Guest blaum8 Posted January 6, 2003 Posted January 6, 2003 Since QNEC's are allowed to be treated as top heavy minimums, it seems that the reverse should also be true: that a top heavy minimum contribution could also count as a QNEC. The 401(k) regs don't seem to address this possibility. Any thoughts?
Blinky the 3-eyed Fish Posted January 6, 2003 Posted January 6, 2003 A top heavy minimum absolutely cannot serve as a QNEC. Logically, this is because the TH minimum does not have to be 100% vested nor subject to the distribution restrictions. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Guest blaum8 Posted January 6, 2003 Posted January 6, 2003 Obviously, if you were to treat a THM as a QNEC, then it would have to also meet the QNEC rules. But it isn't logical that because a QNEC must be vested, a THM could never meet this requirement. Do you have a cite in support of your position?
Kirk Maldonado Posted January 7, 2003 Posted January 7, 2003 Blinky the 3-eyed Fish: I absolutely could not disagree with you more. Please cite the authority that top-heavy minimum contributions cannot (1) be fully vested and (2) be made subject to the Section 401(k) distribution rules. Kirk Maldonado
Mike Preston Posted January 7, 2003 Posted January 7, 2003 I think Blinky can speak for himself, but in my mind, the term "top-heavy minimum" not only applies to the amount, but also the vesting schedule. That is, it isn't a top-heavy minimum if it is 100% vested and subject to the 401k distribution rules. I think we are into semantics more than anything else.
Blinky the 3-eyed Fish Posted January 7, 2003 Posted January 7, 2003 Easy Kirk, it is semantics. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
mbozek Posted January 7, 2003 Posted January 7, 2003 The TH regs 1.416-1 at V-1 state that TH vesting must be either 100 % after 3 yrs or at least 20% after the first year, 40% the second etc. There is nothing that prohibits the use of 100% vesting for TH contributions. I have reviewed several plans that provided for faster vesting than the TH minimums without IRS objection. mjb
Kirk Maldonado Posted January 7, 2003 Posted January 7, 2003 Section 411 also states certain vesting schedules. Under the argument that you don't comply with the statutory vesting schedule, you are bad, then every plan that provides for faster vesting than the statute is disqualified. That's a novel concept. Kirk Maldonado
Guest Jennifer Reid Posted January 7, 2003 Posted January 7, 2003 So all of us except Blinky agree that the THM can be used as a QNEC so long as it it subject to the vesting and distribution rules applicable to QNECs (which are more favorable than those applicable to the THM and therefore completely allowable) and characterized as both a QNEC and a THM?
Blinky the 3-eyed Fish Posted January 7, 2003 Posted January 7, 2003 Jennifer, huh? At what point did I not agree with this? All I said is that the TH minimum (the normal TH minimum with no special vesting or distribution restrictions) could not be used as a QNEC. I never said you couldn't make it like a QNEC. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Mike Preston Posted January 7, 2003 Posted January 7, 2003 I think even Blinky agrees with your assertion. But I'm with him on this one. When a client asks me if a THM can be treated as a QNEC, my response is going to be: "No, not unless the contribution is subject to the distribution rules and is immediately vested and that isn't really a THM." It sounds like others might say: "Yes, as long as the contribution is subject to the distribution rules and is immediately vested." 6 of one, 1/2 dozen of the other. But when someone tells me that they made a THM contribution for the XXXX plan year, I will not, generally, ask them whether it was subject to the distribution rules and whether it was immediately vested. And if a question on an exam required me to determine whether a contribution described only as "a THM" contribution was subject to immedate vesting and/or whether such "THM" contribution was subject to the distribution rules, I would assert that the question on the exam was flawed. We have lots of contributions which are used to satisfy TH requirements these days. Matching contributions can do so, as well as QNECs. But I don't think that I will soon believe that a generic description of "THM" means anything other than a non-matching, non-QNEC, not subject to distribution restrictions, not immediately vested contribution.
AndyH Posted January 7, 2003 Posted January 7, 2003 Yes you did, Blinky. Only kidding. Guess it's pick on Blinky day. I've had those.
Blinky the 3-eyed Fish Posted January 7, 2003 Posted January 7, 2003 Can I hear an Amen for Mike. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Mike Preston Posted January 8, 2003 Posted January 8, 2003 I live with three women, none related to me by blood, all eligible to vote and each of a separate generation.
Kirk Maldonado Posted January 8, 2003 Posted January 8, 2003 Mike: You have my deepest sympathies. (I mean that sincerely.) Kirk Maldonado
Guest blaum8 Posted January 8, 2003 Posted January 8, 2003 Blinky wrote: "A top heavy minimum absolutely cannot serve as a QNEC." It's pretty hard to read this in any other way than it's plain meaning. And it's plain wrong as Jennifer wrote, not semantical difference or a denied statement as Blinky attempts to have us believe. But so what? We're all here trying to learn new stuff and address unusual issues. I'm just glad we got it sorted out. It's an usual situation where a plan is both top heavy and fails non-discrim testing, AND the plan sponsor wants to let his THM serve double duty (usually corrective distributions are made to fix the ADP testing). But it's clear, contrary to what Blinky wrote above, that a THM absolutely CAN serve as a QNEQ so long as it satisfies the QNEC requirements as well. I'd suggest incorporating a sentence or two in your plan document to specifcially permit this possibility since the interplay between QNEC's and THM's is rarely addressed in plan documents.
Blinky the 3-eyed Fish Posted January 8, 2003 Posted January 8, 2003 Originally posted by Blinky the 3-eyed Fish A top heavy minimum absolutely cannot serve as a QNEC. Logically, this is because the TH minimum does not have to be 100% vested nor subject to the distribution restrictions. Blaum8, I know you are new to this forum, but you should know better than to use it as a vehichle for a personal attack. Second, how about quoting the entire post as I did above. It clearly indicates I am talking about the USUAL top heavy minimum, not one that is specially vested and has distribution restrictions. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Guest blaum8 Posted January 8, 2003 Posted January 8, 2003 Yes, I am new here, but where's the personal attack? You made an incorrect statement. Your second sentence, which you seem upset that I omitted from my posting of the first sentence does nothing to change the fact that the first statement was incorrect. Rather, it explains why you believed your first sentence was a correct statement. I could have reposted it, but for what purpose? It would have been so much easier and useful to this thread for you to simply admit you missed one. No big deal; I wasn't 100% certain either or I wouldn't have posted the original question. It was a novel issue for me and likely many others since you don't see this discussed in the primary reference works. As I said before, hopefully, we're all here to learn. Peace, love, goodwill to fellow employee benefit folks, etc.
Blinky the 3-eyed Fish Posted January 8, 2003 Posted January 8, 2003 Wow! Are you serious? 1. See Mike Preston's comments. He understands what I was saying. 2. Look up the definition of semantics. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
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