Tom Poje

Belgarath, you are correct, as Andy indicated it is a yes and no deal. QNECs normally only go to NHCEs, so if you pass testing w/o them, you would have to pass testing using them. I think it was Mr. Starr (not Kenneth) who said if you use a standardized plan, you get what you deserve. QNECs go to all in a standardized plan.

depends. to be able to include the participants comp, 1. had to have been actually eligible for the plan, as you indicated. 2. had to have received a contribution/forfeiture. if plan is profit sharing only and has last day rule, then ee got zippo and you can't count the comp. if plan is a 401(k) then...hmmm...if ee defers, its no problem since that person received a contribution, so you count the comp. if ee doesn't defer, then no one knows for sure. I always learned you can use his comp because for 410b purposes he is treated as benefitting, he is included in the ADP test, etc, it would seem odd not to use the comp. the conservati ve approach says he got nothing, so you cant count the comp.

yes, they need a contribution, and it must be a 'meaningful' benefit as well, so watch out if ee is zero vested! use corrective amendment 1.401(a)(4)-11(g)

I would agree, providing, 1. when the statement that was made 'each plan passes on its own for 410(B)' means that all members of the other plan were treated as includable and not benefitting, (including terminees < 500 hours, if there were any) 2. matching formula is not based on svc..e.g. 50% for less than 5 years and 100% gretaer than 4 years. note, see ERISA Outline Book (9.109, 2001 edition for BRF info) If you think about it: if plans are diasagregated and pass, it would be a moot point to test BRF. for example, for 410(B) Plan A passes ratio percentage at 90% plan B passes ratio percentage at 85% now, if I was to test my match formula for BRF on each plan, I hope I end up with the same percentages.

its even worse than you describe: 1/3 of plan def of comp (which could exclude some comp) 5% of 415 comp, but this can be from entry date 3% top heavy on total comp. for the year. I tried to write up an example for the nondiscrim answer book that way. maybe some day I will have time to put some more effort into that book. time will run out on me, with the incoming work I have. I think QNECs, since used in the ADP test, end up getting treated as if they are deferrals. certainly the software I currently use doesn't use them in the a(4) test. This is different than the safe harbor nonelectives which perform all other types of duties, and are truly multi-purpose. That is why I don't like people referring to the safe harbor contributions as QNECs. the SHNECs can be used in a(4) though no fair imputing.

I think one piece of important information is missing - do the plans cover different employees, e.g. different divisions, etc. if they cover different employees, then that is no different than having one plan and doing cross testing using class allocation, whcih of course requires 401(a)(4) testing. if the plans cover the same employees, then if each passes on their own (assuming they are safe harbor formulas) then I believe the regs use the 'commutative' process...if A passes and B passes, then A + B passes. well, I don't remember, I think that was grade school match. or is it a different term then 'commutative'

correct. EGTRRA says catch ups apply to plans whose taxable year begins after 12/31/01 I think all other references to all other changes say plan years after 12/31/01 and you are correct, plan must allow them., though I really didn't think someone 'elected' to put in a catch up, rather if one exceeded the limit then part of it becomes catch up. of course thats just a technically in language, but...

I think the IRS either was wrong, misunderstood, or didn't understand the questions that were being asked in theQ & A you refer to. And Q & As don't necessarily carry weight, the IRS has changed its statement from one year to the next. I think the regs clearly state their are two ABT in the example you state, and Sal Tripodi would agree also...see The ERISA Outline Book, 8.107 and 8.57 of the 2001 edition. The proposed regs (34536 of the Federal Register, sec b) are clear that if 'a plan benefits employees who have not met the minimum age and service requiremnets of section 410(a)(1) the plan may be treated as two separate plans, one for those otherwise excludable employees and one for the other employees benefitting under the plan.' thus the minimum gateway need not be provided to that group of ees. However, once an ee has met the requirements (and benefits in some way for the profit sharing) they have to get the minimum. thus you could exclude an ee by class and avoid the minimum, but would still have to pass 410(B), etc...

pineapple: I think its 'all participants who receive a profit sharing contribution will have to be bumped up to receive the gateway. If an individual is ineligible, he wouldn't be in the plan anyway. If you bring parttimers in, then they will get the minimum, but the $100 might be more than the minimum anyway. It is possible in a class plan to exclude someone from the profit sharing, and he would not get the gateway unless the plan was top heavy, then since he benefits, he has to get the gateway. or something like that, but its Friday, and its after 4:15, and I go by what the regs say...my 415 limit says I cant get anymore....

