’m good for you They’re really saying BUY ME TOO! I see the stocks go high I watch them grow They’ll earn much more Than I’ll ever know And I think to myself, what a wonderful world. Oh I think to myself, what a wonderful world.

By Dec 1, 2005 issue notice that says plan 'might' provide 3% SHNEC. also make sure document says plan has current year testing. Technically there should be no other language for safe harbor in the document itself, though I am not sure how things will actually be done. By December 1, 2006 amend plan to include language for 3% SHNEC if that was decided upon. The language could say 'for 2006 plan year only' or I guess it could simply say plan provides for 3% SHNEC Now the notice issued Dec 1, 2006 will say Plan provided 3% SHNEC for 2006. we might provide SHNEC in 2007. cycle is then repeated. or in the notice say "plan provided 3% SHNEC in 2006 and will provide 3% Shnec next year." or of course, if no SHNEC was provided, you could issue another 'maybe next year notice.

ha. I had to logon and change my password just to get on, so you are not alone. I'd suspect your logon is simply stevena, I would try that and then ask for a new password. maybe that will work. thanks for the compliments. if people only knew how much energy I expend giving a talk like that. I am physically drained after a session like that. Of course, I never said I did things in the normal fashion. The idea for the song came sometime during last years conference, and the words sort of just flowed. the voice characterization, well, even I don't know where that came from.

Reed: deduction issue wasn't via IRS agent, but from a session by Piper and Preston. I heard tell there was a mean and nasty IRS agent explaining something. I will have to find the cite that was used in the session - however, traveling light means any handouts I took are in some shipping boxes along with the devastator. I suppose we could have tried to take that on the plane. there was only a few metal screws so it might have made it past the metal detector. still, those rubberbands are awful dangerous... safe harbor: in other words, his answer was no different than last year, make the SHNEC and get on with life, apparently.

well, I didn't make those discussions, but the boss did and said, besides the grumbling, that in all likelyhood the retroactive effective date will be later, and most likely there will be some changes to some of the stuff, but there is no definitive word on anything. I did not make the IRS Q and A session, so my question to anyone out there who did, how did the IRS answer #62 regarding penalties for not depositing safe harbors within 12 months.