Tom Poje

A precautionary note, based on prior posts, if the plan does not provide the safe harbor to 'otherwise excludable' employees, then it also does not get the top-heavy free ride.

It is not a matter of excluding someone from testing (or I hope that is not what is implied)- it is a matter of testing the otherwise excludables separately. Usually there are no HCEs in this group, so I guess it seems like you are excluding them from testing. In the case of the ADP / ACP test (or at least one option), is to treat all HCEs as having met the statutory requirements. in that case the otherwise excludables are in a test by themselves, and the test automatically passes, so again, it is as if you have 'excluded' them from testing. (There is no such free ride in regards to top heavy, by the way)

can you say 10% early withdrawal penalty? (Or maybe put another, people grumbled when the stock market tumbled that 10% fee looks like another loss to me)

At the 1998 ASPA fall conference, session 44 was on top heavy plans the outline presented had the following 'However, if the contribution oblogation is created on or before the determination, such contribution is generally included in the account balance." [implying you include the top-heavy] the footnote for this was Rev Rul ___ ____ ___ A few years ago I asked the speaker just what rev rule it was, but he could not find it, nor did he know why it was not listed in the hand out. guess strange things can happen. I would love to figure out which ruling it 'might' have been in. At the Fall conference in 2002, Q and A 49, the IRS speaker voiced an opinion that it was legitimate to include receivables. They didn't say you had to, just that you could. The Q and A's 'do not represent the official position of the IRS', so, can you rely on them? In a good faith effort, it would seem reasonable, but who knows.... I think everyone I ever knew said you don't include receivables, and this particular question / answer raised a few eyebrows. Guess we'll see if the question gets brought up again. so, I can't say whether I agree or disagree with Bob K.

if the ee never worked 1000 hours, then he never completed a year of service (1000 hours in a 12 month period). therefore that person would be treated as an 'otherwise excludable' employee. Think of it thisway. If the plan had a one year wait/ age 21, would the person have entered? If your answer is NO, then that person is 'otherwise excludable'. The one exception to that rule would be an HCE, who, for purposes of the ADP test, would be included in the test. This probably wouldn't happen with someone working less than 1000 hours, but if it was a child of an owner it could. Note: this exception is for ADP/ACP testing only, not for coverage. A comment on 'terms' used. Statutory excludable - by law (or by 'statute') a person could be excludable id they did not complete 1 yr svc / age 21 (and next entry date) for testing purposes, it would be better to use the term 'otherwise excludable'. this refers to a person who is in the plan, but would have been 'excludable' if the plan had a more stringent elegibility.

make sure corrections are done within 9 1/2 months. amendment under -11g must have substance.e.g. a terminated ee who is 0 vested and given a contribution would not fly. After 9 1/2 months, since it is 410(b) it is a demographic failure. SCP not available. Walk in Cap, VCP could be used.

1.402©-2, A-4 clearly states that corrective distributions are not eligible for rollovers, so there is no 20% withholding. The ERISA Outline Book adds the following fact- IRS Notice 87-77 states that if corrective distribution is taxable in the year of distribution (e.g. after 2 1/2 months) then the normal withholding rules apply - thus the 10% withholding unless the individual waives withholding by filing the W-4P. To me, reading that implies their is no 10% if made before 2 1/2 months. the 1099 is going to reflect the amount of distribution, so I am not sure what would be meant by gross or net amount. you can't pay out an extra 10% form the plan, if that is what you are implying. It is not the same as a hardship.

your question is slightly confusing, so let's see if I have the facts existing 401(k). Since safe harbor must be 12 months , the safe harbor won't be for this year, but for next year. depending on plan year begins, notice must be given 30 days before that date. new comparability plan would be two classes: 1. executives 2. rank and file No set %, but the goal is to provide 2% to the rank and file and then contribute up to 6% to the executive, depending on passing all the tests. As long as the executives receive less than 3 times the rank and file, the plan meets the gateway requirements. If plan is top-heavy, then all employees would have to receive at least 3%, though matches can count towrd this.

my understanding is that there is no 20% withholding, but rather the 10% withholdong for non periodic payments, which could be waived.

Rev Proc 2002-47, appendix B, section 3 describes Earnings Adjustment Methods It would seem reasonable to use any of those suggested, in particular there is under .01(3) suggestions for (b)Multiple Investment Funds or © other simplifying assumptions

if you coded the safe harbor as 100% vested, then you might be able to do the following (assuming nothing changed at 8.2 from 7.3) add a source called QNEC after all processing is done modify the account from safe harbor to QNEC. Modify the statement so the header does not say QNEC but whatever you want. Printing should work at this point. Maybe it is only a quick work around, but one does what works. Of course, remember to change back when finished. I have done this with combo plans (money purchase and profit sharing) so I would expect you should be able to do the same I am assuming of course you are trying to print a certificate by source so that it prints vertical. (All investment choices combined into one) If you are doing a horizontal print of the data, then there are other ways around it. you might also try posting this question on the Relius board (scroll down further) rather than the 401k board

Exactly what do you mean by 'who gets included'? according to the regs Employees include: IRC 414(b) ~ Employees of all corporations which are members of a controlled group of corporations under 1563(a) shall be treated as employed by a single employer. IRC 414© ~ Employees who are under common control shall be treated as employed by a single employer. so if you have a controlled group, all the bodies are going to show up. 1.410(b)-7(d)(i) Permissove aggregation for ratio percenatge and nondiscriminatory classification test. If an employer treats two or more plans as a single plan, the plan must be treated as a single plan for all purposes of 401(a)(4) and 410(b) so, you are either going to aggreagte and count their contributions, or not aggregate and have a bunch of zeroes on the test. and remember you now have 410(b) treated the same, includables and not benefitings. In addition terminees with < 500 hours from the 'other' plan are not excluded. plus if you aggregate, I guess you also have the gateway minimum to worry about as well. 1.410(b)-7(e) Determination of plans for average benefits percenatge test all plans in the testing group must be taken into account

