Tom Poje

the combo plans provide the top heavy in the DC, so it is 5%. an ee works over 1000 hours and quits, so he is not eligible for the top heavy in the DC. now, does he have to somehow get the top heavy in the DB, or is there some some rule that says 'no, the plans are now considered combined and we operate using the rules for whatever pln provides the top heavy - in this case the dc requiring last day employment.

this depends. if your document contains language for safe harbor, then you have a failure to follow the terms of the document. The IRS has indicated (at least informally at the ASPPA conference) that the self correction for a SHNEC would be to simply issue the notice and proceed as if the notice had been issued correctly (e.g. no testing etc.) this would make sense as a SHNEC should have little effect on if someone defers. do that and if I recall their quote was something like "and take your chances, but you should be ok" as for a SHMAC, they offerred no guidelines, and of course with very good reason. A match does have an effect on if someone defers. my guess is you would have to assume all want to receive the maximum match, so make a QNEC to bring everybody up to that level, plus the SHMAC. but that would really be a guess based on how the self correction program works in other places.

if you look at the example in the 5500 instructions (assuming things haven't changed sinced 2002) it is example 3 and you check both items pension benefits and welfare benefits. so marking 8a and 8b is the correct way to do this. (I would be willing to bet most people aren't aware of this) In fact, the example is worded almost the same as you describe e.g 401k with ancillary life insurance. (oh no, I see its the wonderful Kate Smith, who 'sings God Bless America', does pensions, was an MD and is now a PA. Wow!)

no real easy way I know. In an ideal scenario all this would take place at the start of the year so you only have to worry about begining account balance. otherwise its your export your census by DER and use the same routine to import. if it is midyear merger you will probably have to set up your DER and export the account data from transactions - a lot of people I have talked to never even knew that there is a DER feature there.

at different meetings the IRS agents have 'expressed' an opinion that such people should be treated as ineligble (or put another way, simply ignored) for purposes of testing, though there is no official guidance.

Earl, just to make things clear, because coverage and nondiscrim are getting 'merged' in your statement

of course, it could be something as simple as the govt simply forgot about ees who enter midyear would miss out on top heavy because of having partial comp. I figure it should be more something like 'did the ee have the potential to receive an amount equal to the top heavy minimum'. in other words, the employer is not 'penalized' by having to provide a top heavy minimum to someone who could have deferred and gotten a safe harbor match. but anyway, I submitted that one, as well as asking about terminating a safe harbor that provides the SHNEC. The regs really only talk about stopping the safe harbor match.

I've gone ahead and submitted the question to ASPPA IRS Q and A, so maybe in Nov we will have an IRS 'unofficial' position.

I on the other hand have taken the position it is unclear. to me 'and' means 'and'. as indicated the only people it effects are those who have an entry date other than the first day of the plan year (or possibly if the plan has an odd definition of comp). I would lean toward the conservative side for at least the following reasons (if not more): 1.if plan used 'otherwise excludable option' you still have to provide top heavy. 2.why wasn't the reg worded 'if there are no other contributions but the safe harbor nonelective OR the safeharbor match (or both) the plan gets a free ride from top heavy. but then, I could easily be wrong.

It isn't stated either way. personally I would lean towards the 30 day notice, simply following the rules for terminating a SHMAC as best as I can even though I have a SHNEC. Since the SHNEC could have been a 'maybe' we will do this (which would have prevented the problem from arising) I suspect the IRS would lean toward a conservative approach. but again, that is all personal opinion, unless an agent has stated otherwise elsewhere. on the other hand, it was not indicated if it was a distress termination, which if I recall is the second option, and in that case no 30 day was required.

assume testing interest rate of 8.5% if age NHCE = 25 and young HCE is 40 that is 15 year difference in age 1.085 ^ 15 = 3.4 so if you give NHCE 5% the young HCE could get 5 * 3.4 and still be in the rate group. that is 17% but 17% * 210,000 is only 35,700 , short of the max 42,000. so there is your advantage. you could give more to the older HCEs, 5% to the NHCE and somewhere imbetween to the young HCE (and still have a chance at passing testing) but at least that gives you a chance since you would have at least one NHCE in the rate group. you would probably need more and unless you have enough young NHCE you would probably have to reduce the young HCE even further

a plan can have an hours provision, provided that such ees would be guaranteed of entering the plan if they worked 1000 hours in a 12 month period. the example I have seen goes something like 1. worked 300 hours in a 3 month period or 2. 1000 hours in a 12 month period. of course at that point you are going individually designed if my memory serves me correctly.

