Tom Poje

I was curious on this one. The Corbel document I am looking at says "Matching contributions which relate to excess deferred compensation which is distributed to this section shall be forfeited." I would argue this only makes sense. I am assuming of course the document also says something to the effect that deferrals shall not exceed the 402(g) limit. In fact, I think it has to have that language to be qualified. If the person has exceeded the limit, you have failed to operate according to the terms of the document. You have now matched on a portion of deferrals that aren't allowed. I would argue the individual was never entitled to that match, but once those match dollars are in the plan, you can't yank them out, so it is only logical to forfeit them. Thus you never get to the point of having a 'rate of match' issue.

bingo! you have it correct, if she defers more and the plan fails, the correction might go to someone else. she wants it in writing? ok, get a new copy of the code. it is section 414 (v) it used to only go up to section (u), so this was a completely new addition. Now, if you ever tried to wrestle your way through the regs and code, think how much fun she will have.

let's see if my reasoning makes any sense. and let's look at it from a different point of view to start with. (I know, never end a sentence with a preposition)... to start with, lets look at it from a different point of view. the 401(m) test I have a plan with a match, only to those active or 1000 hours. Participant A terminates and is therefore not entitled to a match. If he terminated with less than 500 hours, you would (probably) treat him as excluded for coverage purposes. If he terminated with more than 500 hours you would treat him as includable and not benefiting. In either case, not on the ACP test. Now, what if the plan allowed for after tax contributions? You would treat him as included and benefiting for coverage (and also in the ACP test) even though he didn't make an after tax contribution. ok, now lets look at the nonelective test for coverage. By the way, for purposes of this q/a I like that term - its what you call it according to the 5500 instructions. This individual received a SHNEC. Is that a nonelective contribution? Yes, of course, I simply write SHNEC cuz I hate writing out the whole term. so, when you say participant A is not included in coverage, I am not sure I agree. He received a nonelective, he is includable and not benefitting. (Sort of like the after tax concept - it tosses you into the test no matter what) In fact, your earlier statement "since he did defer into the 401(k) while employed, he gets the 3% SHNEC" is not correct either. Regardless of whether he defers or not he is entitled to the SHNEC. Otherwise, what you have is a SHMAC and this question would be answered differently. (But since you indicated it was 3% we know that can't be the case.) Now, once the person receives any type of nonelective, they must be bumbed up to the gateway minimum. ASPA's webcast Q and A (8/1/2001) would support this. it was the 8th question, I believe that webcast was posted in an earlier question in this forum. heck, I have a copy that I printed off from somewhere. Regardless of whether the person deferred, received a SHNEC or not, since he could have deferred he would be included in the average benefits % test. If there was no SHNEC, and he terminated with less than 500 hours, then you have the option of including or excluding him from rate group testing, but he would still be in the average benefits percentage test. you did not indicate if this person was 'otherwise excludable'. the answer would change a bit if that was the case - but then why would you even give him the 3% SHNEC. .......... Fred - I use your spreadsheet all the time. it is really helpful. save me a lot of time.

ugh. I hate it when people use the term 'average benefits' without specifying exactly what is meant. It is like using the term 'excluded' or 'excludable' at that point you need to know whether you mean from voverage or the plan. It makes a big difference. There is an average benefits test. It consists of two parts: 1. Nondiscrimination classification test 2. average benefits percentage test. note how the term average benefits crops back up. In the average benefits percentage test you count ALL contributions. in the nondiscrim classification test (which is part of the average benedits test) you only count the nonelective contributions (e.g. profit sharing, forfeitures, db, etc) watch out if ESOPs are involved. special rules apply.

fidu: this sounds like a Defined benefit question(s) try asking there!

