Tom Poje

that would be my understanding, but I would word it slightly different... if an individual is eligible to receive a nonelective contribution, he is entitled to the 5%. so an ee who gets top heavy would receive an increase, also an individual who receives a 3% SHNEC is increased to 5% an ee who was eligible to defer(immediate entry), but if there was a 1 year wait for profit sharing would not, unless the plan was top heavy. actually, my logic says it should be increased to 1/3 of the HCE if that value was less, it is just that all the examples I have seen use 5%.

actually, it doesn't really matter what the key ee is getting in match or profit sharing if he deferred over 3%. You indicated that an HCE received at least 3% in deferral + match + profit sharing. Therefore, the top heavy minimum is 3%, so an NHCE could receive, for instance 2.5% match and .5% ps under the new rules. You indicated an HCE received 2.34% profit sharing, so all NHCEs would have to receiva at least 1/3 of that or .78%. That has nothing at all to do with top heavy, but rather, the minimum gateway, which is something different. Thus an NHCE who received 3% has satisfied top heavy requirement, and, since the 3% is greater than the 1/3 requirement for the gateway, the NHCE is ok.

well now, you said a mouthful. assuming that the HCE = key ee as well, then all non keys would have to get at least 3% (match plus profit sharing) for 2002. I am also assuming that at least one of the key ees is getting over 3% in deferral + match + profit sharing. The spreadsheet is very useful, but remember, it is not designed to check for top heavy

maybe if you are Merlin the Magician you can get by.... you indicated the current plan provides a cintribution after 501 hours. It is now 4/11. lets see, that is 101 days 101/7 = 14 weeks at 40 hours a week you are over 500 hours. you are going to have to provide some type of benefit under that plan. I think you can cease that benefit as of some date this year, and then put in a profit sharing, throw in a ps contribution and cross test on an aggregated basis.

Except for the work involved, why would you be afraid of the general test? In my time at software support and now back working in the 'unreal' world of pensions, I have heard it a number of times that 'the general test fails' in the situation described above. In all honesty, I have yet to see it fail, in any of the cases. The problem is that most software defaults to cross testing a DC plan. And since the HCEs in those cases are young the plan fails. However, if you were to test on an allocation basis the plan would pass (unless you have a bunch of ees who didn't receive a contribution due to last day provision) consider a simple case of a comp to comp allocation. for the average ben % test all ees will have the same %. but since you only need 70% to pass the test, 3 of 10 NHCE could get zippo and still pass. If the plan is fully integrated at 5.7% and you impute disparity, everyone ends up with the same % as well. Try it! It is a great way to verify if the contribution is correct! my experience is that people tend to forget that you can test either by allocation or accrual method.

Dave: thanks for the comments actually, at the moment my only concern is reviewing/editing material for the Coverage and Nondiscrimination Answer Book. Ugh. Open mouth, insert foot. Once a sucker always a sucker. I guess my question would be why you are even running The General Test if the plan is safe harbor? or maybe I am missing something. My mind is like jello at the moment.

would you feel differently if the document only permitted distributions at age 65, no exceptions? (or what if the beneficiaries were to leave the $ in the plan until age '65' Then the contribution would sit in the account and accrue to the given amount indicated in the test. just a thought.

Basically yes, you can't do much about it. however... back in an old thread someone indicated they actually received a determination letter on a plan that had immediate eligibility for deferrals and 1 year wait for profit sharing (including top-heavy) I suppose if you get an approval letter anything is possible. Given the concept of a safe harbor nonelective (ha, I call them SHNECs) in which one also has to have a year of service for eligibility (not allocation purposes) the idea of applying it to top-heavy might not be far fetched. But I would be willing to bet the plan you are talking about doesn't fall into that category.

