Tom Poje

Richard I dont think that will fly, especially as a money purchase. that doesnt sound definitely determinible to me. obviously in 2002 the same concept could be run as a profit sharing, though the 5% gateway would be required.

I read somewhere one could put in a new plan, make a zero contribution to the original plan and go cross tested in the new plan. Somehow that seems to be more expensive and trouble than its worth. you can get into an odd situation when you have lots of hces, but not all of the receiving a large contribution. sometimes a young HCE can get a large contribution as a result. good luck on whatever you do.

Andy: so here is the strategy. put in a negative election for 1 penny. then you would have to include them for comp purposes. It is one of those things when someone doesn't defer - you have to include them in the ADP test why wouldn't you count them elsewhere. I agree with you when you say it is one person's opinion. agressive? hmmm, I am not so sure. suppose an ee defers the first week, and then because of financial problems at home quits deferring. He continues to work the ost of the year and then quits. for all practical purpose he didn't defer. yet you would still include all his comp. or, I guess consider an ee who enters midyear, and gets an allocation based on midyear comp. Is it any more aggressive to include his full year comp for 15% purposes? just food for thought, but I do understand your caution.

If ees have already accrued a benefit (e.g. no last day provision in the plan) then it is too late this year because I am sure everyone has met the hours requirement. Soe argue that since profit sharing is discretionary, you should be able to change the forula, but the IRS tends to take a dim view of that argument. As for groups, you can pretty much do what you want. We have one plan in which each doctor is named in his/her own group as well as a group of rank and file. you have to be extremely careful about a group named 'owners' it is best to have it 'owners not by attribution', otherwise the owners kid gets hired and then you can never pass testing.

agree with a above answer. the problem lies in the fact that top-heavy rules were written way before 401ks became big time stuff. The ERISA Outline book also indicates such ees would need a top-heavy. now, that being, there are reports of documents getting determination letters stating top-heavy only to those who met the profit sharing eligibility (one year of service rather than immediate) In light of the rules with safe harbor 3% non electives, this would seem logical, but I would want the IRS blessing before proceeding further.

the only thing that insures is that the plan passes the inimum gateway. that is all. you now have to pass nondiscrimination like you have always had to do before. software wise- obviously I don't know what software you use. hopefully it at least does the nondisrim testing. I know I will have to do the gateway verification..making sure each ee gets 5% (or 1/3 of the HCE if that is less)

Andy H asks: Tom, I've never seen this in print other than an Ed Burrows ASPA ASAP a few years ago, and I don't recall him going that far. If you know of this in print I'd like to find it because it could be useful. a good starting point is the ERISA Outline Book p.7.286, 2001 edition. the argument is as follows: the basic point is that the regs are not real clear. They simply say one benefits under the employer's contribution. well, ees are treated as benefiting for 401k purposes even if they do not defer, they are reported as participants on the 5500 as well.

I have the somewhere, I think on a scratch sheet of paper somewhere. I am doing inhouse C-1 teaching starting January, so it may be a bit before I work up an official answer sheet.

98-52 V.B.2. The nonelective contribution requirement of this section is satisfied, if, under the ters of the plan, the employer is required to make a safe harbor nonelective contribution on behalf of each NHCE who is an eligible employee to at least 3 percent of the employee's compensation. Note:you could exclude HCEs 2000-3 Q-10 added the stipulation that eligible could refer to only those who attained age 21/1 year of service. Dang you people. you are going to make me learn safe harbor plans yet, aren't you?

many years ago I compiled some questions, arranged by chapter. at this point in time, I suspect some of the questions are outdated (e.g. min partic only applies to DB, so you might have to read the question as pertaining to DB rather than DC), but old questions are still good practice. you might take a look at the enclosed file. I am for anything that will encourage someone to study more. If I am in a real good mood I might even provide some of the answers.

all eligible ees regardless of whether they defer. depending on your notification, it can be limited to those who have met the 1 year/age 21 requireents (if plan had immediate eligibility for deferral) if the plan was a match, obviously it would only go to those deferring. but since it is the 3% nonelective it goes to all. that is why your initial notification for the year only has to say 'we might make a 3% safe harbor', because it has no effect on whether soeone defers.

its not really being overly aggresive. you have immediate ability to defer - so whether one defers or not, you get to count the compensation, the person is in the plan. even if he quit with 0 deferral

