QNEC's

[Guest AJM 34]

In order to Pass the ADP Test, can you target 5% QNECs to terminated non-highly compensated employee who had very low gross earnings?

[Tom Poje]

in response to your question these are your choices:

1. follow the terms of the document.

2. see number 1 above.

3. read no further. go to number 1.

now, if your question is to whether or not you can write a document as such, I would suspect it is probably possible to do so in an individually designed document

[Belgarath]

But this gets tricky. Tom is the expert on this, so he may be able to elaborate, but I believe this gets into the "bottom up" or "targeted" QNEC's that were so significantly restricted in the final regs. The rules are a bit complicated, but you might want to take a look at 1.401(k)-2(a)(6).

We took the coward's way out, and we don't do these types of QNEC's. For our plans, it just wasn't worth the hassle.

[John Feldt ERPA CPC QPA]

Check the plan's Final 401(k)/401(m) amendment to see what it requires you to do.

[Tom Poje]

ha. I needed the good chuckle. hearing my name and 'expert' used in the same sentence.

QNECs up to 5% to specific individuals can be used (as long as the document provides the definitiely determinable formula so you can actually do that).

all the rest of the tricky stuff under targeted QNECs merely provides the 'chance' to possibly use a QNEC greater than 5% in testing.

as I noted, the document is going to be the fun part. for example, suppose you write language to provide a 5% QNEC starting with the lowest paid NHCE (terminated or otherwise)

Bob, was fired for stealing and drinking on the job. ooooops. He also made a pass at the boss's daughter.

he was the lowest paid employee.

hmmmmmmmmmmm. he now gets a 5% QNEC. that will go over real well.

[Guest SueM382]

What if the document does not specify how to allocate QNEC?

[Tom Poje]

if I understand your question correctly and the document does not specify who or how to allocate a QNEC then the formula would fail 'definitely determinable' requirement.

that sounds like a more serious problem.