I am a little bit puzzled. since ee didn't receive a contribution, he couldn't have a high e-bar, it would be zero. Maybe you mean to say you will give him a benefit, but that would require an amendment. Be careful on you fail safe language. That probably pertains to 410(B) and not cross testing. If plan passes 410(B), but fails 401(a)(4) then you can put in an amendment allocating a contribution to a specific individual(s) (see 1.401(a)(4)-11(g) - hopefully I have the site I am doing this from what little memory I have on a Friday. The benefit must be meaningful, e.g. if ee is termianted an zero vested, it doesn't count. my understanding that it is an option with terminees <500 hours. but if you bring in one, you have to treat all terminees the same, and that might not work.

my comments on limit were meant to be interpreted as found in the document... e.g. HCEs max deferrals is 10% this is clearly allowed under the proposed regs (page 53556, section B provides an example...an employer provided limit...for example, a limit on elective deferrlas of HCEs to 10%...The condition that a employer-provided limit be contained in the terms of the plan is intended ...that a qualified plan have a definite predetermined formula. I would agree, a 'discretionary' limit sounds illegal to me. what would be interesting is whether the document could state the limit as 2 points plus last years NHCE average. That would change every year, but it sounds definitely determinable.

the following is one version of the safe harbor notification.

Section B of the Explanation of the regs (2nd paragraph) ...elective contributions and matching contributions would not be taken into account for purposes of the gateway....if an employer also provides a 401(k) plan, however, then to the extent the HCEs are electing contributions under the plan, the highest HCE allocation rate may be lower than it itherwise would be... at least you have or had a brain that could turn to sand!

gotta love Dave, don't you! That was fast service. by the way, his comment was "Yikes; I'll fix that right away."

Ask and you shall receive. Look, Dave added .pdf ability to the system, so maybe you can attach file now.

Wolfy: My understanding would be the same as yours. A plan limit (even if different for hces than nhces) is still a limit, and therefore catch ups are amounts above this limit. You are either going to have to show in separate source so you you can test properly. Ha. I dont think the software I use will do that yet. or for example ee defers 12,000 (includes 1000 in catch up) I run at 11000, do my testing and when all is said and done, Irun the extra 1000 to the same source. oh heck, I just check on the box that says plan automatically passes test and then I dont have to worry about it.

no. you have to count any contributions made during the 12 month period for the plan year you are looking at. in other words for the plan year 7/1 - 630, you use those contributions plus you use the latter half of one plan year, and the first half of the other plan year. interesting, The ERSIA Outline Book uses a similar example (5.26 of the 2001 edition. MP runs from 7/1 -6/30/2000 'the money purchase contribution (deemed made 6/30) is aggregated with any profit sharing contributions allocate 12/31/99 plus deferrals and match credited during the 12 month period from July 1 through December June 30,2000. Yes, there is a typo in the ERISA Outline Book! unless there really is a month of December June. oh, and you also test based on the comp earned during the 12 month period you are looking at, so that could change. man. it must have been fun when comp was comp - deferrals.

your comments on SSRA as testing are correct. the problem is that, for example, the software I use has a check box that allows it. It helps your results, so you check on it. legally you cant do that since your testing age is plans normal retirement age, but that is why I pointed it out. you really have to know what you are doing before checking assumtions choices. as to last day requirement, lets say I have a class plan and my class is all doctors. during the year and young doctor buys into the business. If I have a last day provision, I can amend my plan since no one has accrued yet. e.g. doctors with 5 or mor years of service and all other doctors. if I dont have a last day provision, then chances are someone has already accrued a benefit and I cant amend. now I am stuck. obviously there are other factors, etc, but what you are trying to avoid are surprise HCEs. e.g. owners kids enter the plan and class only says owners. you still have time to amend to owners not by attribution. I know, you are lucky to only deal with clients who provide all the info you need, on a timely basis, etc. I am not so fortunate. or another example, lets say I have 5 doctors in a class. the plan has always passed. but in one year a bunch of older ees entered the plan and now the test will fail. if I run a preliminary test in November, I discover this, and can amend to change something. It might mean putting one of the doctors in a separate class, and giving him slightly less, but at least I can do it.

