Tom Poje

K2 - not 100% sure on that. a plan that is amended to reduce or suspend during the year must use current year testing. but I don't think there is such a rule for switching as of the start of the year. If I recall correctly, a plan that was safe harbor is treated as having used the current year method for all years it was safe harbor (that only makes sense) Since this plan was safe harbor since2008 that means it has been current year for 5 years which means it should be able to use prior years. In addition, if I recall correctly, even if the plan had been is existence less than 5 years it could still switch. .................................................. oh there it is, if I wasn't so lazy I would have looked up the site before posting 1.401(k)-2©(1)(i)

interesting. it doesn't change the fact that the 'logic' is there. on the coverage test they use the expression rptlangndtest.incl401ktestcoveragecd which can be Y or N a similar expression exists for 401m and 401a if you were to look at the table report it shows up, and says "Indicate whether 401k disaggreagted 401k plan cobverage data is included in report Y=yes, N =No" the fields must exist as well, otherwise you would get an error message when you look at the report in crystal indicating the fields don't exist. also see the screen print - it doesn't show all the possibilities (because that is all I could capture) but they have the logic for showing the following possibilities k m a k m k k a m a m a guess the next step is to ask them why they don't turn the silly thing on. coverage.doc

at least for the first page of the coverage report you could 'hide' the portion you don't want well, you could open up GND410b.rpt in crystal. then the subreport GNDBenEE.rpt then click on report footer a (or b or c) and click on Supress (no drill down) - this will prevent a 401k or b 401m or c nonelective from printing. or any combination you choose. you could also do the same for the subreport BenAggees.rpt and supress the sections you don't want. save and run your report without stat exclusions. then modify the crystal report, and rerun your coverage with stat exclusions. ................... as a side note, the reports have the language to print only those items you want. I think at one time you could actually select the items you want, but they don't show anywhere on the screen anymore. Either they took that ability away or at one time when they modified the screen they messed up and inadvertantly removed those choices.

as close to anything in writing is the LRM (language required modifications) that was issued a few years ago. (just about the last page - page 133 of the pdf file) the original lrm94 issued a few years before this had the same comments, but they were in bold type, and labeled "Note to reviewers" no such comment anymore, and it is no longer in bold type, so maybe that implies the IRS is a little less concerned about the issue. imagine, if instead of everyone in their own group, you set up one plan for all NHCEs and 5 plans for 5 partners. As far as I know, the IRS would not even consider a possible deemed CODA if partner #3 made no contribution to his plan. as pointed out in the Q and A, one red flag is if it is determined that if is the bonus that can be taken in cash or put into the plan. lrm.pdf

oh what the heck. for those who want their very own copy and see it in print in the preamble to the 415 regs.... it is on page 47 of the pdf file 415 reg.pdf

This question seems to get asked once or twice a year. the problem is where exactly is the answer found.... Gave a talk a few years at one of the ASPPA conferences on 401(k) plans. As part of the presentation I posed the following question: Once an individual hits the compensation limit for the year he can no longer defer A. True. But it is not in the code or regs. B. False. But it is not in the code or regs. C. Since it is not in the code or regs it is up to the plan administrator how to handle. D. Your document will tell you what to do. The answer is found in the preamble to the final 415 regs: “As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415©(3). However, in applying these two rules, a plan is not required to determine a participant’s compensation on the basis of the earliest payments of compensation during a year.” so, as Bill pointed out, conceivably the document could limit things, which would be unusual. More commonly the match is allocated on a payroll basis, and once someone hits the deferral limit, since they stop deferring they stop receiving a match (unless the document calls for a true - up) I don't think I have ever seen a document that limited comp, I don't ever recall even seeing it on a checklist for a volume submitter.

exactly as Bill points out. for eligibility, there are perhaps a few exceptions for employees who have had a break in svc for vesting, there are some exceptions (e.g before age 18, before plan started) while my DB knowledge is limited, I believe there is a 5 year max on past svc for accrual puporses(?) enclosed are some govt notes on eligibility (participation) and vesting. posted these before so a good chance some of you have pulled these already minimum vesting standards.pdf min partic standards publication 6388.pdf

Best I can come up with is straight from the "hoIRSes" mouth (IRS newsletter) http://www.irs.gov/Retirement-Plans/Employee-Plans-News---October-12,-2011---EPCU-Project:-Form-5500-Non-Filers-and-Late-Filing-Penalty-Awareness there is a note on there that says However, Form 5500-EZ filers may attach an explanation for filing late to their return to provide information they wish the IRS to consider before assessing penalties.)

assuming you mean the executive group can defer, as opposes to the executive group being excluded from eligibility entirely, which would be ok as long as coverage is passes. that sounds like a poorly filled in document. (e.g. I have an old xxxx document checklist and for safe harbor you could exclude: 1. union 2. key who are HCE 3. HCE 4. other _____________ but the law also requires any NHCE who is eligbile to defer to receive a safe harbor. Thus the blank could have said Executives who are HCE (thus somewhat like option 2). rather than Executives, which it sounds like was done. can you get by with a corrective amendment? Not sure, because you have a bad document in the first place, at least in my opinion.

