How to Understand Your Testing Cover Letter Materials

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Dora Sims
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1 How to Understand Your Testing Cover Letter Materials Your test results cover letter consists of your letter and several enclosures. We encourage you to read your letter and all of the material included. If you have any questions not addressed in this guide, please contact your Plan Manager, Plan Services Consultant or the Sponsor Service Center. The enclosures you receive with your letter are determined based on your test results and when testing is completed. The chart below illustrates the enclosures and when they are included: Name of Enclosure Compliance Testing Results Summary Important 2006 Plan Year Compliance Testing Information Notice to Participant of 10% Federal Income Tax Withholding on Non-Periodic Distributions Not Eligible for Rollover Compliance testing results IRS Form 5330 Return of Excise Taxes Related to Employee Benefit Plans Included? Included with all testing cover letters Included with all testing cover letters Included if ADP and/or ACP test fails and testing is completed after the 2 ½ month deadline OR if 415 Annual Additions Limit test fails and deferrals are returned regardless of when the 415 test is performed. Included if testing is completed for your plan Included if ADP and/or ACP test fails and testing is completed after the 2 ½ month deadline Compliance Testing Results Summary: This enclosure includes a chart of your nondiscrimination testing results percentages, a listing of any alerts you need to be aware of and a testing results summary chart. Nondiscrimination Testing Results Percentages: This section consists of a chart that indicates the ADP and ACP percentages for both highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). This information is provided as a planning tool for you. If your plan utilizes the prior year testing method, current year results are provided to help you know in advance what your limit or maximum is for your highly compensated employees (HCEs). If your plan utilizes the current year testing method, current year percentages may be an indicator of your limit or maximum for your HCEs if you do not anticipate significant

2 changes in If your plan utilizes the current year testing method, you will not see prior year results. Nondiscrimination Testing Results Percentages NHCE (prior) IRC Section 401(k), Actual Deferral Percentage (ADP) test (employee salary deferrals) IRC Section 401(m), Actual Contribution Percentage (ACP) test (employer match) HCE (current) NHCE (current) Alerts: An alert is a message that indicates one or more of the following situations: You may have submitted conflicting data, Data was missing and/or assumptions were made based on your data. This statement will indicate the information that is in question and indicates how AUL proceeded with your testing based on your data. If you have an alert applicable to your plan, you will see a statement between the Nondiscrimination Testing Results Percentages and the Testing Results Summary. Below is a guide to alerts that illustrates possible alerts you may see and how you can review your data or plan document or adoption agreement to determine if further action on your part is required. In many instances, an alert is only additional information for you and no action is In some cases, you may determine that you may wish to submit revised data for a retesting. Please note, an alert may require that you correct participant data; however, the corrections would not have an impact on your test results. Therefore, revised testing would not be Please contact your AUL Consultant for guidance. Locate the alert(s) below that are indicated in your letter for suggestions on how to proceed.

3 GUIDE TO ALERTS ALERT NUMBER ALERT (1) ALERT (2) ALERT (3) ALERT (4) ALERT (5) ALERT MESSAGE Columns were left blank or partially blank on your census. coded with an employment status code of 1 (i.e., Union Employee) and a testing status code of 8 (i.e., Excluded Class). Our records reflect that your plan document does not exclude such individuals from participation in your plan. If they have met the age and service requirements, they have been included on your test(s) as eligible participants. Plan Compensation - Partial Year (A) and/or Partial Year (B) was provided for certain employees but was not applicable; therefore it was treated as extraneous data. The 415 Compensation column on your census was entirely blank; therefore, we have utilized the amounts provided in the Plan Compensation Full Year column as 415 Compensation for 415 Limit testing. The Plan Compensation Full Year column on your census was entirely blank; therefore, we have utilized the amounts SUGGESTED ACTION Review your census. If any information was left blank for an eligible participant, your test results may be affected. This alert will only appear if there is an impact. For example, if compensation was left blank for a participant who was not deferring, you would not see this alert because your tests would not be affected. Contact us to help you determine if revised Review your census. If you are operating your plan as though union employees are excluded, you are not following your plan document and may need to contact an ERISA attorney because your current document does not exclude union employees. If you coded the affected participants as excluded union employees in error and they are eligible, no further action is required. If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. Partial year compensation is only required for participants who became eligible on a date other than the first day of the plan year. Review your census to determine if eligibility dates, date of birth and/or date of hire dates are correct. If there are errors, contact us to help you determine if revised Review your plan document/adoption agreement. If the definition of 415 Compensation and Plan Compensation- Full Year are the same, no further action is If your definition of plan compensation excludes certain types of compensation such as bonuses, overtime and/or commissions, your definitions are not the same. Contact us to help you determine if revised Review your plan document/adoption agreement. If the definition of 415 Compensation and Plan Compensation-

