Tom Poje

well, just so I am clear, the top paid group is not an assumption for tesing purposes, but if your document requires it, then you would have to use it in testing. you indicated you had a 401(k) plan, so weigh all consequences. It may help/hurt the ADP test.

unless the plan imposes a limit, there is no such limit. Anything dealing with issues of 11,000 or 12,000 and a catch up of 1000 or 2000 are all based on the calendar year. The plan could impose a limit, but then all you would have to do is look at the document to see what its limits are. I doubt there are any in regards to this issue. In your case, it appears an ee could defer 11,000 by last paycheck in 2002 and therefore qualify for an additional 1000 in catch up for 2002 since he hit a limit. in 2003 he could defer a total of 12000 any time during the year, plus then be eligible for 2000 in catch up.

The gateway becomes an interesting animal! Suppose I only allocate 3% to the class consisting of 2 HCEs and 1 NHCEs. (And max out the owner) Now what? I failed the gateway test. How do you fix it? Do you increase the contribution to all others, or do you put in a corrective amendment and just give an extra contribution to the NHCE? Obviously, It would be better to have another class 'other HCES' and give yourself leeway. Hopefully, your class 1 is actually 5% owners (not by attribution) just in case children may come to work. Andy is correct, this year with only HCEs there is no test. By something to ponder on, what happens if you used the top-paid group election? I had someone 'failing' a test because most of the people were HCEs. But when he switched the plan to top-paid group it passed easily. Just a possibility to consider.

Hey, its restatement time, so if you use a document checklist why not just give her the page that says plan allows hardships: NO then maybe copy the dictionary definition of NO

austin: under the self correction program, if the person has the chance to defer for at least 9 months, the employer does not have to make a corrective contribution. (mainly because the employee could probably adjust his deferral rate for the year or period to make up for the problem- but being fair, if the document does not permit election changes other than quarterly, I am not sure how one really handles it.) example 7 of Appendix B section 2.02 but have recommendation on reading the xample for issue like how to handle associated match contribution.

You have to make sure if you are talking what the law allows and what the document allows. for example, I know an individual who works for a company and they restrict HCEs deferrals to 5% of comp. That is a plan limitation. there is no such restriction on the NHCEs. but, to try and clarify things with an example. Plan year runs 7/1/2002 - 6/30/2003. The deferral limit (calendar year) for 2002 is 11,000 and for 2003 is 12,000. If someone entered the plan on 7/1/2002 he could defer 11,000 on 12/31/2002 and 13,000 on 1/1/2003. well, ok, you would have to be careful about that. perhaps I should say he could defer 11,000 and have it show up on his last paycheck in 2002. Remember, the govt works off of the W-2s, not the actual date the deferral is made. Of course, in the case of an HCE this would probably not work, because for the plan year he would show up with 23,000 in deferrals, and the test would most likely fail. So, in answer to your particular question, yes, an individual could defer more in a plan year, as long as his calendar year deferrals are capped to the limits. Also, if the person deferred 13,000 in January, that person would be done for the year in deferrals. He could not defer the rest of the year.

Andy: If my owner was the only blond, then I think the IRS would argue that the classification was the same as if you had the classes by name rather than by hair color and say it was unreasonable. But if there were other blonds then it would probably be ok.

we have gotten determination letters for plans using names. 1.410(B)-4(B) clearly states that classifcation by name is not reasonable. so, if your plan fails the ratio percentage of coverage, and you have classes by name, I think you are stuck. however, for purposes of cross testing, 1.401(a)(4)-2©(3(ii) clearly states that to pass the classification test you only have to pass the midpoint test among the rate groups. The reasonable classification is deemed to pass.

