Tom Poje

that just goes to show you how muddy the waters can be. ANd how unsure people are on the issue. I have actually thought about the issue some more. the code says you have to satisfy both 401(k)(12) and 401(m)(11) now, to pass 401(m)(11) you have to pass 401(k)(12)! You can't have a plan that passes ACP safe harbor and not ADP safe harbor. or put another way, if passing ADP safe harbor was sufficient, why not simply say the exemption is for 401(k)(12) alone, or 401(k)(12) OR 401(m)(11). On the other hand, they could have said pass 401(m)(11)!!!!! so, a plan provides absolutely no option for a match. I would hold that there is no ACP test, hence it doesn't satisfy ACP safe harbor since none exists. There is no rule I know of that says "A plan with no match automatically passes ACP test" as for example "A plan with no HCE automatically passes". I thought of some other examples involving non safe harbor plans. A plan with deferrals only, no language for a non elective contribution, still has to provide a top heavy if a plan is top heavy and a key employee deferrals - even if there are no other nonelectives. Up until a few years ago, a frozen top heavy DB plan had the same requirement. you had to provide for something even though 'nothing' else existed to require it. (Personally I wish you had heard back from one of the technical assistance services and could enlighten us, but there lack of response would seem to say "we don't know, either")

yes (I think if I understand your question), in that case you have avg ben % test def + match + SHNEC + (profit sharing and disparity on the ps) rate group test SHNEC + (profit sharing and disparity on the ps) since the max disparity when cross tested is generally an adjustment of .65, unless the ps piece is extremely low (or the individual is especially old with a small ps piece) it probably wont make a difference that you can only impute on the ps portion only.

that sounds correct

ERISA Outline Book (11.60 2003 ed) states the following: The treatment of the excess contribution under the ADP test as a catch-up is NOT optional. (emphasis is theirs) If the plan refunds the amount anyway, it is violating IRC 414(v) to make the same dollar amount of catch-up contributions EFFECTIVELY (emphasis theirs) available to all employees.

or put another way Avg Ben % test E-Bar = def + match + profit sharing +(imputing disparity on profit sharing only) Nondiscrimination Classification test (or Rate Group E Bar) profit sharing +(imputing disparity on profit sharing) I have seen very few cross tested plans pass the nondiscrimination classification in which the ratio % test > 70%, though it is possible. That is why I mentioned the avg ben % test

you are allowed to impute disparity, but not on any contribution that you can not apply the rules of integration to. So you can't impute on the deferral piece, the match piece or the ESOP piece, or for that matter SNHECs and QNECs thus, a person who defers but did not receive a profit sharing contribution would not have his E-Bar adjusted by imputing disparity.

one of those exclusions is former employees whose 'lump sum' is less than $5000 since you could pay them out under the involuntary distribution rules. that is fun stuff - well, at least if you are a fish.

new comparability is simply a way of allocating a nonelective contribution. If the document does not include one you can always add one. I would guess the document already includes one (maybe comp to comp) In that case, it depends on what the eligibility is. If there is a last day provision, you could always amend the formula since no one has accrued the contribution yet. If there is an hours requirement, chances are no one has attained that yet either

so increase your age bands by 1 year, and eliminate the lowest rate <4 1.2% 4 to 7 yrs 2.4% 8 to 11 yrs 4.8% 12 to 15 yrs 9.6% 16+ years 14.6 % original suggestion < 3 .6% 3 to 5 yrs 1.2% 6 to 8 yrs 2.4% 9 to 11 yrs 4.8% 12 to 14 yrs 9.6% 15+ years 14.6 % I'd find it hard to believe the overall cost would change dramatically. maybe the first year if owner is at 15 years, but the following year owner would be at the new level.

I finally confused Andy? Wow. before one can cross test, one has to either provide the gateway minimum (1/3 rate or 5%) or provide smoothly increasing schedule. but the caveat on the smoothly increasing intervals is that you can't have a rate less than 1% -or at least that is the way I read the long winded cite

if lowest band < 1% and plan is top heavy, then you can't use 'smooth increses' to avoid gateway minimum. in otherwords, since HCE received 14.6%, you have to provide gateway minimum 4.87% (1/3 the rate of the HCE) it looks like the govt logic is as follows. you can use 'smooth increases' to favor the HCEs, which, just by its nature will probably cause the plan to be top heavy. that is fine, and you can still get by providing the 3%. But since you were really obnixous and provided only .6% to the lowest group, then you have to provide the gateway minimum rather than relying on smooth increases

with that we agree

define 'forever' (besides "strawberry fields") EGTRRA amended things to say "Benefits not taken into account" if ee has not employed or performed services during 1-year period ending on the determination date. it had been 5-year. if ee quit in 2001 that sounds like he has not performed service for a number of years, so that shouldn't effect top-heavy

Dave: this is really strange, must have gone into Benefits Link the exact moment you posted or something. its odd to read a response before being notified there is a response! anyway, I know the 'or' is in that paragraph, which reference the safe harbor for the ADP test. But if that stood on its own, then a SHNEC would satisfy the ACP test, which it doesn't. The way I understand that to be read is that before even getting to the ACP safe harbor you have to pass ADP safeharbor, which is done with either the SHNEC or the SHMAC. 401(m)(11)(A)(iii) adds to meet safe harbor ACP must meet the following limitations for the match bleh bleh bleh but then maybe I am reading too much into it.

