Tom Poje

Any examples I have seen from Deutsch and Groszkiewicz have involved cross testing (converting a DC allocation to an accrual) but not on a contribution basis A review: DC plans tested on allocations (or contribution) basis - current contribution only DFerrare noted the reg DB plans can be tested on either current accrual, accrued to date, or projected. 1.401(a)(4)-3(d)(iii) DC plans tested on accrual basis - same as DB except no projected method available 1.401(a)(4)-8(B)(2)

Most EGTRRA stuff is for plan years beginning 1/1/02. Catch-ups are an exception, as they pertain to tax years beginning in 02 Annual Compensation limit ? 170,000 415© Annual Additons ? 35,000 HCE Threshold ? 85,000 404 (a) (3) Deductibility of Contributions ? i.e. 25% 15% Catch-up availability ? yes, see previous threads for calculation of such amounts on a non calendar year basis

yep, for a newly formed company that puts in a plan immediately, you might not have HCEs

Kirk: I can't type very well, can I? Eye no u r rite.

If it makes you feel any better, I'm forever learning. at least you aren't afraid to ask, and at least there is a good web site like this available!

In this case, you are incorrect, but it doesn't hurt to learn along away. don't get confused on what is allocated and what is deductable. you can contribute more than the 404 limit, you simply can't deduct it. plus you pay 10% penalty every year the excess exists. so for example (I will use the example from The ERISA Outline Book, but I have seen similar examples elsewhere) plan year is 2000 total comp is 1,000,000 deductible amount is 150,000 compnay contributes 180,000 in Nov 2000 for 2000 plan year. there is a nondeductible portion of 30,000, so an excise tax of 3,000. if the contribution had been made in 2001, the company could have deducted 150,000 in 2000 and 30,000 in 2001 and avoided the penalty (see page 7.377, 2001 edition) "If the deduction limit is exceeded for a taxable year, the excess amount may be carried forward and deducted in the suceeding taxable year. This carryforward is charged against the 15% deduction limit in the suceeding year" page 7.292 2001 edition "An employer contribution is still allocable to the plan participants, regardless of whether it is currently deductible under 404." page 7.292, 2001 edition

2muchstress- the problem should not change your balances. Only 415 limit violations should change your balances. However, the deductibility amount is a different issue. If my mind is working correctly, you have to [ok, you are suppose to] keep carrying the excess amount (and paying the 10% penalties each year) until you use it up. and double ugh, cuz the 125 contributions are going to hurt you even more. The contribution made in 2002 for the 2001 plan year is deductible in either 2001 or 2002, and with the new rules in effect for 2002 you might be able to use everything up along with 2002 plan year's contribution. That of course doesn't take care of the possible 2000 over contribution . on the other hand, you didn't handle the 2000 plan year, so you didn't cause that problem.

none that I know of. made me look up how to spell de minimus, though.

the following is, quite possibly, mathematically an incorrect statement "However, since the average annual addition for all eligible participants was over 15%, then there was obviously a 404 violation." consider a plan in 2002, we will make it easy, 2 employees ee 1 comp = 200,000 contribution = 5% ee 2 comp = 10,000 contribution = 25% average annual addition (5 + 25) / 2 = 15% but total contribution is only 10,000 + 2500 = 12500 which is only 5.95% for purposes of 404 deduction.

but see 1.401(a)(4)-3(ii) satisfaction of nondiscrimination classification test:A rate group satisfies the nondiscrimination classification test of 1.410(B)-4 (including the reasonable classification requirement of 1.410(B)-4(B)) if and only if the ratio percentage of the rate group is greater than or equal to the lesser of the midpoint..... note that under a(4) there is no need 'enumeration by name' requirement. As Andy pointed out, enumeration by name could cause a plan to fail coverage, if a group of employees is allocated 0, because you have to pass 410(B) using the ratio percentage test only. But once you get into the realm of amounts testing, class by name is not a problem for the classification test.

Istrongly suspect we will have at least some guideline by the end of October. I am sure this question will be part of the Q and A for the IRS at the ASPA conference. until then...

assuming coverage (410(B) is passed, you now proceed to the next square Does plan satisfy minimum gateway? If no, increase contribution to rank and file or reduce HCE contribution. Once gateway satisfied, then proceed to a(4) testing. then you proceed to rate group testing, and each hce must pass either ratio percenatge or nondiscrim classification test. you have to be careful if you impute disparity in your test, because you are not allowed to do so on the safe harbor. In other words, the minimum gateway has changed nothing in regards to nondiscrim testing. In some ways, the gateway simply is like a 'top-heavy' minimum for cross tested plans, required before you even get to the testing ending of things

Kirk: At least initially, think of it this way. First year of a target should produce similar results to the first year of an age weighted plan. and an age weighted plan avoids the gateway minimum because it produces smoothly increasing bands. so, depending on the ages of your population, does an age weighted produce better numbers than a cross tested? or put another way, is there more than a 17 year age difference? (1.o85 ^ 17 = 4) if you put in 5% for rank and file, then owner gets the 20%. the most an ee can get is still 40,000, conceivably in a target I guess an individual might get less than this in later years because of the way targets work. Personally, if you are talking about someone making booka-bucks, I am not so sure there is a big advantage to them over an age weighted, but I am sure someone can come up with a case where they might be better.

