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John, that was my first thought - are they truly interns or is that classification being used to exclude part-time employees who may ultimately work 1000 hours? I guess someone might intern at the same company for their entire college career, or maybe the employer's industry is one where long term internships are normal (but isn't that more apprenticeship?) - and do these "interns" usually get hired into benefit-eligible positions or are they longer term term temporary labor? Probably not the TPA's concern here but certainly a situation I'd call a head-scratcher.

FWIW, Ms Kelsey Mayo spoke on this at ASPPA yesterday and she said that she believes a class exclusion can be used if it's legitimate and not just a cover for everyone that works 500-1000 hours. The examples she used were job description and location.

Our discussions with a variety of payroll providers usually starts with them responding with "Huh?" and goes no further. The problem we see is that most client provide the payroll files extracted from their provider to us (a recordkeeper) without modification - hence no ability to add the student loan match on the "normal" file. That creates an issue. While still in discussions (and awaiting guidance), our plan sponsors seem to think they'll just do an annual match for these people, despite doing a payroll by payroll match for deferrals. We have a problem there. Possible BRF, possibly timing (and testing considerations), partly a "we're not going to do that this year (after having done the match for everyone else). Our clients range from plans in the mid 5-figures to over a billion in assets, so, we have varying levels of sophistication (or lack thereof). GUIDANCE PLEASE! (if the IRS is listening)

Like most open ended questions the answer is it all depends. What is the objective - rewarding/sharing in profits, retention/competitive comp & benefits package? What is the industry, how much does the person make, what can the employer afford to provide? If the employer provides other substantial benefits on the health and welfare side, maybe a SEP or SIMPLE IRA or 401(k) plan with a match is appropriate. If the employee is invaluable, say hired to run someone's business for them, then maybe a 401(k) with a substantial profit sharing is appropriate, or even a defined benefit plan if $60k-$70k in annual retirement isn't enough, although if the owner is also an "employee" then this may or may not be possible depending on circumstances. Answers to those two questions at a minimum are necessary and you ask for "best options" - for the employer or employee or blending the needs for each?

“Our interns stay on forever”? They stay an intern forever? What then are they interning for? They mean that after a period of internship, they go full time, right?

The "bad consequence" that pops into my head first is that they might qualify for the "500 hours for vesting" rule, and yes that shouldn't matter if they aren't eligible for employer contributions, but then later become a full time employee who gets employer contributions, and ends up subject to a better vesting schedule than someone who'd been "regular full time" from Day 1.

One reason some plan designers provide an involuntary distribution a little sooner than the time needed to meet § 401(a)(9)’s condition for tax-qualified treatment is that 100% of a single-sum distribution would be rollover-eligible.

This is just off the top of my head, but I think the answer to both of those is "yes". The plan's decision to call something an RMD doesn't make it an RMD if it's not actually required under 401(a)(9).

Generally yes. See Rev. Proc. 2017-56.

Yes, a plan sponsor may write a plan’s governing document to provide an involuntary distribution on a specified time after the participant reached normal retirement age. For some individual-account retirement plans, especially a plan under which the only form of distribution is a single sum, there can be reasons a plan designer might want an account emptied before any amount would be treated as a § 401(a)(9)-required distribution.

What? New "forfeitures" in a DC plan simply are internal transfers from the participant account to a plan holding account. They are not a distribution, contribution, or income. If forfeitures are used to reduce employer contributions from the forfeiture account, you would reduce contribution shown by the forfeitures reallocated.

Some plans provide an involuntary distribution after normal retirement age.

with credit to Mercer at https://www.mercer.com/en-us/insights/law-and-policy/secure-2-0-student-loan-match-101/: maybe it can't be made on a payroll basis...

May I ask why not doing a conversion? Cusefan has very good points and then some to the reasoning of terminating. This way, you will continue with the very high deduction limits, not to worry about prior distribution adjustments, establishing new salary history etc etc. Simply do the conversion at end of the year with the (A+B) method - only permitted method. Of course, I have no idea what the facts and circumstances are here so everything I am saying above is from my point of view.

Bill Presson, thanks for that FYI from ASPPA annual. I did not attend this year. John, I did email the plan sponsor to ask her about the interns and her comment. They are an engineering firm, so it is possible that they are college students on the 5 year plan, but I specifically asked what happens - do they terminate, or move on to F/T?

Or it's been allocated as, say, a profit sharing "contribution." But it's not a contribution on the income statement, nor should it be netted with distributions; seeing only two incorrect options is what elicited the "What?" reaction from Lou S. (I guess maybe the OP might think of your example as "netting" $10K - $2K to get $8K. But anyone who is thinking of the distribution as $10,000 and requiring some kind of income to offset it is...uneducated, to be as polite as possible.)

