Tom Poje

Blinky: Temperatute at which water boils 212 degrees Temperature at which water freezes 32 degrees subtracting the two you have 180 degrees = the sum of the angles of a triangle.

true, plan does not have to make top heavy contributions. true can switch back to regular 401(k) at a later date. (this would have to be an option if plan ever had more than 100 participants. must be calendar year plan. there is a cap on deferrals which is less than the 12,000 match is 100% vested, slightly diffrenet formula than what you have now, etc.

Belgarath: You show no understanding for the possible situation. we had one plan in which one person embezzaled . probably the nicest way of describing the situation was the plan needed an 'infidelity bond' for the owner . There may be other reasons why someone doesn't want to prosecute. ah, tangled web we weave.....

Always, always, always, forever, in every case you ever see, never vary or change the following: YOU MUST DETERMINE HCEs USING A 12 MONTH PERIOD. It is never less than 12 (nor is it more than 12) It is 12. Twelve. If it is a new company and the prior period is less than 12, well, you still use 12. Probably means no HCEs unless you have owners. If you had a 1 day plan year, you would still use comp for the prior 12 month period. 12. rhymes with delve. Always, forever. :

mentally I can't think, especially on a Friday afternoon. If you were to test a fully integrated plan on an allocation basis (and impute disparity) an NHCE's E-Bar would be assuming a base % of 6% base 6% plus 5.7% imputing disparity = 11.7% I don't care how much the HCE makes, no matter what comp he will also end up with 11.7%. e.g. comp = 100,000 TWB =87,000 so HCE received 6% or $6000 plus 5.7%(13000)=741 total 6741. his e-bar is the lesser of his C rate is 6741/ (100,000-43500)=11.93 D rate is [6741 + (5.7%*87000)]/100000 = 11.7 try any comp figure greater than the integration level. you always get 11.7% on the other hand at 60% of the TWB (or 52,200) he receives 4.3% (47,800) = 2055.4 extra thus his adjusted rates would be C rate 8055.4/(100000-43500)= 14.26 D rate 8055.4 + (5.7%*87000)]/100000 = 13.014 which is less than the NHCE of 11.7 so using a level less than 100% integration will produce a larger e-bar and thus increase the chances of failure if testing by allocation method. so, answer to #1 is NO you don't change how you perform the test #2 becomes a non existant question. #3 - the regs say use 414s comp when testing. this can be from date of entry despite the fact the allocation was based on full year so you get a gift in that situation - it should help your testing.

coverage: how many NHCEs are covered as compared to HCES covered. doesn't matter how much an individual gets. therefore, 11 / 14 = 78.57%, passes ratio percentage test, goes on the sched T. ......... 401(a)(4) - now it matters how much one gets. There is an exception to the multiple formula rule. You can treat the top heavy only people as neot benefitting. now you have 9 / 14 = 64.28% fails ratio % but will pass safe harbor for nondiscrimination classification test. If you can pass average benefits % test, you would be deemed to have a safe harbor formula and therefore not have to perform rate group testing. My initial reaction would be you would want to pass using the allocation method. I believe, based on the population, if this is a non 401(k), if the plan is fully integrated at the TWB, as long as the base % < or = to 9.34% you would pass. That was a quick test on an excel sheet, imputing disparity. If you were to test using accrual method, you have cross tested and I would think you are stuck having to provide gateway minimum. but their is a rule under broadly available rates 1.401(a)(4)-8(b)(1)(i)(B)(3)(iii) [i think I typed that correctly] - two alloaction rates can be aggregated and treated as broadly available if each group can satisfy 410(b) without regard to the avg ben % test...differences due to permitted disparity can be disregarded. Thus it would appear you pass this and are ok.