This is a very bad joke. The punch line is going to hurt. What is really sad is I drag it out so long. I wouldn't be surprised if Dave Baker kicks me off for this one. Exit now before it is too late. Ok. You were warned. Our story takes place in Russia, back in the good old days, before the glorious revolution, before there was talk of ‘proletariat’ and ‘bourgeoisie’ and other terms I have no idea how to spell. And it concerns a certain Rudy Rudovich, who lived in one of the small villages that surrounded Moscow. Rudy was a poor dirt farmer. That is being kind, perhaps in a good year he had a bumper crop of ‘dirt’. You see, Rudy was missing a few screws, so to speak. And our hero was quite the hen-pecked husband. Once when I was telling this joke someone stopped me and said I shouldn’t be redundant. Hen-pecked and husband go without saying. Now, I have to take the individual’s word for it. I have never been married, and as I am in my mid 40’s maybe I will never find that out. Well, anyway, it was “We need more firewood, Rudy” and all he could reply was “Yes, dear.” Or “Are you done with the dishes?” “I will get to them as soon as I finish the sweeping, dear”. Poor Rudy. Day after day. Month after month. Year after year. If I had more time, I would explain where the term ‘hen-pecked’ comes from. But that is another bad joke, and it’s Christmas, and having you hear one bad joke is unkind enough for the season. One spring day, the sky was dark and threatening. But it was mid-April, and Rudy always sowed the seeds that day, and he wasn’t about to break his pattern. His wife had invited some ladies over. They were playing bridge, and drinking tea, and eating cupcakes with frosting on them. You know, the ones cutely decorated with those little round silver candies on top. Yeh, I thought you knew. Well, Rudy grabbed his seed pouch and headed out the door. Oh, maybe some of you don’t know. Those little silver candies are called dragees. You can get about 2 ounces of them for a couple of bucks. Well, maybe if they are on sale you can get them cheaper, but they are not that expensive. And you get so many of them, I don’t think they would ever sell them in bulk. Did you ever read the label on them? It says ‘Use only as a decoration’ and ‘Non-edible’. I’m not kidding. That’s why they make them out of sugar so kids won’t eat them. Yeh, right. But seriously, look at the ingredients: Sugar, corn starch, gelatin, acetic acid and silver. Honest. They actually use silver in making these. That’s why you aren’t suppose to eat them. You could get silver poisoning. Oooohhh. A plot for a muder mystery. Slowly poison someone by…oh, that’s another story. Anyway, do the math, silver sells for around $4.50 an ounce and you purchased 2 ounces of these things for a couple of bucks. There must be enough silver in these things to, hmmm. And that would be if you ate the whole container of them. Guess I wouldn’t lose sleep over whether you ate any or not. Ok, see you learned something new, so maybe it was worth reading this far. Now leave before you get to the punch line because it is going to hurt. Where was I? Oh yeah, Rudy was going out the door to plant the crop. About 5 minutes later there was a clap of thunder, and the skies burst forth with a torrential downpour. Of course, one of the ladies blurted out “Guess it won’t be long before your husband comes back, huh?” to which his wife replied “Rudy? That idiot hasn’t got enough sense to come in out of the rain” And so it was true. One hour, two hour, all morning rain, rain and more rain. And still Rudy had not returned. Finally, about lunch time Rudy swung open the door, soaking wet. The ladies looked up at this somewhat pathetic looking figure, but rather than express any words of comfort or sympathy, there was nothing but giggles. And then his wife let into him. “Don’t you dare track mud in the house” “Yes, dear” “And don’t you dare hang your wet things over the furniture” “I won’t. dear” “Rudy, I swear, I don’t think you even know what rain is, do you?” “Guess I don’t dear” Looks like it’s gonna be another banner year for the dirt farmer! So spring passed by, summer followed. One Wednesday evening, about 7 there was a knock at the door. Rudy’s wife looked up from her book and shouted “There is someone at the door” “I’ll get it, dear” Rudy said, emerging from the kitchen, soapy hands, apron and all. He opened the door, and standing there 6 individuals – members of the newly formed communist party. They had a very good sales pitch. “Be a Red, or be dead”. A convincing argument, especially when accompanied by the guns they brandished. They wanted Rudy to go their meeting that night, and, though he wasn’t the brightest, Rudy knew it was in his best interest to go. He had started to walk out the door when that old familiar voice resounded “Not until you finish the dishes, mister” Rudy returned to the kitchen “Of course dear. How silly of me” One of the communists took a step in and said “Listen lady…” but that was as far as he got. “Excuse me. Did I invite you in?” Wisely, he took a step back. Perhaps the world of events might have been different if there were more Mrs. Rudovich’s! It took Rudy about 5 minutes to finish his chore and off he went. Secretly, his wife was glad. She put her book down, got up from her chair, went over to the bookcase, and behind the third book on the middle shelf pulled out a chocolate bar. The Wednesday night meetings went on for about two months. (By the way, I could have picked any night of the week, it has nothing to do with the joke if you are trying to figure out where this is headed. I will warn you again to give up on this one, it will save you a big groan at the end.) After about two months, the communists (or Reds, if you will) decided they weren’t making much progress with Rudy. They convinced him he would best serve the party by simply growing food – they would handle the nasty end of things. They even managed to convince him it wasn’t a good idea to plant in the rain, as the seeds washed away. And to top things off, they gave him a red bandana to wear. “Remember Rudy, be a Red or be dead” Wear it for your health. Rudy was only to happy to comply. Fall came and went, followed by winter. Rudy put up a Christmas tree (well, this is a Christmas joke, I have to fit Christmas in somewhere). It was one of the few times of the year there was peace in the house. Ok already, the rest of the year his wife gave him a piece of her mind. But that’s not the punch line I have been warning you about. It is coming. Beware! Spring came at last. And it was almost like déjà vu. Threatening skies. The wife had the ladies over for bridge. There were iced cupcakes, but no silver candies on top this year. No, not because they were worried about the warning labels, but simply because Rudy’s wife was on a diet. Rudy headed out the door armed with his seed bag. And just like last year the skies opened up. Terrible rainstorm. Of course the ladies started in with some nasty remarks, remembering last year’s fiasco. Finally, to climax the snide remarks Rudy’s wife said “I told you that dolt doesn’t know what rain is” And at that moment, the door swung open, and banged against the wall. Now Rudy’s wife was sitting in the chair with her back to the door. She didn’t know Rudy was dry – he had been standing under the eves on the porch rather than being out in the garden. The other ladies were somewhat speechless, so his wife, bidding 2 hearts, added “Don’t track mud in the house” “Not muddy dear” Rudy replied. “Well don’t drip water all over the place” “Not wet dear” came the reply. “Look, Mister. Don’t get wise with me. I know you don’t have enough sense to come in out of the rain. Like I was telling my friends, you don’t even know what rain is. Just what have you got to say for yourself?” And turning, her jaw dropped as she saw her husband standing there, dry and clean. And the Rudy, waving that red bandana the communists had given him simply said “Rudolf the Red knows rain ….dear” I warned you it was bad. All kidding aside, may God bless your holidays! Much Peace in your homes!

