1. Retirement Services University Advanced Plan Design Peter Sullivan, VP Eastern Region - Sales The Ritz-Carlton, San Francisco, California May 14-16, 2003

2. Retirement Services University 2 Advanced Plan Design –Safe Harbor NCP Plans –Unique problems=Creative Plan design –Plan Design using Coverage Rules –DB/DC Combo plans

3. Retirement Services University 3 Safe Harbor ABC company has a calendar year 401(k) plan. They want to adopt a safe harbor plan on July 1. Can they do this? Would the answer change if they only had a PS plan?

4. Retirement Services University 4 Safe Harbor ABC company has a calendar year 401(k) plan. They want to adopt a safe harbor plan on July 1. Can they do this? A. No, plan year must be 12 months & 30 day notice must be given prior start of plan year. Would the answer change if they only had a PS plan? A. Yes

5. Retirement Services University 5 Safe Harbor ABC company Does Not have any plan. They want to adopt a safe harbor plan on Oct.1 Can they do this?

6. Retirement Services University 6 Safe Harbor ABC company Does Not have any plan. They want to adopt a safe harbor plan on Oct.1 Can they do this? A. Yes, 30 day notice must be given & first plan year must be at least 3 months for new plan

7. Retirement Services University 7 Safe Harbor ABC Company wants to gets its Key Employees to $40,000, however NCP Doesn’t work. Can they design a Safe Harbor plan that would accomplish this goal?

8. Retirement Services University 8 Safe Harbor 401(k) Plan EmployeeCompDeferralsS/H Match A$200,000$11,000$8,000 B$200,000$11,000$8,000 C$38,800$1,200$1,182 D$34,000$1,000$1,000 E$28,000$0$0 F$20,000$0$0 NCP Doesn’t work No PS Provision How do you get the HCE’s $40,000?

9. Retirement Services University 9 Safe Harbor 401(k) Plan EmployeeCompDeferralsS/H Match Fixed Match A$200,000$11,000$8,000$13,000 B$200,000$11,000$8,000$13,000 C$38,800$1,200$1,182$1416 D$34,000$1,000$1,000$1180 E$28,000$0$0$0 F$20,000$0$0$0 Fixed Match = 118% of elective deferrals not to exceed 5.5% of Comp.

10. Retirement Services University 10 Safe Harbor 401(k) Plan EmployeeCompDeferralsS/H Match F/ M D/MTotal A$200,000$11,000$8,000$13,000$8,000$40,000 B$200,000$11,000$8,000$13,000$8,000$40,000 C$38,800$1,200$1,182$1416$873$4,671 D$34,000$1,000$1,000$1180$727$3,907 E$28,000$0$0$00$0 F$20,000$0$0$00$0 Total$88,578 Fixed Match = 118% of elective deferrals not to exceed 5.5% of Comp Disc. Match = 4%

11. Retirement Services University 11 NCP Plans ABC Company has a standardized plan document requiring 500 hrs for a PS allocation. When do they need to amend for NCP? What if they had a 1000hr requirement? What if they had a last day requirement?

12. Retirement Services University 12 NCP Plans ABC Company has a standardized plan document requiring 500 hrs for a PS allocation. When do they need to amend for NCP? Before any participant accrues 500hr’s of service What if they had a 1000hr requirement? Before any participant accrues 1000hr’s of service What if they had a last day requirement? Before end of the year.

13. Retirement Services University 13 Safe Harbor with NCP “How Does it Work?”  Use 3% non-elective Safe Harbor  No ADP testing  No ACP if matching meets IRS criteria  HCEs can get $40,000 under 401(k) and NCP combo  Same 3% can be used for top-heavy and NCP tests  401(k) helps pass NCP tests  100% vesting and employee notice required on safe harbor

14. Retirement Services University 14 Safe Harbor with NCP NCP with Non-Elective Safe Harbor For Plan Year Ending December 31, 2002 Total Covered Income:$965,000Total Profit Sharing:$36,000 Total 401(k) Deferral:$ 54,950Total 401(k) Match:$ 0 Total Safe Harbor:$ 28,950

15. Retirement Services University 15 Unique Problems = Creative Solutions

16. Retirement Services University 16 The Hiring Problem ABC Salon is having trouble attracting Hair Dressers because of Multiple employment opportunities available to them. ABC Salon is looking for an alternative compensation package that would help attract these employees. Can ABC’s Profit sharing plan be used to help with this problem?