I've never heard anything against that. more usual would be something like 600 hours in 6 months, with the 1 yr. that way if somone worked 550 hors in the first 6 months and 550 in the second 6 months he would fail the first condition, but because he worked 1000 hours in a 12 month period he would still enter.

if the owner or spouse deferred you have already set things in motion. a top heavy is due unless there are no other contribution. Plus it is possible (I think) the document could say 'all receive top heavy' not just key

silly me. no wonder I couldn't duplicate the DOL numbers. for instance, to make an initial 10,000 contribution work, you have to plug in 9708.74 which is 10,000 / 1.03. I modified my test sample statement so it prints on a separate page, with a blurb describing the projection and 'this is an estimate only', etc. but didn't attach it yet.

I didn't think emplyee number mattered. I have, for instance, pulled census data, sort the info by compensation and term date, then imported 'delete' as employee number for anyone with 0 comp and terminated in a prior year. Then under delete employee, sort by employee number. This group all employees coded 'delete' together, I highlight the group and hold down the enter key, and everyone is deleted (unless of course they have any account balance) works like a charm for cleaning up a large plan rapidly. I am extremely lazy.

well, Code Section 414(s)(3) says you can use alternate definitions as provided by the Secretary 1.414(s)-1(d) discusses other definition including satisfying nondiscrim test of comp (e.g. comp test) 1.414(s)-1©(2) discusses comp within the definition of 415©(3)

my leanings are against it because you have some cross testing involved. it sounds like you have a single plan and you are trying to treat it as 2 component plans. it is forbidden to avoid the gateway requirements under those rules 1.401(a)(4)-9©(ii) now, if you could get past the gateway and each of the groups could satisfy 410b then....

ESOP - my comment was meant to be tongue and cheek, but I forgot to add a smily face. the notes on the DOL instruction are even scarier "This calculator uses a simplified computation (e.g., annual contributions, mid-year retirement). Depending on the comments received in response to the ANPRM, the next version of the calculator may provide a more precise computation (e.g., monthly contributions, retirement in a specified month)." (they expect things broken out by monthly contributions????)

ESOP Guy: you mean the DOL's comments in the proposed regulation about avoiding potential lawsuits aren't reassuring to you? As to the concern about potential lawsuits based on unrealized expectations, the Department believes this issue might be addressed in two ways. First, benefit statements could include a clear and definitive statement that the lifetime income illustration is an estimate, based on specific assumptions, and not a guarantee. The Department believes this disclosure would serve to put participants and beneficiaries on notice that the illustration is only an estimate and, thereby, minimize the likelihood that they would believe the illustration is a promise or guarantee. The Department specifically requests comments on the extent to which the language in ANPRM § 2520.105–1©(6) would accomplish this result. Second, the Department is considering establishing a regulatory safe harbor under section 105 of ERISA for plan administrators to rely on when developing lifetime income illustrations for pension benefit statements. By specifying the precise standards and assumptions a plan administrator would use to make a lifetime income illustration on a pension benefit statement, a regulatory safe harbor would substantially reduce the likelihood of lawsuits against that administrator based on an imprudent or improper calculation of lifetime income.

I'd be happy to have a guaranteed 7% return. I just through this together the other day, so we haven't sent anything out, probably won't until it is required. I haven't added the blurb about "this is an estimate only...." and of course, this is simply another piece of info in the participants hands along with all the other stuff they are suppose to receive. I wonder who the burden is going to fall on, the TPA or the invetsment house to provide this piece of info. And if it is not provided, then what.

one of the items our good friends at the govt are 'talking' about requiring is an illustration for a participant of a lifetime income illustration. enclosed is sample statement (or at least an attempt just to see how this would work) which comes close to matching the sample provided by the govt at http://www.askebsa.dol.gov/lia/ govt assumptions: How the Calculator Works The calculator uses the safe harbor assumptions described in the ANPRM for estimating future contributions, investment earnings, and inflation: Contributions continue to Retirement Age at the Current Annual Contribution amount increased by 3 percent per year. Investment returns are 7 percent per year (nominal). An inflation rate of 3 percent per year is used for discounting the projected account balance to today's dollars. In converting the account balances into lifetime income streams, the calculator uses the safe harbor annuity conversion assumptions described in the ANPRM: A rate of interest equal to the 10-year constant maturity Treasury securities rate for the first business day of the last month of the period to which the statement relates (equal to 1.63% as of December 3, 2012 for statement periods ending December 31, 2012). The applicable mortality table under section 417(e)(3)(B) of the Internal Revenue Code in effect on the first day of the last month of the period to which the statement relates. This is a unisex table (i.e., the annuity values are the same for males and females ok, so the enclosed statement is hardcoded at ret age 65 (thus the income at ret is simply divided by 200, and joint/survivor 221.81, to keep things simple) (By the way, the govt illustration adds 1/2 year to future years - this statement does not) of course the govt is asking for comments I suppose one possible comment would be: you take the contribution and project a 3% increase each year. so if the person received 50,000 this year, then the projection would be 51,500 for the following year, which of course would be over the 415 limit. so just how is a cap to be built into the formula? statement with projection.rpt