1.401(k)-1(a)(3)(iv) A one time elcetion is not treated as a deferral election A cash or deferred election does NOT include a one time irrevocable election upon an employee's COMMENCEMENT of employment or upon the employee's first becoming eligible under ANY plan 1.401(k)-1(g)(4)(ii) adds that a person making a one time election is not an eligible employee. ...... If you are not eligible, then you are not on the ADP test. Though this could cause coverage to fail since this exclusion is not due to age / service. if you were ever in a plan then you can not make the 'one time election'. you can elect not to defer, but that is not the same thing.

Andy - give a man a fish, feed him today give a man a hook and feed him forever. Ok, hopefully it won't be a 3 eyed fish! No, really, sometimes answers, though correct, don't explain the reason why, so the person will be again asking similar questions. I always hope I can provide a 'little extra' so one can see what's going on. (Now if I can just get cracking on the talk I am suppose to do for ASPA in the fall. sorry, it is to be of 401k, not cross testing)

and the same 'concept' holds true for the 3% first year look back for testing - usually you hear this in regards to the ACP test. If a discretionary match was never mad in prior years, you can't simply use 3% because it is 'the first year' a match was actually made.

The critical point is that the NHCE concentration percentage is 75%, which produced the magic midpoint of 33.75%, as the 'fish' indicated. With 3 NHCEs, that means you must have 2 NHCEs with E-Bars > or = to the HCE. you indicated that the HCE is at 3.13. One NHCE is at 5.37, no problem The next NHCE is at 3.48. that does not give you a lot of room to spare Ignoring rate banding, imputing disparity you could have gotten by with (3.13 / 3.48) * 7%allocation = 6.3% and still pass the rate group portion of testing, so you really couldn'y do that much better than what you did. as 3.13 / 3.48 = 90% then the average ben % test would have passed as well. I imagine the extra .7% is not enough of a difference....oh wait, this is a doctor, giving anything way is too much.

Elmo - its part of the ASPA test program for QPA designation James - scroll down further - there is also a C-1 message board, you might post your question there as well.

As I read it, EGTRRA changed things a little bit The adjustments are now based using the quarter starting July 1, 2001. The CPI-U for this period was July 2001 177.5 Aug 2001 177.5 Sept 2001 178.3 Total 533.3 Currently the values are Feb 2003 183.1 Mar 2003 184.2 Apr 2003 183.8 -just released today, it actually dropped Total 551.1 so the indexed rate for the 401(A)(17) limit would be 200,000 * (551.1 / 533.3) = 206,675 EGTRRA says the increase will be in increments of 5000, so based on that the comp limit will be 205,000 next year. Of course, the actual values used will be based on the data for the period July - Sept 2003, but this gives an idea how things currently stand.

Interesting - I agree you could do either, but (and now I am doing something dangerous - thinking out loud)would probably want to use age 65 to insure an older employee receives the same contribution rate - not necessarily for discrimination purposes - at that age the difference probably wouldn't be enough to fail testing. however, normally an age weighted plan would pass the smoothly increasing acrual rates and so does not have to provide the gateway. If ee at age 66 is at a lower rate than age 65, then you blow that! or at least it seems to me that would be the case

4.87 of the 2003 edition says 'the nonvested portion will become vested only if the plan termination occurs before the forfeiture is incurred pursuant to the cash-out distribution.' so it depends on the document wording, I suppose - ee gets paid - does forfeiture occur immediately (I would assume normally to be the case) and is not reallocated until the end of the year, or does the forfeiture 'occur only at the end of the year' In other words, in the case you said, ee was paid out vested balance, forfeiture occurs immediately. all this vaguely rings a bell. if the company itself went out of business, the ee did not become fully vested because the whole idea was if he was rehired he could 'buy back' his '5 years', thus had a chance to increase his vesting. If the company was gone, then he couldn't be rehired, so you didn't have to vest the ee 100%.

According to the 'ERISA Outline Book' the IRS, in GCM 39310 and FSA 1992-1023-1 (Field Service Memorandum) an 'affected employee is an employee or a former employee. Thus, the implication being, all become 100% vested

It is a bit old, but you might read the following http://benefitslink.com/qa_columns/plan_de...archive/41.html

actually, as stated, the NHCEs received no non-elective contributions. as such they are not entitled to the gateway. (see preamble, which says if individual does not benefit under the [401(a)(4)] plan he need not be given the minimum required allocation under the gateway) Thus you still have solved nothing, you fail coverage. the only way to pass coverage is to provide the NHCEs with some type of non elective, and once you do that, you have to give them at least the gateway, which is basically what g8r has said.

after running eligibility you could go into census and enter the coorect # of point under computed comp. then run the contribution. or lie to the system and change date of birth so ee appears to be age 65. then fix date of birth before printing reports I vaguely recall someting in the regs stating this scenario will not cause a plan to fail nondiscrimination testing

The ERISA Outline book describes this example as follows: ...Technically, the plan is not designed based and must perform the rate group test. However, if the group receiving the additional nonelective contribution passes coverage...then 401(a)(4) is satisfied anyway, since the rate group test is merely a collection of seperate coverage tests... (11.401, 2003 edition)