Tom Poje

and, begining in 2002, you have the possibility to have a safe harbor 401(k) in which, if only the HCE deferred, and the safe harbor was a match-with no other contributions, the plan passes all testing even if there were a bunch of NHCEs. (not likely to happen but it could) The regs are the regs, and given the right conditions, seem to favor the HCEs. Just because there are no NHCEs or the NHCEs have zippo, doesn't mean you always fail.

it should be, for thats what it is - a nonelective. you could have: Qualified nonelective (QNEC) Safe Harbor nonelective nonelctive (normal profit sharing) but they are still all nonelctives.

one possible issue is 415 limits (though come 2002 maybe then it wont be a big deal) you have 30 days after all extensions to still be able to treat the contribution as an annual addition for the prior year

Brenda: Interesting question. The notice itself should be the item that turns on the safe harbor for a given year. So you are probably okay. However, that being said, I personally don't think there is a 100% guaranteed answer to this question. It might depend on how the most recent notification was worded. For example, I am looking at one sample notice that says For the year starting xx/xx/xxxx and ending yy/yy/yyyy the plan will... No problem there. on the other hand I am looking at another sample notification that says Begining 1/1/2001 the Company plan has been designed to qualify for safe harbor requirements... One might argue that notification implies the plan will be safe harbor until further notice. or one could further argue that to qualify for safe harbor in itself requires the timely notice each year. The ERISA Outline Book states that a plan has to be ADP tested if notice was not timely provided - even if safe harbor contributions were made. But maybe that only applies to plans in which notice was given, but not timely. on a side issue, where were the match contributions deposited? does the investment house keep separate track of 100% vested match and subject to vest match? maybe that can be the driving factor.

arrrggghhh. my pet peave! A 3% safe harbor is not a QNEC! I call them SHENCs because of my dry sense of humor and to avoid confusion. Safe Harbor NonElectiveContribution! Heck, if they can it for QNEC I can abbreviate the same way for the safe harbor. Note: a QNEC can not serve triple duty like the safe harbor 3%. also, providing a QNEC does not guarantee passing the ADP test. in a standardized plan all employees, including HCEs receive the QNEC. A QNEC can be any amount, a SHNEC has to be a minimum of 3% I know, it is a subtle difference, but I have to have something to grumble about in the orning.

King Richard: the actual wording of Section 613 Modification of Top Heavy Rules part (d) Definition of top heavy plans - paragraph (4) of section 416(g) is amended by adding at the end the following new subparagraph: (H)cash or deferred arrangements using alternate methods of meeting nondiscrimination requirements - the term top heavy plan shall not include a plan which consists solely of: (i) a cash or deferred arrangements which meets the requirements of section 401(k)(12) AND (ii)matching contributions with respect to which the requirements of section 401(m)(11) are met. 401(k)(12) refers to the ADP safe harbor and 401(m)(11) refers to ACP safe harbor I am guessing in your example the 'safe harbor match' is used to satisfy the ADP safe harbor. it would probably be better to use the term 'enhanced match' - aybe a little less confusing. Of course, if you sponsored a plan like that, I would expect everyone to defer out the wazoo and you wouldn't save anything avoiding top heavy miniums anyway.

it is section 620 of the tax reform bill recently passed by the govt. try a search of EGTRRA and you should be able to find at least a summary of the actual document

if the plans allocation formula is not safe harbor (e.g. same $ or % to all ees [or with allowable permitted disparity]) then it must be cross tested.(of course, even target benefit plans are acceptable as well) the gateway is required before even getting to cross testing the plans. the normal gateway will be 1/3 the rate of the highest % to the HCE. this gateway may be capped at 5%. This minimum gateway may be avoided by having smoothly increasing rate bands - I think that must be what you are referring to. the most common example would be an age weighted plan, where each age increases by 1.085%. however, instead, you could increase each 5 years by 3% if you wanted. that is only a brief example, but you can not get out of the gateway begining in 2002.

you have the best of everything. starting in 2002, a safe harbor 401k plan is also deemed to pass top heavy, providing no additional contributions are made. one other possibility is to go with a 3% nonelective (satisfies ADP safe harbor) and a discretionary match (which if limited to 4% of comp) satisfies ACP safe harbor. if few people defer the owner comes out ahead.

the rule is that you can file the same schedule as you did the year before as long as you are under 120 ees. Since it is the first year, you did not file a schedule I the year before, so you appear to be stuck with the 'preperation' H

I think its "he is an actuary, 2" by the way, try http://www.actuarialjokes.com (128 jokes available)

supposedly, some plans have been drafted that allow for immediate eligibility for deferral, one year wait for profit sharing AND actually require 1 year wait for top heavy as well and have gotten IRS approval. (I have not seen one, and unless it states it in the document,I would be leary of not allocating a top heavy to the group you entioned. 3.169 of the ERISA Outline Book (2001 edition) provides examples of requiring top heavy contributions if ee is eligible to defer but not eligible for profit sharing because individual did not meet the service requirement. Reference is to Treas Reg 1.416-1, M-10

If he was due a top heavy minimum, it would be based on full year. For purposes of plan 15% deductibility it is also full year.