not quite sure where this form came from, but it seems adequate. My understanding is the IRS has indirectly indicated you can 'self-correct' the failure to provide notice. I think the issues that may have an effect : is it Basic match or 3% SHNEC. if going with the SHNEC, then it really doesn't matter if the ee defers or not, so I would guess that would be in ones favor. Since the SHNEC can be 'optional' I would think that would also weigh heavily whether you can simply provide notice late (less than 30 days) but within a reasnable time frame. There is simply nothing concrete, more a matter of whether the IRS would pursue it or not.

Interesting question. And I figure a good way of going about it, asking users, rather than relying on a sales pitch. And you included your e-mail, a big plus, because the software companies look at these comments from time to time, and someone might not feel like they can put down exactly what they feel on this board. On the other hand, amongst users, you will have a variety of talents and abilities, so even any comments might be taken with a grain of salt. (For example, I find using pivot tables in excel rather difficult, but is that a true reflection on excel or me?) so having said all that, I would hold any software has its plusses and minusses. Are you heavy into 'daily' valuations. Is the majority of your work DC or DB? what type of reports are you looking to turn out..e.g. with pie charts and stuff? large or small plans? See, I can be as general as you! ha! I would add the following comment, at least I get the feeling that newer users appreciate the User group meetings - a chance to get together with other users for some trainging and a chance to swap ideas, etc. However, I don't see any Western User Group listed on the board anymore.

