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New CTPS plan in addition to SH401k?


TPAnnie

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I have a SH 401k Plan. The formula for allocating any profit sharing contribution is integrated. Although there’s a last day requirement for sharing in the ps contribution, I can’t amend the formula to cross tested for 2012 because I can’t amend a SH plan during the year. I think (hope) that the sponsor could just adopt a 2nd profit sharing plan that would be cross tested for 2012. The 401k and SH contributions would be made in the existing plan, and they could make a ps contribution in the new plan. Am I missing anything that would prevent me from doing that?

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This is a topic of constant debate. It is another instance where KevinC had demonstrated a higher grasp in other posts. I would argue that you could amend the plan in this instance to remove the last day requirement as the safe harbor notice likely stated that "you may" receive additional profit sharing contributions in addition to the safe harbor contribution. I cannot conceive, in this instance, how this amendment would not be allowed.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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This is a topic of constant debate. It is another instance where KevinC had demonstrated a higher grasp in other posts. I would argue that you could amend the plan in this instance to remove the last day requirement as the safe harbor notice likely stated that "you may" receive additional profit sharing contributions in addition to the safe harbor contribution. I cannot conceive, in this instance, how this amendment would not be allowed.

Good Luck!

Like.

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Guest GeerTom

I agree as to result. My reasoning is a little different.

In my view, the limitation on amending SH plans is that you can't amend the SH provisions. The other terms of the plan are generally amendable as to discretionary contributions.

This presents two options. First, you could amend to the cross tested. Second, you could add a second allocation formula, cross tested, and designate the actual contributions for allocations under it. In either event, they still "may" get an additional allocation.

Under either option, there would be no need for a second plan. Adding a second formula has the tactical advantage that it eliminates none of the additional allocation potential covered in the notice. The second formula may not fit in your prototype, but it would still be cheaper to go to individually designed than to set up a second plan.

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Again, here are other comments on the issue. ASPPA and Sungard both seem to disagree that you can make other changes to safe harbor plans.

http://www.asppa.org/Document-Vault/pdfs/G.../0429-comm.aspx

4/29/2011

ASPPA recommends that Treasury Regulation § 1.401(k)-3 be amended to permit the

following mid-year changes:

(note especially point 2. instead of ASPPA saying 'yes, you can simply change a non-elective contribution, they asked for clarification, apparently because they feel the issue is unclear.)

1. The addition of hardship provisions to a plan that does not currently contain any such

provisions;

2. Adding or changing a nonelective contribution source to a plan (which is separate and

distinct from the plan’s safe harbor contributions);

3. Altering the allocation method for nonelective contributions other than the safe harbor

contributions (while protecting benefits already accrued);

4. Altering allocation requirements for nonelective contributions other than safe harbor

contributions;

5. Adding a participant loan provision;

6. Amending the definition of compensation for allocations of nonelective contributions

other than the safe harbor contributions;

7. Changing the eligibility terms of the plan (e.g., adding a new division or group of

participants);

8. Amending the vesting schedule for accounts subject to a vesting schedule;

9. Adding an automatic enrollment feature to the plan;

10. Modifying distribution provisions (i.e., timing or form of distributions) with respect to

accounts attributable to contributions other than elective deferrals and safe harbor

contributions;

11. Modifying investment provisions (e.g., participant directed investment provisions);

12. Liberalizing eligibility provisions for any type of contribution;

13. Adoption of permissive retroactive amendments under Revenue Procedure 2008-50

(SCP or VCP); and

14. Adding a Roth 401(k) in-plan conversion feature after December 31, 2011.

..........

Adam Pozek (one of the pension guru of gurus) comments

http://www.pozekonpension.com/pozek-on-pen...-401k-plan.html

3/14/2012

When amending safe harbor plans, timing is critical. A few years ago, the IRS published guidance indicating that it is ok to amend a safe harbor plan mid-year to add a Roth feature or to provide for hardship distributions. Some interpreted this as being a partial list and believed that other types of changes were also permitted as long as they made the plan more generous. However, at the 2011 ASPPA Annual Conference IRS Q&A Session, one of the panelists indicated that the guidance on adding Roth and hardships is pretty much an exclusive list, meaning that no other changes are permitted once the year begins. No accelerating eligibility requirements; no increasing the deferral limit or adding catch-up contributions; no changing your safe harbor match from pay period to annual.

