Testing order

[wsp]

Is there a specific order that testing must be run on and catchup contributions allocated? Specifically I have a plan that will fail ADP. Owner's deferrals exceed other HCE's by about 4,500 so if I run ADP first then refunds get attributed to owner and reclassified. However, if I run 415 first then refunds get reclassified there and not included in ADP, thus plan failure gets attributed to other HCE's. So, which way do I go????

Doesn't impact owner at all, his max is his max...but since the other HCE's are children of owner it does have a dramatic impact on overall family contribution level. Children are young so are receiving 0% in profit sharing contributions so they depend on being able to maximize their deferrals.

Guidance would be much appreciated.

[Tom Poje]

If I understand the regs correctly and have somehow managed to identify the cites correctly I have:

1.414(v)-1(d)(2) ADP numbers are calculated not including those items described in (b)(1)(i) or (ii)

1.414(v)-1(b)(i) statutory limit such as Excess deferrals or 415 limit

1.414(v)-1(b)(ii) other employer imposed limits

1.414(v)-1(b)(iii) is the ADP limit which, as noted above was not mentioned in 1(d)(2)

the examples (in particular begining with #4) dont refer to 415 limit, but only have excess deferrals. excess deferrals are netted out as catch up. then adp test is run. additional deferrals are netted out as catch up for failing adp test.

[wsp]

If I understand the regs correctly and have somehow managed to identify the cites correctly I have:

1.414(v)-1(d)(2) ADP numbers are calculated not including those items described in (b)(1)(i) or (ii)

1.414(v)-1(b)(i) statutory limit such as Excess deferrals or 415 limit

1.414(v)-1(b)(ii) other employer imposed limits

1.414(v)-1(b)(iii) is the ADP limit which, as noted above was not mentioned in 1(d)(2)

the examples (in particular begining with #4) dont refer to 415 limit, but only have excess deferrals. excess deferrals are netted out as catch up. then adp test is run. additional deferrals are netted out as catch up for failing adp test.

Thanks Tom!

Nothing like having to go online to access the regs because the accounting firm that you work for didn't think it was important to keep that section up to date....

So, bottom line is that if you're running a new comp plan and intend to maximize the HCE then you'd better not be failing ADP.

Will you be covering this sort of thing at WP&BC? or are you focusing on SH plans?

[Tom Poje]

I'd go out on a limb and say neither, sort of, if that makes any sense.

one only has so much (or so little) time)

topic for the Fall conference is safe harbor (basically repeat of last year's talk, though some minor modifications)

The topic for the Western Conference is going to be more on Cross testing

things like the gateway, including db/dc combo and how to calculate if you have satisfied the gateway

then how to calculate an e-bar, which will lead into a discussion (or at least hopefully an observation of taking a quick look at census data data to see if you have a real good candidate or at least potential for a cross tested plan) and finally some comments on why interest rates are chosen, mortality table to use, etc.

it is not a session presenting 'bizarre examples' and saying 'you can do this, or this'. those examples usually fall apart if one of the NHCEs quit.

well, I am always open to sitting down over dinner and hashing out ideas as well.

catch-ups would probably make a real good talk, but I would be clueless if it was non calendar. those frighten me.

[wsp]

catch-ups would probably make a real good talk, but I would be clueless if it was non calendar. those frighten me.

Me as well, fortunately this specific case doesn't involve 402(g) catchups as the NHCE defers so little that ADP precludes him from coming close to that. That's not something I want to touch. And my CPA boss can't understand why every new plan I start has a 12/31 pye....

I'd be careful about throwing out the dinner thing. You just might have 30 people, myself included, wanting to pick your brain. Though I suppose if they're buying...

Thanks for the help.

[Tom Poje]

well then, hope to at least see you there.

not into gambling, so dinner (even if it is simply swapping horror pension stories) sound a lot more interesting.