ADP Refunds / Total vs PD

[fiona1]

1/1/06 to 12/31/06 ADP test failed. The recordkeeper only provided the Total group test to the plan sponsor - so just over $16K in Total group refunds were issued in March of 2007.

The plan sponsor later questioned why a Permissive Disaggregated test was not prepared. It was evidently an oversight. The Permissive Disaggregated test produced more favorable results - and refunds from the PD test are under $2,000.

Does anyone if it is allowable for the plan sponsor to have the HCE's return the difference between the Total group refunds and PD refunds back to the plan?

I don't think this can be considered an operational failure - in which too much money was distributed.

Any thoughts?

[Guest fender5150]

One thought.

Huh? I'm not familiar with this test. Is the Permissive Disaggregated Test (PDT) the alternative test that was enacted in 2004? I'm just guessing at this point. Where is Austin Powers? I'll bet he knows about this.

2ndly: The prototypes I've seen spell out the type of tests that are to be performed for non-discrimination testing. If it's not in the prototype, you can't do it, right? IE: I can't cross-test unless my plan says I can cross-test.

A plan that adopts the PDT might be a more expensive plan to manage. IE: It could be worth it to the customer, but it would (should) cost more.

[austin3515]

How can I resist...

Permissive Disaggregation refers to testing "otherwise excludables" separately (i.e., people who've worked less than a year, and who are under 21--also know as people who rarely contribute).

Since the employer can elect which method of testing to use, and because the method used was acceptable, I just can't see this being an operational defect. So I think the HCE's are basically stuck.

This is a classic example of the importance of a TPA. The "Data PRocessor" type recordkeepers expect the plan administrator to request testing on otherwise excludables! Like John Doe business owner has any idea what that means...

[stephen]

"Yeah Baby!"

Behave Audio Clip - from Austin Powers

[Kimberly S]

This is a classic example of the importance of a TPA. The "Data PRocessor" type recordkeepers expect the plan administrator to request testing on otherwise excludables! Like John Doe business owner has any idea what that means...

Also a classic example of you get what you pay for. John Doe doesn't have any idea what it means, but probably isn't willing to pay for someone who does.

[austin3515]

I think it's got more to do with providers over-selling their services, and Johnny not knowing the right questions to ask. For example, the salesman says "oh yeah, we'll run ALL nondiscrimination testing for you!" So John Doe assumes this means that actual thought will go into the process, and this of course is where he has made his mistake...

[austin3515]

I should point out that I have been generalizing my comments, and big does not necessarily mean bad. Some of the big providers are actually excellent at this. What's more, the plans with huge asset bases generally are provided very expert advice/resources. It's the middle market plans (0 - $5,000,000ish) that should be very cautious.

[John Feldt ERPA CPC QPA]

"Does anyone if it is allowable for the plan sponsor to have the HCE's return the difference between the Total group refunds and PD refunds back to the plan?"

Not allowable.

fiona1: Austin is absolutely right on the mark in the above comments.

Be sure to note: the recordkeeper's days are numbered (or should be).

Kudos to the plan sponsor for noticing this, negative kudos for their choice in recordkeeper.

I think Ed Burrows said something like: keep testing until the test passes or until the sponsor runs out of money to pay for more tests.

[Guest fender5150]

Thank you Austin!

Once again if you don't mind. I want to make sure I understand your answer - That I'm not reading anything into it.

"Permissive Disaggregation refers to testing "otherwise excludables" separately (i.e., people who've worked less than a year, and who are under 21--also know as people who rarely contribute)."

So: If you have a plan that includes people who are generally allowed to be excluded - People who have worked less than a year and people who are under 21 - You can elect to test them seperately.

Wouldn't (a PD testing election) have to be made in the plan document? If so; I wonder if the election was made, but the TPA just failed to do it?

It would take a very unique set of circumstances for me to allow someone under 21 in a 401k plan. Just a retorical comment.

Austin's right about the general competency level of many TPAs. I jumped into this business because of my dissapointment with many TPAs who specialize in the small business market. Also; my music career isn't going so well. : )

I'm encouraged by this group. Many of you seem very knowledgable.

Thanks,

Fender5150, CPA, CVA

[401_4_ever]

I agree more with Kim than Austin. The problem I've experienced is the Plan wants TPA service at Recordkeeper fees.

[austin3515]

There is some debate, but it is commonly accepted that you can test on either basis (OE's or not) regardless of what the document says. Similarly you can aggregate two plans (in the same controlled group) or regardless of what the document says.

This conclusion is based on the fact that ADP testing must be run using the same method as coverage testing, and plan documents do NOT need to describe how they will pass coverage.

[fiona1]

Thanks for everyone's comments. I appreciate it.

[Guest dbvail]

This was a great thread. It speaks volumes about the true value of a TPA in the small-mid plan market. Austin referred to the under $5M plan.

I think this market could be better defined by number of employees/participants than assets. Plans with 5-50 lives are far more test sensitive than plans with 500 plus lives, regardless of assets. That is where a good TPA can add a lot of value.

Trying to get the brokers and clients to appreciate that is a challege, but that is for another thread and day.

As far as the age 21 and 1 year issue, I agree there are few plans that go below age 21. The PD benefit is best felt in plans with quick eligibility (eg 3 mos), and yet we can test them in a separate group.

Good luck in a great business.