Tom Poje

A SEP is subject to the top heavy rules There is no free ride on these plans If the key ee participates in both plans then they must be aggregated My logic (maybe illogic) says the following: therefore you lose free ride on top-heavy. I don't think it even matters if a SEP contribution is made, once a key ee makes deferrals I don't think the 3 year has any effect. that would seem to be no different than example 4 in which there is immediate eligibility for deferral and 1 year wait for the safe harbor piece in the rev ruling cited

There simply is no guidance. I haven't had the situation arise, but under the guise of 'a good faith effort', I would not be uncomfortable amending plan within a year to change to current. but that is me, others may disagree

perhaps what the question was intended to be was: if the only contribution a key person receives is a catch up, does a top heavy contribution need to be made for all other participants. I suppose this could happen if plan was written such that key ees not allowed to defer. therefore they make a catch up. since they received a contribution, do they have to make a top heavy. If I recall correctly, the answer is no. catch ups are not used in determining how much top heavy to put it.

you are correct, since plan had match provisions, even though never used, they are out of luck. prior year must be used at it is zero. now, as regards to if you can change method... there are no guidelines. some hold you should be able to change to current year because you can correct an ADP test up to a year after plan year end. so, one could argue a good faith effort allows you to amend after the plan year end.

that is the problem with any sports statistic. they are really only relative to their own time and place. my own guess is that whatever 'juice' he may be on, it probably has a smaller effect than things like an over expanded league that has filled rosters with pitchers who have no business in the league, a strike zone that has shrunk, and, if I recall correctly, the change in height of the pitching mound to help the batters out.

sorry Andy, I am a 'homer'. Never interested in the Marlins. Actually, I lost my interest in baseball many moonsago when they went out strike for the umpteenth time. I keep wanting someone to tell me how many HRs Bonds would have based on how many games he missed due to the strike. Belgrath: I understand your comments about Lord of Rings - read them in high school (not as an assignment). I enjoyed the movies (haven't seen the last one). Only watched the movies on the VCR, thanks to a gift or two. I would never even think of comparing the the books to the movie. I did buy a set of cassette tapes (dramatization, I think it was 13 tapes)and thoroughly enjoyed them, especially Samwise. keep promising myself that someday I will reread the stories again. I also understand your feelings about the Redsox, and your feeling about that team from New York. I keep hoping someone will dethrone the Yanks.

yes, top heavy is based on total 415 comp. and from plan year begin not date of entry as well. sorry.

well, if you think about it, how often would you want to allocate a QNEC or QMAC? generally they are more expensive than refunding money. so it is not surprising you never ran one before. I know at least a little bit of the 'history' of the QNEC calculation. stories are always interesting, I am so swamped with work at the moment, but stopping for a story is a break I need. The DOS version (Pentabs) calculated a QNEC, and would provide the results to the user as QNEC ADP test and QNEC ACP Test. That I know because I wrote the original logic (believe it or not) and passed it on the the programmer. I messed up the first time and didn't tell him the calculation couldn't go negative. That was easy enough to fix. Then when Quantech (now Relius) came out they simply used the same logic. It was at that point one of the powers that be decided a QNEC ACP was the same thing as a QMAC, so why not call it that. oooooooooooooooppppps. I can't say I ever looked at a QNEC since many a year ago. I recall sitting down at dinner many years ago and working out the silly thing. It basically involved working with the multiple use test and working backwards. With the elimination of the multiple use things have gotten easier - I would assume the adjustment was made to the QNEC on the system as currently exists. I think you are correct - should be easy to have the system calculate a QMAC - I imagine it is on the list of enhancement, but probably low priority.

ever since Quantech came out they have used the term QMAC to refer to a QNEC allocated to the ACP test. Someone at Corbel land thought it was the same thing. No really, its true, I even heard the person make the statement many years ago. and for whatever reason they refuse to change the terminolgy. Not even asking them to change the calculation - just the woding so it says QNEC- ACP test rather than the confusing QMAC. A cosmetic fix. so, naturally the QMAC, which is really a QNEC, is done comp to comp. If you want to run a QMAC I would set up a 100% vested match account. Of course, that may be fun if you already have a match account and lots of investments, but that is life. hopefully eligibility for QMAC and match are the same. The problem: you will have to calculate the amount of QMAC in order to pass the test. that shouldn't be that hard to calculate. and you would probably have to 0 out the match comp in census on the HCEs before running. so, person you talked to told you the truth, but maybe not all the ugly details or reasons why.

I assumed (possibly incorrectly) that the statement the ee waived out meant person made one time election not to participate. under 1.401(k)-1(g)(4)(ii) says one time election, ee is not treated as an eligible employee for the ADP test, and is therefore excluded. however, it must be recalled that such a person is included and not benefitting for coverage purposes. and no such rule exists for excluding the employee from the avg ben % test

gadzooks, I will never understand what you guys are complaining about! I'm originally from Michigan. Lets see, the Tigers won 43 games last year, and 55 the year before. gosh, combining the two seasons yields 98 wins total. That is barely enough to make the playoffs! And that is two seasons worth. Shoot. Football ain't even better. A total of 8 wins for 2 seasons. Again, 2 seasons worth of games and still not enough wins to make anything close to the playoffs.