EGTRRA added the following: Code Section 416(g)(4) was amended by adding new subparagraph (H): The term ‘top-heavy plan’ shall not include a plan that consists solely of – “(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and “(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met. Note, it says 'and' rather than 'or' so, does a plan that only provides a SHNEC satisfy this requirement? In the post the example used was ees who entered midyear. the 3% they received would be insufficient because it is not based on full year comp. Does the plan get a free ride on top-heavy since those were the only contributions? I would say yes, if the plan provides a discretionary match, because that would satisfy (ii), because the discretionary could be 0. If the plan does not contain language for a match, then, who knows. Technically it would be impossible to satisfy condition (ii) I have yet to figure out how the IRS thinks in some areas. If the plan exercised the 'otherwise excludable' option then no, the plan does not get the free ride on top heavy, and would have to provide additional contributions.

perhaps a simple example will help Company has 2 NHCEs, one has only worked less than a year. testing results are as follows: ADP % NHCE 1 (worked more than 1 year) 6 NHCE 2 (worked less than 1 year) 0 Average for 2 nhces is 3% however, there is an option (doesn't matter what the document says) to test employees with less than a year by themselves. In effect, this eliminates the NHCE with 0. Therefore the average is now 6% Based on your comments, it sounds like your situation is ok, simply that an option is being taken advantage of. It might not always be the case. Suppose NHCE 2 deferred 10%. then it would be better to test the numbers combined. hope that helps

no one explained the logic / reason behind this exclusion. It appears your plan has immediate eligibility (or something similar) By law, the maximum wait is one year. So what has happened, your plan, being more generous than it has to, has brought in a lot of people it didn't need to. And usually, the first year someone works, they don't defer, therefore you have a bunch of zeroes on the test, which only hurts things. so the govt allows you to test all people with less than 1 year separately.

cite looks correct. the requirement is that the minimum band is 1% (not .6% as desired in the question)

at one time, the answer was yes. under the proposed regs it does not look like it will be possible. there is something called 'targeted QNECs' - something like they can't exceed the greater of 100% and 2 times the representative rate. Maximum QNEC is 10% and that is 5% ADP and 5% ACP. anything larger has to be given to a certain % of NHCEs. But I am much to lazy a person to actually read through the proposed regs at the moment to find the exact numbers. And of course, these are only proposed, so they might change a little. Basic answer is "No, you probably can't do that going forward, once these regs go into effect"

I am not 100% sure on that. I thought QNECs were a seperate animal from nonelectives - the documents I have seen would have them listed as different animals- rather than "I choose to treat some of the nonelectives as QNECs" In fact, you can have different eligibility requirement for a QNEC than from a nonelective. In this case you must, since you are not given the HCEs a QNEC. By the way,even if it is possible to do what you desire, you would need to run an a(4) test excluding the QNECs

regarding issue of hours requirement if less than 1000 hours: ERISA Outline Book uses the following as a possible language (well ok I modified it a little bit) To become participant you must be age 21 and complete one of the folowing: 1. 3 calendar months in which 100 hours credited each month 2. year of service, where year of service = 1000 hours in a 12 month period. so it does appear possible to have an hours requirement if under 1 year of service, as long as you also have 1 year of service eligibility as well. .............. I don't believe you can retroactively amend to exclude ees once they have complete their 6 months and met the entry as specified in the document. However, you could amend plan to require a participant must have satisfied a 1 year of service condition. That won't help for plan year begining 1/1/04 but should solve problem going forward. see 2.64 of ERISA Outline Book - 2003 edition

Lynn: Look at it this way. Before the IRS said you could have 'class' plans, a company could have set up 2 plans. Plan 1 for HCEs Plan 2 for NHCEs In a given year they could say that plan 1 receives 0 and plan 2 receives 5%. The IRS was nice enough to allow you to achieve the same results in 1 plan by dividing people into classes. In your case it sounds like you have an additional class for an HCE. Again, in the old days, you could have set up a third plan just for him. Does it constitute a CODA because it is accomplished in one plan by operating in this way? I think thats debatable. As to your particular question, can the 2 HCES get 0 and the other receive the maximum. That depends on how you word your document. You could have class 1 = HCE 1 (or some similar description) class 2 = HCE 2 class 3 = HCE 3 class 4 = all others

too aggresive for you, huh? I did find in the ERISA Outline Book (after I posted my question) where it says ADP test must be satisfied before and after shift. but that is common knowledge. but then there is also a statement (11.178 of 2003 edition) "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)© but are eligible for recharacterization as catch-up contributions." based on that statement, it would indeed seem possible to 'overshift' to pass the match- and then determine if there are excess contributions.

what type of entry dates does the plan have?

ok geniuses have a plan with the following results: HCE 4.11 2.06 NHCE 2.17 .70 so plan passes ADP and fails ACP if I shift .33 NHCE deferral to ACP I have HCE 4.11 2.06 NHCE 1.84 1.03 Now plan fails ADP and passes ACP. Am I now allowed to treat part of the HCE deferrals as catch up (where before the shift I couldn't)?