Tom Poje

yes, you can do that. make sure the effective date of the 401k plan is April 1. Since you are giving less than 30 days notice, the only special requirement is that people have 30 days to make a decision on whether to defer - in other words Someone could decide as late as April 15.

lets see what we have; Retirement age = 65 current age = 43 contribution = $5,000 If you put this money in the bank at 8.5% interest, what would it grow to? well, the person has 22 years until retirement. (ok, maybe you want to say he has 21 years, but this is only an example) anyway, at age 65, this amount will grow to $5,000 * 1.085 ^ 22 = 30,090 The APR factor at 65 for UP1984 at 8.5% is 95.38, so the individual would receive a monthly annuity of 30,090 / 95.38 = 315.48 annualizing this figure you get 315.48 * 12 = 3785 you divide this by comepenstaion to determine the E-Bar. hence you ahve taken the contribution and turned it into an Equivalent Benefit Accrual Rate, which is what E-Bar stand for.

at the 1998 ASPA conference, I attended workshop 44, which was on top-heavy. and from the notes I have the following: 'generally, only contributions made on or before the determination date are included. however if the contribution obligation is created on or before the determination date, such accrued contribution is generally included in the account balance. and there is a refernece to Rev Rul --------- unfortunately of the 87 footnotes from the talk, this was the one item that was left blank. I even wrote to the presenter, and even he doesn't remember the exact rev rul. based on that, I would say the plan kicks out of being top-heavy.

1.401(a)(4)-8(B)(2) take begining balance plus current contribution and forfeitures / years in which employee benefitted. use average comp. see (ii) how to treat gains/losses this all depends on your measurement period. the only example I have is: 1993 contr 420.63 1994 earnings 29.44 1994 contrib 630 1995 earnings at 3% (obviously this will change with actual earnings) measurement period 1/1/94 - 12/31/95 1.Acct bal at end of measurement period = 1869.47 2.Acct balance at begining of meas per. = 450.07 (420.63+29.44 3.Balance plus Interest on this balance (at 3%) = 463.57 4.increase in account balancedue to contributions during the measurement period = 1869.47 - 463.57 = 1405.90 figure out your e-bar like usual, except you would divide by 2 since you ahve a 2 year period, use average comp

I can think of no reason. It is only IRAs that prevent someone from 'deferring' after 70 1/2. in fact, now that minimum distributions are not required to be taken as long as you are 70 1/2 there is even more reason to keep deferring without all that trouble.

I would agree with Mike. my understanding would be the following: for 410(B) I have 3 tests 401(k) 401(m) non-elective I can statutory test on all of those or one of those or any combination. but whatever ones I statutory exclusion test I would also have to test sin the same fashion the similar amounts test, e.g. ADP, ACP or a(4) The main question is what happens when you get to the average benefits % test. I recall reading how to do this in the ERISA Outline Book (or at least I think I do) but at the moment I am a bit bogged down to look it up! it seems to be the busy time of year!

there is no requirement to have any age limit for eligibility purposes. care should be taken if it is the owners kid, because the kid will be counted as an hce, and this could lead to adp test failure.

here they are. sorry I haven't updated them recently, but the basic concepts hold.

Tim: you are correct that ees who got into the plan because of immediate eligibility but never worked 1000 hours are treated as includable even after 18 months. of course the work around is to note them and override the stat exclusion field every year. hopefully that is not a ton of people. you are correct, my nondiscrim notes need to be updated. top heavy issues are going to be real interesting. in 2002 if an ee receives a contribution you are going to have to give him the gateway minimum, so the issue is even more complex. it will be fun stuff by the end of 2002, won't it?

Hi Tim! actually, no one knows for sure how to handle 'statutory exclusion' issue. I did some research into this, in fact I think there is an article in an upcoming issue of the Journal of Pension Benefits about this coming out soon. there are 3 possible interpretations. 1. use the entry dates as listed in your plan . eg if immediate, then everyone who has not completed 12 months is treated as 'otherwise excludable' 2. use the statutory excludable definition - ignore the plans entry dates and treat as excludable anyone who hadn't entered the first day of the plan year or 6 months after meeting the age 21 and 1 year of service. 3. this is one I tripped across somewhere. supposedly the person who wrote that part of the regs intended this to be read, at least I gather, as the first day of the plan year or 6 months after the first day of the plan year.- in effect 2 entry dates. now, when you say the system looks at strictly 18 months, are you saying it is ignoring the first day of the plan year? I though that was working at 6.0. I don't know about 7.0. you can always override the census fields, so that is a workaround, it should only involve those ees who have worked less than 18 months, so I guess there is a workaround depending on how you interpret the regs. but thanks for the warning or reminder or whatever to be on guard for.