you can never tell whats in the pickle jar until you get the lid off. I've seen proposals done that shows a plan can be cross tested and get the owner big bucks. Someone plugs the numbers into the software or spreadsheet, and simply produces a report. No report that says, "oh, by the way, if the 21 year old quits, this plan is blown out of the water" Those drive me crazy, because you know somewhere down the line will be the famous 'no one told me' The difference in age of 10 years (for around 50% of the NHCEs) is a good starting point, but there are a number of other factors involved. How many HCEs are there, and are you trying to max all of them. Remember for each HCE you don't favor, your 'denominator' changes -especially if the kids are in the plan. That only helps. Do you know what happens if you have a difference in age of 17 years? Try it! 1.085 ^ 17 = 4.002 so giving the owner a 20% contribution, requires 5% to the NHCE, which is the gateway minimum as well. Thus an age weighted plan will cost less. Another factor is of course, if the plan has deferral and matches. currently, at least from what I have seen, the most common plan would be a safe harbor 401k with a 3% SHNEC just so you pass the ADP test, owner can max out deferral, etc, and then kick in an extra 2% at most in profit sharing to the rank and file.

I agree with the conclusion. (it makes a big difference if match is discretionary [as I had interpreted the original post] or fixed.

not really, or sort of... to satisfy ADP safe harbor you provide 1. Basic Match 2. Enhanced Match 3. Nonelective ACP is satisfied if you provided 1 or 2. (watching out for the 6% limit on the enhanced match) The nonelective is not listed among those items that satisfy ACP safeharbor. If you provide no match, that is like (at least the way I interpret it) an 'additional' match of 0. Or, put another way, there is no match, so there is no ACP test, so you don't have to worry about it. By the way, if you have to test match, you must use current year method.

I agree with your term 'discretionary' - having a match by formula really isn't discretionary. the actual Notice 98-52 says to satisfy ACP safe harbor provide: 1. Basic Match (as long as no other matches are made) 2. Enhanced Match (as long as no other matches are made) 3. Other Matching Contributions. Note: the notice refers to them as 'other' rather than 'discretionary' - probably a better term to use. I think every write-up I have seen refers to them as discretionary, but maybe that is my casual reading. Maybe they used the term 'additional' To satisfy 1 or 2, either of them have to be a 'safe harbor match', and this is defined in IV H as being 'nonforfeitable'

good point, I had to go back and reread the original post. since the match is subject to a vesting schedule, it does not meet the definition of a 'match safe harbor' so it would have to be discretionary, and fall under those guidelines.

no test is needed for the ACP safe harbor if: match is limited to 6% of deferrals AND match is limited to 4% of comp. (so you could do a match at 66.6% up to 6% of comp) it sounds like you will have to do testing. my understanding is that you can test all match, or just the match contributions above 4%

we just converted to 7 (yes 7.3), I have not tried this report (though I did update it). No subreport, it simply uses the 'other plan amount field' from census. no guaranetees it still works. It is actually a check for 25% plan limit, but heck. I think I have it hard coded to look at 40,000 or 100% of comp on an individual as well, but it has been awhile since I have looked at it.

The example I was given worked something like this: we go down the checklist, and suppose the choices for entry dates were : first day of the year, monthly or dual. we modify the document to be quarterly, and upon printing the document, you get a page that lists modifications that were made. At that point, according to talk given at one of the enrolled actuary meetings, you might not be able to rely on the opinion letter.

really? My copy says "Alice in Wonderland through the Looking Glass of Pensions" you mean I shouldn't be relying on that copy?

Kevin Donavan's (frequent speaker at ASPA conferences) notes on short plan years says: "When there is a short year, pro ration of compensation limit may or may not be required, depending on the period used for determining allocations. Under 1.401(a)(17)-1(B)(3)(i) the annual compensation limit is applied to the compensation for the plan year on which allocations are based." "If the period used for allocation ia a 12 month period ending with or within a plan year, such that a short plan year (resulting from an initial short year or plan year change) would not cause the period on which allocations are to be based to be a period of less than 12 months, it appears, based on the language [in 1.401(a)(17)-1(B)(3)(iii)(A)] that the 401(a)(17) limit is NOT prorated." Thus, there is no reason you could not allocate a profit sharing contribution based on a full 12 month of comp, and therefore not have to prorate the comp- e.g. use the full 170,000. so, what does the document say? I pulled a couple off the shelve here - one simply says the plan year will be 'the 12 month period..." the other says "The 12 month period except for the first plan year which shall begin on 8/1 and end on 12/31" you raise an interesting scenario. If the first year was 11 months long, begining 1/1/2002 (ending 11/30/2002) you would use 11/12 of 200,000 or 183,333 or if the document said use the 12 month period you would use the comp limit begining in 2001 which would be 170,000 - a 12 month period produces a max comp less than an 11 month period. Fascinating! or at least that is how I understand it.

