Tom Poje

ooooooooooppppps. I meant to say that. I see I forgot to put the word 'Activity' after select. oh well, you figured it out. 10 points!

yes, the 5% need only be based on date of participation. if your plan was top heavy you would have the case where the person's 5% minimum gateway from date of participation would probably not be large enough to cover the required top heavy minimum based on full year comp, and therefore you would have to increase the contribution to 3% full year

In addition, my understanding is the IRS was not wild about bottom-up QNECs especially with the new rules beginning in 2002. since a low paid ee could end up with a 100% of pay QNEC it can really get 'artificial' as far as testing is concerned. I don't recall exactly what they said, if they were now considered a no-no or not.

Earl: I think you have a valid point, especially if you have to use a corrective amendment. On the other hand, if the document has language similar to top heavy language (e.g. all participant benefiting will be provided additional contributions to meet the gateway minimum) then what are you going to do if the ee is 0 % vested. you wouldn't all of a sudden vest him, would you? what would be the difference between that scenario and in a plan that has immediate eligiblity and you have a participant who will never work 1000 hours but gets a top heavy year after year. Those top heavy contributions don't seem meaningful either. At least in the safe harbor plan the ee is vested 100% in some of the $. I am only speculating at this time.

you have more than just coverage to worry about. 1. minimum participation - DB plan must cover at least 40% of eligible employees (or a total of 50 employees) 2. when testing for coverage, anyone who meets the eligibility requirements but receives nothing because they are in another plan is treated as includable and not benefiting. (Unless you aggregate the plans for testing coverage.) 3. you will have to do amounts testing. 401(a)(4). again this test will depend on whether or not you aggregate for testing. generally a plan is required to indicate which plan will provide top heavy. I suppose it is possible you could end up with key employees in one plan only, then that plan only would have to provide top heavy...ugh, you have a lot to look out for in this case. proceed with caution!

of course, now the question, what does your software do? I have a gut feeling a lot of people simply run things and the 'system must be doing it correctly'. not that some numbers are checked/verified, but... my suspicions would be most software would simply look at whatever the end balance was use that, hence a cash basis, unless you printed the report before running the final contribution. The old Pentabs system would include the contribution, but also carried a caveat that it shouldn't be included in their monthly memo. (I suppose that is one place where I learned not include it) A few years ago at an ASPA talk the speaker said to include it if it had been declared before the end of the plan year (or use it if it was a top-heavy contribution because it was required) Relius might include it - there is a field in plan specs 'include if trade date on or before xx/xx/xxxx.' So, if you are running things on a non-daily basis generally it is no problem because your 'trade date' will be the last day of the plan year. (whether you intended to operate it that way or not) on the other hand if you are running daily.... Again, I would suspect that this whole issue would probably only effect a small number of plans - and probably favor the NHCEs - e.g. a top heavy was made when it didn't have to made. Austin is correct. even the ERISA Outline book says to not include the receivable.

In Census, pick an employee any employee. then SELECT / User defined fields or you could use DER. if possible only use the first 5 items. They can easily be pulled into reports using PLANEE2 The other user fields are a pain to use in reports

what I understand from the example owner - 20% most others - 3% SHNEC and 2% additional profit sharing this leaves some terms, less than 1000 hours with just the 3% SHNEC. at this point the plan fails gateway minimum. I have seen one document that calls for the gateway minimum to be provided. (Oh what the heck, New England Basic Plan Document has this - I have only seen a couple others so I can't speak for other documents) I have seen another that does not have the language. So, depending on the document, one plan has to allocate an additional 2% to the one group to operate under the terms of the document. The other one will have to put in a corrective amendment to remedy the situation.

on the other hand, suppose your document says the top-heavy is provided in the target plan. Bob has only worked 6 months and is only in the ps plan. now what? he has to get the minimum, but he can't. lets be careful out there!

I suppose the obvious question would be 'since most of us (or at least it seems to be the case) were taught not to include the receivable are you going to worry about what was done in the past?' Probably in most cases it doesn't make a difference anyway, but I am sure there were some plans close to the 60% level...or the old days 90% for super top heavy with a DC involved and a but back. by the way, thanks for the additional input!