I not 100% sure on that.(but again I stress I don't know for sure) I think you can end up with a 3% nonelective on date of participation, and then a 3% on the remainder which is subject to vesting. Fun stuff to keep track of, as you have a small balance to keep track of that is subject to vesting. On the other hand, if the plan was cross tested, and you are running the plan for 2002 then you would end up with a 3% 100% vested contribution and a 2% subject to vesting contribution, so maybe its not that unusual to keep track of two account - one fully vested and one subject to vesting..

logically what you say makes sense. You did not indicate from your example if one of the ees was terminated with less than 500 hours. maybe that is how the system is making a difference? I am really guessing on that, but if everything else about the two people is the same, that might be the difference. since the ee never entered the plan, the term date won't show on the report.

You should be able to classify by names for purposes of the allocations. This is slightly different than naming by name who is to be covered by the plan itself, which is what 410(B) refers to

No, it is an option, you don't have to be consistent every year. Now, that being said, be careful to follow the rules regarding ADP testing if you are using prior year testing results.

to protect the actual company involved, I will change the name to something similar. This is a true story! we process a plan for 'SUPER WOMEN of AMERICA' its a 401k, self directed. the plan is top heavy the profit sharing portion is integrated. and it was a prototype. so on the old 5500 forms, we had to indicate this with the following codes: CHIK Truly, a CHIK plan.

Dave: If I understand your post, you have a safe harbor plan. You are testing coverage. there are two ways to pass coverage, either Ratio Percentage or Avg Ben Test. doesn't matter which one you use as long as you pass, you pass without having to do a(4) testing as well. as regards to the DB plan, you are allowed to test the AVG Ben separately, but you have to test the the DC on an allocation basis and the DB on an accrual basis (or have the DB pass ratio %) see 1.410(B)-5(e)(3)

I am comfortable with the 5% minimum. I have tested enough plans to know that to achieve the 30,000 contribution for the owner, that the minimum contribution was often above 3% anyway. With the new limit at 40,000 (despite the comp limit at 200,000), it would be darn near impossible in many cases for the plan to pass testing anyway without a larger contribution. If the owner is a lot older and wouldn't have problems passing testing he should be in a DB plan anyway. Also note how the minimums (5%) and now 7 1/2% for combo DB/DC plans ties in with top heavy logic minimums. so, I have no problem.

problem not mentioned. cross tested plan, most likely top heavy. be careful - I guess you could write it so keys do not receive top heavy minimum, but if you dont, you might be shooting yourself in the foot.

now there is an interesting question. sorry I don't have a cite sitting in front of me, but somewhere buried in my notes is something about the follwoing possibility. (I have a nasty plan I am working on at the moment, so my time is limited from doing a search) anyway, my understanding is the following: if ee is 60% then you either 1. forfeit 40% of his balance (which is what you are asking about - except which year to apply) or 2. no forfeitures, but the following happens. lets say the HCE has a match balance of 1000. refund is 100. ee is 60% vested, so in case 1 distribution is 60$ and forfeit $40. In case 2, distribution is the full $100. However, now the ees account balance is $900, he is still 60% vested but his vested balance is not $540 but rather $500, because he received the 'extra $40' as a distribution. anyway, I have seen this written up as an example. since most HCES are usually 100% vested, you never get into the issue, but anyway, that is my understanding of how the distribution could work. In which case, unless your ee is 0 vested, might eliminate the need to ask your question.

'Bout time Dave! I am sure we all have some amusing pension stories. Once I took a call from someone asking for help regarding a new comparability/cross tested plan- If I recall, it was whether the plan passed testing. The plan was for a lawyer and his employees. Upon 'prying' for more info, I discovered the allocation used $500,000 (or some obnoxious figure) in comp for the lawyer. I told the person you can't do that but the individual insisted the lawyer knew what he was doing. (I suppose that in itself is a funny thought) I asked the individual just how are they going to answer the question of the 5500, 'was comp limited to 150,000'? The response was that the filing would be a 5500-R for the current year, and that question does not appear on the 5500-R, so you don't have to worry about it. Can't argue with that logic can you? I am still laughung inside over that one.

see question Q-4. it says to use the table EXCEPT as provided in paragraph b paragraph b is if spouse is sole beneficiary, in which case you use the longer distribution period between the new table or the joint and life expectancy.

Myrtle Beach South Carolina Southern Users Group Meeting Fri Aug 17,2001 8:45 - 10:15 Lorraine Dorsa will talk about impact of EGTRRA 10:45-12 Miscelaneous, including impact of EGTRRA on Relius 1:15-2:45 Tom Poje - Nondiscrim/crosstested topics 3:15 - 4:30 Modifying Crystal Reports - SungardCorbel representative. nonmembers welcome, for more details (costs,etc) contact Maggi Heffernan (770) 641-1429