this issue is getting much out of hand the regs allow you to do a rate band all that being said you could end up dead if the bands are too much, do you understand yes the regs allow you to rate band, but only as long as "the accrual rates within the range are not significantly higher for the HCEs than the NHCEs" I asked about that years ago. What gives, the regs say I can use a 5% band, then they turn around and say I can't. This was the example I was given. NHCE 5.25 HCE 5.00 NHCE 4.75 This is ok to rate band, with a midpoint of 5% because you are bringing one nhce up and one nhce down HCE 5.25 NHCE 5.00 NHCE 4.74 this would not be ok to band with 5% midpoint because you are bringing one NHCE up and bringing one HCE down. Clearly a case where the HCE is significantly higher. OK, so I live with that example. seems reasonable interpretation of the regs to me.

actually the document guru in the office here says the Dems blocked the bankruptcy bill a few days ago, so now its back to square one of not applying for determination letters. gotta luv it.

thanks for the info. I didn't see that on the website as an issue pending to be fixed - that is why I asked. it doesn't effect the pass/fail results, but of course could be a misleading piece of info good advice, any time something new is added ---check your numbers!

actually, submitting is still recommended. supposedly the IRS has changed their tune. The reason being, if, for example, things ended up in bankruptcy court or something, and you changed even just one word in the document, then the plan's qualification status could be challenged.

can I ask how many ees are in the plan? (just loaded 7.0 (through 7.3) you indicated the report said # of NHCE with Ben % < 5.00 - 186 the 186 would be the number of NHCEs. on the one report I looked at, it says 32, which is double the number of NHCEs I have!. I am just curious if anyone else has the same problem.

it is always easier to think in terms of calendar year, but the plan you are in does not fall into this category. plan year 11/1/2002 - 10/31/2003 1.to determine if one is an HCE you look at the prior 12 months, which would be 11/1/2001 - 10/31/2002. This plan year begins in 2001, and the HCE determination is anyone who made 85,000 in this time period. The plan could have made what is called 'a calendar year election' and used the period 1/1/02 - 12/31/02 to determine HCE status. in this case, one would have to make over 90,000 to be an HCE. (note: in the calendar year) Note further, to make the calendar year election, the plan would probably have to be amended, otherwise (apparently) you would not be considered an HCE at this point. 2.the 11,000 limit on deferrals is a calendar year limit. When you send your W-2 to the government they look at the amount and determine if you are above this level. If you worked for more than one company, the govt adds up all the W-2's to see if you overshot the limit. There is no reason a plan itself couldn't cap deferrals at 11,000 either, though I would say that is unusual. 3. some plans do put a limit on what HCEs can defer, because all plans are required to pass discrimination testing, and if the HCEs defer too much, then money has to be refunded. (In other words suppose you wanted to defer 10% of pay, but the plan says you can only defer 8% because you are an HCE. If you had deferred 10% and the plan failed they would have refunded 2% and you are at the same spot you started so you aren't out anything.) (The above statement simplifies things in regards to testing, but hopefully is adequate) 4. If you are age 50, and the plan has been amended to allow catch-up contributions, you will be able to defer an extra $1000 above any plan imposed limit.

as long as the plan can pass coverage you are okay. In other words, your situation is no different than if you had a last day rule or 1000 hour requirement and the only ones who met this are the HCEs and the interns. Yes, it can be done in 'one plan', your nonelective contribution is a 'plan' in itself. All that being said, the above statement assumes the plan will not be top heavy -if you have to kick top heavy in, then you will have to give everyone the gateway minimum. Of course, there is even an exception to this - if you provide the same percentage of pay to the interns as the HCEs, and that group passes 410(B), then you could aggregate it with the other group at the 3% top heavy, and be considered to have 'broadly available allocation rates' and avoid the gateway.