To those who might be tempted to skip the annual compliance review on a safe harbor plan, I will remind you of the adage that an ounce of prevention is worth a pound of cure. The IRS is coming to a safe harbor plan near you, and fixing any problems on your terms is far preferable to waiting for them to show you that your safe harbor plan isn’t quite as safe as you thought.

.............

comments based on a Sungard Seminar

http://www.linkedin.com/groups/Safe-harbor...6354.S.53114683

5/6/2011

Safe harbor plan can be amended mid-year only with regard to 4 things

For those that attended the SunGard May seminar, it was a good reminder to re-learn that a Safe Harbor plan can be amended mid-year only with regards to 4 things.

Announcement 2007-59 provides that a safe harbor plan can be amended mid-year only with regard to the following:

1. Qualified Roth contributions,

2. Hardship withdrawals,

3. Mid-year amendments to become a safe harbor plan using non-elective contributions, and

4. Mid-year amendments to suspend or reduce safe harbor matching contributions.

There are no other amendments permitted. So if a Safe Harbor plan wants to add an in-service Profit Sharing withdrawal midyear, they cannot.

I read it to say that mid-year plan amendments are not permissible to the extent that the information included in the participant safe harbor notice would be affected. The Safe Harbor Notice references Distributions, but does not reference Eligiblity….so could a plan be amend if it did not affect the contents of the Safe Harbor notice?...would that be an aggressive position?

The IRS requested comments as to whether additional guidance is needed with respect to mid-year changes to a 401(k) safe harbor plan, other than changes relating to mid-year amendments to become a safe harbor plan using non-elective contributions and mid-year amendments to suspend or reduce safe harbor matching contributions. It appears that the IRS has not commented or clarified anything beyond the above 4 items listed above.

So……if a Safe Harbor plan wants to make a mid-year amendment that is not for one of the 4 items below, the answer is no they cannot.

..........................................

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Tom, your employer was a speaker at the 2011 Annual conference, so there should be a copy of the recording available in your office. I encourage you to listen for yourself. The comments Adam Pozek claims were made at that Q&A session were not made there. I went back through that section of the recording many many times when I wrote down what the IRS representative said for another thread. One of the ASPPA panelists made a brief comment about the only amendments in the guidance being Roth and hardship modification, but from the context, it is a huge leap to take that comment as overriding the carefully worded IRS responses both before and after that comment. The mp3 file of that session is 42.8 MB, so I have no way to send it to you.

http://benefitslink.com/boards/index.php?s...mp;#entry222497

I saw the ASPPA comment letter when it came out. My opinion of that letter is, to say the least, not complimentary. If the IRS was foolish enough to provide a list of permissible amendments, it would be pages long and probably still would not include all the situations where you should be able to amend. For example, they left off changes in the Employer name, address and phone number, a change in the plan name, adoption of the plan by a successor employer, providing prior service credit for a group of employees acquired in a 410(b)(6)© transaction, ... Of course, they did ask the IRS to expand the list. Then, you need to consider all of the amendments that might go on the permissible list for one situation where another set of facts might produce a result other than what they intended. After all, once it's on the list, it's allowed. I'm not a big fan of the IRS, but I don't think they are dumb enough to give ASPPA what they are requesting.

As for the Sungard seminar, Announcement 2007-59 does not say that those are the only amendments that can be made mid-year. Anyone who thinks it does, please post a quote of the sentence(s) from the Announcement where they think is says that only those amendments are allowed.

I feel like I am stuck in the kids game where you sit in a circle and whisper in your neighbor's ear, then see how the story evolves. I have seen repeated claims that the IRS made this supposed statement at at least 3 conferences I attended. I promise you that I listen carefully any time this subject comes up at a conference. I have never heard the IRS state what has been claimed. Each time I hear them carefully say that they have issued guidance and they will not issue additional guidance. If the IRS really said that the only amendments allowed mid-year are those specifically mentioned in the Announcement or the regs, then someone please identify one time when it was said and exactly what was said. It certainly wasn't said by the IRS at the 2011 annual conference. The Sungard seminar predated that conference, so that wasn't their supposed source. The ASPPA comment letter refers comments made at various forums over the last few years. If these claims are true, someone somewhere should be able document it. I'm still waiting.

