Tom Poje

actually, the combo db/dc plans under the final regs was capped at 7.5% 1.401(a)(4)-9(B)(2)(v)(D)(2) in a DC plan there was no change to the 1/3 or 5% rule. Remember, an individual might be able to get 100% of pay, but will still be capped at $40,000. for ee making $200,000 this is only 20% of pay. Good grief if the ee only makes 100,000 you are only at 40% of pay, so I wouldn't worry about the fact an ee could get 100% of pay. By the way, at 8.5% interest, 1.085^20 = 5.11, so if your hce was 55, a 35 year old (20 year difference) would be in his rate group with a contribution of 40 / 5.11 = 7.82%. And don't forget, the gateway is only opening the 'gate', now you have to pass non discrim, so depending on the ages you could easily end up over 5% anyway in that scenario.

I don't know the cite on it, but you are required (unless they have changed the rules recently) to withdraw money pro rata. in other words, in your example, you will end up with 80% not taxable and 20% taxable. (Whatever amount is withdrawn)

Eric, at this point no one knows for sure what happens if you have a profit sharing feature you don't exercise. or for that matter, what happens if there are forfeitures from old profit sharing money? Yes, you can have both a SHMAC and a discretionary match, as long as you impose the limts you indicated on the discretionary match.

not correct. full vesting is attained upon the 5 years of service you mentioned, or upon reaching your normal retirement date. now, if the plan has that set at 55, then yes, you would be 100% vesting.

Fred: ignore the issue the plan is top-heavy for a moment. think about the following. When you allocate a contribution is it based on 414(s) compensation? It could be, but it doesn't have to be. Therefore, in a typical plan with two entry dates, you could base your contribution on comp for the whole year. But for testing purposes I am allowed to use one of the definitions of plan year compensation found under 1.401(a)(4)-12 definitions-->plan year compensation. and one of those definitions (#4) allows you to use comp from date of participation. As long as you treat all employees the same way. In effect, in a top heavy plan, this will 'double' an E-BAR. And obviously help in testing. I suppose the catch is the last sentence 'selection of this period must be made on a reasonably consistent basis from plan year to plan year in a manner that does not discriminate in favor of HCEs.' I have never seen this last point raised in any discussion, simply that you can use comp from date of participation for testing purposes. In fact, I have seen someone suggest making the entry date the last day of the plan year (Ha, use 1 day's worth of comp for testing purposes!) Now that would blatantly favor HCEs and I wouldn't try it. But a typical plan with two entry dates, I don't see a problem. Maybe its a trade off...if the plan wasn't top heavy, you wouldn't have given the person as large a contribution, so you are getting something extra in return. By the way... Have fun in 2002! conceivable you can have the following: NHCEs get either 3% total comp if plan is top heavy 5% of 415 comp from date of participation or 1/3 rate of HCE based on plan definition comp (e.g. plan definition of comp might exclude bonuses, commisions or something)

no. lookback year is always 12 months

I believe Fred and I have figured this one out. looks like the table he has on the spreadsheet is 1983 IAM Blended or something like that. As Mike indicated earlier if you do not impute disparity, it doesn't really matter what table you use, except perhaps for those particpants who have a different testing age. If you impute disparity the results will vary, however there are limits. I think the 1984 UP 8.5%(APR = 95.xx is at one end) and the 1983 IAM 8.5%(Female table) (APR = 115.xx is at the other end). The table on the spread sheet produces an APR of 110.xx, so it falls somewhere in the middle, so the results, while not incorrect, are not quite as beneficial for the HCEs as they could be. ok, ok, so I am a math geek. get over it. God said go forth and multiply, I thought that was what I was doing!

Andy: I believe the value that prints on the report is only printing to two places due to space restraints. I think the system actually uses the value you indicated. sorry I did not make myself clearer.

I will disagree with Mike, slightly. I would agree with his statement only if you do not impute disparity. While the APR generally acts like a constant (since everyone has the same APR) I have seen cases where changing the Moratality table makes a difference. now, I certainly wouldn't disagree with his picks for the basketball. C'mon Mike, help the rest of us out!

Fred (and all): On your spreadsheet, one page is 'Tables' for 1984 UP, the value for age 65 at 8.5% is 7.948576 if you multiply this by 12 you get 95.383. if you look at the APR for nondiscrim report you see 95.38 for 1983 IAM the value is 9.201652. multiplying by 12 I get 110.42, but my nondiscrim report shows 105.93. So, I either have a very bad table on my system, or the table in the spreadsheet is bad. (Or I don't understand how the table works!) On the old pentabs system the value for the APR is also 105.93.