1.401(a)(9)-2 Q-2 says the Required Beginning date is the later of April 1 of the calendar year following the year the ee turns 70 1/2 or the year in which the employee retires. 1.401(a)(9)-7 Q 3 says (Reader's Digest condensed version) that the original plan MUST segregate the amount and not transfer it. or was that Monty Python "Thou shalt not make a full transfer unless thou also holdest the minimum distribution in reserve" this is one of those things that in some ways makes no sense. ee is working and requests a transfer of all $s. I guess because he 'might' quit before the end of the year, are you supposed to transfer everything but the possible minimum distribution? but then 12/31 arrives and the person didn't quit. so now do you roll the remainder of the balance except for the new possible minimum distribution? That makes no sense. or do you argu at the time of the transfer since he is still active (and you cannot predict the future) he has no RBD at the time of the transfer and therefore you transfer everything. You compond the issue because you have the knowledge that the ee will indeed quit. Troublemaker.

this is one of those yes/no/maybe so or exactly what does the document say (and maybe I should say "what should the document say" in LRM94 (Language Requirement Modifications) a number of years ago the IRS had the following notes (emphasis mine) (Note to reviewer: There are other gateways that may be used in order for a defined contribution plan to cross-test using equivalent benefits under 1.401(a)(4)-8(b). The plan may provide for a different gateway other than the minimum allocation gateway (for instance, the broadly available allocation rate requirement of Regulations section 1.401(a)(4)-8(b)(1)(iii) or the gradual age or service based allocation rate requirement of section 1.401(a)(4)-8(b)(1)(iv)); however, sample language for other gateways is not provided herein. If a sponsor wishes to use other gateways, it is important to ensure that the benefits provided under the plan remain definitely determinable. In order for plan benefits to remain definitely determinable, the plan document should specify which gateway is used. The plan document could allow adopting employers to elect between different gateways, but in order to provide definitely determinable benefits it is not sufficient for the plan document merely to specify that one of the gateway requirements will be satisfied.) If this concept was ever enforced, then your document would have to specify which gateway would be used. In other words, you couldn't allocate a contribution this year satisfying the service schedule this year, and then next year the minimum allocation gateway. as I recall, the LRMs were for protyopes, but on the other hand I don't see how something could be definitely determinable in one case and not in another. It seems like the logic should still apply. but anyway, food for thought.

Possibly this will help Treas. Reg. §1.416-1, T-12 states the terms key employee, former key employee, and non-key employee include the beneficiaries of such individuals. Would the terms also apply to alternate payees under QDRO’s? ASPPA answer: Although not specifically discussed in the regulations, it is presumed that the treatment of death beneficiaries under the top heavy rules would also apply to alternate payees under a QDRO. The alternate payee under a QDRO is treated as a beneficiary of the plan under ERISA and the tax code. In the §415 context, the IRS has taken the position that benefits under a defined benefit that are awarded to an alternate payee are counted as part of the participant’s benefits from the plan in determining whether the §415(b) limits are exceeded. See Notice 87-21, Q&A-20. It would seem appropriate to take a similar approach in the top heavy determination. IRS response. The IRS agreed with our answer. 2011 ASPPA Conference #45

I'd be a bit wary, that sounds like a cutback of someone's benefit, even if it is an HCE

if it helps, the reason being: 1. the HCE is still working 2. therefore the distribution is an 'in-service' distribution 3. you include in-service distributions for 5 years. now,all that being said, for the first year of a plan, 1.416-1 T 24 says adjustment should also reflect the amount of any contributions made after the determination date that are allocated as of a date in that first plan year. so, without knowing the numbers involved or the terms of the document, it might be possible to allocate 1% (or whatever) to the NHCEs and take the plan out of top heavy (which would also mean next year as well which is probably even more important!) others have indicated you could use a corrective amendment to simply allocate a contribution to nhces because the rules don't even require the contribution to be 'corrective' (or if it is late and the ADP refund hasn't been completed, alloacte enough of a QNEC to the NHCEs to take the plan out of top heavy)

"Go not to the Elves for counsel, for they will say both no and yes." so actuaries will say as well, but they are only a poor imitation of elves.