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Tom, your employer was a speaker at the 2011 Annual conference, so there should be a copy of the recording available in your office. I encourage you to listen for yourself. The comments Adam Pozek claims were made at that Q&A session were not made there.

Thought Tom worked the Dorsa. Just a curious observation that means nothing.

I feel like I am stuck in the kids game where you sit in a circle and whisper in your neighbor's ear, then see how the story evolves.

"Like". I know the feeling. I typically do not hold much regard to an informal statement from an IRS personnel when their statement directly contradicts the written Regulation (IRS personnel makes mistakes in interpreting the law too). I understand your point to mean that there are actual well written regulations addressing how to determine if an amendment could be made mid-year to a Safe Harbor 401(k). I read those, ONCE. I, personally, have to read a Regulation at least 5 times to get it to fully resonate (but that's just me). I do, however, appreciate what you're saying; and the written Regulation should be enough to make that determination.

CPC, QPA, QKA, TGPC, ERPA

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Kevin, I like your position but I'm not sure I follow. Look at 1.401(k)-3(d)(2)(ii)(B).

That section requires the employer contribution be "accurately described" in the Safe Harbor Notice.

I think the IRS position is that the plan and the Notice should give a participant accurate information as of the beginning of the year and changing anything in the plan that impacts the Notice is a violation of the timing requirement of 1.401(k)-3(d)(3).

But I'd really like your interpretation to be adopted by the IRS!

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Mike, I'm not sure I follow you.

The issue here is: What has the IRS been saying at conferences about mid-year SH plan amendments?

I've been hearing, and the recording of the 2011 ASPPA annual conference Q&A session has the IRS representative saying they have issued guidance on mid-year amendments in the regulations and in Announcement 2007-59 and they do not plan on issuing any more guidance. 1.401(k)-3(e)(1) has the amendment restrictions and it clearly addresses which amendments are prohibited. The Announcement addresses two amendments the IRS was repeatedly asked about that, to me, are clearly allowed by the regulations.

Others are saying that the IRS has clearly stated, specifically at the 2011 annual conference and repeatedly at all conferences for several years that NO amendments are allowed mid-year for SH plans other than those addressed in Announcement 2007-59 (Roth and Hardship changes) or the regulations (mid-year suspension of the SH contribution and mid-year amendment to the 3% SH following a conditional notice).

There is a big difference between what I've been hearing the IRS say at conferences and what others say they have been hearing. I transcribed the IRS comments at the 2011 annual conference from the recording and it backs what I heard. I have asked those who believe the IRS is saying something else to document what was actually said and when. The only specific example I was given is a quote from a web article that says the claimed IRS statement was made at the 2011 ASPPA annual conference Q&A session. The recording shows otherwise.

Still others are saying the mid-year amendment prohibition should be based on the information required to be in the SH notice. To me, that is basically the same as saying that no amendment at all can be made mid-year. The content requirement for the SH notice is extensive, so it would be a challenge to find a plan provision that doesn't affect something on the notice, especially if the SPD is referenced in the SH notice.

There was also a brief discussion at the 2011 ASPPA annual conference about WHY the mid-year amendment prohibition is in the SH regulations. The reason why was followed by a reminder that there is guidance on mid-year amendments and they are sticking with the current guidance. My opinion is that some in this industry have taken the IRS explanation for WHY certain mid-year SH plan amendments are prohibited and expanded it into a supposed prohibition of basically all mid-year amendments to SH plans. I'm reminded of the $150,000 401(a)(17) limit fiasco from Q&A sessions in the 90's, but this one seems much, much worse.

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Still others are saying the mid-year amendment prohibition should be based on the information required to be in the SH notice. To me, that is basically the same as saying that no amendment at all can be made mid-year. The content requirement for the SH notice is extensive, so it would be a challenge to find a plan provision that doesn't affect something on the notice,

"Like". I fall under this category :)

especially if the SPD is referenced in the SH notice.

