QNEC and integrated plan

[Guest padmin]

Can a QNEC be used to satisfy the base contribution percentage for an integrated plan? ie) Integration is 5% for total wages plus 5% over wage base. QNEC required is 3%. If the profit shring contribution is 100% vested can I deem the first 3% of the 5% base allocation a QNEC?

Thanks

[Tom Poje]

most likely not. reg 1.401(k)-1(b)(5)(v) basically says

QNECs used in the ADP / ACP test treated as elective contributions.

since you can't 'integrate' a deferral, similar rules would apply. This is no different than SHNECs. You can't integrate (nor impute disparity in nondiscrim testing)

I suppose (and I'll go out on a limb on this one) if these contributions weren't used in the ADP test you might be able to use them. but why would you have a required QNEC and not be used in the ADP test???? In addition, I think it would require a strangely worded document.

I have never seen such an animal, and you must of course follow the terms of the document, not "I would like to do it this way'

The only documents I have ever seen have separate formulas for QNECs and other nonelective contributions.

[austin3515]

Tom -

I think I may correct you, if I dare, only because I researched this extensively recently.

You CAN integrate a QNEC with SS, simply because there is nothing to say you can't (unlike a SHNEC, which is right in 401(k)(12)).

BUT why would you ever want to, because you must pass 401(a)(4) with and WITHOUT QNECS, so if you offset your integrated contribution with the QNEC, you no longer have a safe harbor, oh and by the way because only NHC's get the QNEC, you won't pass the rate group test (absent cross-testing).

My research included a question to TAG Data, who are usually pretty thorough...

[Tom Poje]

far be it for me to disagree with people who know a lot more than me.

the proposed regs say that QNECs will no longer be treated as 'elective contributuions' so that would seem to give even more evidence that you can integrate them (at least in on sense of the word)

in regards to the question posed, it was indicated the contribution was 100% vested. that in itself does not necessarily make it a QNEC. it would also have to carry the distribution restrictions applied to deferrals.

so the question went further and asked if 3% of the nonelective could be treated as a QNEC. That I don't think is possible, at least under the terms of any document I have ever seen. QNECs are listed as one type of contribution and nonelectives are listed as another.

e.g. the document usually reads something like

contributions may consist of

1. deferrals

2. match

3. QNECs

4. nonelective contribnutions.

Thus, for example, if my nonelective formula is integrated I must follow those terms indicating how to allocate the contribution. I dont think I can suddenly declare 3% of those contributions to be QNECs.

is it possible to write the document

1. deferrals

2. match

3. nonelectives with the option to treat some of those as QNECs?

I guess anything is possible, though I wonder aif at that point you take it out of being definitely determinable.

and then of course, as you indicated, if that was how the allocation was performed you have the possible problem of discrimination testing.