Probably OK but if the terminating plan has excess assets that are being allocated remember to include those in the benefits when coordinating 415 limits with new plan. Also, if you were and/or will be aggregating with a DCP to satisfy coverage and nondiscrimination, they need to have the same plan years so it might be cleaner to terminate 12/31 and start new plan 1/1. I assume this is likely an owner-centric plan and the owner(s) want to roll lump sums and self invest, settle the liabilities and risk thereon, otherwise simply freezing traditional formula and converting to CB would save a lot of time and expense.

You are correct; it's not cross-referenceable. But, even back when we created our own notices, I did not even think about forceouts having to be in the notice. And if FTW doesn't include them, that's enough cover for me. I always thought of (G) (below) as describing when they could get money from the plan. We all have bright, or fuzzy, lines of ridiculousness and this is on the ridiculous side for me. (Not saying you are ridiculous, but if someone from the government tried to make a case about this...) (G) Withdrawal and vesting provisions applicable to contributions under the plan;

Is it a preparer of the 5500 or the auditor? If it's the auditor, run!

Peter, I agree that if you're going to essentially overshoot the LTPT rule and be extra generous like that with the deferral eligibility, that you won't have a vesting problem where some might be 500 and some might be 1000. I'd be concerned about other unintended consequences, but haven't thought them out too much.

For DC plans, 415 limits how much can go into a plan in a given year. There is no limit on how much can come out; the participant gets whatever was contributed plus any earnings. For DB plans, 415 limits how much can come out of the plan at retirement. There are no limits on what can go in*, but generally it wouldn't make sense to put in more than would be allowed to be paid out. The actuary will help you determine a contribution formula that will get you to the desired retirement benefit. *There is a limit on how much can be deducted, but that is not really the question here.

Bri, do you think that vesting trap can be avoided by making all employees eligible for elective deferrals, with no eligibility service condition? IRC § 401(k)(15)(B)(iii) about vesting applies only to “an employee described in clause [401(k)(15)(B)](i)[.]” That clause refers to “employees who are eligible to participate in the [§ 401(k) cash-or-deferred] arrangement solely by reason of paragraph [401(k)](2)(D)(ii)[.]” If an employee did not become eligible for elective deferrals because of § 401(k)(2)(D)(ii), wouldn’t the plan determine vesting service without any variation from § 401(k)(15)(B)(iii)? Or is there something I’m missing?

This is quite different. It's not really pooled because everyone has their own account. Just out of curiosity, I would be interested to know if the trustee is actually managing the accounts differently for each participant based on age or other criteria. It's closer to them all having an outside manager and effective X date, they're on their own. I would be shocked if a blackout notice is needed, though some kind of notice would be wise.

I think the answer might depend upon how the plan was written, and whether the change is to bring things into line with the way the plan was written, or it is an actual plan document change. Or not...somehow I doubt that on a practical level anyone's ability to get a loan or distribution is really affected. I can say that I have never done a blackout notice when going from pooled (which this effectively is) to self-directed.

Good point about a SIMPLE (with a match) since the owner may not want to have to cover himself under the SEP, as the OP suggests.

A. Does that really have to be in the SH notice? I don't think so...can't say I'm looking at the latest regs, but my recollection is that you can reference the SPD for such stuff, and that's what FTW does in their SH notice. B. If you are including it, I think you have to put blinders on and pretend you don't know about the pending increase. Or, just put it in. Either way, I don't think anyone is going to pore over a SH notice and compare it to...whatever, actual plan operation and/or documents given at the time of distribution.

Yes, they can. Do they need to? Different question, your actuary can help you there. Sometimes terminating one plan in one year and starting the next plan in the next year will accomplish your goals and save you an unnecessary extra year of administrative costs.

yes, the rule of thumb is that a new plan ought to be "materially different" from the one which is terminating. Obv, IRS has never defined "materially different" so it is up to a practitioner to interpret. I have seen positions taken that a different interest crediting rate (old plan 5%, new plan 3%) is a "materially different". Going from DB design to CB design feels OK.

The IRS's guidance on rebalancing and reshuffling is helpful on the diversification piece. As far as buying back shares following a reshuffling or rebalancing, the plan sponsor can always redeem shares out of the ESOP trust. A current valuation would be required (as would trustee approval) as the plan sponsor is buying shares directly from the ESOP trust, but it's certainly possible. The trust just ends up with a larger proportion of cash compared to employer stock. If there are other non-ESOP shareholders, their ownership percentage would be increased; if not, there are simply fewer shares outstanding.