Scott: not sure what you are saying here. you do not look at overall average to the NHCE group, e.g. some get 5% others get 3% so that averages to 4%. each NHCE who received a nonelective has to get the full gateway. By the way, in this question it was last day/1000 hours received an extra contribution over the 3% SHNEC. A QNEC is a different animal. very similar, but IRS Notice is clear on this one. see 98-52 VIII D sorry, I have gotten to be a stickler on the use of terms QNEC and SHNEC (which really doesn't exist except as a great abbreviation)

see 1.401(a)(4)-9©(2) "...The employer may select the group of employees used for this purpose in any manner, and the composition of the groups may be changed from plan year to plan year. Every employee must be included in one and only one component plan under the same plan for a plan year." 1.401(a)(4)-9©(4)(i) A component plan is deemed to satisfy the average benefit percentage test if the plan of which it is a part satisfies 1.410(B)-5 but then in (ii) ...Thus for example, a component plan that does not satisfy the ratio percentage test of 1.410(B)-2(B)(2) must still satisfy the average benefit test of 1.410(B)-2(B)(3) even though the plan of which it is a part satisfies the ratio percentage test. ......... I am no expert on component testing, that is why I don't elaborate further without digging into my notes buried somewhere. the best I can give you immediately, direct from the regs. .................. I would be curious as to how this plan even worked without the kid. if the kid is 23 the owner is ????50's??? Yet you indicated 'most' of the nonhighlies are over age 45 That doesn't look like a lot of age disparity needed for cross testing.

Unfortunately, there is no independent source for the SHNEC. After the val is run, I've changed the source to QNEC and edited the reports to say Safe Harbor instead of QNEC, and then printed. or some goofy scheme like that. It is a pain. There are a number of other issues involved as well. (e.g. nondiscrim testing you can't impute disparity on the SHNEC) hopefully someday a new source will be added.

he is an HCE (assuming by President you also mean 5% owner) perhaps he was not given an allocation in the past because he was not age 21(or keys excluded from top heavy minimums and the only contribution allocated to that group of ees was top heavy contribution) at this point in time it sounds like your only out would be to break the group and do component testing, the son being in a group tested on an allocation basis - you can put people into components plans anyway you want.

maybe. it depends on when the terminee quit. suppose he quit 20 years ago and received his distribution this year. would you include that distribution? remember, under the old rules you exclude balances of those who have not performed service for 5 years as well. Just because someone finally receives a distribution doesn't mean you start counting it again.

good, you looked it up! now, as for the conclusion... lets look at example 4 Plan M - a 401(l) plan, implies that it is integrated, lets say 5.7% Plan N - subject to general test, so must be odd formula It is desired to impte disparity under Plan N to quote the cite "Employee B's imputed disparity fraction under Plan N is therefore 1, and plan M provides no disparity for employee B for the plan year" conclusion:"As a result, Plan M provides disparity that is neither uniform [EE B got no integration in M while others did, which is certainly not uniform] therefore Plan M does not satisfy section 401(l)" ok, then point (B) says Assume instead Plan M provides that the annual disparity must be satisfied without reducing the disparity provided for an employee under Plan M, therefore requiring reduction in the employee's disparity fraction under another plan....Imputing disparity with respect to Employee B would not be allowed under Plan N." Note: it says it is not allowed under plan N, it says nothing in regards to Plan M. or put another way, you have imputed under M and used everything up. This example probably would have been better if it said 'the plans are not aggregated for testing' In other words, you can't integrate one plan, then test the other plan separately and impute disparity. Go back and look at example 3. in this case, the example clearly says the plans are aggregated to form a single plan. In applying the general test, the plan imputes disparity, so imputing disparity is not a problem. perhaps if you tried the following, it might help. Try testing an integrated plan (at 5.7%) on an allocation basis. The E-Bars will all be equal when you impute disparity. You would expect that since the plan is a safe harbor. In other words, because you imputed disparity you are cancelling out the effect of the integration giving the HCEs a greater rate of contribution.

you have to follow the rules regarding the body count, it is not who is participating. e.g. you can exclude ees who worked less than 6 months (from date of hire), those that forever avg less than 17 1/2 hours a week, etc. [or you could just count anybody who was employed] you are correct, the top paid group election helps if the 'hce' who converted to 'non higly compensated' gets something. and usually it helps big time, especially if you are maxing him/her out. You have all the usual issues - I would assume the individual has to get top heavy, but then would have to get kicked up to the minimum gateway, where if they were HCE you could leave them at the top heavy. Unless of course they were an officer and you excluded keys from minimums. my head is spinning. actually, if you set up classes by name, and he received nothing and was NHCE you would probably fail 410(B) ratio percentage, and you couldn't use reasonable classification. hmmm. a lot to digest.

though some frown upon it, there is nothing wrong with defining classification by name. In fact, if you think about, the regs clearly say that if you have 'an enumeration by name or other criteria having the same effect' you can not use the reasonable classification test of 410(B). now, if you can't have an enumeration by name, then why do the regs specifically mention that possibility. Note, that only applies to 410(B), not when you start testing under 401(a)(4). you did not indicate the size of your population. lets see, if 19 total, then 20% = 3.8. you can round down, that would be 3 HCEs, and if the owners have the highest comp, then your 4th person would be an NHCE, if the document allows for top paid group election.

