Tom Poje

This is not a choice. you must follow the new rules in practice.

good description Andy. So now lets look at the DC plan It has a safe harbor formula and covers 3 HCEs. Ratio % = 0 since no NHCE benefit. (You still have to treat them as includable and not benefiting) This implies that to pass coverage it will have to pass nondiscrimination classification test. Assuming you have a reasonable classification I don't see how with a ratio % of 0...hmmmm. I see no way that will be greater than any safe harbor or even any unsafe harbor, possibly Benton Harbor. I don't see how you can avoid aggregating the plans for testing.

for possible cite I would read ERISA Outline Book 2003 edition, 11.250 - 11.252 for a good discussion on the coordination of excess deferrals / excess contributions. noncalendar years are discussed

this time you didn't look hard enough for at least one suggestion. checking the ASPA reference Book "The ERISA Outline Book" 2003 edition 1.544 "Although not specifically discussed...it would seem appropriate to take a similar approach in the top heavy determination" [that is, the whole paragraph suggest using similar treatment as with death benefits. if ee is key you include both numerator and deniminator. if non key only in denominator. if former key excluded entirely.

of course, now that we have removed the fail safe language it is hard for me to say exactly how the Corbel documents have it worded. After printing one out and reading it, we said, we don't want that in there. if I recall the fail safe was something like If plan fails ratio percenatge you add back. (Not if you fail ratio, but pass avg ben % then you don't have to add back) so it doesn't matter if your avg ben passes, you have to follow the terms of the document. you failed ratio, you have no choice but to add back. This would agree with KJohnson's comments from the IRS reviewer. or at least that is how I would read it.

ok, one more stab. Based on your comments, document contained fail safe language. plan failed ratio % test of 410(b), and because of document language you can't use avg ben test to pass coverage. therefore you added a few NHCEs. an advantage of fail safe is that you simply add them, no amendment needed. lets see, you had 12 NHCE and 4 hce, so nhce concentration % = 75% which translates to mid point of 33.75%. (actually I think the original post had 1 more NHCE, but what the heck) you said plan passes cross testing(nondiscrim classification test) that statement is a little incomplete as the classification test is one part needed to pass. This implies each HCE has a ratio % > 33.75% (or put another way, you ran 4 ratio %, it is possible they were all the same %, but unlikely) so as long as plan passes avg ben % test you pass cross testing.

Thanks for the info. I wondered why there was a change to the language. We also have chosen not to include the language. It's an interesting trade off. If you include the language, then later fail coverage you simply add people back in to pass. On the other hand, you might have passed using the average benefits test, so you have given something to someone you might not have to. If you don't include the language, and later fail, then you have to put in a corrective amendment to resolve the problem. And, it has to be a meaningful benefit! In other words, the fail safe says something like give the terminee with most hours a contribution. It doesn't appear to matter if he is vested or not. Under the corrective amendment you have to provide at least some vesting as well to make it meaningful. ................... I would agree that if using Relius use rate band sparingly, though with the latest version you can set the range for at least one band. I haven't figured out how to set more than one band at a time, I think there may be a glitch in the system. Hopefully you will only have to set one.

Good job! At least you looked at the document! As I said, I think the old document language was 410(b)(1) and the new ones are more specific 410(b)(1)(B) (it is 410(b)(1)© - this is the section that says you can use avg ben % test) I should have added in my previous comment that the 'reasonable classification test' only applies to 410(b), not to cross testing rules under 401(a)(4). you get a free ride on reasonable classification. I suppose it it up to the IRS to prove that when an individual is in a class by himself it is a CODA. For example, if you were in a class, and the boss said do you want $10,000 in cash or as a contribution, then it appears your decision is indeed a CODA. On the other hand, how do you prove that you made that decision and that the boss simply didn't say that FJR worked really hard this year. we are going to give a $10000 bonus in his paycheck, or FJR worked really hard this year we are going to put an extra $10000 into the plan for this person. You can't prove that one way or the other. I guess that is one reason for proving the resolution to be kept in the records somewhere. (I give up, I tried to modify it so the coulmns line up, but...) We provide a statement like the following: Company Name Plan Year BE IT RESOLVED, for the Plan Year ended ;, the Corporation shall make a profit sharing contribution of ;, which shall be allocated as follows: Class Amount A $ B $ C $ D $ BE IT FURTHER RESOLVED , that the officers of the Corporation and the Trustees are authorized to take any action necessary to implement this Resolution. Certificate I, __________________, the duly elected, qualified and acting Secretary of , hereby certify that the foregoing is a true copy of the Resolution adopted by the Board of Directors on the ____ day of _____________, _______________________________ Secretary

Lisa, It is not the gators (or the Gators if you are talking sports) that are bad. It is the heat and humidity! This thread shows the importance of: 1. ASPA, and studying for the exams because it raised some questions 2. this website, because it gives a chance to share knowledge. I think I can speak for most when I say that we all do things differently than when we first started, and sometimes 'unlearning' something is very hard! I have been assigned the task of giving a talk at the fall ASPA 401(k) Testing Hierarchy for Beginners. This discussion has certainly given me some ideas to include. Thanks!

