Alex Daisy Posted January 21, 2009 Posted January 21, 2009 I have a Plan with a last day rule for the Employer Match. The match formula is 25% of deferrals up to 6% of compensation. I need to allocate the 2008 match now. When I allocate the match, the plan fails the ACP test. A lot of NHCE’s were terminated in 2008 and not eligible for the match. How should I handle the ACP test? Should I allocate the match for 2008 according to the formula even thought the ACP test fails? And then processes the ACP refunds? Should I only give the HCE’s the match that would pass the ACP test? Any other suggestions?
Kevin C Posted January 21, 2009 Posted January 21, 2009 You need to allocate the match according to the plan document. If the plan fails ACP, then they can either do refunds or a QNEC/QMAC. Is the plan passing ADP? If yes, by how much? If your document allows it, have you tried testing with other definitions of compensation? Sometimes testing using 415 compensation, but excluding deferrals can help.
Jim Chad Posted January 21, 2009 Posted January 21, 2009 Kevin C is correct, Also, I believe that the employees not getting a match because of last day should be excluded from the ACP test. Also, Have you tested the match for coverage? If it fails coverage, you may be required to give a match to some of them.
Tom Poje Posted January 22, 2009 Posted January 22, 2009 as Jim indicated, ees who terminated and did not receive a match because of the last day provision would NOT be included in the ACP test (unless your plan also allowed after tax contributions) that would eliminate a lot of zeroes from the test. on the other hand, such people would be includable and not benefiting for coverage purposes if they worked over 500 hours.
Alex Daisy Posted January 22, 2009 Author Posted January 22, 2009 I omitted the terminated participants from the ACP test, and it now PASSES!!! My problem is now the coverage test fails, becuase I have to include all the terminated employees with over 500 hours as not benefiting. Any suggestions to this problem?
BG5150 Posted January 22, 2009 Posted January 22, 2009 Does the document address how to correct 401(b) failures? [just out of curiousity, was the number of terminations unusual due to the economy, or is the turnover rate similar to other years? If it's similar, how did past years fare with the coverage test?] QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Alex Daisy Posted January 23, 2009 Author Posted January 23, 2009 Does the document address how to correct 401(b) failures?[just out of curiousity, was the number of terminations unusual due to the economy, or is the turnover rate similar to other years? If it's similar, how did past years fare with the coverage test?] The document does not how to address a coverage failure. The high number of terminations were due to the ecomony and the fact that the company moved from NY to SC. This is a takeover case, and I am not sure if the coverage test passed or failed in previous years.
PLAN MAN Posted January 23, 2009 Posted January 23, 2009 The high number of terminations were due to the ecomony and the fact that the company moved from NY to SC.This is a takeover case, and I am not sure if the coverage test passed or failed in previous years. Don't forget to evaluate the terminations to consider if a partial plan termination occurred with respect to the terminated employees.
Alex Daisy Posted January 27, 2009 Author Posted January 27, 2009 The high number of terminations were due to the ecomony and the fact that the company moved from NY to SC.This is a takeover case, and I am not sure if the coverage test passed or failed in previous years. Don't forget to evaluate the terminations to consider if a partial plan termination occurred with respect to the terminated employees. 68% of the workforce terminated in 2008. I would think this counts as a Partial Plan Termination. Does this mean that all of the terminated participants automaticially become 100 % vested? Is there any wiggle room here to not 100 % vest them?
Jim Chad Posted January 27, 2009 Posted January 27, 2009 Another question about coverage for match: Did you count as benefiting all those employed on last day who did not defer and did not get a match? This sounds odd, But I am pretty sure that people who did not receive a match for the SOLE reason that they did not defer are counted as benefiting for coverage. As far as the wiggle room for 100% vesting on Partial termination.....I don't think so.
PLAN MAN Posted January 27, 2009 Posted January 27, 2009 See IRS 401(k) Resource Guide - Plan Participants - Plan Termination
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