Jim: quit now while you are ahead. just kidding. lets consider your example with an ee who makes 100,000. the MP plan provides 15% of comp. so on 6/30/01 he gets 15,000. he defers $6000 on 12/31/00, $5000 on 5/30/01 and $5000 on 12/31/01. you have to look at the 401 k plan for 1/1/2000 - 12/31/2000 and add up all contributions made during the year. this would be his deferrals plus the MP made on 6/30/00 since it falls within that year. now you have to look at the MP from 7/1/00 - 6/30/01. he had 15,000 in MP and 11,000 in deferral in this period for a total of 26,000. but that is 26% of pay so he exceeded the 415 limit. then you look at the 401k plan for 1/1/2001 - 12/31/2001. he had 10,000 in deferrals which is fine, plus the 15,000 in MP for a total of 25,000 which would have been ok. The problem lies in the fact he received too much in the period from 7/1 - 6/30. and this calc goes on year after year. or at least that is how I learned it.

Good Luck Sara. I think the wonderful pmacduff hit the important points determining how much one can get or is worth. (ok, I can call her wonderful cuz we exchanged a few emails regarding reports for the software we use, and one of her ideas saved me a bunch of time and energy!) and now for some other thoughts: and the famous...$ are not everything. (else I am extremely underpaid) as pointed out, there are a lot of factors to consider: daily vs traditional. you could not pay me to do daily. I will gladly work for less. is your position strictly number crunching? (ugh) I have had the opportunity to speak at ASPA and other small group seminars, share info at user group meetings with the software being used, etc. I wouldn't give up those teaching opportunities for the life of me.

other 'watch-outs' you generally want to make sure there is a last day provision in your document so you can amend the current year if need be if a class is defined as 'owners', make sure it is owners not by attribution. kids mess up a plan faster than anything. make sure you bone up on testing options such as 'grouping accrual rates' and 'testing age = SSRA'. Yes, the regs permit these assumptions, and I have seen software use them, but use them incorrectly. (or maybe I should say, allow the user to simply click on options and expect the system to handle everything)

Master Samwise: No one knows for sure how to interpret this. From what I have read, most tend to figure the govt means on a current year by year test rather than 'if ever another contribution...' of course, that may be wishful thinking, but logically there would be very few plans this rule could apply to otherwise. It would have to be a new plan with no profit sharing contributions. Now you are talking about a SIMPLE IRA, except with larger deferral limits. Personally I wouldn't think that is what the IRS intended.

as another possible strike against your idea Notice 98-1 The notice also includes an "anti-abuse provision." If there are repeated changes in testing procedures or plan provisions that have the effect of distorting the ADP or ACP test to the benefit of the HCEs, the plan will be deemed to have failed the tests if the principal purpose of the changes was to achieve this result. While this applies to switching testing methods from current to prior to current to prior etc, I would hold the concept or idea would hold true for safe harbor plans. yes, its true the regs don't say that...yet...but if you start fooling around it won't take the IRS long to step in.

that should be possible. your BRF test would consists of group 1 those with option up to 25% - no hces, so that passes group 2 those with option up to 15% - this test would include employees who get at least 15%, so that would be everyone, so that would pass as well. or put another way, general rule is that if you cut back on the hces it ok.

I think the regs say you have to give anyone under the old schedule a choice between the old and the new. the regs also add this option must be available for anyone with at least 3 years of service. My understanding this is the maximum, if you wanted to, you could say anyone with 2 years prior or one year prior, etc.