Guest koolkid Posted February 18, 2003 Posted February 18, 2003 A company sponsors a qualified plan and a nonqualified plan. The ADP test was run on the qualified plan and it fails. The contributions to the nonqual plan were not included in the calculation of the test. Do I have "room" to transfer contributions from the nonqual plan into the qualified plan OR should the contributions to the nonqual plan stay put? In other words, when determining the maximum permissable amount that an HCE could put in to qualified plan, should I aggregate the contributions to both plans first, then calculate ADP -OR- do I ignore the nonqual contributions and dertermine if the qualified plan passes without them?
Guest LoloV Posted February 18, 2003 Posted February 18, 2003 I don't believe it would ever be appropriate to include non-qualified plan contributions in a qualified plan, for any reason.
Alf Posted February 18, 2003 Posted February 18, 2003 The terms of the plans control. If drafted correctly (according to IRS PLRs approving the wrap arrangement), all HCE contributions go to the nonqualified plan until the end of the year. After the ADP test is run, the employer determines how much can be contributed by the HCEs and that amount is transferred to the qualified plan, so the ADP test is run with just the NHCE contributions and then the HCE contributions are transferred.
MGB Posted February 18, 2003 Posted February 18, 2003 The logic of this thread is going a little weird. The original post said they ran the ADP and it failed. I can't see how moving money from the nonqualified to the qualified can help the ADP unless there are non-HCEs in the nonqualified.
Guest koolkid Posted February 18, 2003 Posted February 18, 2003 The way these plans are designed only the highest of the highly compensated are eligible for the nonqual plan. The rest of the HCEs are in the qualified plan and their deferrals are high enough to make the plan fail the ADP test. I agree that having all HCEs in the nq plan would have made it easier. Is there any guidance regarding how to the determine the maximum permissable amount for the ADP test in a situation like this?
Guest koolkid Posted February 18, 2003 Posted February 18, 2003 MGB, There are no NHCEs in the nq plan. Transferring money can only make the ADP test results worse. The refund amounts would basically have to be re-calculated and re-allocated.
four01kman Posted February 18, 2003 Posted February 18, 2003 Koolkid, once you fail the ADP, you can't transfer or otherwise move money from the non-qual plan. You may want to have all your HCEs who are in the nonqual plan not contribute anything to the 401k plan until the end of the year. Then test, if there is room, you will be able to move from the non-qual to the qual. Jim Geld
david rigby Posted February 18, 2003 Posted February 18, 2003 MGB is right. A wrap arrangement is supposed to work the opposite from what is described in the original post. Summary by Alf looks pretty good. It matters not that some HCE's are not in the non-qualified plan. Perhaps the original post was mis-worded? I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
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