Look at it from this point of view: Plan matches 100% of deferrals. Suppose the ee deferred. or worded differently, the ee did defer, he simply deferred at 0. If he worked 1000 hours, his match, 100% of deferrals is 0, so he benefitted. If he worked less than 1000 hours then he could not have gotten the match(even if he had actually deferred something), so he would be included and not benefitting for coverage. If he terminated with less than 500 hours then he could be excluded from coverage. This is an option. If there is no way he could get the match then he would not be in the ACP test. The exception would be if the plan allowed after tax contributions. Then he would be in the ACP test and he would be included and benefitting for coverage because he could have made an after tax contribution.

however 1-410(B)-6(B)(3) "plans benefitting certain otherwise excludable employees" (i) "...the effect of this rule is that employees who would be excludable under paragraph (B)(1) of this section (applied without regard to section 410(a)(1)(B)).... Note: 410(a)(1)(B) is the section pertaining to using a 2 year wait (ii) ...In determining whether the plan benefits employees who would be otherwise be excludable under paragraph (B)(1) of this section (applied without regard to section 410(a)(1)(B)).... both of these points say you can't use the 2 year wait rule and apply otherwise excludable option. and the only way to avoid the gateway minimum - is to apply the otherwise excludable option (and test separately) again I would point out, or at least ask, how you would perform the average benefits percentage test with someone who has worked more than 1 year but less than 2 years. The person is not excludable from 401k, because the max exclusion is one year - you can't have a two year wait. So they can't be included in the otherwise excludable group. But now you look at the two year wait and want to turn around and treat him as otherwise excludable and therefore exclude that individual from testing. you are trapped

Belgarath: My problem with the 2 year wait issue is as follows: (and I could certainly be wrong) One can avoid providing gateway minimums if one tests 'otherwise excludables' separately. The ERISA Outline book simply says that you can't use the 2 year rule while testing otherwise excludables. And I am too 'lazy' to research further on 410(a). shame on me. my logic follows these lines: consider an employee who has worked more than 1 year but less than 2. by law he has to be in the 401k. you simply can't have a 2 year wait for 401ks. Now, the plan is safe harbor, you get a free ride on the ADP test by providing the safe harbor to him. but you don't want to give him the gateway. that means you are going to perform the ADP test separately as well. But wait, you can't do that. the individual completed his one year and is in the test. Now, the employees who have less than a year/age 21, yes, I could see not giving them the gateway because they wouldn't have been in the 401k if you had a 1 year wait.

for those interested (or not aware of the ASPA ASAPs): The ASPA ASAP is an e-mail or fax subscription news service that provides vital and timely updates on breaking legislative and regulatory developments critical to those in the employee benefits field. There are approximately 40 issues per year, (though the exact number of issues varies depending on the amount of legislative and regulatory developments). If you are an ASPA member, you can proceed directly to the ASPA ASAP archive by clicking here, log into the eASPA portion of the website, and proceed to the Members Only section to access the ASAPs. To see what the ASPA ASAPs are all about, read some examples of past issues members received: 2001-22, The Internal Revenue Service Releases Guidance Relating to Catch-Up Contributions, November 19, 2001 2001-29, IRS Revises Mortality Table for Plan Benefits and Limitations, December 20, 2001 2002-01, Notice 2002-3 Replaces Safe Harbor Rollover Notice, January 3, 2002 ASPA members receive the ASPA ASAP via e-mail at no charge. A facsimile subscription is $75 for members and $300 for non-members. Interested in subscribing to the ASPA ASAP? Click here to download the .pdf order form and fax to the National Office at (703) 516-9308. Have any ASPA ASAP questions? Contact Jolynne Flores, Government Affairs Manager at (703) 516-9300 or jflores@aspa.org.