4 ALERT (6) ALERT (7) ALERT (8) ALERT (9) provided in the 415 Compensation column for ADP and/or ACP (if applicable) testing. coded with a testing status code of 2 (i.e., Ineligible - Service). However, based on your plan document and/or contribution data these participants are eligible and have been included on your tests. coded with a testing status code of 2 (i.e., Ineligible - Service). However, your plan document indicates that the service requirement was waived on the plan s effective date. Therefore, employees who were employed on the plan s effective date have been included on your test(s) as eligible participants. coded with a testing status code of 7 (i.e., Irrevocable Decline). Please be aware that since you have adopted a standardized prototype plan, this code is not applicable and therefore, has been ignored for testing purposes. It appears as though there are duplicate employee records on your census. Please be aware that your test(s) include all Full Year are the same, no further action is If your definition of plan compensation excludes certain types of compensation such as bonuses, overtime and/or commissions, your definitions are not the same. Contact us to help you determine if revised Review your census. Ineligible Service may only be used for an employee who has been employed the length of time required by your plan (e.g., one year), but has not met the plan s hour requirement necessary to participate (e.g., 1,000 hours). An hour requirement may only be imposed if one year of service is required. If less than one year of service is required, then an hour requirement may not be imposed. Note: An hour requirement may be imposed if your plan is not an adoption of an AUL prototype, AUL 403(b) Plan or AUL 403(b) Plan and Trust. If the affected participants were coded in error and are eligible, no further action is If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. Since eligibility was waived on the effective date, all employees employed on the effective date of the plan are eligible. If the affected participants were coded in error, no further action is If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. If the affected participants were coded in error, no further action is If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. There may be individuals with the same name but different social security numbers who are,

5 ALERT (10) ALERT (11) ALERT (12) ALERT (13) ALERT (14) employee records as provided. coded with an employment status code of 5 (i.e., Nonresident Alien). However, your plan document does not exclude nonresident alien employees. If they have met the age and service requirements, they have been included on your test(s) as eligible participants. coded with a testing status code of 8 (i.e., Excluded Class). However, your plan document does not exclude a nonstatutorily excluded class of employees. If they have met the age and service requirements, they have been included on your test(s) as eligible participants. Catch-up contributions were reported for participants who were either not age 50 by the end of the calendar year or were in excess of the maximum catch-up allowed; therefore, we have added catch-up amounts to deferrals and tested accordingly. You have indicated a date(s) of eligibility that is inconsistent with the provisions of your plan document. Therefore, if they have met the age and service requirements they have been included on your test(s) as eligible participants. Your test results indicate that you may have only reported participants who contributed to the plan. Compliance tests require that both contributing and noncontributing participants be reported. indeed, the same person. Your tests will reflect each social security number as a separate participant. Contact us to help you determine if revised Review your census. If the affected participants were coded in error, no further action is If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. If the affected participants were coded in error, no further action is If these participants should be excluded for another reason, contact us to help you determine if revised data should be submitted. Review your census. If catch-up was allowed for individuals who were not age 50 by the end of the calendar year, no further action is necessary in terms of your tests; however, you may need to issue revised W-2s if these individuals were allowed to make catch-up contributions in error. If there are errors in date of birth records, contact us to help you determine if revised First review the age and service requirements of your plan. Next, compare your census data and note employees with a future date of eligibility and check against your detailed test results. If these participants were coded with a future eligibility date in error, no further action is If there are individuals with incorrect date of birth and/or date of hire records who are not eligible until a future plan year, contact us to help you determine if revised Review your census data to ensure that all employees (not just eligible participants who are actively contributing to the plan) have been reported.

6 ALERT (15) ALERT (16) ALERT (17) ALERT (18) coded with a termination date in a prior plan year; however, compensation was indicated and a rehire date was not provided. If they have met age and service requirements of your plan prior to the termination date, we have included them on your test(s) as eligible participants. The testing method (i.e., current year or prior year) that you indicated on your census does not reflect the testing method that you selected in your plan s adoption agreement. We have utilized the method selected in your plan s adoption agreement to prepare the enclosed ADP and/or ACP tests. According to your plan document, both union and non-union employees are eligible for your plan. Separate ADP testing is required for each group pursuant to Treasury Regulation Section 1.410(b)- 7(c). Although your census has both classifications of employees listed, we have performed separate ADP testing for each classification. Deferral and/or match amounts were provided on your census for an employee(s) who, according to the service requirement in your plan document, was not eligible to participate in your plan in the 2006 plan year. We have included these employees on the test(s). If all employees were not submitted with your original census data, contact us to help you determine if revised data should be submitted. Review your census. Find individuals with a termination date in prior plan year that have current year information. In some instances participants may terminate at the end of the plan year and receive compensation for services on the first payroll of the next year. If this is correct, no action is In other instances, participants have rehired and rehire dates were not supplied. In this case, review Additional Information Regarding Rehires in the Census Instruction to ensure the individuals are truly eligible. If a participant has inaccurately been reflected as eligible, contact us to help you determine if revised If the testing method on the census was changed in error, no further action is A change in testing method may only be accomplished by plan amendment. There are restrictions attached to changing your method from current year testing to prior year testing but no restrictions on changing from prior year testing to current year testing. Contact us for further information. If both union and non-union employees are eligible to participate in your plan, no further action is Review your census. If individuals have an incorrect date of birth and/or date of hire, and are eligible, you will need to correct this data. If, however, the data is correct, you are not following your plan document and may need to contact an ERISA attorney because you are allowing individuals to participate before they have satisfied the eligibility requirements.

