Administrative Aspects

[Gary]

Here's the Story (of a man named Brady ....):

I'm looking for observations on a practical level, not extremely technical.

A client has a 401(k) plan with match that is administered by another firm. Presumably they have certified that the plan meets the ADP and ACP tests.

My firm then implemented a cross tested plan that includes a profit sharing plan component and a defined benefit plan component.

We are to now value the plan for its second plan year.

The client provides data that he thinks is sufficient, but really isn't ideal, unless they just can't get complete data.

For example regarding the 401(k) plan we have account balances as of end of last year but not this year and we have the amount of deferrals and matches for the current year. So in order to compute the average benefit percentage, I don't have year end account balances but can impute some estimate.

For the profit sharing plan (which our firm handles) the client did not provide year end balances, but of course we know the allocations for the first year of the plan. So again we can simply estimate year end balances for non discrimination and average benefit testing.

I don't know for sure but I beleive they do not have sub accounts for the PS plan and just one account with a total value.

As practioners, I am looking for a consensus. Are most of you getting year end account balance data or imputing year end data?

While year-end balances are not imperative yet, after a couple more years the estimates will be all but worthless.

Regarding plan distributions. 2 employees terminated and are due benefits from the profit sharing plan. Let's assume all assets are combined in one account. The plan provides that the valuation date be the last day of plan year or any other date the administrator deems appropriate. These are to be the first plan distributions from the plan. The plan year end is 3/31/09. Logistically any suggestions?

That is, would you just recommend to take the value as of 3/31/09? And if not what day might you use (recommend to client), as the values change daily?

Thanks.

[J Simmons]

Here's the Story (of a man named Brady ....):

I'm looking for observations on a practical level, not extremely technical.

A client has a 401(k) plan with match that is administered by another firm. Presumably they have certified that the plan meets the ADP and ACP tests.

My firm then implemented a cross tested plan that includes a profit sharing plan component and a defined benefit plan component.

* * * * *

Regarding plan distributions. 2 employees terminated and are due benefits from the profit sharing plan. Let's assume all assets are combined in one account. The plan provides that the valuation date be the last day of plan year or any other date the administrator deems appropriate. These are to be the first plan distributions from the plan. The plan year end is 3/31/09. Logistically any suggestions?

That is, would you just recommend to take the value as of 3/31/09? And if not what day might you use (recommend to client), as the values change daily?

Thanks.

I think you should establish and stick to a frequency for valuations for distributions. Do not do it on an ad hoc basis. Too much potential for a pattern favoring the HCEs to develop.

That being said, I would also suggest the more frequent over the less frequent, and suggest that you adopt the most frequent schedule that is practical under all the circumstances.

[Tom Poje]

I would guess that most testing is done on a year to date basis. (Annual testing as oppossed to accrued to date) in other words, only contributions (and forfs) are tested. so ending balances never come into play for testing purposes.

[Gary]

We do accrued to date testing thus the reason for (the perceived) needing account balances.

We do accrued to date since the testing is combined with a DB plan (that provided for 5 years of past service at inception) and it produces better results.

So curious to hear responses in light of the above.

Thanks.

[SheilaD]

We do accrued to date testing thus the reason for (the perceived) needing account balances.

We do accrued to date since the testing is combined with a DB plan (that provided for 5 years of past service at inception) and it produces better results.

So curious to hear responses in light of the above.

Thanks.

I think that if you are using accrued to date you need "real" account balances. Don't you need the accurate year end balances anyway for forms and top heavy analysis?

S.