since this is a 401k forum, then I would assume that your question pertains to the different 'plans' 401(k) includale, benefiting if eligible to defer even if one doesn't 401(m) includable and benefiting, even if they deferred zippo - unless their is an hours or last day requirement they failed to meet. nonelective - includable and benefiting only if they received a contribution or forfeiture. terminees with less than 500 hours may (optional) be excluded from the 401(m) and nonelective test if they received zippo if an ee is otherwise ineligible (failed service or hours requirement to enter the plan) then they are exludables. that should cover most of the people, unless you have a specific situation. thus, an ee who is excluded by name from the plan is includable and not benefiting once he meets the age/service requirements

oooohhhh. chop chop. thats a good one. even with his extra eye I bet Blinky didn't 'see' that one coming

well, I don't read the new regs to say the largest QNEC can only be twice the QNEC of any NHCE, thus each NHCE must be given something. I read the regs to say pick a group of 1/2 the NHCE and what is the lowest rate amongst that group. half the group of 24 is 12. I gave all 12 11.2%. the lowest rate of that group is 11.2% so I don't see where that fails. If you had to look at every possible arrangement of 1/2 the NHCEs, then you would have someone with 0%, true. but that would imply you could have no eligibilty restrictions on QNECs (hours, etc)

the logic sounds correct, but there are too many possibilities to reduce to a simple equation. my understanding would be: with 24 eligible nhces, 1/2 that is 12. so you needed to raise 134.4. you could provide that to 12 nhces, or 11.20 to those 12 and 0 to the other 12. I suppose this might be less expensive depending on comps but given those conditions I would make make the plan safe harbor for 1/1/2006. it would certainly be more cost effective. good grief. the SNHEC is only 3%

the regs say 'for plan years begining 1/1/06' why would using prior year testing make a difference, the plan year itself still begins 1/1/06. or at least that is how I would see it. In addition, QNECs are next to impossible using prior year testing. that was one of the arguments against usiing prior testing and why current year testing is better. personally, I'd rather forget the QNECs and test with prior year, but that is only my opinion.

the approach should be the same for safe harbor plans. obviously the regs already anticipate this scenario because they say you only have to provide the safe harbor for statutory includables. you do lose the free ride on top heavy, but other than that treat the plan as you would any other. In other words, separate plan into the two groups, otherwise excludables and statutory includables. now, did all the statutory includables receive a safe harbor? the answer would be yes. rate of match doesn't come into play, for you would only look at comp from date of entry.

Big Al's understanding is correct. your plan would still be considered top heavy

yes 1.401(m)-2©(3) but you cant shift, cant recharacterize deferrals, cant use QMACs in ADP test there are certain types of documents you cant do this with either, but my memory is going dim. myabe its Master Protyopes or something like that.

it should be in the document itself. I have never seen one that says a person can't stop deferring. (Changing to a different amount is different, but stopping deferrals should be possible at anytime.)

as long as all participants received the notice you are ok. it doesn't matter if only hces defer. that makes a good deaql for them. but that is why I would want some type of proof that the NHCEs are aware of the plan. just in case.

Amy Cavanaugh included some info (27 qusetion and answers) on Davis-Bacon Plans in the Coverage and Nondiscrimination Answer Book Supplement (Chapter 22). Plus reproduced some of the USDept of Labor Davis-Bacon Resource Book 11/2002 (those parts that pertain to retirement plans) in Appendix N (about 6 pages). I plead ignorance of any knowledge of Davis-Bacon plans as I have never worked on them.

that should work (assuming there are no old forfeitures that are also getting reallocated.) In addition, plan cannot use otherwise excludable option. I would add, if only HCEs are deferring, this gives an appearence that the safe harbor notice was not distributed properly. It might be in the best interests to have NHCEs sign off.

The difference is testing. while you could provide a discretionary at 300%, you would have to run an ACP test either on all match, or those amounts above 4% of comp. If it was a fixed match capped at 6%, then you get the free ride