Big Mike: I never did one of those before. Are you saying the formula is estimated gross profits - contributions to rank and file then add in W-2 income and proceed with the calculation? by the way, I didn't actually create the spreadsheet. It was created by someone else based on my notes, step for step. so, I guess in that sense of the word, I did 'create' it. on the other hand, not all of the verbage is mine. Michigan moaning I think Barry Bonds # of homeruns at any given moment this season will be more than the number of wins the Detroit Tigers have on the same day.

go back 100 days on this board. I had posted some old questions - and I even posted the answers eventually. They are old questions, for example, if I remember they ask minimum participation in regards to DC plans. but questions are questions. Answers appeared on a letr post.

The following spreadsheet obtains the same results as well. (no guarantees of course, but it appears to work fine)

Andy: guess I would go by the following: okay, so I am using 1999 instructions 5500 instructions, line 4c(5) an employee is treated as benefiting if he receives a contribution or forfeitures...benefiting under 401(k) if he could make a deferral, ...benefiting under 401(m) if ee was eligible for after tax or matching contributions. obviously, top heavy doesn't fall under 401(k) or 401(m) your possible choices are found under instructions for 401(d) nonelective 401k 401m ESOP non-ESOP I suppose you could bury the info under non-ESOP, I'm not really sure what goes there. ERISA Outline Book simply says a participant is benefiting for coverage purposes, but it is mentioned in the same breath as ees might not share in the allocation of profit sharing contributions.

remember the following: if you use otherwise excludable option, you also need to run your coverage in the same manner. census element statutory exclusion can be used to override forever part time employees. hopefully its not many people. there are no clear guidelines on what constitutes the 'otherwise excludable group' Relius uses 1st day of plan year or 6 months after 1 year of service. others would argue you also have to consider plan's entry dates. I have even found one comment, supposedly from the person involved in the original regs things should be treated as if there are two entry dates (e.g. 1/1 and 7/1.)

not sure exactly what comments you are looking for, but here goes: ;this is where it gets fuzzy prior yr ee was an hce & comp > limit & TPG thus this year he is an HCE nhce & comp > limit & TPG thus this year he is an hce hce & comp > limit & NOT TPG only an HCE this year if TPG not checked nhce & comp > limit & NOT TPG only an HCE this year if TPG not checked

for sched T, a top heavy minimum is treated like any other nonelective, and therefore the employees are treated as benefiting. fascinating, you fail coverage as a result (unless I suppose top heavy only goes to non key ees, and the keys are the same as HCEs) well, actually you say it failed coverage - did you mean it failed ratio percentage and average benefits test?

if you pass the unsafe harbor but fail the safe harbor, then the IRS has the final say, though the following would be considered: a letter from your mommy saying its ok % of total employees benefitting under the plan difference between plan's safe harbor % and plan's ratio percentage (how close to passing were you) passing margin of average benefits percentage test and whatever classifications might come into play .......... for example, we had a controlled group scenario in which one plan had a 100% match up to 3% and the other had a 50% up to 6%. Turned out all but one or two people in the 100% match plan deferred over 6%, so in effect the two plans had similar formulas. If one more nhce had benefitted the plan would have passed safe harbor. The plan had never failed before, this year there were 2 new hces (had barely made 80,000 in prior year) and next year they would be nhces again because they didn't make 85,000 in the current year. Lots of various facts and circumstances to consider, huh? Of course, the IRS could still always say no. ............. it becomes more confusing on Relius if you are using the fields 'number of non excludables nonbenfitting ees'. then the coverage #s are correct for 401(a)(4), but if I recall, they will not be correct for 401(k) and 401(m)

Lori: maybe another example or 2 would help. Suppose an ee makes a one-time irrevocable election not to participate in the 401(k) plan. Hopefully, you would agree the employee is not included in ADP testing, but is treated as includable and not benefiting for coverage. Suppose there are separate 401(k) plans for memebrs of a controlled group. When perfoming the ADP test, the employees of the other plan are not considered. BUT BE CAREFUL! you still have to pass coverage by treating the other employees as includable and not benefitting, and if you have to aggregate to pass coverage you have to aggregate for ADP test. with 401(a)(4) , these people are actually show up with big fat 0s rather than being excluded. I guess this is found in 1.401(a)(4)-1©(4)...a definition of a 'plan' subject to testing under section 401(a)(4) is the same as the definition to testing under section 410(B), i.e. the plan determined after applying the mandatory disaggregation rules.