to pass average benefits test you have to pass 2 tests. average benefits % test, which I believe you indicated passed. but you also have to pass nondiscrimination classification test. this has two parts, the nondiscrimination classification and 'reasonable classification' under 1.410(b)-4(b) says "An enumeration ...by name...is not considered a reasonable classification" so, the question becomes, is this meant to apply only to eligibility for a contribution (e.g. excluding employees by name) and not to the situation you have, where individuals are in classes by name? The regs were written before the IRS came out and said you can put people into classes for allocation purposes a few years ago, so does it apply to this situation? Well, ok, lets suppose we go back a few years ago. instead of a class plan, the company could have set up 5 plans. 1 each for each partner, and one for everyone else. I guess in my present mental state you would fail reasonable classification, but that is only my opinion. I guess I express a concern about simply using the avg benefits test under the circumstances, but I could be way off base on the issue. .................. generally we use the Corbel documents. In the past, the document failsafe language would say something like if you failed 410(b)(1) you add back 'x' designated individuals. The new checklist has this as optional language, but now it says if plan fails 410(b)(1)(B) you add back people. this may seem like a little change, but it is actually pretty major, because the average benefits percentage test is no longer included. in other words, if this language is in the document you never get to using the average benefits test. or put another way, even if your plan could pass coverage using te average benefits test, you are stuck because you have fail safe language. I don't see how you can read the document other than that. I am not sure why the change in language. Maybe the IRS required it if fail safe language was to be used. .......... as for rate banding, I would only use with caution. 1.401(a)(4)-3(d)(3) states "Accrual rates within a given range may NOT BE GROUPED under this paragraph if the accrual rates of HCEs within the range are SIGNIFICANTLY higher than the accrual rates of the NHCEs in the range. (emphasis mine) I have commented on this issue previously. I would never set the HCE at the 'hi' end and have NHCEs at the 'Lo' end and bring them to a common midpoint. that certainly seems to fail.(Despite what the software I use does - that is why I don't simply punch buttons) I am willing to bring 1 NHCE down and 1 NHCE up to a midpoint - that would seem to get around the 'significantly' issue. If you ever got audited, well, it is like everything else, if you get someone who really knows the regs it may become an issue.

yes! a person can be 'on' the coverage (included and not benefiting) and therefore not on the ACP test. strange isn't it. for coverage 401(m) a person is considering benefiting even if they are at 0. that helps your coverage test, but the zero hurts your ACP test. Think of it this. pretend the person deferred. (In reality, they did, but at 0) But if the person had actually deferred something, would they have gotten a match? if your answer is yes, then for 401(m) coverage ee is includable benefiting if your answer is no, then includable not benefiting. the only exception would be if the ee terminated with less than 500 hours. for acp test you only include those who could have gotten a match. Again, a deferral of 0 = a match of zero, the person actually got something. The big exception would be if the plan allowed post tax contributions. since anyone could make one, it doesn't matter whether you get a match or not, whether you quit or not. everyone is includable and benefiting, everyone is on the ACP test.

congratulations! guess I better start filling out job applications for another line of work

the terminology you used is probably incorrect, but lets see if I can translate. The plan is a 'class' plan, that is, the allocation is based on different classes, each receiving its own comp to comp allocation. the classes are further defined by name, which some argue might be a possible CODA, but the IRS has issued determination letters on such plans, and in other informal comments from them, this was not a problem. The only precaution would be if the plan failed the ratio % test of 410(b) it could not rely on the avg ben test to pass 410(b) - thus, if plan excluded terminees or had an hours requirement you might have a problem. By the way, on class plans, you are suppose to provide a notice directing allocation of some sort. e.g. total contribution = 100,000 class 1 = 30,000 class 2 = 40,000 class 3 = 30,000 the term 'rate group' normally applies to each HCE in the plan. Thus, it soulds like you have only 4 rate groups (unless you have a member(s) of the 'everyone else class' that is an HCE as well.

I think the biggest problem is how to code them. The instructions only say to code things using 401(k), 401(m), nonelective. there is nothing to say that you can describe them as 401(k) otherwise excludables, etc. Hyperprep won't even allow you to type that many characters. I think we have simply been using something like 401(k) OE pjg: very good, you are correct, if you test ADP separately you must test coverage separately as well.

Michele, what would really be helpful (if possible) on the exam is to be able to check question(s) that one has a possible problem - either in the wording used or terminolgy or whatever. In the old days when you received a copy of the test in the mail you could go over it and then contact ASPA. Currently, that is not possible. At least if you can mark a question you have possible problems with ASPA can review them. I have done enough reviewing with people in the office over old (old) exams, or some questions from the ASPA review sessions to know it would be a nice feature - especially since the exam questions are recycled now.

you have to include anyone who could have deferred(e.g. they met plans age and servide requirement for eligibility), thus you must include anyone who terminated (even if they defer 0). The ACP would be different. you exclude those ees who could not get a match due to hours or last day provision.