1987 7,000 1988 7,313 1989 7,627 1990 7,979 1991 8,475 1992 8,728 1993 8,994 1994 9,240 Beginning in 1995 things switched slightly to using rounded values. I have a spraedsheet that calculates these (you use the CPI index for the third quarter) 2002 the law changed again, although we still would have been at 11,000 anyway. Rounded Actual 1995 $9,240 $9,441 1996 $9,500 $9,690 1997 $9,500 $9,976 1998 $10,000 $10,195 1999 $10,000 $10,358 2000 $10,500 $10,601 2001 $10,500 $10,973 2002 $11,000

here is the easy way to remember. when he files his taxes, he includes his W-2 the governmet adds up all the deferrals and they know if someone deferred too much in a calendar year

without looking it up, I think you can ask for anything reasonable, including the plan document, but you can be billed for the extra stuff...eg. copying costs and whatever else.

yes, catch-uos are only available for plan years begining 1/1/2002 so you would not be able to use them for a plan year end 1/31/02. I am not sure what the net effect of catch ups will be on the W-2. In the case of someone who deferred 12,000, its obvious 1000 is catch up. In the case of a failed ADP test...well lets say the guy deferred 10,000. now the test fails and the refund would normally be 500. Instead I am going to treat that as a catch up. I don't see how that changes things - 10000 in deferral is still 10000 -it only effects testing how it is treated- unless the govt wants to see an actual breakdown of the deferrals - and it will be awhile before we see the actual w-2 for 2002, wont it?

The maximum interest rate you can use is 8.5% in other words ee age 65, 20% contribution ee age 48, 5% contribution ee age 65 is at retirement, so his contribution stays at 20% ee age 48 has 17 years to retirement so his 5% will grow to 5% * 1.085^17 = 20.01%

I dont think fiscal year makes a difference. everything is based on plan year. so in that case it sounds like you are under the hew rules. I think (well, some would disagree as to whether I ever think, but that is another story...) I think where fiscal year comes into play is in determining how much comp you can consider for deductibility purposes. You are deducting things based on fiscal, so I think you can only consider comp for the fiscal period 7/1 - 6/30. It can result in some screwy results. But I would have to look that up.

certainly.... an age weighted plan was the original new comparability, everything else was simply more creative. beginning in 2002 you may see plans switch back to age weighted. reason: the 5% minimum gateway would not be required in an age weighted plan...it has smoothly increasing rate bands. consider a profit sharing plan, no 401k feature. owner, 200,000 in comp wants a 40,000 contribution. in a class plan this would require a 5% contribution to the rank and file. In an age weigthed plan.....well, you would have to run the numbers to know. However, the following is the mathematics: if plan was age weighted, owner receives a 20% contribution. To receive a 5% contribution, what is the age difference? 20%/5% = 4 so 1.085^?? = 4 ??=17, so anyone with more than 17 years different will receive less than 5% and one with less than 17 years different will receive more than 5%. so, where does the rank and file population fall. That would be the deciding factor.

the law applies for plan years beginning 1/1/2002, so you are under the old rules. sorry.

the ERISA Outline Book says it is reasonable to 'treat any employee in the determination year whose compensation for the lookback year exceeded the applicable dollar amount with any related group member, would be treated as an HCE with repsect to all members of the related group" see 1.156 of the 2001 edition. there is also a discussion on two approaches to using the 20% test as well. the book also points out there are no guidelines to your question, that the IRS is still taking comments in regards to this questions

go to the forum Retirement Plans in General and read the post 'catch-up contributions' look at the last few posts, there are at least 3 attachments out there, and one of them lists the states.

interesting, rather than 4%, why not a cap of 2 plus last years NHCE avg. It would change each year, but would be definitely determinable.

for new plans, you can provide notice as of the effective date, so you should be ok. Its just that you cant convert an existing 401k plan. see 98-52 V C.2.b it is in there, but doesn't read taht easy. a good example would be a new hire... e.g. Dec 15. How would you give him notice 30 days before the plan year begins?

see www.trustandestates.net/EGTRRA/Ice_EGTRRA_Pensions.htm in particular, 3.5 According to committee reports, employer can match catch-up contributions. However, the match would be tested under the ACP test. therefore, it is apparent that it is optional to match catch-ups. what is there effect on a safe harbor? 'the butler did it' - no wait, as Butler explained, it is most likely not to come into play - assumic the basic match is made. However, the match could be Enhanced Match, so then it would make a difference, or possibly the discretionary safe harbor match as well. But we all know that R Butler is referring to the most likely scenario. Disadvantage of not matching catch ups... example if hce has to get refund for failed test, the amount could be treated as a catch up. but if match is related to the deferral, then this match would have to be forfeited, otherwise the ees rate of match is greater than everyone else.