I don't see why the plan year has anything at all to do with it. An ee can only defer $11,000 maximum in 2002. Anything deferred above that in 2002 (up to $1000) can be treated as a catch up, assuming ee is age 50 by the ned of the year. Same concept for 2003, except the deferral limit will be 12,000 and a catch up of $2000. Of course, with the numbers you cited, in the plan year the ee deferred $21,500, which would be over 10% of pay. Unless you have a bunch of HCEs who are not deferring, no way will you pass testing.

I will make an attempt at an answer - you ask a very good question. cross testing is done under the general test rules of 401(a)(4) which refer back to 410(B), so you end up including ees who might have been excluded from the plan. the ADP test (and ACP test) have a special rule 1.401(k)-1(g)(4) - include only those employees who are actually able to defer. someone who is excluded from the plan would be unable to defer, hence not included in the ADP test. Of course, the plans could be aggregated for ADP test, but then you would aggregate for coverage as well.

in plan specs, (plan entry requirements) try changing age definition (e.g. nearest / last) otherwise I am out of ideas.

yes, maybe. The fact the accumulation factor is showing 1.085 and that his age is 1 more than what you expect at least makes sense from a consistency point of view. I would check to see if the system says he has 1 year of future service, or manually change his retirement date. Hopefully that will work. don't rerun transaction, just manually change and see if that fixes the problem (for now). There may be a bug involved, who knows, but if you can work around maybe that will suffice.

Jeff - It sounds like you are saying the problem with people who have not exceeded age 65 is fixed by switching to 'date of event' for normal retirement age. as for the people who are past age 65 - are you talking people with less than 5 years participation or more than 5 years participation? If they have more than 5 years participation, and accumulation factor = 1.000, and APR = the value for the persons current age , then I think you are ok, no matter what values show for test age, test ann age - although maybe it matters if you are imputing disparity. If you are easily passing, then it probably doesn't matter, as participants past age 65 generally have small E-Bars. (On the other hand, I am big into calcs, and numbers and stuff, and like things to be as correct as possible.)

I would disagree that he is 100% vested at time of distribution, simply because the test correction is for 2001 and at the time of failure (12/31) you don't know the plan is going to terminate. But that is my opinion only..... I recall reading many years ago the following is possible: hce has a $3000 account balance in match. He is 40% vested, so his vested balance is $1200. so refund of $1000 is ok. after refund, his balance is $2000, he is still 40%, but his 'vested balance' is only $200, as he has already received some of it. or it went something like that, I don't remember the exact details. Now plan is terminated, everyone becomes 100% vested, and you end up at the same results.

ee completed two year wait, enters plan and quits same year, receives no contribution. Rehired 6 years later. now what? adoption agreement doesn't adress issue of rehire, the basic document uses rule of parity, which says you lose past service if you do not have nonforfeitable right to any benefits. ugh, ee is 100% vested in nothing when they quit. so do they lose their past service? My understanding is that rule of parity doesn't really apply to 2 year eligiblity plans since it only works with 0 vested participants. if the above rule does not apply, they enter immediately upon date of rehire.

the penalty is that the plan will not be considered safe harbor, even though you may have made a 100% vested contribution. Thus ADP testing would have to be performed, ees who might normally not receive a contribution would, etc. Its like having all the downsides of a safe harbor, but you still have to test. The ERISA Outline Book has an interesting note that says the IRS has informally indicated it may permit correction of untimely notice through one of the correction programs. I would guess if the safe harbor had been a match for 2001 it wouldn't be allowed since you would have to defer to receive the match. Since you are talking about the 3% nonelective, then the notice has less effect on someone's decision to defer or not. (Ok, that would be my reasoning). Tough call, without guidelines if you could rely on self correction at this point in the game.