Wait a minute?!? This is going to give me something else ponder. :o

CPC, QPA, QKA, TGPC, ERPA

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Kevin, I agree with your general approach. However, there are people in Cincinnati who differ. I have had quite a few conversations with them over the years and I can tell, by reading between the lines (because they can't come out and say it), that amending provisions mid-year is something that one reviewer might approve while another will try to apply a more literal interpretation.

But let's forget the IRS for a moment and say it is a two-judge panel (you and me) deciding whether a mid-year amendment should be allowed.

It looks like you and I read 1.401(k)(3)(e) differently. I read "plan provisions that satisfy the rules OF THIS SECTION are adopted before the first day of the plan year and remain in effect for an entire 12-month period" to include 1.401(k)(3)(d) [the notice requirements], since that is part of the same section. You don't. Or you make the argument that it can't mean that because otherwise silly little things like a change in address of the Trustee could cause a failure.

This is exactly what (I believe) is going on behind the scenes at the IRS. Some folks are in your camp; some in mine.

All of that is of little consequence when changing a phone number or address, but when making a change to what would otherwise be required front and center in the Safe Harbor Notice (like changing the allocation of employer contributions from comp-to-comp to integrated or new comp) I just have a hard time reading the existing regulation as allowing it.

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Mike, we read 1.401(k)-3(e) the same. It's 1.401(k)-3(d) that we interpret differently.

I see 1.401(k)-3(d) as requirements that the SH notice must meet. In it, I see rules that the SH notice must satisfy. However, what I don't see in -3(d) are any rules that plan provisions must meet. You cited 1.401(k)-3(d)(2)(ii)(B). For clarity, I'll include the paragraph heading:

1.401(k)-3(d)(2)(ii)Minimum content requirement.—

Subject to the requirements of paragraph (d)(2)(iii) of this section, a notice is not considered sufficiently accurate and comprehensive unless the notice accurately describes—

...

(B) Any other contributions under the plan or matching contributions to another plan on account of elective contributions or employee contributions under the plan (including the potential for discretionary matching contributions) and the conditions under which such contributions are made;

I've tried every way I can think of to interpret that, but I can't come up with a single thing in it that places any limitation on, or affects in any way, the profit sharing contribution provisions.

As for problems with the content requirements of the SH notice, the IRS has already addressed an extreme example of that at conferences and on their website. If the failure to provide a SH notice does not cause the plan to fail to satisfy the SH rules, I don't see how a minor change in content would cause a problem. Besides, the SH notices the document system we use generates do not list the allocation method or even eligibility requirements for the PS contribution. It mentions the existence of the PS contribuiton and refers participants to the SPD for additional information. So, in our case, the change in the PS contribuiton allocation under discussion would not change a single word on the SH notice.

http://www.irs.gov/Retirement-Plans/Fixing...(k)-Plan-Notice

However, there are people in Cincinnati who differ. I have had quite a few conversations with them over the years and I can tell, by reading between the lines (because they can't come out and say it), that amending provisions mid-year is something that one reviewer might approve while another will try to apply a more literal interpretation.

That I can understand. I also understand that the IRS comments I've heard at conferences would not change your opinion. Like many things in this business, it's a judgement call that may or may not be challenged by the IRS. Had that kind of opinion been expressed at the beginning of this thread, it would have been a short discussion. My rant was directed at the claims here and in other threads that the IRS has repeatedly and clearly said at conferences over the last few years that the only mid-year amendments allowed for SH plans are the 4 specifically mentioned in the published guidance.

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  • 2 weeks later...

I just downloaded the updated DC Q&A handout for the 2012 ASPPA annual conference. Questions 36-41 address mid-year amendments to SH plans. I don't want to completely spoil the surprise, but we will get some additional informal guidance this year.

The questions deal with:

36. timing of amendments to create a short plan year

37. amending mid-year to add a previously excluded group

38. amending mid-year to change TPA and investment alternatives

39. -11(g) amendment to correct a 410(b) failure

40. amending to change Trustees mid-year

41. amending to void a mid-year amendment eliminating the SH provisions

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Nice. Maybe next year we'll find out if they think a safe harbor 401(k) plan with SH match plus an unused integrated profit sharing component with a last day requirement can be amended to change the allocation formula during the year to place each person in their own class.

