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Trekker

May 31 2007, 08:37 AM

Go back to 1991. Client terminated Defined Benefit Pension Plan; IRS approvals and PBGC certifications were handled appropriately.

Client established a Target Benefit Pension Plan and permitted participants to make "voluntary elective transfers" from the DBP to the Target plan. (This was before "direct rollovers" had evolved.)

The third party administrator designated the transfer as NON-related rollover and has never included it in the top-heavy testing.

The employee had other distribution options besides the voluntary elective transfer, and there is no evidence that the employee first rolled to an IRA and then to the Target plan.

Can anyone think of a reason why this would have been designated a Non-related Rollover?

Thanks.

J Simmons

May 31 2007, 11:20 PM

I can fathom no reason for such being treated as NON-related rollovers, given the DBP was itself subject to top-heavy rules.

Larry Starr and Criag Hoffman reported the following best recollection (not verbatim) Q&A with Jim Holland and Dick Wickersham from a preliminary 9/25/01 meeting to the ASPA's "2001 Pension Actuaries and Consultants Conference" in Washington, DC:

QUOTE

Third question: An employer maintains a SIMPLE-IRA plan for 1999, 2000 and 2001. In 2002, he abandons the SIMPLE-IRA plan and installs a 401(k) plan. One of the employees withdraws his SIMPLE-IRA account and rolls it over to the 401(k) plan. Is this a related rollover or an unrelated rollover for top heavy purposes? I would say it should be treated as an unrelated rollover, even though the SIMPLE-IRA was maintained by the same employer that maintains the 401(k) plan because SIMPLE-IRA plans are exempt from the top heavy rules and a rollover into the qualified plan should not have any impact on the top heavy ratio.

It is currently unclear, but it appears that it should be treated as an unrelated rollover.

Follow-up question: Suppose the employer maintained a SEP instead of a SIMPLE-IRA plan. Is a rollover of the SEP-IRA into the 401(k) plan a related rollover? Here I would say yes, because SEPs are subject to the top heavy rules. But there is a curious effect. When the SEP is in the IRA, only the contributions have to be taken into account in computing the top heavy ratio, and not the investment earnings. When the rollover comes in from the SEP-IRA, assuming we have to treat the rollover as a related rollover, do we count the full value or only the cumulative amount of contributions that had been made to the SEP?

We believe this would be a related rollover. The question of whether the full value or only the cumulative amount should be counted has not been dealt with.

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