Here’s the rule: The term “blackout period” means, in connection with an individual account plan, any period for which any ability of participants or beneficiaries under the plan, which is otherwise available under the terms of such plan, to direct or diversify assets credited to their accounts, to obtain loans from the plan, or to obtain distributions from the plan is temporarily suspended, limited, or restricted, if such suspension, limitation, or restriction is for any period of more than three consecutive business days. 29 C.F.R. § 2520.101-3(d)(1)(i) https://www.ecfr.gov/current/title-29/part-2520/section-2520.101-3#p-2520.101-3(d)(1)(i). As Luke Bailey points out: Even if there is no disruption to an individual’s power to direct investment (because the plan does not provide such a power until after the recordkeeping change is completed), a blackout might result if there is a practical inability to get a loan or distribution.

khn, CuseFan's advice is spot on, but he leaves out the more modest and simpler alternative, which would be a SIMPLE IRA. I would take a look at that as well.

TPApril, I agree. But you'd think that some of the student loan servicers would link up with payroll providers to make the whole thing automatic. Maybe some are doing that.

david rigby, take a look at Treas. Reg. sec. 1.414(l)-1(e). Basically, if both plans are adequately funded to pay all benefit liabilities on a termination basis before the merger, you're home free because obviously the merged plan will also be able to do that. However, if either or both plans are not fully funded, then, absent some special measure as required by 401(a)(12) and 414(l) the participants of the pre-merger better-funded plan would receive a smaller benefit on termination after the merger than they otherwise would have received had the plans not been merged, and correspondingly the participants in the pre-merger worse-funded plan would be better off on termination than they otherwise would have been. To correct for this, the merged plan must contain a provision that modifies the ERISA Section 4044 schedule to compensate for that and you have to provide a statement that shows how that would actually work out on a termination immediately after the merger for each individual participant, showing what their funded benefit was before and after the merger (must be at least the same). That's basically it, but there are of course details.

thepensionmaven it's going to depend on whether there is a disruption to a participant's ability to take a distribution or loan while the change is going on behind the scenes. In this case, which seems fairly unique, determining whether there is any such disruption may require some exercise of judgement.

Whether they are an LTPT or not depends on whether they meet the requirements under either S1.0 or S2.0. We still need guidance on whether they can be part of a class exclusion.

I've seen, back when the RMD was based on 70-1/2, plans defining (as Peter states above) an RMD of 69-1/2. Although I'm unsure why, I think it was originally done to make sure they don't fail to comply with the 70-1/2 date. As I read it, there is no requirement to change to 72 or anything else.

While you’re helping your client consider its decision-making, consider—among many points—this question: What bad consequence would or might result if these employees become eligible to elect deferrals but are excluded from all employer-provided contributions?

What are you trying to actually trying to accomplish? Force terminated folks out? Force older active employees to take distributions? Some plans can be amended to force distributions at normal retirement age, regardless of balance.

Unless one has inside information, we don’t know exactly when the IRS will release the adjustments. But we can confidently presume the Bakers will post it on BenefitsLink promptly after the IRS’s release.

Many businesses use pro re nata, as-needed, on-call, or other intermittent employees. Unless the plan’s governing document provides an involuntary distribution on the participant’s reaching a specified age, the plan’s administrator should decide whether the individual is severed from employment. A required beginning date refers, in part, to “the calendar year in which the employee retires.” I.R.C. (26 U.S.C.) § 401(a)(9)(C)(i)(II). For this context, the statute does not define “retires”. The Treasury department’s rule refers to “the calendar year in which the employee retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2/Q&A-2(a) https://www.ecfr.gov/current/title-26/section-1.401(a)(9)-2. The rule does not define “retires”. Following the rule’s text that “retires” is “from employment with the employer”, many interpret “retires” as severance-from-employment. The Treasury department’s rule to interpret Internal Revenue Code § 401(k)(2)(B)(i)(I) states: “An employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.” 26 C.F.R. § 1.401(k)-1(d)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(2). In evaluating whether the individual “has a severance from employment”, the plan’s administrator might consider whether the employer removed the individual from the roster of those the employer might call for an as-needed work shift. Some administrators might look to an absence of a Form W-2/W-3 wage report for a whole calendar year as a clue to ask the employer whether it removed the individual from the roster. If the PRN is for work that requires a professional or occupational license, a nonrenewal of the individual’s license might suggest the individual no longer is available for the work.

We normally prepare and submit VCP filings. We did have one case where the attorney formally submitted it, but hired us to prepare everything. Normally there is no attorney involved. Luke's suggestions seem good to me, but typically our plans are small employers, and they don't want to pay attorney fees for what are normally fairly routine corrections.

IMHO, this is the hardest thing to grasp when first dealing with DB/CB plans, however once it's clear, it's always clear. But it's then extremely important to help the client learn. And that's one of the toughest parts of client service with DB/CB plans.