thepensionmaven Posted January 5, 2022 Share Posted January 5, 2022 A dental office consisting of two dentists and about 5-6 employees. Currently there is one profit sharing plan and all the money is pooled. Each dentist wants to take his portion of the pooled account and open up a new plan (not account, but plan) as well as creating a new plan (not account, but plan) with a pooled account for the participants. Does not make any sense to me, keep the existing plan and amend to allow for individuals to direct their own investments; but the dentists do not want to do that. Is this discriminatory?? Link to comment Share on other sites More sharing options...
C. B. Zeller Posted January 5, 2022 Share Posted January 5, 2022 The right to direct the investment of your account is a benefit, right or feature that has to be available to all participants on a non-discriminatory basis. Even if they split the plan into 3, the two owners' plans would not satisfy coverage testing on their own, so they would have to be aggregated with the plan covering the employees for nondiscrimination testing purposes. If the effect of the change would be that each of the owners would have the ability to direct the investments of their own accounts, but that option would not be available to their employees, then that would be discriminatory. Catch22PGM, Luke Bailey and ugueth 3 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
CuseFan Posted January 5, 2022 Share Posted January 5, 2022 CBZ is spot on. Having to aggregate for coverage treats it all like one plan anyway so there is no advantage to carving into separate plans. Luke Bailey 1 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
WDIK Posted January 5, 2022 Share Posted January 5, 2022 Is it possible that the owners want their benefits in separate plans, so the total amount of benefits is not disclosed to their employees on the summary annual report? ...but then again, What Do I Know? Link to comment Share on other sites More sharing options...
chc93 Posted January 6, 2022 Share Posted January 6, 2022 Put the staff participants on a platform instead of a pooled account? Link to comment Share on other sites More sharing options...
Mike Preston Posted January 6, 2022 Share Posted January 6, 2022 They want separate plans because they need separate plans. Each plan is trustee directed. No discrimination. IRS has blessed this arrangement for years. Holland and wickersham yes wickersham are on tape specifically stating that this design works and is not discriminatory. Luke Bailey 1 Link to comment Share on other sites More sharing options...
Belgarath Posted January 6, 2022 Share Posted January 6, 2022 Hey Mike - did they give their reasoning for this statement/position? I frankly find it confusing, given what seems (to me) to be the pretty clear language in 1.401(a)(4)-4(e)(3)(iii)(B). Is there any official guidance that updates the regulation? Thanks. Link to comment Share on other sites More sharing options...
C. B. Zeller Posted January 6, 2022 Share Posted January 6, 2022 I could see an argument for it if the owners are each wearing their "trustee hat" when selecting the investments for their own plan. In reality though I think this is extremely unlikely to be the case. ugueth 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Mike Preston Posted January 6, 2022 Share Posted January 6, 2022 4 hours ago, C. B. Zeller said: I could see an argument for it if the owners are each wearing their "trustee hat" when selecting the investments for their own plan. In reality though I think this is extremely unlikely to be the case. Why do you think it unlikely? They are set up as Trustee of the specific plan they participate in. I know firms that have dozens of these. They trace back to when 401(a)(26) was amended so as not to apply to DC plans. Bill Presson 1 Link to comment Share on other sites More sharing options...
thepensionmaven Posted January 7, 2022 Author Share Posted January 7, 2022 I got the answers to my inquiry - thank you all very much. 401(a)(4) is the answer I was looking for. All three plans will be aggregated for testing purposes; have recommended a platform for the employee plan. One of the dentists is balking at this I told him if it wasn't done this way, I'd walk away and he is free to find another TPA. Thanks to all for your input. Bill Presson 1 Link to comment Share on other sites More sharing options...
C. B. Zeller Posted January 7, 2022 Share Posted January 7, 2022 I did some Googling and found the interaction that Mike referred to, from the 1999 ASPPA Annual Conference. https://www.asppa.org/advocacy/irs-qas-1999 Quote 64. A company's owner sponsors one DC plan for himself and another for everyone else. The plans are aggregated for coverage testing, so benefits, rights and features must also be tested on an aggregated plan basis. The plans follow different investment approaches. Neither plan provides for the "404(c)" option. The owner is trustee of both plans, so in essence the owner directs his own accounts. Is this situation discriminatory?No. That's it, one word for an answer. I agree with Belgarath, this is confusing, as there does seem to be a distinct possibility of a non-discrimination issue. To answer the question from earlier, as to why I think it would be unlikely that this would be nondiscriminatory: When the owner is acting as the trustee of the plan, they are going to select a mix of investments that they feel will meet the needs of the plan, regardless of what the participants in the plan might want or would have chosen if they'd had the chance. In the plan covering the employees, the participants are not going to get a chance to give their input on the plan's investments. What I don't understand is how you could expect such a person, in the position of the trustee of an account that only covers themselves, to not consider their own investment preferences. Maybe there is someone out there who could invest their own account as if they were a disinterested 3rd party, but I don't think that's the same person who would go out of their way to set up a whole separate plan for themselves. ugueth 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Elizabeth G Posted January 8, 2022 Share Posted January 8, 2022 The comments seem to be homing in on the issue -- it may not be discrimination per se, but rather, fiduciary responsibility. In the Q&A, both plans have the same trustee. For the one of the plans, the sole participant is also the trustee. Regardless of how poorly the investments that that trustee selects actually perform, I expect we can agree that a lawsuit against the trustee is unlikely. In contrast, the participants in the other plan are entitled to hold the trustee as the fiduciary responsible for whatever the investment performance turns out to be. After all, those participants were not offered the opportunity (per ERISA 404(c)) to select investments. If the recommendation for "a platform for the employee plan" = using ERISA 404(c), I agree that is a sensible approach. Otherwise, the dentists should be prepared to defend the competency of the decisions made regarding investment of their employees' accounts. (Perhaps taking a pass on the bitcoin futures offering?) Link to comment Share on other sites More sharing options...
thepensionmaven Posted January 22, 2022 Author Share Posted January 22, 2022 Somewhat of a wrinkle - My original thinking was to have the 3 plans effective for 2022, but the 2021 contribution will be made in 2022. I don't believe it would be correct to show 2 years' accruals in one plan year (2021 in 2022 as well as an accrual for 2022). However under SECURE, since the client has not filed their 2021 tax return (and are usually on extension until 9/15), if the above can't be done, I see no reason why the 3 plans can't be effective 1/1/21. Since the existing plan is a profit sharing plan, the trustees have decided to make a 0% contribution to the existing plan; and instead into the new plans. Each dentist sponsors his own plan; the two dentists are the trustees of the employee plan, which will be on a separate account platform. Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted January 24, 2022 Share Posted January 24, 2022 On 1/22/2022 at 1:01 PM, thepensionmaven said: However under SECURE, since the client has not filed their 2021 tax return (and are usually on extension until 9/15), if the above can't be done, I see no reason why the 3 plans can't be effective 1/1/21. Yep, the retro plans under SECURE have been great for flexibility. Link to comment Share on other sites More sharing options...
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