I know of no authority for refunding excess. There is no provision under a(4) to refund $ for a failure. sounds like they pay the price (no cross testing contribution) for not telling you about spouses.

ouch. The distribution issue depends on the plan document. My guess is that most allow distributions as sson as feasibly possible. If the plan year ends on Dec. 31, you might still be do any match or proft sharing contribution as well, again that depends on the document, and the company might delay distributions for this reason. you would have to check with the human resource person, or check your summary of plan description booklet. Getting distributions 'rapidly' is unusual, though to pay rent you would (should) qualify for a hardship distribution, again a lot depends on the terms of the plan document. as for penalties, the following will happen. Generally there will be 20% withholding on the amount of any distribution for taxes. There are some exceptions. Then when you file your tax return, you either get a refund or make up the difference, depending on your tax bracket. Assuming you have not attained age 55 this year, there will also be a 10% penalty you pay at tax time. Since the distribution would not occur until 2003, that would not show up for another year. again, the best you can do is contact the human resource person for more info. Good luck.

correct on all counts. assuming of course the terminees you talked about worked at least 6 months from date of hire, or average 17 1/2 hurs week, etc. Of course you can always be more generous and count everybody anyway. also, it is possible that a non owner who made 140,000 quit in 2001 as well, and then you would not replace hime with the next person on the list.

look at examples 3 and 4 of 1.401(l)-(5)(B)(9) the plans have integrated formulas, and imputed disparity is desired for 401(a)(4) testing. for a 10 point bonus, read the examples and report back your findings.

not sure what the advisor is talking about. if the document has a last day provision, then terms receive zippo. have to follow the 'terms' of the document. (humor at its lowest form.) the terms with less than 500 hours do not have to be included in the rate group test, though if the plan is 401k they will show in the avg ben % test. the terms with > 500 hours will show with big fat 0's but as long as plan satisfies the gateway minimum with those receiving an allocation AND plan passes nondiscrim test you are ok.

hold the horses a minute. If a person is hired in 2000, won't they fall out of the otherwise excludable group in say 2001 or 2002? This question implies there is immediate eligiblity, and so the person hired in 2000 is otherwise excludable. If the person always works less than 1000 hours, then they will always be otherwise excludable since they never work a year of service. on the other hand, in the example cited, it is the owners wife. The new rules from a few years ago say age/svc doesn't matter in regards to HCEs, you can always treat them as having met the age/svc requirements, even if they never will. so you would treat the owner's wife as an HCE. (or at least that is the option, you don't have to exercise that optiion as for the scenario of having 0 comp (yet working) there is nothing in the regs indicating how to handle this. At one of the APSA conference the IRS voiced an opinion to treat the person as ineligble. that would certainly be the conservative approach. logically I would hold that makes - the only people in your test should be those eligible to defer. with no comp I would hold that you are not eligible to defer, even though you have the right to if you had comp. my opinion only

That would be my basic conclusion. It sounds similar to not limiting comp to $200,000. Lets say the allocation was 5% and the ee made 300,000 and was given 15000 instead of 10000. the self correction is to remove the 5000 from him or increase the others so they receive the same rate (15000/ 200000) = 7.5% so, if I use similar logic...lets suppose match was 100%, no cap. ee deffered 15,000 instead of capped at 11,000. so he received 4000 too much. that should get forfeited. Now, if the match was discretionary, I am 'guessing' you might be able to argue (Ignoring the excess deferral) that the ee received 15,000 match on 11,000 deferral which is a rate of match of 1.3636% instead of 100%. Therefore, you could increase everyone elses match by that %. (In that case I guess the rate of match comes into play, even though I said earlier I didn't think it did. But now I am arguing for the possibility of looking at the whole thing differently.) Austin, if it smells too good to be true, it probably is. you get 15 bonus points for looking in your document to see what it says. I wonder what the document of the poster of this question says, and whether we have been going through this for nothing if the document requires otherwise. Actually, I won't say for nothing, a little bit of research is good.