XX. Qualified Nonelective Contributions

Statement of Requirement: Regs. §§ 1.401(k)-2(a)(6), 1.401(k)-6, 1.401(m)-2(a)(6) and 1.401(m)-5 Proposed Reg. §§ 1.401(k)-1(g)(5), 1.401(k)-6, 1.401(m)-1(d)(4) and 1.401(m)-5.

Sample Plan Language:

The Employer may elect to make Qualified Nonelective Contributions under the Plan on behalf of employees as provided in the adoption agreement.

In addition, if the Employer has elected in the adoption agreement to use the Current Year Testing method, in lieu of distributing Excess Contributions as provided in section ___ of the Plan, or Excess Aggregate Contributions as provided in section ___ of the Plan, and to the extent elected by the Employer in the adoption agreement, the Employer will make Qualified Nonelective Contributions on behalf of participants that are sufficient to satisfy the Actual Deferral Percentage test and the Actual Contribution Percentage test. Qualified Nonelective Contributions will be allocated either to all participants or only to participants who are Nonhighly Compensated Employees, as elected by the Employer in the adoption agreement, in the ratio which each such participant's Compensation for the Plan Year bears to the total Compensation of all such participants for such Plan Year.

(IN THE BLANK ABOVE, INSERT THE PLAN SECTION CORRESPONDING TO CODA LRM VII.)

Definition:

"Qualified Nonelective Contributions" shall mean contributions (other than Matching Contributions or Qualified Matching Contributions) made by the Employer and allocated to participants' accounts that the participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when allocated to Participants’ accounts in made to t he Plan; and that are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferrals.

(Note to reviewer: See the Reviewer Note to CODA LRM XI regarding the effective date of this change, and how an earlier application is possible but would require a date-restrictive entry if applied as early as January 18, 2017.)

Sample Adoption Agreement Language:

86 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

The Employer [ELECT ONE] [ ] will [ ] will not make Qualified Nonelective Contributions to the Plan. If the Employer does make such contributions to the Plan, then the amount of such contributions for each Plan Year shall be [ELECT ONE]:

[ ] a. [ ] percent of the Compensation of all participants eligible to share in the allocation.

[ ] b. [ ] percent of the net profits, but in no event more than [$ ] for any Plan Year.

[ ] c. An amount determined by the Employer.

If the Employer is using Current Year Testing, in lieu of distributing Excess Contributions or Excess Aggregate Contributions, the Employer [ELECT ONE]

[ ] will

[ ] will not

make Qualified Nonelective Contributions to the Plan in an amount necessary to satisfy the ADP test and the ACP test.

Allocation of Qualified Nonelective Contributions shall be made to the accounts of [ELECT ONE]:

[ ] a. All participants.

[ ] b. Only participants who are Non-highly Compensated Employees.

(Note to reviewer: Targeting Qualified Nonelective Contributions to the lowest paid Non- highly Compensated Employees (a practice sometimes referred to as "bottom-up leveling") is not permitted. Plans may not consider “disproportionate Qualified Nonelective Contributions,” as defined in Regulation §§ 1.401(k)-2(a)(6)(iv) and 1.401(m)-2(a)(6)(v), for purposes of ADP or ACP testing. Thus, any allocation formula other than those in this CODA LRM XIV must satisfy additional requirements specified in Regulations §§ 1.401(k)-2(a)(6) and 1.401(m)-2(a)(6). In general, these requirements limit the degree to which targeted Qualified Nonelective Contributions may be made to lowest-paid employees.)

[Note to reviewer: On January 18, 2017, proposed regulations were issued that change the definition of Qualified Nonelective Contributions in Regulation §§ 1.401(k)-6 and 1.401(m)-5. Under the current regulations, employer contributions that qualify as Qualified Nonelective Contributions must be nonforfeitable when they are contributed to the plan. Under the proposed regulations, employer contributions to a plan will qualify as Qualified Nonelective Contributions if they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts, but need not meet these requirements when they are contributed to the plan. The proposed regulations apply

87 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

to taxable years beginning on or after they are finalized. Taxpayers, may however, rely on the proposed regulations for periods prior to the effective date, but no earlier than January 18, 2017. Therefore, a plan that chooses to follow the proposed regulations for the period beginning on or after January 18, 2017, may revise the definition of Qualified Nonelective Contributions to read as follows:

“’Qualified Nonelective Contributions’ shall mean contributions (other than Matching Contributions or Qualified Matching Contributions) made by the Employer and allocated to participants' accounts that the participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when allocated to Participants’ accounts in the Plan; and that are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferrals.”]