Has anyone combined a 401(k) plan and a nonqualified "wrap-around

[Guest]

Does anyone have experience drafting nonqualified "wrap-around" arrangements combined with a 401(k) plan? As I understand it, prior to the beginning of a plan year, a HCE participant enters into a salary reduction agreement with respect to the nonqualified plan. He or she also elects to have the maximum permissible elective deferral under the 401(k)plan, after testing is done, transferred from the nonqualified plan to the 401(k) plan.

[Guest Pete Swisher]

Seems unnecessarily complicated. Nonqual deferred comp is usually a separate plan, even if "excess benefit" as in your example, and need not relate to the qualified plan at all. Also, funds in the nonqual plan might be taxable, which means taxation of dividends, interest, and capital gains might decrease the benefit if you waited til testing is done to transfer funds to the qualified plan. I usually find out how much the HCE wants to save then figure out how to make it happen--different every time.

[Kirk Maldonado]

I disagree with Pete Swisher. I have had no trouble explaining them to clients or to executives.

I have drafted them, and there is are some private letter rulings approving them. They are also easy to administer.

[Guest Matt Tuttle]

The way I have seen them is to make them transparent to HCE's. They defer as much as they want to and any overflow after testing is shifted to the wrap around plan.

Matt Tuttle

203-609-9077

http://www.wealthadvisors.bigstep.com

[Guest rmeigs]

The following item may be of help:

NONQUALIFIED WRAP ARRANGEMENT CAN MAXIMIZE 401(k) DEFERRALS

http://www.phks.com/newslett/emp_bene_v3i2...ene_v3i2.html#2