Bottom up QNEC guidence

[Guest cohenron]

Can a plan document still be written to offer a bottom up QNEC? And if so, is there any guidence as to how it is done since EGTRRA? Would you just start with the person with the lowest compensation and give them a contribution so the total of all of their contributions is 100% of salary and work your way up?

[Tom Poje]

at one time, the answer was yes.

under the proposed regs it does not look like it will be possible.

there is something called 'targeted QNECs' - something like they can't exceed the greater of 100% and 2 times the representative rate.

Maximum QNEC is 10% and that is 5% ADP and 5% ACP. anything larger has to be given to a certain % of NHCEs.

But I am much to lazy a person to actually read through the proposed regs at the moment to find the exact numbers.

And of course, these are only proposed, so they might change a little.

Basic answer is "No, you probably can't do that going forward, once these regs go into effect"

[Archimage]

I would only add that you can still do it but you should let the client know that they will probably only be able to use the bottom-up QNECS for another year or two until the proposed regs become finalized.

[k man]

you can still do it until the regs are finalized.

[Pietro Sabatino]

you can still do it until the regs are finalized.

k man:

Have the regs been finalized? I'm trying to ascertain if the bottom-up is still available for the 2005 plan year.

[Tom Poje]

for plan years beginning 1/1/2006 it is next to impossible to run what would be called a bottom up QNEC - you would never meet the guidelines for QNECs.

for 2005 it is still possible providing (at the minimum):

document has language for such an allocation

you are not putting into practice other new features of the new regs and applying to the 2005 plan year. not sure why one would do that but what the heck.

(and anything else I may have forgotten)

[Pietro Sabatino]

It is for a 2005 Plan Year, and the doc (updated for EGTRRA) does already allow for QNEC contributions. I just wanted to make sure that 2005 was the last plan year that bottom-ups were allowed. Thanks for your help.

[Tom Poje]

you still have to be careful. just because a document allows for QNECs does not mean it allows bottom up qnec. the language is pretty specific. most documents simply provide a qnec to all nhces across the board.

[Mike Preston]

I'm feeling pedantic at the moment, so.....

There is no prohibition against bottom up QNEC's in the new regulations. You can have them in your document and not run afoul of the qualified plan rules. However, you will be limited as to how much of said QNEC's are actually taken into account to assist in the passing of the ADP or ACP test.

[austin3515]

Thanks Cliffy...

-Norm