I am not sure if I would use the term 'forfeit'. one correction method suggested under 2000-17 (Rev proc) example 19 reduce the account by the amount involved in the 401(a)(17) failure (alonger with gains/losses) and credit the amount to an unallocated account, similar to a suspense account. use this to reduce the contribution in future years. I just went through a similar situation, so that is our recommendation.

1.410(B)-5(d)(5) "....each employee's employee benefit percetage is the aggregate accrual rate..." In other words (at least this is what I was taught) you calcualte the E-Bar under the DB plan using its definition of comp, then you calculate the E-Bar under the DC plan using its defintion of comp and aggregate the E-Bars.

I suppose the argument for three places is found under the rules regarding permitted disparity. see adjustment tables 1.401(l)-3(e)(3) e.g. is SSRA is 67 and the benefit starts at 68 then the adjsutment is .825, which is to three places. if you were to impute disparity in testing, it would logically follow you would use 3 places. of course you are talking logic and regs, but still...

I fret over things like that. for example, here is the definition fron Corbel document a few years ago: 414(s) compensation - ...shall be made by including...amounts made to a salary reduction agreement.." contrast that with the language that appears since we have restated the documents '414 s compensation means any definition of compensation that satisfies the nondiscrimination requirements of 414(s) comp and the regulations thereunder. I always worry when I have a definition specifically defined. maybe I am just over cautious in that regard, but then what is the purpose of having 414(s) defined in the document? the ADP test? but that is simply an amounts test as well, so...

Andy- that sounds okay, I would make sure my document doesn't define 414(s) comp to include deferrals.

I would guess that your election form says 'enter % of comp you wish to defer' and I would further imagine document defines comp as total comp, not comp net of cafeteria. so what you have been doing sounds correct. you could actually have the document or election be defined this way (comp - cafeteria), but then you have compensation testing issues which could be discriminatory.

you quit. you can't aggregate plans with different plan years (1.410(B)-7(d)(5)) so when you test one plan, anyone else who falls within that plan year (if otherwise eligible) is treated as includable and not benefiting. since they are not participants, you cannot exclude them under the terminees with less than 500 hours rule either. you can aggregate for purposes of the average benefits % test, then, without looking it up, I think its all plans within the same calendar year.

the number juggling... suppose someone defers $1000. That $1000 is actually pre tax $ so, using 20% withholding, the person actual is borrowing $1000 on $800. If the person withdraws the $ early then there is an additional 10% early withdrawal tax, so now you are down to $700, yet paying interest on a $1000 loan! you had better have a good match, and better be 100% vested before entering into something like that. But of course, this 'loan' is aimed at the people who are not deferring - generally the lower paid, those who probably won't be 100% when they quit, and those who would take there $ and be subject to the 10% penalty.

cute. so if the people at Enron used this program, not only would they be out their deferrals, but if the match was company stock, they would be out that, plus they still have to payback the loan and interest. if something is too good to be true you know it is.

you didn't provide the numbers, but when you say that you fail 410(B) and several ees terminated on the same day, a bell goes off in my head that says you might have a partial termination as well. obviously it can depend on facts and circumstances, but the fact of termination "all on the same day" sounds like a close of a division or something. as Mike pointed out, any amendment must have substance, so these ees might be 100 vested at this point in the game.

the way I understand thing, you could use different methods as long as you don't need to aggregate the plans. personally, given the nature of the beast, I would use the same method, that way if you ever need to aggregate them you could do so 'easily'. Thinking out loud, I guess if you ever needed to aggregate, you would have to use current year method, because if one was prior and the other was current, there is no way you can switch to prior.

the 5500 is only used for coverage, it has nothing at all to do with cross testing. think of it this way. your cross testing is part of the (a)(4) test - which is your amounts testing. The ADP test is the same thing. You dont provide those to the DOL, so in the same way you don't provide the cross testing info. obviously you need it if you ever got audited, but you would need the ADP/ACP test as well.

according to my cheat sheet, if plans are permissively aggregated you have to use same testing method. see notice 98-1. I don't have a copy sitting in front of me, I am only going by the notes, so I guess you have to do the research and get back to us!

check out the Q & A 38-42 under correctiing plan defects. http://www.benefitslink.com/columns.shtml granted, these comments go back to 12/97 basically you need to request the money back

Thanks Sue, I actually figured Relius would be working on an adjustment. I wanted to make sure others were aware of the issue as it can effect things.