Guess it depends on which test you are referring to. (Ooops. never end sentence in a preposition) ADP test I would expect them to be excluded other nondiscrim test I would expect them included. (Though if they waived out and you never gave them 1000 hours as a result then I suppose it is possible the system thinks they are ineligible.)

hmmm. maybe something broke again. you used to be able to attach a .rpt file. you could try asking Burgermeister Dave Baker. he is usally pretty good about fixing stuff if that is what the problem is.

in crystal, on the left hand side of the report, if you right mouse click and then select format section, is the section that does the hce/nhce sort set to 'new page after'?

another of the famous yes, but.... If you have a regular run of the mill 401k, you can have an 18 month wait /last day for cross tested profit sharing. however, if the plan turns out to be top heavy, you could have someone who is eligible to defer but hasn't completed the 18 months. since that person is in the plan they must receive a top heavy minimum. And once they receive the top-heavy, since plan is cross tested, they must receive the gateway - or at least if they have been there the 12 months. If I recall, if plan had immediate eligibility for deferral, you could test as otherwise excludable, and provide the top heavy only to those ees.

yes but.... yes, you can only have 12 month wait on safe harbor (though of course entry dates could delay things up to 18 months maximum. you could maintain the ps at 18 months but for what purpose? If ee receives SHNEC only, to pass gateway minimum you would probably have to kick him up to the 5% anyway.

as long as their rate of match is less than the NHCEs that is fine. I suppose another possibility (again depending on the document) is to test using comp - deferrals. One hce is at 200,000, so assuming he made over 209,000 his percentage won't change. If there are a number of NHCEs who didn't defer their percentage will stay at 0, so won't change. conceivably you could have enough NHCEs deferring to change the refund.

looks like you are doing it correctly. you have a couple of choices. if deferrals are refunded, you also have to make sure rate of match doesn't fail BRF. this could require forfeiture of some match. on the other hand, there is probably no reason you couldn't correct ACP test first. see 1.401(m)-1(e)(4) excess aggregate contrib that are distributed are not taken into account for purposes of 401(a)(4) (e.g. BRF) thus refund failed match first, then do deferrals. might eliminate BRF issue. this is generally a better deal for the HCEs as no $ are forfeited. depending on how your numbers are coming out (and provided document allows it) it might be possible to shift some of the deferrals to the ACP test and reduce amount of refund. You also didn't indicate if anyone is eligible for catch-up. any deferral refund could be counted as catch-up (again provided document permits this) As a side note, interestingly enough, if you moved forward a few years, HCE1 would be able to treat his distribution as a ROTH IRA (leave it in the plan) if the document allowed it!!!!!!

I've seen it written up in an example as follows. match refund = 1000 balance = 3000 ee 60% vested. you could distribute 600 and forfeit 400 or balance = 3000 vested balance = 1800 distribute the full 1000. this leaves a balance of 2000 vested balance = 800 (1800 - 1000) so ee gets a bizarre statement which says end bal 2000 60% vested bal = 800 and ee says wait a second 800 / 2000 = 40%. what is up with that? This is actually a good deal for the hce- once he becomes 100% vested the problem goes away! and he hasn't forfeited any $. fortunately most hces are 100% vested to start with and you don't normally have a problem.

an exception would be if ACP test also failed. in that case, you could distribute ACP first then distribute ADP

from a curiosity point of view, are these HCE by ownership or by comp? e.g. suppose next year the 2 NHCEs enter the plan, one quits with greater than 500 hours, and plan has last day rule. in that case, if HCEs are determined by comp, then top paid group election might be advisable in order for testing purposes

and sometimes I think I understand actuaries............. no, couldn't be.........

suppose ee makes 200,000 and wants 40,000 in ps to max out 5.7% (200,000 + 113000) = 17841 base%=excess % so now wants 22159 22159/ 200000 = 11.08% of which 3% is safe harbor so it looks like at least 8.08% additional unless there are deferrals. or maybe my brain is on the fritz, which it has been known to be.

Spencer - Thanks. I have tried to post a few reports from time to time, but never know what others find useful. There is one case I have stumbled across in which the report doesn't spot potential problems. ee who is listed as term in the current year and has no comp. one never knows what one can find with a download.

see rev proc 2003-44, appendix A .05 Exclusion of eligible ee ...if an ee should have been able to make an elective contribution...employer must make a QNEC.... I'm grabbing that real quick, so maybe it doesn't apply in your case. this might only apply to an ee who was not let into the plan itself, rather than the case where ee was let in but his deferral not taken out.