A frog goes into a bank and approaches the teller. He can see from her nameplate that her name is Patricia Whack. "Miss Whack, I'd like to get a $30,000 loan to take a holiday." Patty looks at the frog in disbelief and asks his name. The frog says his name is Kermit Jagger, his dad is Mick Jagger, and that it's okay, he knows the bank manager. Patty explains that he will need to secure the loan with some collateral. The frog says, "Sure. I have this," and produces a tiny porcelain elephant, about half an inch tall - bright pink and perfectly formed. Very confused, Patty explains that she'll have to consult with the bank manager and disappears into a back office. She finds the manager and says, "There's a frog called Kermit Jagger out there who claims to know you and wants to borrow $30,000. And he wants to use this as collateral!" She holds up the tiny pink elephant. "I mean, what in the world is this?" (you're gonna love this) The bank manager looks back at her and says... "It's a knick knack, Patty Whack. Give the frog a loan. His old man's a Rolling Stone." (You're singing it, aren't you?!! - I knew you would be.)

If you are filing a 5500 what would you put down as a plan year? Assuming the money is still in the plan, then, assuming a calendar year plan, you would still use 12/31 - hence no short plan year. So just because the plan is terminated does not create a short plan year. But I don't think that was the original question - simply is a top heavy required, and it is one of those issues that really isn't clear in the regs. To receive a top-heavy one has to be there on the last day of the plan year. so, do you argue, yes everyone is there even though the plan is terminated, or do you argue that the plan is terminated so there is no 'last day'. suppose a calendar plan terminates as of 9/30. Fred is there on 9/30, but quits before 12/31. Now what? well, it is only a month until the ASPA conference, hopefully that will be one of the questions addressed.

when you say 2% SH match, do you mean 2% discretionary match. I thnik the only restriction in the new regs is that you can't have an hours or last day requirement

I agree with the 'Butler'. If the employee received 5100 in step 2 the calculation was incorrect. it looks like the individual received 2412 too much. I believe this can be corrected under EPCRS

correct. Now, look what happens to your plan if the youngest NHCE quits. not pretty, is it.

see also discussion in ERISA Outline Book. (6.154-155, 2003 edition) The only exception, as noted above is if the amount is less than $200. penalty is $100 for failure to provide notice see IRC 6652(i), which cites 402(f)

There is no calculation of the 10.26%. that is simply a mathematical conclusion based on all the facts. you had 5 NHCEs. if only one was in the rate group you would be at 20%, and 2 NHCEs would be 40%. so you are correct, all you need is 40%. So the question is, how do I get 2 NHCEs in my rate group so I pass testing? A E-Bar is a conversion of the contribution to a benefit - therefore it is tied to the interest rate, and the age difference. I used a simple case ignoring imputing disparity, plus only 1 HCE. Suppose you had more than 1 HCE. You would need a report (and certainly programable since one can discuss it) that says HCE 1 needs x NHCEs HCE 2 needs y NHCEs etc. Then the report needs to indicate the age of the 'oldest' NHCE in each group compared to the age of the HCE looked at.

ah! so the person didn't really receive a contribution based on comp above the $ limit - it was just the way it was mathematically written out (ee was shown with $259,600 as 'comp') that confused you. combining the first three steps into one you have: the person received 5.7% base plus 5.7% of comp above the integration level then step 4 is the remainder of the allocation on base compensation.

see instructions for Sced I, line 4k these rules apply for plan years after 4/18/2001 check YES to claim audit waiver, but this implies 1. 95% of assets are qualifying, or amounts that aren't are bonded 2.SAR has to include language indicating blah, blah, blah about the financial institution 3. administrator must provide info to participant upon request. that is a real brief summary, the instructions are real clear!

wich test are you referring to? Relius does them all. the NHCE concentration % test is hopelessly buried on the rate group report

ok, you have 5 NHCEs, 1 hce nhce concentration % = 5/6 = 83% (always round down) this translates to a midpoint of 27.75% This means you need 2 NHCEs in the rate group. (2/5 = 40%) The 2 youngest NHCEs are age 32 and age 45, HCE is age 52. Therefore you have an age difference of 7 years between the 45 and the 52 year old. maximum interest rate is 8.5% 1.085 ^ 7 = 1.77 so if the NHCEs get 5.8% then the HCE can get 10.26% (5.8% * 1.77) That is without imputing disparity. This of course only passes the rate group test, avg ben % test would still need to be passed. But it does provide the maximum the HCE can receive.

