ASPA update on cross-tested plans

[Guest]

please go to the website:

www.aspa.org/govpages/ASPAgovt.htm

ASPA has a survey to compile data they would like to be filled out regarding cross tested plans.

based on their latest conversations with the Treasury, any new regulations would not be effective until the first plan year beginning after 12/31/2001 for plans already in place. for more info, visit their web site.

[AndyH]

Thanks for the info. Very helpful. One thing stands out, though, "plans already in place". Lots of people are still selling these, presenting them as possibly one year deals only. Is there any scoop on the IRS' ultimate position on new plans?

[mwyatt]

I suppose you all saw ASPA's release yesterday on the effective date of any new "New Comparability" restrictions (plan year beginning in 2002). This grace period only applies to the following situations:

1) Existing new comparability plans adopted prior to 2/24/2000;

2) New plan where sponsor has no plan in effect;

3) New plan or amendment to existing plan where ONLY benefit was from employee deferrals (no discretionary PS cbn).

Any other conversion from any other plan would not be afforded extended relief, i.e., if you had an existing PS plan you convert to a New Comparability plan at your peril.

Does it make sense to put these plans in place for 2000 and 2001? It depends, but you better fall into one of the above situations or any potential new restrictions apply from the get-go. I would tend to think not.

As for the survey, if they want to show the data from our selection of "New Comparability" plans, I think that would be the end of any lobbying efforts (as I'm sure many other practitioners must realize). Given the hoopla going on in Congress and the popular press about cash balance plans, I think defending plans where the players get the IRC 415 maximum and the rank and file get 3% might be a tough sell.

[This message has been edited by mwyatt (edited 03-22-2000).]

[Lorraine Dorsa]

In reply to MWyatt, I'm in the middle of compiling the data for ASPA's survey and the results so far support my recollection that a significant number of our cross-tested plans are NOT $30,000 to big shots, 3% to everyone else.

We have of plans in which the employer wanted the design to provide the entire staff with a contribution of 5%/6%/7% or so.

Other plans we have provide different levels of contributions to various groups of HCEs/NHCEs.

Still other plans are 401(k)'s with cross-tested profit sharing contributions which provide profit sharing contributions of $15-20,000 to HCEs and 3-5% to the staff.

Finally, in a number of case, we find that to pass the non-disc tests we need contributions to the staff in the range of 5%, not 3%.

I don't know if our practice is different--using cross-testing to meet employer desires re providing different levels of contributions to different groups of employees, rather than just using them to maximize owner/minimize staff--but I can't imagine everyone else has missed these opportunities and limited cross-testing to only those situations which fit the $30,000/3% model.

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[richard]

It's been quiet lately on the new comparability front.

My understanding is that if a company has no qualified plan, they can put a new comparabily plan in for 2000 and 2001 (and use the current testing rules). However, if they already have a qualified plan in place, the IRS's position is that they cannot convert it to a new comparability plan (or more accurately, they would be subject to the IRS's new interpretation of the rules).

If a company currently only has a SEP in place, can they put in a new comparability plan for 2000 and 2001 (and use the current testing rules)?