17. Retirement Services University 17 Signing Bonuses Hiring Problem Solution Identify a class of ee’s Use NCP Class Testing Vesting Schedule applies HCEs must be excluded

18. Retirement Services University 18 Unique Problems= Creative Solutions ABC Company wants to establish a matching contribution for several classes of employees & a profit sharing contribution for another set of employees. Assuming that no HCE’s are eligible for the plan, can they do this?

19. Retirement Services University 19 Unique Problems= Creative Solutions ABC Company wants to establish a matching contribution for several classes of employees & a profit sharing contribution for another set of employees. Assuming that no HCE’s are eligible for the plan, can they do this? A. Yes, because there are no HCE’s eligible

20. Retirement Services University 20 Plan Design Using Coverage Rules

21. Retirement Services University 21 410(b) Coverage Rules Z Company is a controlled group with two other companies Z Corp has 120 ee’s (100 NHC’s) Y Corp has 100 ee’s (85 NHC’s) P corp has 20 ee’s (15 NHC’s) Q. Z & Y want to establish a plan, but they don’t want cover P. Can they do this?

22. Retirement Services University 22 410(b) Coverage Rules A.Yes, The plan must cover 70% of the NHC ee’s. As long as they do this between Z & Y - they will pass. If not they will have to cover P.

23. Retirement Services University 23 410(b) Coverage Rules ABC Company & XYZ are a controlled Group. They would like to maintain separate plans with separate benefits. ABC has 9 NHC & 3 HC’s and XYZ has 18 NHC & 6 HC’s. Q. Can this be done?

24. Retirement Services University 24 410(b) coverage Rules A. Yes, subject to 410(b) testing Each plan must cover 70% of NHC’s ABC –3/9=33% * 70% = 23% * 27=6<9=Pass XYZ –6/9=66%* 70% = 46% * 27=12<18=Pass Plans must be tested annually

25. Retirement Services University 25 410(b) Coverage Rules ABC company is a controlled group that would like to add a single profit-sharing plan, however they would like to have the ability to have different profit-sharing allocations for each company. Can they do this?

26. Retirement Services University 26 410(b) Coverage Rules A.Yes, document must specify B.The plan must pass 410(b) testing (70% ratio). If all of the companies make a contribution, this won’t be an issue. C.Must pass 401a(4) testing (Cross Testing)

27. Retirement Services University 27 Defined Benefit/Defined Contribution 404(n) removes ee deferrals from ER contribution. Definition for deductible limits Max deductible contribution is greater of 25% or minimum required DB contribution

28. Retirement Services University 28 Defined Benefit/Defined Contribution Bob (52) earns $200K & Mary (55) earns $40,000. If they set-up a PS/K plan. They can contribute: –$60,000 PS –$20,000 EE deferrals –$4,000 Catch up –Total: $84,000

29. Retirement Services University 29 Defined Benefit/Defined Contribution Bob (52) earns $200K & Mary (55) earns $40,000. If they set-up a DB/K plan. They can contribute: –$124,828 DB Funding –$24,000 EE deferrals –$4,000 Catch up –Total: $152,828

30. Retirement Services University 30 Defined Benefit/Defined Contribution Separate DB/DC plans for same employer: Older HCE’s take advantage of DB Younger HCE’s take advantage of DC

31. Retirement Services University 31 Defined Benefit/Defined Contribution Plans May meet the needs of the HCE’s, however, the NHCE’s may not be so thrilled with participating in a DB plan 404(a) 7 deduction limits do not apply because no single EE covered by both plans

32. Retirement Services University 32 Defined Benefit/Defined Contribution Plans EmployeeDCDB HCE#1$0$163,169 HCE#2$0$148,693 HCE#3$40,000 HCE#4$40,000 NHCE#1$9,960 NHCE#2$9,960 NHCE#3$2,299 NHCE#4$2,616 Totals:$99,920$316,776

33. Retirement Services University 33