Andy, based on your numbers 1750 ees, 19 hce so 1731 nhce 1731 / 1750 = 98.9 always round down so I get safeharbor 21.50 rather than 20.75. ugh sounds even worse. well, actually I would fix to pass unsafe harbor % and plead facts and circumstances based on what you said

ugh. Never seen a ratio % go that low - especially for a 401(k). Is there anyway on of the groups could be treated as a QSLOB?

it sounds correct, but lets make sure on the facts since not everything is 100% clear. for example, you indicated 4 of 5 NHCEs had E-Bars greater than the HCE, but you did not indicate what test you were talking about. for example, suppose an NHCE defers $10,000 and the HCE defers nothing. Further suppose the NHCE receives no profit sharing but the HCE received a profit sharing contribution. In that scenario, it is entirely possible the NHCE has a greater E-Bar on the AVg Ben % test than the HCE but that doesn't count. Remember, when testing ratio % you could have 3 tests (401(k), 401(m) and nonelective) Coverage - 410(b) Ratio % - it doesn't matter how much someone gets, it only matters did someone get something - anything. therefore, the fact that 4 NHCEs have a greater E-Bar than the HCE doesn't make a bit of difference. you said plan was safe harbor. that means all NHCEs received a nonelective contribution. that sounds like 100% for coverage. You want to cross test.. each NHCE received at least 5% so you are permitted to cross test. You indicated 4 of 5 NHCEs had E-Bars > the HCE. If you are only talking about E-Bars involving non elective contributions, then you have a ratio percentage of 80% and don't need to proceed further. Unusual, rarely see a cross tested plan that passes this test when looking at the rate groups.

how bad was the ratio %? was it greater than the unsafe harbor %?

I've heard of it, never used it. interestingly enough, no such corresponding rule exists exists for DC plans. (Therefore I would shy away from it if you are talking about a DC plan that is cross tested) The example provided in the regs uses a situation in which the plan fails because the most valuable accrual rate of one HCE fails. Therefore, I would be wary about using this option - again the facts and circumstances would be the deciding factor.

regs are unclear for a new company. Years ago at an ASPA conference the IRS implied the effective date could proceed the existence of a company. one would want to make sure that is what one is requesting in a dtermination letter and see what the IRS says. If they let you use 1/1 then no proration. If the document already exists with an effective date of 9/1, then: no proration for deferral limit. that is indivual, at $12,000 for 2003. vesting MUST MUST MUST be 12 months. therefore the first year runs from 9/1 - 8/31. After that it woulkd be based on a calendar year. there would be an overlap. everything else would be prorated. BUT! check definition of compensation. If it says something like 'the calendar year ending within the plan year' then I don't believe there is anyproration. Not 100% sure on that, but the document is saying use a 12 month period, even though no one has 12 months of comp. But if an ee enters a plan mid year, then there is no proration on the individual either, so that would make sense. Just what does the document say?

Blinky: maybe the gateway is not being satisfied with the gateway minimum of 7.5%, but rather the plans are 'primarily DB in character' or they are Boradly Available Separate plans. I've only run one DB/DC combo and that provided the 7.5%, so I have no experience with the other scenarios. It is so ingrained in my mind to provide the minimum allocation that I rarely think about the possibility of broadly available rates even when proposing just a DC only plan. An age weighted plan with at least 17 years difference actually works better. (1.085 ^ 17 = 4.00, thus a 5% contribution to an NHCE can allocate 4.00 * 5% to the HCE at $200,000 who is 17 years older.)

I haven't had time to read all the proposed 401k regs, but the explanatory comments contain the following: "...it is not permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied.. It would be inconsistent with this approach to providing benefits to allow an employer to deliver smaller benefits to NHCEs and revert to testing" so, at least in regards to the SHNEC, this goes against what I understood, that is, to say "We might go safe harbor" for a given year. It looks like it is all or nothing. If you say you might go safe harbor then a month before plan year end you actually amend the plan to be a safe harbor, and then you are stuck at safe harbor unless you amend the plan out of it.