Also, question 42. deals with an amendment to a safe harbor plan where SH contributions were not madedue to bankruptcy (the IRS says the plan should be able to amend).

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you better be ready to run up to the mike and be ready to pose follow up questions

because the handout notes add a comment "as long as there is no effect on the already eligible employees"

I don't see how you could change a profit sharing formula (or amending to add a group of employees) without effecting an already eligible employee. you could end up reducing an individuals profit sharing as a result.

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you better be ready to run up to the mike and be ready to pose follow up questions

because the handout notes add a comment "as long as there is no effect on the already eligible employees"

I don't see how you could change a profit sharing formula (or amending to add a group of employees) without effecting an already eligible employee. you could end up reducing an individuals profit sharing as a result.

The quoted comment is part of the answer to the question about adding a previously excluded group mid-year. Until the IRS representative at least has a chance to explain at the conference what the comment means, isn't it a little early to start spinning it to use to with another situation? I want to hear what (if anything) they say first.

The biggest surprise for me was question 41. I would not have predicted that the IRS would indicate a do-over is possible shortly after amending a SH plan mid-year to suspend a SH contribution. The answer applies to both a SHNEC and a SH Match. Given that the proposed regs require a substantial business hardship to suspend the 3% SHNEC mid-year, I wonder how many times this will come up with a 3% SH plan. Even with a SH match, I doubt this situation will come up often.

Regardless, this year's annual conference should put an end to the claims that the IRS is clearly saying at all conferences that the ONLY mid-year amendments allowed for SH plans are to add Roth and modify hardships. ASPPA didn't get their requested all inclusive allowed amendment list, but I see this Q&A handout as welcome news.

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  • 3 weeks later...

I agree with Kevin. It is obvious that the powers that be are softening their position on mid-year amendments. I now have very little difficulty allowing a plan sponsor to, for example amend vesting upwards (a request I received just last week).

I think I'm coming around to the position that amending things upward, as long as both the before and after satisfy the SH rules, is permissible (subject to an ERISA attorney approving it, of course).

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talked with one of the 'powers that be' on the Q and A staff (not IRS power but ASPPA memnber)

and asked if I could ask him about one of the responses regarding safe harbors that was in the Q and A..

In fact, he said 'by all means'

but then hearing my question, he said they would rather not address the issue at this time. they were happy to be making what in-roads they could and didn't want to push it that fast. (so ASPPA folks still take a cautious stance on amending a safe harbor)

..............

here is one of the issues

there is nothing in the regs that permits issuing a new notice during the year (except in the case of terminating a safe harbor)

looking at the Q and A items mentioned this year, none would have been directly in the safe harbor notice. (e.g. #37 bringing new people in) - eligibility requirements are not an item mentioned on the safe harbor notice (or at least, it certainly doesn't have to be)

while logically you wouldn't think changing vesting 'upward' would matter (it seems silly you can't change something to benefit employees), that is an item specifically required to be mentioned in the notice, so perhaps that is one of the concerns of the IRS.

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So, not providing a SH notice at all this year is correctable with a "simple revision to an administrative procedure" if the participants are not prevented from making a timely deferral election, but having non-SH information in the SH notice change mid-year causes the plan to fail to satisfy the SH notice requirement and disqualifies the plan?

http://www.irs.gov/Retirement-Plans/Fixing...(k)-Plan-Notice

From a different perspective, I'll point out that there are no rules in the SH regs dealing with deferral eligiblity (Q#37), investment alternatives (Q#38), profit sharing coverage (Q#39) or the Trustee (Q#40). Q#36 is about changing the plan year, so it really isn't a mid-year amendment issue as the situation is described.

Q#42 deals with a bankruptcy court overruling a plan document, so I don't think it really tells us about how the SH plan rules work.

Q#41 is the interesting one. Going strictly from the regs, I would have said no, it can't be done because it amends provisions that satisfy the rules of the SH regs. If you use the information in the SH notice standard, I think you get a "no" answer since the amendment would change information in the SH suspension notice that had already been provided. But, the IRS says you can get a do-over as long as adequate notice is provided so that "the eligible employees' deferrals decisions are not compromised with the rescission of the amendment". For now, I view that response as addressing a special case, instead of broad informal guidance.

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