Andy: You are correct in your observation. You can not simply 'use SSRA' as testing age, simply because 'the software allows it' as an option. In particular, see the regs 1.401(a)(4)-12 defintions:testing age. Basically you use normal retirement age.(or 65 if it is not uniform) Or, put in the words of Larry Deutsch a few years ago, "I think some people are simply using SSRA, even if the plan has NRA 65" Now, it is possible, at least from what I have read, that document language could be added to state that for purposes of 401(a)(4) testing that SSRA will be used. But it is also my understanding that at that point you have a BRF issue as well, (or maybe it is simply you have restructured the testing into ages 65, 66 and 67) and generally this would fail since you would have very few NHCEs with SSRA of 65 or even 66.

I would assume the terminology used is incorrect. point 2 is probably not a match, but rather a 3% SHNEC. Therefore the plan satisfies safe harbor. Otherwise Archimage is correct, if the 3% was a match, the plan does not satisfy safe harbor. In that case, at least 3% of the discretionary would have to be treated as a SHNEC - at 100% vesting.

stevena, you said "what if they do not meet the last day test AND they have more than 500 hours?? Then they are not excluded from coverage, and my understanding is they MUST be on the ACP test" teach me to go on vacation for a week, I don't see anyone quoting the regs to support the discussion one way or another.! look at 1.401(m)-1(f)(4) [this section is for ACP testing, etc and not coverage. lets not confuse the two!] ...By contrast, if an employee must perform addition service...in order...to receive an allocation of matching contributions for the plan year, the employee is not an eligible employee for the plan year unless the service is actually performed.... Thus, if a plan has a last day requirement, an an employee quits, he has not met the plan's service requirement and is therefore 'not eligible' 1.401(m)-1(b)(1)(A) The ACP for the group of eligible HCE....of all other eligible employees... Therefore, if you are not eligible, you are not included in the ACP test. It is not an option. You are simply not included in the ACP test. Coverage is of course a different test, and an ee who terms with more than 500 hours is includable and not benefiting. ..................... Now, I believe the example was 1 HCE and 1 NHCE. the NHCE quit so did not receive a match. NHCE also did not defer. For 401(m)coverage, the NHCE is includable and not benefiting, unless they termed with less than 500 hours. How can they be considered benefiting when they didn't receive anything? see 1.410(b)(3)(a)(2) "An employee is treated as benefiting if and only if an employee is an eligible employee as defined in 1.401(m)-1(f)(4)" This is, by the way, the whole concept behind a Standardized document. all active employees and all terminees with greater than 500 hours receive a contribution, thus you can't fail testing.

I hadn't thought about it because it is still in the future (2 1/2 years from now), but begining in 2006 you will be able to add a Roth IRA feature to the plan which would avoid the testing issues, etc. involved in after tax contributions, so I guess keep that in mind. Amazing how time flies.

The only precaution is the ACP test - since after tax $ must be tested. Are HCEs going to take advantage of it? Is there an hours requirement or last day for match? If so, those people who have not been included in the test will now show up with 0, and this could cause the test to fail. If the plan has always passed testing without a problem, it is probably not an issue, but it should be considered

I will assume by 'not participating' you mean 'not deferring'. there is actually a difference in terminolgy. Otherwise, the responses given are correct, for the most part. expressed slightly differently it might be worded as follows. an ee who chooses to defer 0, is treated as included and benefiting for purposes of 401(k) coverage. such a person receives a match of 0, so is treated as benefiting for 401(m). If the plan has a last day requirement or an hours requirement, then there is no way the person could have gotten a match even if they deferred. Therefore, they are treated as included and not benefiting for 401(m). The one exception would be a terminee with less than 500 hours. they can be excluded from coverage testing for 401(m). that is an OPTION. That would be my only correction to the above statements. if you had an HCE in the group you might not want to exclude the ees who terminated with less than 500 hours.

What am I missing? It was indicated the plan passes ADP and fails ACP. so I will use the example from the regs HCE 10 10 NHCE 10 6 instead of shifting (making QMAC) for HCEs why don't you simply shift NHCE deferrals? HCE 10 10 NHCE 8 8 or HCE 0 20 NHCE 0 16 That is straight from the example in the regs.

See the latest EPCRS, 4.06 In the case of a plan amendment under SCP,....the determination letter MUST be submitted...... emphasis mine. It is not a matter of simply amending, you have to submit for the determination letter as well. Yes you could limit the corrected eligibility period just to the year in question. also, you indicated that 3 employees were enrolled early. Are there other employees under the same conditions (e.g. 90 days) who were not enrolled early? Without researching it further, you possibly have an issue of having to provide a make up deferral and safe harbor match for them as well.

many moons ago, on one of these posts, someone 'claimed' to actually have a document that specifically excluded 'otherwise excludables' from top heavy minimums, and supposedly they had a determination letter. I have never seen one of those, and never tried to write a document for approval under those conditions, but I guess you never know.... You are correct, though, generally you have to provide top heavy minimums to those people. It doesn't sound like you have a document that would exclude this group of ees.