by that logic, if you had a 1000 hour requirement or last day rule to receive profit sharing you wouldn't bump those people up either because they are ineligible to receive any additional profit sharing. The person in question benefitted with a nonelective contribution, I would say you have to give him an additional contribution to satisfy the gateway. Ah, that goes against the terms of the document. Can you say corrective amendment. Interestingly enough, the latest ASPA ASAP (12/13) discusses problems with cross tested plans that do not have language dealing with the minimum gateway. while this ASAP doesn't address your issue of a two year wait, I would say the logic applies.

actually what I am saying is I don't know 100% for sure. Notice 98-52 clearly says that SHNECs are not the same as QNECs, and therefore the testing rules are different. but that only applies to the a(4) test. But in regards to BRF, my logic (which certainly is limited at times) says that I would have to test. Why, because SHNEC - 100 vested, distributions - restrictive - subject to same rules as deferrals NEC - subject to vesting, distributions - not restrictive (generally) - e.g. you could get in service distributions etc. so, for BRF, vesting- I dont see a problem since then SHNEC has better vesting, and all NHCEs have this but distributions - some HCEs received a contribution they can get an in service withdrawal and no NHCEs did. I see a possible problem. But if the NHCEs receive the NEC as well (even in a smaller amount) [as in a regular cross tested plan], then I don't see any issue because you have a scenario in which the NHCEs are on par (so to speak) with the HCEs in regards to distributions. again, all that is my opinion. from your note it must be the case someone thinks differently at least in regards that all contributions must be 100% vested. I haven't heard that, I don't recall it being addressed at any talks at theASPA conferences and the issue is not brought up in the ERISA Outline Book, at least not that I know of. That still doesn't prove the issue one way or another.

not according to Notice 2000-3 Q-10 a plan is not required to provide safe harbor match or nonelective to those 'otherwise excludables' the otherwise excludables MUST be tested for coverage separately. that shouldn't be a problem, but watch out on your a(4) test, etc. watch out for possible top heavy issues. Be careful how you handle HCEs that fall into this group. They would not be eligible for the safe harbor either.

correct. I always wanted to write the Idiots guide to the calculation, so look at it this way. ee receives a contribution of 5000. in one year, at 8.5% interest it will grow to 5000 * 1.085 in two years it acrues another year of interest, so 5000 * 1.085 * 1.085 or 5000 * 1.085^2 or 1.085 squared etc, etc, etc, guess I can be pretty dull....

if you give a 3% SHNEC to the rank and file and an additional 6% ps to the HCES, this satisfies the 1/3 rule. if you impute disparity, the 3% is a no-no. therefore, the only portion the E-Bar would receive the effect of imputing disparity would be the 6% allocated to the HCEs. therefore, the HCEs would increase while the NHCE E-Bars remains at the same value. (Not a good strategy) back to notice 98-52 Section VII B which says: these contributions are not subject to the limitations on qualified nonelective contributions under section 1.401(k)-1(B)(5)(ii) that section requires you to test 401(a)(4) once with QNECs and once without QNECs. Back in 99 I recall reading a suggestion that all the contributions would have to be qualified non elective to satisfy BRF issues. I haven't seen that argument since.(That doesn't mean it doesn't exist, it is just I haven't seen it) I could see a valid argument if the only allocation to the rank and file was a 3% SHNEC, and the HCEs received additional. In that case the HCEs have received a contribution subject to different withdrawal requirements than the NHCEs. Fine, make them fully vested and subject to the same withdrawal conditions. it will break the HCEs hearts! But if the NHCEs receive a contribution subject to vesting as well, then what do you have? for the SHNEC, all nhces and hces received fully vested, restricted distribution. for the additional contribution, all eligible nhces and hces received subject to vesting and not as restrictive distribution - given that I don't see a BRF issue.

if plan excluded ees by name (or something similar to that effect) then you fail reasonable classification, so you fail average benefits test. see 1.410(B)-4(B) so it depends on how they are excluded from the plan.

