Leaderboard

How is that a failure under 414s?

And just to add to the above, although the IRS has never issued any formal guidance on an acceptable "de minimis" percentage, a widely accepted (or at least utilized) percentage is 3%.

Agree with Bill. The test under 414(s) is not how close the two percentages are, but rather whether the HCE percentage of total compensation exceeds by more than a de minimis amount the non-HCE percentage. In other words, you only have a 414(s) failure if the HCE percentage is too far above the non-HCE percentage. The other direction doesn't matter. 1.414(s)-1(d)(3): Nondiscrimination requirement—(i) In general. An alternative definition of compensation under this paragraph (d) is nondiscriminatory under section 414(s) for a determination period if the average percentage of total compensation included under the alternative definition of compensation for an employer's highly compensated employees, as a group for the determination period does not exceed by more than a de minimis amount the average percentage of total compensation included under the alternative definition for the employer's nonhighly compensated employees as a group.

The feature to take an in-service withdrawal from match or profit sharing accounts if the amounts have been in the plan for at least 2 years has been around since before ERISA. Revenue Ruling 71-295 clarified Revenue Ruling 54-231 that the time period had to be at least 2 years, and Revenue Ruling 73-553 clarified that the count starts from the date a contribution is deposited into the employee's account (i.e., not the date the contribution was accrued). There does not seem to be any clarification regarding how earnings are considered. Using the actual account balance from 2 years ago is a safe option. It is clear that contributions deposited within the last 2 years are not available. Adjusting the amount for earnings is acceptable if the accounting detail is available to calculate the actual associated with the 2 year old balance.

In order to truly correct, earnings on earnings should be done. That is how I have always done corrections. The idea is to make the participant whole, so they should have earnings through the earnings deposit day.

I have an educated guess, but interpretation of plan provisions is up to the plan administrator or other fiduciary charged with the authority and responsibility. Check with them.

Right. This is the correction under the facts of Ex. 9 of Section 2.02(1)(b) of Appendix B of Rev. Proc. 2021-30, which are the same as these facts.

Make the person who wrote that provision tell you what it means? Sorry, but more attorneys need to made to be called out for writing vague provisions in plans. I know there are some wonderful attorneys who read these threads but a pet peeve of mine for years has been how disconnected some ERISA attorneys are to the practical issues of the provisions they write. Throw it back at them to tell you how to implement it. We are Third Party Administrators. We aren't paid to fix these people's messes. Off soap box now.

If 100X fails, try RR 74-307 rule but keep in mind that it is based on years of participation only, cannot use years of service. When determining the lump sum for 74-307, 415 limit should be adhered to i.e. do not base the lump sum based on a very high mortality table that exceeds 415 lump sum at NRA. This lump sum is based on projected monthly benefit at NRA which can change from year to year. If you continuously reduce the benefits and/or freeze the plan, you will need to recalculate the insurance coverage and make sure that incidental limits are not exceeded. When applying RR 74-307, do not forget the 66.66% rule for whole life and 33.33% for universal/term life. You can certainly flip flop using 100x or RR 74-307, no requirement that it has to be the same method to check. However, as always, please check the plan document language and see what is allowed and what is not. My 2 cents FWIW. FYI, I hate insurance in any pension plan, nothing but trouble and never explained by agents properly and what the consequences are, what do I know.

I think you meant to say "no quid pro quo" - I agree, there are pros and cons, but I don't think you are doing anything unethically by hiring a client - would agree, might not want to mention your connection for fear of something for nothing. When you have local clients, it is always interesting when you interact in the "real world".