Tom Poje

A little help for me on this one. 1.401-7(a) states that forfeitures reduce the contribution. But I thought that was the old rule, and this no longer applies. My book also says Caution:The treasury has not yet amended Reg 1.401-7 to reflect changes made by P.L. 93-406. so, without hunting down the PL, I figure someone else may have it handy and can share it.

example from ERISA Outline Book Elton quits 12/28/99, receives last paycheck on 1/7/2000. It is reasonable to not treat Elton as eligible for plan year 2000. But what if he defers out of final paycheck? Plan administrator must take reasonable approach. one approach is to treat deferral as made on account of plan plan year in which the termination occurs (Hence 1999) As long as you are treating all people the same, you should be ok. This is one of those fascinating things (ok, I find it fascinating). Plan year may be calendar, but 'compensation' used might actually run from a working period something like 12/30 - 12/28. In your example, would you handle your situation different if it was an HCE who deferred 0 for the year? That would help the test big time, wouldn't it!

Bob: my understanding would be the ee would get 5%. they fail the accrual requirement to get the full 15%, but since they are benefitting, they must be bumped up to the gateway minimum rather than the top heavy minimum.

I believe the example that was beat into me applies: 1.410(B)-6(B)(4) examples #2 for purposes of the ratio percentage test or nondiscriminatory classification test those not meeting the eligibility are excludable #3 for purposes of average benefits percentage test include all good examples, if someone hadn't pointed out to me one applies to the one test and the othert applies to the avg ben % test I don't know if I would have seen it.

"Any thoughts?" yeh, but you probably won't like them. The 'explanation of provisions' (I am looking at the Federal Register/vol 66,no 126/friday june 29,2001 this was sort of the preamble to the regs 1.401(a)(4) "Thus, an individual who does not otherwise benefit under the plan for the plan year is not an employee under these regulations, hence not an NHCE, and need not be given the minimum required under the gateway." now, on the Schedule T, an employee is treated as benefiting even if he only receives the top heavy minimum. so, the conclusion appears to be since the ee is benefitting,- even if only top heavy, his amount must be increased. The only way is splitting the plan into two pieces under the otherwise excludable rule, but that doesn't sound like it would help in your example. And, without looking it up in detail, the ERISA Outline Book says you can't use the otherwise excludable rule if you have a 2 year eligiblility.

you did not indicate if you download the info into the system. for example, lets say previously you had a middle initial which was different on the people in question. but your most recent download wiped out the middle initial. now it is entirely possible for the data to get discombobulated on the reports. I know, because when I first started customizing reports I would have an ee with the same name disappear. The problem was resolved by making sure SSN was in the sort. Ugh, Patti. You mean I will have to verify all my reports again. I hate that.

the Vanguard plan cited was described as a nonstandardized prototype, while somewhere the original post spoke of a standardized prototype. A big difference.

http://aspa.org/archivepages/conferences/2...p/questions.htm ok, maybe they aren't numbered but this is question 8 q. if you have a safe harbor 401(k) plan that has a last day requirement to receive the employer profit sharing contribution are you required to increase the 3% nonelective contribution to 5% for NHCEs who have terminated employment. a. because they are entitled to a 3% nonelective contribution, such NHCEs must be increased to 5%. so in this example, the ees who quit are no longer 'eligible' for the profit sharing. however they must be increased to 5%. Q-10 of notice 2000-3 deals with the issue of eligibility conditions that are lower than the greatest permitted...the plan is treated as two separate plans for purposes of 401(k)... since you can't have a two year wait for the 401(k) portion, your separate testing wouldn't occur in the example Mr. Brown gave.

"Even if the document is a standardized prototype" that might be the kiss of death: you still have to follow the terms of the document - and I don't think what you want is possible with a standardized prototype. I think you would be better with a document that allows you to put people into classes...e.g. owners and nonowners, and give the owner zippo if he so desires. Odd, you end up with a cross tested style plan, but instead of maxing the owner and minimzing the others, you get the reverse.

same, I can calculate the adjustments needed fairly rapidly. somewhere on an earlier thread are my relius nondiscrim notes, and buried in them are tips how to calculate to pass a failed test as well. there is also an excel sheet floating around on the nondiscrim board which, while it won't do eligibility, is very easy to use and make adjustments to different classes

I agree with Mike, if I understand the facts correctly. This was a brand new plan, and you were assigned it. You also indicated you had no control over the installation of the plan. Therefore, you had no control over the plan being top-heavy. So that would have been a problem anyway. In other words, even if you had 10 years experience, and knew all the ins and outs of admininstraton, a top-heavy contribution would be required once a 'key' employee deferred. so unless you had contact with the client before the start of the year, there is little you could do. But that is water over the dam at this point. I am sure I speak for many when I say 'I wish I knew back then what I know now' As for a solution, Mike points out 'Take a look at Q&A T-24.' He is referring to 1.416 of the regs. Mike also referred to correcting under the EPRSC program: If the plan allows for it, then you could correct by making a QNEC (not safe harbor contribution) see Rev Proc 2001-17, Appendix A. The QNEC would also satisfy top heavy. but be aware, an HCE, who is not 'key' would also be required to receive a minimum, though not necessarily a QNEC.