test 'otherwise excludables' separately. the part timers will always be in this group of employees as they will never work a year of service, so they will have no effect on your testing anyway. But if the plan is top heavy, you have to provide a top heavy minimum as they are participants, which is neat cause they never work 1000 hours, so will never vest, so they simply build a balance that eventually will be forfeited.

not quite sure I understand your question. a safe harbor contribution (unless it is a match) is a non elective contribution, hence its name, safe harbor NONELECTIVE contribution. notice 98-52 VIII B clearly says the SHNEC 'may also be taken into accountfor purposes of determining whether the plan satisfies section 401(a)(4). the only exception being you can not impute disparity on the SHNEC piece. but there is no reason you can't make additional contributions that are vested Thus for example, you could not allocate only a SHNEC (3%) and a total of 9% to the HCEs and impute disparity for testing purposes. well, I guess you could impute disparity, but the NHCEs wouldn't change and the HCEs would increase, so it wouldn't make sense.

ok, I am a bit swamped with work, but I am fool enough to stop to try and help. maybe I missed something in the following logic. Lets say I choose not to aggregate the plans. 401k 2 hce 10 NHCE PS plan (includable not benefiting under 401(k) 11 hce 129 NHCE NHCE ratio = 10 / 139 = .07194 HCE ratio = 2 / 13 = .15385 plan ratio = 46.76% fails ratio % test, but would pass safe harbor %. so if plan passes average ben % test, plan passes. without seeing any numbers, its obvious any type of QNEC given should enable the average benefit % test to pass. pre QNEC test: On relius, if you put people in divisions, you could test the 401k division and add 11hce and 129 NHCE in the box 'number of nonbenefiting ees' or whatever it says.

if it seems to easy, it probably is.... A QMAC, since it is a match, is treated as part of the 401(m) coverage test. A QNEC is a nonelective contribution and is not part of the 401(k) for coverage. Ugly. you may have passed the ADP test by giving QNECs, but it will not solve coverage. don't you have enough HCEs in the profit sharing plan who are not benefiting under 401(k)????

well, that shouldn't be a bad calculation. run your test on each plan. I have modified the Relius report, but I believe their report should print the following: (Sum ({PLANEEKMTEST.ADPPCT}, PLANEEKMTEST.HCECURRYRCD}) Sum ({@HCE}, {PLANEEKMTEST.HCECURRYRCD}) That first one is simply the sum of all the HCEs ADP pcts The second one is the count of HCEs. Thus if you take the value from plan 1 add the value from plan 2 you would have total ADP Pct for the aggregated plans. Do the same for the HCE count, and simply divide the numbers to get your avg for the HCEs. Do the same for the NHCEs. watch out if you are using top paid group election. Watch out if your eligibility is different between the plans. Hopefully you will not fail. (Option 2 would be to put all people in one big plan and code up in divisions. you can always print reports by divisions, but run the tests combining the divisions.

it depends on what your notice said. if you said you 'would' provide the 3% SHNEC I don't see how you can get out of it. Maybe it will be a late contribution, but I simply can't see how they can get out of it. If the plan is top heavy, are they skipping making the top-heavy as well? I think not. I would argue it works like a moneypurchase plan - your notice says you are going to get 3%, there are no hours/last day conditions, so the employee has earned or accrued his SHNEC if your notice said 'you might' provide a SHNEC than you obviously wouldn't have to do so, but you would have to test, and on a current year basis. In fact, I thought that was one of the reasons the IRS allowed that option. (I think there is some info out there on discontinuing a safe harbor match, I would think similar logic applies - in that case you have to give notice of discontinuance, but you have to provide the match accrued up through...I think it was 30 days after your notice of discontinuance.

Heather: I think the last time I was in KC was back in '72. no silly, not 1872. Good grief - that's 30 years ago. Can't believe its been that long. But that was back around the end of my high schools, so I don't remember much about the city. The Crown Plaza sticks in my head, I also vaguely recall a mall we used to climb on the animals when we were kids - though I couldn't tell you if it was an enclosed mall or not. I remember catching the fireflies at night as well!