Term
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Definition
| the net gains or losses for the plan year that are attributed to the excess contributions or excess aggregate contributions |
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Term
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Definition
| "The earnings on the excess contributions are equal to the earnings for the plan year attributable to elective deferrals, multiplied by the following fraction:" |
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Term
| Excess aggregate contribution |
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Definition
| Matching contributions or after-tax employer contributions made on behalf of HCEs that cause the plan to fail the ACP test |
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Term
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Definition
| Elective deferrals made on behalf of one or more HCEs that cause the plan to fail ADP testing |
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Term
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Definition
| Begins on the first day of the plan year after the plan year being tested and ends on the date of the date of distribution of the excess contributions or excess aggregate contributions |
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Term
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Definition
| A two-step process to determine the amount to be distributed to each HCE who is an eligible employee for the plan year in which the ADP failure occurred |
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Term
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Definition
| The participant who is in the middle of the group |
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Term
| Qualified matching contribution (QMAC) |
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Definition
| Matching contributions that satisfy vesting & requirements. Must be 100% vested. Not eligible for hardship withdrawals |
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Term
| Qualified nonelective contribution (QNEC) |
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Definition
| "Contributions made by the employer that satisfy vesting, distribution & nondiscrimination requirements. Must be 100% vested. Note eligible for hardship withdrawals" |
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Term
| Representative contribution rate |
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Definition
| "The greater of: 1. The lowest NHCE contribution rate, taking into account a sampling of eligible NHCEs that equals at least half of the total eligible NHCEs or 2. The lowest NHCE contribution rate of any eligible NHCE who is employed by the employer as of the last day of the plan year" |
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Term
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Definition
| "The earnings for the gap period are deemed to be equal to 10 percent of the earnings for the plan year attributable to the excess contributions or excess aggregate contributions, as determined under any acceptable method described above, multiplied by the number of months in the gap period" |
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Term
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Definition
| "Disproportionate QNEC's, as defined by the regulation, are disregarded for testing purposes" |
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Term
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Definition
| The 1.25 test is satisfied if the ADP of the HCE group does not exceed 1.25 times the ADP of the NHCE group. For example, if the ADP of the NHCE group is 4 percent, the ADP of the ADP of the HCE group would be limited to 1.25 x 4% or 5%. |
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Term
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Definition
| The actual deferral percentage (ADP) test is the exclusive means of showing that the 401(k) arrangement satisfies the nondiscriminatino requirements of IRC 401(a)(4) |
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Term
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Definition
| Actual contribution ratio |
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Term
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Definition
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Term
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Definition
| Normally a particiapnt is benefiting under a defined contribution plan only if he or she received an allocation of employer contributions or forfeitures. In a 401(k) plan, the participant is benefiting if he or she is an eligible employee under the 401(k) plan. |
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Term
| Current year testing method |
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Definition
| The alternative testing method to the prior year testing method is the current year testing method. Under the current year testing method, the ADP limit and ACP limit for the HCEs is determined with reference to NHCE data forthe same plan year. |
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Term
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Definition
| When a plan has more than one set of eligibility requirements that apply to employees covered by the plan, the plan has dual eligibility provisions. To determine excludable employees under that type of plan, the exclusion for employess who fail the satisfy the plan's age/service requirments applies to the lowest age/service requirments applicable to ANY employee benefiting under the plan for the plan year. |
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Term
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Definition
| A plan may include compensation earned for a year that is paid within the first few weeks of the next year (the first few weeks rule), so long as all similarly situated employees are treated uniformaly and compensation is not counted in more than one year. |
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Term
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Definition
| The five-year rule is the general rule that an amendment to change from the current year testing method to the prior year testing method is permitted only if the plan used the current year testing method for each of the five preceding plan years (i.e., the five plan years preceding the plan year in which the change to the prior year testing method takes effect). |
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Term
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Definition
| The IRS refers to employees who are eligible to make pre-participation rollovers as limited participants because their participation rights in the plan are limited to the right to make rollovers until they satisfy the plan's eligibility conditions. The IRS makes it clear that a limited participant is not considered an eligible employee under a 401(k) plan merely because he or she is eligible to make a rollover contribution. Until the employee actually satisfies the eligibility requirements to participate in the 401(k) arrangement, he or she is not considered an eligible employee for ADP purposes. |
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Term
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Definition
| The employer is required to disaggregate the 401(k) arrrangement and the 401(m) arrangment to test coverage. This is often refferred to as mandatory disaggregation and means that each disaggregated portion of the plan is treated as if it were a sperate plan for purposes of testing coverage. |
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Term
| Otherwise excluded employees |
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Definition
| When determining the coverage testing group, the employees who have not satisfied the plan's age and service requirements are excluded. If the plan's age and service requirements are more LIBERAL than the STATITORY requirements of age 21 or one year of service, the plan is covering employees it otherwise could exclude from the coverage testing group. For example, a plan with a six-month eligibility condition is covering employees that would have been excluded under a one year of service condition. These employess are known as otherwise ecsludeable employees. |
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Term
| Prior year testing method |
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Definition
| The default testing method under the statute is the prior year testing method. Under the prior year testing method, the ADP limit and the ACP limit for the HCEs is determined with reference the NHCE data from the prior plan year. The regulation referr to the plan year from which NHCE data is taken as the application year. |
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Term
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Definition
| Under a special testing rule, the employer may disaggregate the portion of the plan covering the otherwise excludable employees from the rest of the employees (the statutory employees) |
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Term
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Definition
| The test is satisfied if the ADP of the HCE group is BOTH (a) not more than two percentage points greater than the ADP of the NHCE group, and (b) not more than twice the ADP of the NHCE group. In other words, to arrive at the limite for the HCE group, add 2 percent to the NHCE group's perentage or double that pcercentage, which ever produces the smaller result. |
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