I'd be curious to see how this will turn out. you can't have a SIMPLE once an employer goes above 100 employees, and I can't tell from your notes how many total ees there are. If you can pass coverage without aggregating, then of course you run the ADP test separate. If you aggregate for coverage, then you would have to aggregate for ADP test, so I assume, despite the fact a plan might be SIMPLE, the numbers still show up on the test. (That wouldn't be much different than a safe harbor plan that failed to give timely notice - despite the fact a safe harbor contribution was made, it is still tested) I would think same logic applies.

Fred: A couple of thoughts. Always request a determination letter for whatever classes you name. Since minimum participation for DC plans was eliminated years ago, the following possibility was created. You could conceivable set up 10 plans and name 10 individuals, each with his own plan. As long as you pass nondiscrimination you are ok. Obviously you are going to aggregate the plans for testing purposes. Now, except for the expense of maintaining multiple plans, what is the difference between that and simply having one plan with named classes?

based on your population, it just doesn't sound like a great candidate. consider, you said you had 8 doctors. if you take the youngest doctor, assuming age 25, and he has the highest e-bar. No matter what, you will need at least 1 NHCE in his rate group. if the NHCE is age 21 that is a 4 year difference. 1.085^4 = 1.38, so if the NHCE gets 5%, the HCE gets 6.93%. not a big difference is it? component testing will help, along with permitted disparity, but you just can't do much for young doctors. possibly testing using accrued to date rather than current accrual, but now you are getting even more complicated. There is no reason you can't name each doctor by name for his/her own class. I have seen that done.

the gov't frowns upon it if corrective amendments become a recurring pattern, and I believe bottom-up QNECs are now out (mainly due to the fact 415 limit is now 100% of pay) you would be better to have a copule of classes of favored ees and allocate less to the younger class (e.g. junior executives), thereby avoiding the problem of QNECs, etc.

just to make sure: you have 3 DB plans. each must pass minimum participation on its own you have 3 401(k) plans. You can aggregate for ADP test, but then you also have to aggregate for coverage. you only have 1 profit sharing and that is for HCEs only. Therefore based on your notes, you are aggregating the nonelective portions (DB and ps) to see if you pass testing. for the average benefits test you will have: 1. average benefits percentage test which will include everything 2. nondiscrimination classification test - deferrals not included. in addition to the above, you are allowed to split the groups into 2 - those with more than 1 year and those with less than 1 year. since the group with less than 1 year most likely has no HCEs, that portion automatically passes.

you said a mouthful, but you have a couple of different options. all plans must be included in the Average Benefits Percentage test, so there is no option there whether to include or exclude the 401(k). however, you are allowed to test the DB plan separately from the DC plans. In that case, the DC plan is tested using the allocation method. you could also test the 'otherwise excludable' separately...that is, run 2 tests - everyone with more than 1 year of service and anothet test with those with less than a year. (That is a rather simplified explanation, there are other factors involving entry dates) Remember, there is a difference between the average benefits test and the average benefits percentage test. make sure we are talking about the same thing.

in some ways, the situation is not much different than a SIMPLE 401(k) is it... no top heavy, pass ADP test, etc, as long as no other contributions are made, so saying something is out of kilter doesn't work...the regs are the regs. I am not sure if anyone one knows for sure about the top heavy issue, for example, what happens when previously vested $ become forfeitures?

I read and type to fast. nothing wrong with your option 2. sorry for the confusion.

any portion of the match exceeding 4% would have to be tested, so I think your option 2 is not correct. your option 1 would be treating the ACP as if it was not safe harbor, which is fine option 3 would be treating plan as if it was safe harbor at least as far as I can tell (and understand)

ERISA Outline Book says if notice is not given timely then the plan is not safe harbor, even if a safe harbor contribution is provided.

there is no reason you can't test all match contributions in the ACP test. however, you have to use current year for test (no prior year testing), and you can't 'shift' deferrals.

good thought, but, Notice 98-52 Section X A plan will fail to satisfy the ADP safe harbor ....unless (i) it is 12 months long... or (ii) in the case of the first plan year of a newly established plan (OTHER THAN A SUCCESSOR PLAN).... emphasis mine. It cant be done in a successor plan.

actuarysmith is correct, the plan document rules. hopefully, if it is like the new documents I have seen (due to restatements) in the definition section for 414(s) it simply says any definition that satisfies 414(s)....or something similar to that. If you use full year comp, you have shot yourself in the foot if you want to use prior year results. You would easily pass this year using the 3% prior year rule, but next year you are out of luck.

That's great, you can point to a Rev Proc that tells you the method to correct (example 19 of 2001-17) guess I would ask them to point to an example that says their correction method is correct for a 401(a)(17) failure. you didn't indicate what correction method you were using. 7 years is quite a number of years for an error to keep occurring! I know those things can happen, still...