Tom Poje

is this what you are looking for? (I added this one to be in the supplement this year for the book) If a new plan provides for immediate entry for those employed on a certain date, and a waiting period for those hired after that date, might this be considered a discriminatory amendment? The very same question was asked at the 1999 ASPPA Annual Conference IRS Q and A question forum. IRS Response: This provision is often seen in standardized prototypes which are supposed to be nondiscriminatory by design. I do not think present and future eligibility would have been approved in standardized prototype plans if this were not acceptable. We do not see this eligibility provision as a discriminatory amendment under the -5 rules. It should be remembered that IRS responses at such conferences represent an unofficial view of the government participant at the time of the discussion, and not necessarily represent agency policy.

what I am saying is that whereever Relius says QMAC pretend it really says QNEC ACP. when Relius says QNEC it should be QNEC ADP. maybe that means you need to run a "QMAC" to the ee and then it will work. I am guessing on that.

Probably blame Relius software for that term although I am not familiar with other software so maybe they are not alone. (I could never get them to stop using the term QMAC to refer to QNECs used in the ACP test, so good luck trying to get them to change the verbage if thats what you are referring to) The term 'Facts and circumstances' in regards to this area should only refer to Coverage testing, a plan that fails to have a ratio % greater than the safe harbor % can still be considered to pass the nondiscrim classification test if the ratio % is greater than the unsafe harbor AND AND AND AND the plan meets the facts and circumstances requirements 1.410(b)-4©(3) but there is no 'numbers' test per se for the facts and circumstances. I imagine what is being asked is Can I use allocation method to determine the average benefits % test and use the accrual method for the nondiscrimination classification test for purposes of rate group testing. (Or vice versa) As far as I know the answer is yes, those are two totaly different tests I would assume the correct term would be the nondiscrimination classification test.

any unvested money (which would include earnings) is generally forfeited - either being reallocated to other particpants as an additional contribution in the year of forfeiture or being used to reduce the overall contribution itself. It is possible forfeitures will be used to pay plan expenses. This would be described in the plan document, possibly in the SPD (Summary Plan Description) which you hould have been given a copy

ah, finally found what I was looking for hopefully all agree that neither plan is in danger of being disqualified. hopefully all agree there is no distributable event. now, I had thought before an ee could be taxed they had to receive a distribution (and a 1099R) but I see I was wrong (again) 11.247 2003 ERISA Outline Book no 1099R is issued for late excess deferrals distributions. (Some day they will be made) The person in question should have reported the excess deferrals as income on her tax form, regardless of the fact they received no distribution. Therefore, person in question should redo their tax form for the year in question.

4979 is on excess contributions or excess aggregate contributions, not on excess deferrals, so I dont think that applies in this case

Ah, I was working out a Q and A for this situation for the Answer Book. I guess I am allowed to copy my own comments, though I suppose if I am in a grumpy mood I might refuse even myself permission. Well, ok, I will modify it a little. Ok, I modified it heavily. Anyway, this is what I have: The regulations are quite clear. In order to distribute excess deferrals, the plan must contain language to permit this. But, believe it or not, a plan doesn’t have to. No really, look it up! Treas Reg 1.402(g)-1(e)(4). If a plan doesn't contain such language, it would be impossible to make the distribution. Now, that being said, it is also required that a plan may not exceed the 402(g) limit for the year – otherwise the plan will be disqualified. Code Sec 401(a)(30) So most, if not all plans, contain the necessary language. But in this case neither plan has exceeded the 402(g) limit. This rule only applies to all plans of an employer, not situations in which an employee works for more than one employer. Now, it was indicated the violation goes back to 2003. so any correction at this point would be late. and if late, the regs require... Distributions of excess deferrals after April 15th are only permitted if the employee meets one of the requirements of section 401(k)(2)(B) (e.g. termination, age 59 ½, etc) Treas Reg 1.402(g)-1(e)(8)(iii). Thus, these distributions, depending on the age of the participant, may be subject to the early withdrawal tax, but can only be made if participant has met one of the 'normal' distribution requirements for deferrals. Now, to avoid plan disqualification, the plan may distribute the excess deferrals under EPCRS (the self-correction program) (Rev Proc 2003-44, Appendix A.04) The permitted correction method is to distribute the excess deferrals to the employee and to report the amount as taxable in the year of deferral and in the year distributed. However, in this case, I don't see where either plan is in danger of disqualification since neither of them violated the 402(g) limit. The rule under the self correction program is for operational failures, and again, I don't see where either plan is in operation failure. (Appendix A .04) so, what's a body to do? Section 6 .02(2)(a) says correction method should be reasonable, and use the method set forth under 1.402(g)-1(e)(2) would be typical means of correcting failure under 402(g). just because there is no example in the self correction Appendix like this particular case, I don't see why you couldn't use some means of correcting the problem (e.g. distribute the excess from one of the plans). good grief, the self correction program can't list every single means of correcting every situation that will arise. Can't guarentee that this is actually possible under the self correction program, since in this situation you are talking a problem on the individual level, not the plan level.