Now that I think about it, There is no way you could have a standardized plan. A standardized plan is one that is guaranteed to pass coverage, therefore all active employees receive a contribution, all terminees > 500 hours receive a contribution. since you have a group of folks who don't receive a contribution (HCEs), there is no way the plan could be standardized. silly me.

while it is true that a match might be used to satisfy top-heavy, if the document is Standardized, I believe that is not an option, whether the document addresses the issue or not. It is simply one of those forbidden issue with Standardized plans.

you should be careful about making a blanket statement 'yes, you can use the same percentages' without knowing the facts... suppose in the age weighted plan the ee at the bottom received the top heavy minimum. Therefore, if you increase the contribution, he might not receive anything more. you simply don't know based on the limited data provided.

sorry Andy, I wasn't asked to give a talk this year. (Last year was quite a 'different' talk to say the least) But, the boss is going with a booth this year, so I guess I might catch you there!

in the Federal Register (vol 66, no 126, June 29,2001, page 34536) in the explanation of provisions, it is clearly stated "...if a plan benefits employees who have not met the minimum age and service requirements of section 410(a)(1), the plan may be treated as two seperate plans, one for those otherwise excludable employees and one for the other employees benefitting under the plan. Thus, if (I would read that as IF and ONLY IF) the plan is treated as two separate plans in this manner, cross testing the portion of the plan beneifitting the nonexcludable employees will not result in minimum required allocations under the gateway for the employees who have not met the section 410(a)(1) minimum age and service requirements."

an ee who receives a top-heavy only would be treated as benefiting for 410b because he received a contribution. and noted as such on the 5500 schedule T. However, if the plan is to be considered to have a safe-harbor formula (not to be confused with a safe harbor 401-k) then the top heavy people are treated as includable and note benefiting. If the plan can then pass 410(B) it is considered safe harbor. Otherwise, you will have to pass using the cross tested rules, because you now have two formulas, the regular one and a 3% for a second class of people. see 1.401(a)(4)-2(B)(3)(vi)(D)(3) once again 2(B) or not 2(B), that is the 'answer'...

Mike is apparently short on words at the moment. Must be the college football seaon, and those Wolverines have him next to speechless!

How are the 412m quarterly contribution dates for a short plan year determined?

and what wasn't mentioned, but make sure you add a 'note' to the transaction. that way if you do have to reverse the transaction, you know what file name you were working with for that particular takeover transaction. you also could achieve the same results using transaction import, but basically it works the same as using a takeover transaction. (now if it was distributions or gains/losses, that you can import and create transactions - why they haven't added the ability to do contributions I don't know, but such is life)

ok, a humble attempt at providing another report. since you are allowed to produce a computer generated report for the SSA, this is one such attempt. I suppose non calender year plans won't always work. This (hopefully) will produce a list of all terms who termed 1 year ago (e.g. plan year end - term year end = 1) and code them as an A and a list of all paid out ees in which plan year end - term year end >1 and code them as a D I never offer any guarantees, but it looks like it is working. If nothing else, maybe it will give you a good working list to put on the SSA

yes, and for proof see example 4 of the proposed regs on catch ups in a nutshell, the example has plan failing ADP test, 2006 plan year, the ADP limit is 12,500 due to failed test. HCE employee D deferred 14,000. and now I quote "...the ADP limit under Plan P of 12,500 is an applicable limit. Accordingly, 1,500 of participant D'e elctive deferrals exceed the applicable limit....Plan P MUST (emphasis mine) retain participant D's 1,500 in elective deferrals..."

Judy- that is the way I would read it. I try to remember it this way: Corrective distributions are due to a failed test. In other words, basically there was nothing wrong with the contribution itself, it was just that the test failed. Excess deferrals couldn't be made in the first place so it doesn't make sense to include them at all. I'm really not sure why the 4/15 date should make a difference, but I am not a big one for going against anything Sal (ERISA Outline book) says. He has usually researched the stuff in depth. then again, even that book says it is unclear.