Questions regarding restated document provisions

[Lori H]

a small safe harbor 401k just received its new restated doc. plan has basic matching safe harbor formula with a discretionary pro rata profit sharing option. The odd thing about the adoption agreement is that in it they also have the New Comparability Gateway option checked stating the plan will satisfy the minimim allocation method identified as follows: reallocate preliminary contributions or hypothetical contributions paid to HCE's to NHCEs so that the allocation to each NHCE equals the lesser of the amount described in 2 of the other options.

Well this is not a New Comparability plan, so is there any reason that would be checked?

Additionally, this is a participant directed plan, yet it is NOT intended to comply with ERISA 404©. What problems could occur by not complying with 404©?

This is a paychex volume submitter plan with a corporate trustee

[rcline46]

Lori, I don't remember what function you perform (broker, TPA, atty, cpa, etc), but PayChex makes a LOT of mistakes on any of their documents that I have seen. At the very least you need to get the document right before the client signs it. PayChex may be using a document provider and not their own document and preparing it through software, but that is irrelevant. It needs to be correct.

404© has been discussed at length, and whether ANY plan really complies. Assuming compliance with 404©, the client is insulated from bad participant choices among the offered options, but not insulated from offering bad options from the start.

Because PayChex is handling the plan (usually) a QDIA or a 'good' default investment is highly recommended.

[Lori H]

well, it would seem that the plan SHOULD be 404© compliant as it would offer an extra layer of protection to the plan fiduciary.

Why the New Comparability Gateway would be checked is a mystery to me when the plan is a basic Safe Harbor with a profit sharing option.

I've never seen a Paychex document before, but they didn't mail the document to the sponsor until 12/14/08 and the restatement date is effective 1/1/08. Not a lot of time to review it before the end of the year and to execute it or correct any problems that may be in the restatement

[Jim Chad]

Hi Lori H:

I'm trying to understand what you mean when you say that it is not a new comparability Plan. Here are several possibilities.

1. The doc say that any non elective contribution will be allocated pro rata AND it has NO allocation requirements. So cross testing will never be needed.

2. they will never put in a non elective contribution.

3. They plan to never put in a non elective contribution. But you never can tell and the document provider wants to give them the option to cross test either because of a new comparability allocation formula or because of last day and 1,00 hour rules.

Lori, I think I have done a really lousy job here. If I can find a better way to say what I am thinking, I will try again later. In the mean time maybe this will help some.

[BG5150]

I think it was merely a mistake. If everyone is getting a pro-rata allocation, you don't need to cross test. Whomever entered the information into the software, probably did so right after doing a new-comp plan and just didn't uncheckl the box, or, for some reason, it's a default opion that should have been de-selected.

[Lori H]

I think it was merely a mistake. If everyone is getting a pro-rata allocation, you don't need to cross test. Whomever entered the information into the software, probably did so right after doing a new-comp plan and just didn't uncheckl the box, or, for some reason, it's a default opion that should have been de-selected.

i think this is the case BG5150. if the plan specifically defines the profit sharing allocation as pro rata then there is no need for New Compability Gateway language in the A.A. It would seem though that the software would automatcially blank out those options once a profit sharing allocation has been chosen. I'm having the sponsor go back and ask Paychex why it was incorporated.