I am confused on the terminology, though it is probably just the way it is written. "we must give terminated employees 2% (Gateway minimum) of the additional 3.5%." I am assuming you mean, the terminated ees who received 3% SHNEC must receive an additional 2% PS (unless thay fall into the group with < 1 year of service) Note: Document must contain language to do this. you can't simply give it to the employees. If not, do corrective amendment (-11g) and amend for the future! This also assumes the HCEs received 15% or more (SHNEC + PS) though that was never specified either. It was also not specified if the plan is top heavy. If so, the ees with less than 1 year must receive the top heavy, so they might end up with 3% SHNEC from date of entry and an additional ps based on total comp.

the real answer depends on your discipline. 'to pay off debt' - yes, $1000 toward a credit card that you are paying 18% interest on (or whatever) seems like a good deal. Unfortunately, many people pay off the debt, and then take on a new debt, so they have not accomplished anything. 'invest more in the future', again this goes with discipline. I know too many people for whom this day never comes. there is always the new boat or new pickup truck that comes first. (I also know one individual that is very good at saving money, so it can be done.) again, it boils down to discipline and commitment.

you didn't say if you are talking summary of accounts or simply a contributions listing. I think I have either, though you would probably have to modify report slightly to match your account name or something. however, at the moment, they are working on the computers here so I have no access. Plus you have to ask Head Honcho and Grand Wizard Dave Baker to restore ability to attach a RPT file to these boards. somewhere along the way the system stopped allowing this.

ok, I'll but that. my brain is on freeze sometimes.

There is a good deal of flexibility as I understand the regs. bands could actually be less than 5% obviously no overlap, and an ee does not have to belong to a specific group. you listed a range 2.75% - 3.25%. the rule is the numbers must be within 5% of a midpoint. lets suppose you chose 3% as the midpoint. 5% of 3 = .15 so your range would be 2.85% - 3.15% the regs frown upon it if allocation rates of HCEs within a range are significantly higher than the NHCEs in that range. Thus, I wouldn't recomend setting the HCE at the hi point and work backwards to determine the lo point of the range. I know, I know, that is the way at least one software does it, but that goes against what the regs would say. To avoid the HCE being significantly higher it is probably a good strategy to have some NHCEs in the group that have higher rates than the hce. that way, you are bringing some NHCEs up to a midpoint, and bringing some NHCEs down to the midpoint. (I am not saying that the HCE has to be the midpoint, just that you try to avoid the significantly higher issue. There is nothing specified what is considered to be significantly higher so you have to use some common sense. actually wrote this one up in the coverage and nondiscrimination answer book (q.8:20) based on what I learned years ago. see 1.401(a)(4)-2©(2)(v)(A)

Kirk: I was referring simply to blank forms, not forms that have already been filled in. I've just gotten in the habit of always looking there first when I want to find a form or procedure or ruling rather quickly.

lets reexamine this one, and depending on your document what eligibility is you may have an unintended situation ee hired 11/11/02 assuming he is full time the following could occur 11/11/02 - 11/11/03 ee gets credit for one year of service. if document says plan switches from anniverarry date to plan year for determining service then 1/1/03 - 12/31/03 ee gets credit for one year of service. Therefore ee has '2 years' and enters 1/1/04, so instead of being ineligible, ee is actually eligible. yes, that doesn't seem fair, but you have to be careful when you require 2 years of service.

go with Schedule Q and some of the DEMOs demo 5 is avg ben test demo 6 is general test I believe those are the most common, the demos ask for some specifics, but as to the format you include that is up to you I would guess a google search would find copies of the Demos

The new regs say: 1.401(k)-2)(a)(4)(A) an elective contribution is considered allocated as of a date within a year only if 1.401(k)-2)(a)(4)(B) the elctive contribution relates to compensation that 1.401(k)-2)(a)(4)(B)(2) is attributable to services performed by the employee in the year...but ONLY IF THE PLAN PROVIDES for elective contributions that relate to compensation that would have been received after the close of a year to be allocated to such prior year rather than the year in which compensation would have been received. This is a slight change from the old rules which didn't carry the statement 'but ONLY IF THE PLAN PROVIDES ' now, all that being said, in your particular case the individual could only have deferred on 1/1 or 1/2, but he quit before that date, so shouldn't be on the test at all, totally ineligible. If ee had been a particpant, then under current law, it appears optional(as long as you are consistent with all ees) whether you would have shown the ee on either 2003 or 2004. when the new regs take effect, you will be locked into what the document says if I understand it correctly.

