Failing ADP test: Want to use QMAC contribution (allocated to only those that deferred). Relius doesn't calculate: Any suggestions?

[Guest DIGMYDOG]

How would you go about allocating a QMAC in order to get the ADP test to pass. How do you figure out how much each person should get? Relius support told me to first run an ADP test and have the system tell me how much of a QNEC would be needed, then to allocate as a QMAC to only those that deferred (forcing the QMAC eligibility for those that did not defer). This doesn't seem like it would calculate the correct amount for each participant. What do others do in this situation? Any advise would be appreciated. Thank you.

[Tom Poje]

first, I suppose, you need to be sure on the terms being used.

what relius calls QMAC is really a QNEC for the ACP test. I gave up years ago trying to get them to make a cosmetic change.

now, to solve for the QNEC:

take the suggested QNEC amount / Total comp for those elig for QNEC

this would be the % of QNEC

now take this % * # elig for QNEC / # deferring and elig for Match

this will give you the % match required to pass.

you could run this as a discretionary match. you would have to code HCEs as not eligibile for match (override)

If your desire is to pass ACP test, then simply use what relius calls suggested QMAC in the above formula.

this should actually be easy to create / modify a crystal report for, but I have no time at the moment.

...................

another method is to simply code your HCEs as not eligible for match override and run a discretionary match. check your results. Increase or decrease your discretionary match as needed. you should be able to zero in on an amount in 3 or 4 tries. no need to run eligibility - just the transactions.

[Guest DIGMYDOG]

Thank you Tom for your response. I actually found an old message from January 2004 you replied to regarding this same situation. I understand that Relius does not allocate a QMAC unless you are allocating to all that are eligible to defer.

I have some questions regarding your formula: When you wrote "solve for the QNEC"...I'm not sure what you meant as I am trying to "solve" for the QMAC. In other words, I'm trying to figure out the amount and how to allocate a QMAC to pass the ADP test. We want to only allocate to those that deferred.

I read the section in the document where it talks about allocating a QMAC in order to get the ADP test to pass. This plan uses a Corbel standardized prototype.

It says that the employer has a choice of the amount of contribution and to which provision it relates. Among others there were:

For a QMAC you either get 1) Allocation is pro-rata among those that deferred and are eligible to receive match, or 2) allocation to the participant having the lowest elective deferrals until one of the tests is satisfied or until such non-highly comp. participant has received the maximum "annual addition". This process continues until one of the tests is satisfied.

I think your formula falls under the first option. How would you go about figuring it out for the second one?

By the way, I did run a calculation using your formula. I came up with more QMAC than the original QNEC calc Relius did.

[Tom Poje]

you have said a mouthful, so lets get some things straight, and a bit of history as well.

Back when I worked at Corbel they hopped into the office one day and said could I look at the QNEC. they wanted to add it to the system but were having problems.

I actually figured the logic out over dinner, and the original reports on the pentabs system were labeled QNEC ADP and QNEC ACP. Actually, it was more complicated back then because you had the multiple use test to worry about.

when the system converted from Pentabs to Quantech (now Relius) someone 'decided' that a QNEC ACP, since used in the ACP test, was the same thing as a QMAC.

As I said I gave up years ago getting them to change the name to accurately describe what it is. The system simply doesn't calculate a QMAC at this time.

Now, for example HCE = 6% and NHCE = 3% and there are 6 NHCEs.

to pass the NHCEs must = 4% in total. that is 1% per NHCE. But lets say only 4 of 6 are eligible. Then that 1% must be increased by a factor of 6/4 or 1.5% to those eligible. the system then multiplies that figure by the comp of those 4 ees and says here is how much you need.

All I have done for the QMAC is simply take the $ amount of QNEC and reconvert it back to a % and then readjust it to a new % of those who are deferring only (and also eligible for a match)

lets say one of these people had a real low compensation. In that case the QMAC could come out less than the QNEC. If you are talking about people with a higher average of comp then it would increase the contribution.

The second condition you noted is usually referred to as a bottom up QMAC. this is usally the least expensive, and will be eliminated as soon as the proposed regs are out in force.

lets go back to the original example.

I needed an average of 4% for 6 NHCE or a total of 24%.

I already have a total of 18% (6 nhce* 3%)

that means I need 6% more to pass. I could increase 1 person by 6% and pass.

or if it is just those deferring and eligible for the match (lets pretend it is 3 people) then I would have to raise each of the 3 by 2% (3 * 2% = 6)

hope that helps.