7 ALERT (19) ALERT (20) ALERT (22) ALERT (23) ALERT (24) coded with an employment status code of 4 (i.e., Never Been Employed). However, compensation and/or contribution data was provided; therefore, we have included these employees on the test(s) as eligible participants. coded with an employment status code of 1 (i.e., Union Employee) but not a testing status code of 8 (i.e., Excluded Class). Our records reflect that your plan document excludes union employees from participation; therefore, we have excluded these individuals from all tests. Your adoption agreement excludes Highly Compensated Employees (HCEs); however, the individuals that you indicated as HCEs were not coded with a plan status code of 8 (i.e., Excluded Class). We have excluded these individuals from all tests. Employees on your census were not coded with an employment status code of 1 (i.e., Union Employee). Since this plan is a union plan, if employee(s) met the age and service requirements, they have been included on your test(s) as eligible participants. Because your document does not reflect the current compensation limit under Internal Revenue Code section 401(a)(17) (220,000) in 2006, testing has been completed based on the previous limit of $170,000. Review your census. If these individuals were coded in error, no further action is Review your census. If the testing status of 8 was omitted in error, no further action is Review your census. If the testing status of 8 was omitted in error, no further action is It is not necessary to code participants with a status of 1 in a union plan. No further action is If your document has not been restated to reflect GUST provisions, please contact us. If your document has been updated, please send us the most current document. ALERT (25) ALERT (26) Our records reflect that your money purchase plan document requires employees to make 403(b) employee salary deferrals in order to be eligible to receive an employer contribution. Therefore, although not identified as such on your census, any employer contribution reported has been treated as employer matching contributions for testing purposes. FOR 403(b) PLANS ONLY We have requested but have not received your Matching Contribution formula; If employer contributions are really an employer match, no further action is Provide your Matching Contribution formula to us. You may also want to

8 therefore, we have not been able to forfeit matching contributions associated with ineligible deferrals. Failure to forfeit related match could result in a discriminatory rate of match to the affected HCEs which may cause a failure of benefits, rights and features under 401(a)(4). request a retest of your information. Testing Results Summary: The Testing Results Summary is a chart that illustrates the following: Compliance test Whether AUL is contracted to perform Testing Method (i.e., current year or prior year) if applicable Results of the test Whether or not correction is required Number of days to respond to stop refund processing if there is a test failure Whether or not refunds are reduced by catch-up Note: AUL may be contracted to prepare ADP and/or ACP testing but not all compliance tests. Review your Administrative Services Agreement to verify what we have indicated. Important 2006 Plan Year Compliance Testing Information This enclosure contains supplemental information for your reference. You may see one or more of the following topics included: Notice to review your census instructions with applicable sections indicated Additional information regarding safe harbor plan design Special testing provisions information ADP& ACP testing methodology information Information on what to do with your test results Information on automatic refund processing Employer excise tax information Employee 10% federal tax withholding processing information Employer notification to affected participants information Notice to Participant of 10% Federal Income Tax Withholding on Non-Periodic Distributions Not Eligible for Rollover This notice is included with your letter if any of the following apply: ADP test fails and refunds are made after the 2 ½ month deadline ACP test fails and refunds are made after the 2 ½ month deadline

9 415 Annual Additions Limit test fails and deferrals are refunded. Note: A copy of this notice must be distributed to all participants receiving a refund due to any of the situations indicated above. Compliance Test Results The results included provide the detail of your testing and indicate refunds due if applicable. We encourage you to review the Compliance Testing Overview and Sample Test Results sections of the Census Instructions on this site. IRS Form 5330 Return of Excise Taxes Related to Employee Benefit Plans This form will be included if the ADP and/or ACP test fails and refunds are issued after the 2 ½ month deadline. This 10% tax is an employer tax and must be remitted within 15 months after the end of the plan year to which the excess contributions (ADP refunds) or excess aggregate contribution (ACP refunds) relates.

How to Understand Your Compliance Testing Summary

How to Understand Your Compliance Testing Summary Abbreviations and acronyms used in this summary: ACP Actual Contribution Percentage test ADP Actual Deferral Percentage test DOL Department of Labor HCE