very good question, and of course easilt debatable. since you are in a plan, that implies you can't make a deductible IRA (or at least you would be limited on the amount of deductible IRA that you could make) so I would assume you are talking Roth IRA. I guess you could 'run' the numbers on the enclosed spreadsheet and see if the results provide enough for retirement. (I picked up the spreadsheet years ago from some posting somewhere) it is easy enough to use - just plug in comp, and deferral rate and see what you will have in 30 or 40 years. personally, if you can put some extra away into an IRA at this time, even for a few years, I am of the opinion that is the way to go. If you have a bunch of credit card debt, then I'd say its better to pay off the high interest - you will never earn that on your money.

it quite well could be discriminatory. for example Hourly = 9 NHCEs Salaried = 3 NHCEs, 2 HCEs coverage would be 3 NHCEs / 12 total NHCE = 25.00% 2 HCEs / 2 total HCEs = 100% Ratio % = 25% Not even close to 70% might get lucky and pass avg ben test, but doubtful

top heavy only goes to those eligible for the plan as a whole, if plan contains a 401(k) and the people you refer to are eligible for that, then yes, you would have to provide them a top heavy.

would agree it is not an attempt to outlaw cross tested plans, especially if your plan allows all NHCEs to be eligible (as opposed to those that exclude full time NHCEs but includes part time NHCEs) notice that the memorandum's attempt appears to be aimed at the determination letter end. Thus, if you have a question about the legitimacy of your eligibility "our plan includes owners and all mail room employees and no other NHCEs" - is this ok. while such a plan may pass nondiscrim testing because the mailroom employees are only age 16, I think the agents will say NO, this one smells.

ah, lets clear some thing up. coverage is only concerned about whether someone gets something or not, it doesn't matter how much. so for purposes of coverage it makes no sense to say the ratio % fails because they received top heavy only. they still received something so they are still benefiting. Now, what you are actually concerned about is "Is my integrated profit sharing plan still concerned safe harbor since the ratio percentage will fall under 70% if I exclude the top heavy only people." well, that depends. If plan passes average benefits % test and the ratio % > safe harbor % then you pass nondiscrim an you are ok there as well. (I would try that first) schedule T shows the % of all ees benefiting, (you do not exclude top heavy only people) you could also try passing on an accrual basis, but that might require using the gateway minimum which would bump up the top heavy only people. ................... You could test both coverage and nondiscrim splitting the groups into statutuory includable and otherwise excludable. Sched T gets filled out twice[i mean you have to fill in the line item for a disaggregated group] . one at 87% and the other for the otherwise excludables (I assume at 100%) That should eliminate the need for nondiscrim testing, though if you really wanted to run it, you should arrive at 87% ratio % test if you run things on an alloaction basis and impute disparity

yes there is a problem - depending on what your notice says. The new regs have made it clear you have to have language in the document, and not 'contingent, if the employer so desires' the other option, as indicated would be to use the wait and see approach. I suppose a third option would be to have safe harbor language in the document for NHCEs, and issue a maybe notice for HCEs. My mind can't handle the ramifications of that, but that should work. If the year isn't lean, then amend to include HCEs for that year only. Remeber you have up until 30 days before plan year end. Interesting question. Always looking for stuff to throw into the Coverage and Nondiscrim answer Book. I am working on that now. maybe I will toss it in!

if those ees could have deferred (or if the plan allows after tax contributions), then yes you would include them. average ben percentage test is an everything, its in there, etc. (Thanks for the comments Fred, always hope that in some way my attempts at giving explanations or coming up with an example don't get too confusing!)

Fred, my guess is that Relius is not set up to handle the situation you described. hopefully it won't matter in your actual testing, but I've seen some close numbers before. all this assumes that my assumptions on how to calculate things are correct. Actually, it might be possible to get Relius to work. If I recall, if you have a money purchase and a profit sharing the system would produce 2 E-bars and then aggregate them for testing. It has been awhile since I tried running and printing a report like that. Thank my lucky start. But that would require you to set up one plan as deferrals only and another plan as profit sharing only. and you really dont want to do that. but my logic says that is how the system should really handle things. an alternative approach would be to make some type of an adjustment to the deferrals to take into account the fact you have only comp for half a year but deferrals for the full year..

at the 2004 fall ASPPA conference the IRS indicated no amendment to eliminate a 3% safe harbor contribution is possible. The plan could be terminated to prevent further accrual from this date on but unless the notice provided indicated it was a 'maybe' safe harbor, you can't get out of it. And of course, if a maybe notice was provided, then the safe harbor language wouldn't have been in the plan to start with, hence no need to eliminate it. Can the owners waive it? well the document says they are entitled to it. you would not be following the terms of the document to simply not provide it. now, what will the IRS do if they dont provide it? well, your guess is as good as mine. no maybe better. my guesses aren't usually correct.