Def of HCE and elections

[Guest Pension Girl]

I have a document vendor who is stating that unless the 403b plan has a matching contribution, the plan document does not have to have HCE elections in it such as the ability to elect top paid group or to use the calendar year in computing the HCE threshold if the plan has an off calendar plan year. In a 403b plan there is no ADP test and so if no match then there is no ACP test.

I have a plan with HCEs and the plan has comp exclusions and employee class exclusions both of which require nondiscrimination testing. The HCE elections do not appear because the plan does not have a match - thus I cannot elect top paid group or calendar year in the plan document. So how does the plan sponsor make the election - is it operational because the plan does not have to specify the elections since there is no ADP or ACP testing? We have to do testing because of the above comp exclusions. The 401k document has the elections because there is always ADP testing to deal with, but he elections go away if the plan is safe harbor.

Any thoughts?

[Mike Preston]

I believe the IRS takes the position that the elections are employer-wide. Hence, if one plan has the elections and the other doesn't, following the elections made in that one plan is the way I would go, employer-wide.

[Guest Pension Girl]

I want to know if the plan document has to contain these elections - the top paid group election, and/or using the calendar year instead of the prior 12 month period in the case of an off calendar year plan - if the plan is not subject to ACP or ADP testing, do these elections have to be in the plan in order to define HCE for coverage, comp ratio testing, BRF?

[Tom Poje]

as I recall, if a plan does not contain HCE language, then it could operate either as top paid group or not.

strange concept, might even be an ASPPA Q and A from a few years ago on this one, but its at my 4:15 limit on a Friday and it has stopped raining and the sun has appeared and I'd much rather leave than do further research at the moment. sorry.

[Guest Pension Girl]

Thanks Tom. If you happen to find the Q&A or anything else regarding whether the HCE elections need to be in the plan document for general nondiscrimination testing, other than ACP or ADP, let me know!

[Tom Poje]

This will cost you a smile. I used to only charge a nod for looking things up like this.

from IRS Notice 97-45

VII. QUALIFIED RETIREMENT PLAN AMENDMENTS FOR HCE DEFINITION

(1) Qualified plans that must be amended. If a retirement plan qualified under section 401(a) or 403(a) contains the definition of HCE under section 414(q), as in effect before SBJPA, the plan must be amended to reflect the definition of HCE under section 414(q), as amended by SBJPA. If an employer makes either a top-paid group or calendar year data election for a determination year, a plan that contains the definition of HCE must reflect the election. If the employer changes either a top-paid group or calendar year data election, the plan must be amended to reflect the change. However, a plan is not required to add a definition of HCE merely to reflect a top-paid group or calendar year data election.

[Guest Pension Girl]

I am trying to insert a smiley!!!

You are the best. Thanks Tom

[cpc0506]

I have a document vendor who is stating that unless the 403b plan has a matching contribution, the plan document does not have to have HCE elections in it such as the ability to elect top paid group or to use the calendar year in computing the HCE threshold if the plan has an off calendar plan year. In a 403b plan there is no ADP test and so if no match then there is no ACP test.

I have a plan with HCEs and the plan has comp exclusions and employee class exclusions both of which require nondiscrimination testing. The HCE elections do not appear because the plan does not have a match - thus I cannot elect top paid group or calendar year in the plan document. So how does the plan sponsor make the election - is it operational because the plan does not have to specify the elections since there is no ADP or ACP testing? We have to do testing because of the above comp exclusions. The 401k document has the elections because there is always ADP testing to deal with, but he elections go away if the plan is safe harbor.

Any thoughts?

A 403b that excludes employees? I thought 403b had to have 'universal availability' except for the allowable exclusions, such as students working, or those who would contribute less than $200 in a year?

[Guest Pension Girl]

The exclusion is for the employer nonelective contributions

[cpc0506]

The exclusion is for the employer nonelective contributions

Sorry, I misread.