Fred: I have not looked at the new sheet yet, but I noticed the other day on the earlier version of the spreadsheet that the 1983 table is not correct (or at least doesn't match Relius). could be we have a bad table on our system or the table on your spreadsheet is not correct. (Or at least as far as I can tell)

I would agree, sounds like you have a controlled group. I also agree that plan B will fail if tested separately. hopefully the ADP tests will still pass if aggregated

yes, in effect you have one 'plan' that passes testing because it is safe harbor, and another plan that passes because there are no HCEs. (watch out for new owners, children, etc) be careful! your annual safe harbor notification should indicate that only ees who have complete a year of service (for eligibility) are eligible for the safe harbor.

these comments come from The ERISA outline Book: "A plan must be able to satisfy 401(a)(4) when QNECs are combined with other nonelective contributions, and also when other nonelective contributions are tested separately from the QNECs. see treas reg 1.401(a)(4)-1(B)(2), 1.401(k)-1(B)(5) and 1.401(m)-1(B)(5)" one of the examples is a plan that provides a profit sharing contribution with last day provision, but a QNEC to all nhces. "The plan does not satisfy the multiple formual rule (for safe harbor plans) The allocations made under both formulas must be combined and tested under the rate group testing method...Note that the rate group testing method should be easily satisfied because the QNECs are allocated only to NHCEs.

my understanding is that you can include the matching contributions as well. remember, the safe harbor rules simply say you don't have to test, there is nothing to say that you can't, if you want to. you would have to test use current year method if I am not mistaken.

I don't see how if the document says that all nhces must receive a QNEC. and I doubt you have a document that says otherwise.

this is interesting. Thanks for asking the question - it got me to do a little research. according to the ERISA Outline Book, 'once the plan has been amended to specify the testing method, it must be amended to switch the testing method.' If I understand the rules correctly, prior year testing was considered 'normal', so switching to current year shouldn't require an amendment, unless I suppose, the current year method was used sometime in the past. Now, if it actually requires an amendment, then what? again, according to the ERISA Outline Book, the timing of the amendment is an unknown. there is no established time frame. to quote 'hopefully, the emplore will be able to adopt an amendment at any time before the deadline for correcting a viloation of the ADP test (i.e. 12 months after the close of the plan year) However, IRS representatives have indicated that future regulations may require the amendment by the first day of the plan year for which the change is to be effective" In other words, no one knows what to do! good luck! This sounds like you need to operate under a 'good faith' interpretation of the regs.

This is a perfect example first, lets try something. ADP ACP HCE 4.09 .82 NHCE 2.32 .43 so both tests pass the 2 test. now, check the document to see what can be used in the ACP test. For example, look for something like language that says '...and deferrals not used in the ADP test may be used in the ACP test' so on paper you move the numbers or 'shift' the data to 4.00 .91 (moved .09 from ADP to ACP) 2.00 .75 (moved .32 from ADP to ACP) now the ADP still passes, and 1.25 * .75 = .94, so ACP passes and there is no refund. This is legitimate!!!!!! the regs contain a similar example in 1.401(m)-1(d) example 3 (iii)! you would only have to refund by the multiple use failure, and again, only if your document doesn't allow you to use deferrals in the ACP test. If the document hasn't been restated and doesn't contain this type of language, make sure to put it in when you restate.

Doug: vesting is a curious animal. It depends on what type of certificate you are trying to print. As Tim indicated, it can be attached to Fund ID or account ID. This works well for a certificate that prints data horizontally. now, if you are trying to print the data vertically (a typical portrait report) where you are only showing data by sources - then you do not have the ability to attach vesting. however, assuming that match and profit sharing have the same vesting schedule, the following will work. providing your first account in plan specs is subject to vesting, and when you print you certificates you check 'zero activity accounts' the system will print the correct vesting percentage. You might have to add a dummy account #1 sublect to vesting to get this to work, but it does. And since you are printing by source, it is ok to have a dummy account with no $ in it. If you don't click on zero activity accounts, then the system will print the vested percentage for the first account it finds money in - if this was deferrals then 100% would show up - even if the ee has $ subject to vesting.

I guess what is more important is what does your document say. I have two plans (no really, I have 2 plans sitting in front of me at the moment) both are Corbel documents. both define compensation as 3401(a) compensation. then both go on to say, for purposes of this section, the determination of compensation shall be made by: and one says excluding amounts...and not included in gross income of the Participant under section 125... and the other says including amounts ...and not includable in gorss income of the Participant under section 125....

I am guessing it may be the same thing. ASPA's study guide uses calendar year data election, the ERISA Outline Book uses calendar year election to mean the same thing. I think a few years ago under the old rules there was a difference, but I don't think there is a difference anymore.

please provide the numbers for the test. It sounds like what you are saying is that plan passes ADP, fails ACP, fails multiple use by even less than its failure of ACP. This implies that deferrals could be 'shifted' from the ADP test to the ACP and the plan will probably pass testing without a refund. By the way, you would first have to pass ACP befroe getting to the multiple use test.

if you only reduce ADP to pass multiple use, you might have to forfeit related matching contributions. thus the hce ends up with less, since he will not receive a distribution of the forfeited amount.

no special issues I know of. except when individuals talk to each other and one finds out that he got 15% contribution and another received 20%. but that isn't a testing issue....

SPOT: Try Q & A 106 (and 107) under the Q&A for plan defects This will hop to that board where you can select the Q&A board http://www.benefitslink.com/columns.shtml