Is anyone else fielding questions about the attached Q&A from 2009 ASPPA conference? In it, the IRS representative took the position that a traditional DB plan that does not issue a § 203(a)(3)(B) suspension notice at NRA, but instead provides for continued accruals at the same rate as pre-NRA, must pay both those continued accruals and actuarially increase the benefit year-to-year.

Our experience is that a great many plans in this situation provide the greater of continued accruals or the actuarial incease; that is, they offset the continued accruals by the amount of the actuarial increase. They do so without mentioning the offset, and they do so whether the plan (i) provides for a suspension notice (which the administrator fails to send), or (ii) simply doesn't provide for a suspension. The IRS is taking the position that the plan cannot use the greater-of approach at all, unless the document specifically provides for it.

The IRS's rationale is that the plan says the participant gets continued accruals, so ERISA (and the Code) requires the plan to provide them. Period. ERISA and the Code also require the participant to be made economically whole for the "suspended" payments. Period. The regs (which regs is another question--see below) offer a means of offestting the adjustment against the accruals, but to use that method the plan must contain language describing it.

I can see the IRS's point: the plan requires the continued accruals, and there's an extrinsic legal requirement to either issue a notice or pay the "actuarial increase." The rubber meets the road when you calcuate the increase, however.

One can read the 1988 proposed regs (see § 1.411(b)-2(b)(4)(iii)(A)) as requiring the plan to provide for the greater-of approach. The language is pretty soft ("A plan may provide . . ."), but I can sort of get there. I don't think it's the only reading--or that most lawyers and actuaries have read it that way.

I don't see a similar requirement in the 2002 proposed regs. Maybe I'm missing it.

I'm also confused by the fact that the IRS seems to be opining that the 2002 proposed regs control. The 1988 proposed regs were generally effective as of 1/1/1988; the 2002 proposed regs state quite clearly that they are not effective until final regs are issued. It seems like the 1988 regs (which generally require a smaller actuarial increase) are at least as authoritative as the 2002 regs (becuase they actually have an effective date), but that a good faith interpretation of the statute is still permissible, given the absence of any final regs.

And unless I'm mistaken, industry practice is well settled the other way--i.e., plans use the offset without specifically providing for it, both to correct the failure to send suspension notices (in plans that call for them) and to calculate late retirement benefits (in plans that don't). Note that EPCRS has approved a number of corrections for failure to provide suspension notices since 2000, and according to the annual Ernst & Young index of these corrections, the "greater-of" approach was used to calculate the corrective payments.

Any comments appreciated. Thanks.

2009_Gray_Book_QA_39.pdf

One of my plans includes bonuses in the definition of compensation and does not allow for special deferral elections to be made on bonuses. What happens if a participant elects to have a certain dollar amount deferred from each paycheck and that amount is greater than their actual bonus will be? For example, participant defers $300.00 per pay period. Bonus is only going to be $200.00. Does the entire bonus have to be deferred?

Thanks!

My client uses total compensation as their definition. For some reason they thought it excluded bonuses. 2 NHCE's received a bonus and did not defer on that bonus. First they did not use the correct definition and even if the plan excluded bonuses 414s would fail. How do I correct this? Do I tell them that deferrals should have been taken out of the bonus? What would happen under audit?

Is anyone aware of recent spot surveys regarding trends in matching contribution formulas or suspensions of match, particularly among the Fortune 500?

We suspended our match in 2009 and I'm trying to make a case for reinstatement in 2010.

Thanks very much.

Some threads have a blue folder on the left and some have a red one. The legend says that the red ones are "Hot Topics." What makes a topic "hot"?

I thought it was views and/or responses, but I saw a red one with 9 responses and 129 views, but a thread with a blue folder had 7 responses and 152 views.

Are you required to have a plan sponsor signature on a hardship withdrawal form as authorization to process the distribution?

I was hoping someone would be able to point me in the right direction. I generally deal with Premium Only Plans and Flexible Spending Account plans, so I am very familiar with those rules but have been recently asked a question related to a participant cancelling a health insurance plan for the sole reason saying they can not afford it. This participant is on their employer's group health insurance plan currently. They are not part of a cafeteria plan and pay their premiums via a deduction from their salary on a post tax basis. Is this permissible or do the same regulations exist as they do for Cafeteria plans (1.125-4) that would prohibit this individual from cancelling their coverage without such event? Can you point me to the regualtion that would outline this? Thanks so much!

A plan sponsor wants to start a qualified DB plan for 2009.

If we provide a prototype document containing the required eligibility and benefit language by year end, must we also provide an add-on amendment for all post-GUST items at the same time? Can those add-ons be attached to the basic document without requiring an added signature?

Can we include in the adoption resolution that all required amendments are incorporated automatically without separate signature?

For background purposes, we are using Corbel prototype standardized documents sponsored by our own firm.

An employer has terminated their 401(k) plan and has already issued payouts. All employees have already received their funds, in July of 2009.

The employer is now completing a Form 5310, qualification for plan termination. Are they required to issue a Notice to Interested Parties? Information from the IRS website says that for plan terms, the Notice goes to any employee with a vested benefit in the plan - but everyone has been paid out.

Any thoughts?

A non-owner who is still working turned 701/2 in 2004 and elected to start taking her RMD. Can she now stop? I can't find the answer to this question anywhere.

Thanks

A 401(k) prototype used by a Dr.s' Group makes a safe harbor match AND a nonelective discretionary contribution. Because of the nonelective discretionary contribution the plan then is subject to the top heavy test.

The plan wants to reduce the cost of the plan. They will continue to make the safe harbor match; will not be making the nonelective discretionary contribution; and will be excluding the highlys from the the employer match.

Two questions:

Do these seem like reasonable ways to reduce costs?; and

Does any reader have any other/alternative suggestions?

All responses will be gratefully received and appreciated.

Did anybody else read ASPPA ASAP No. 09-44 and come away thinking that cash balance plans needed to be amended by 12/31/2009 if their existing interest credit might not satisfy the eventual final regulations?

IRS Announcement 2009-82, issued a couple/few weeks ago seemed to say that you need not amend the interest credit until after final regulations on hybrid plans are issued, provided that the plan is amended before 1/1/2011 (if it needs to be amended at all). I took that as basically a 1 year delay in the required amendment and change.

Then ASPPA ASAP 09-44 comes out and references and discusses 2009-82 but I cannot determine it's conclusion if other than that plans must be amended by 12/31/2009 if the interest credit is inconsistent with the final regulation.

Can anybody clarify the rules and amendment requirements if, for example, a CB plan currently credits a flat 5.50% and would prefer to retain this until forced to change? Assuming that 5.50% is no acceptable under final regulations, does such a plan need to be amended by 12/31/2009, or 12/31/2010?

A client with Schedule C income recently set up a one person LLC and plans to report all income on Schedule C. He has an existing Keogh. I understand he obtained a Taxpayer ID for the LLC. I am wondering if anything needs to be done to the KEOGH plan adoption agreement - is this a new adopting employer even if all income is going to go on Schedule C? Or, do we continue with one Keogh, no changes, etc.

Thanks for feedback.

Am I right in concluding (generally) that:

1. qualified stock option plans and non-qualified stock option plans are not covered by 409A to the extent the requirements of the regs are satisfied; and

2. restricted stock grants are not covered by 409A if the employee does not get to transfer the stock until immediately after a substantial risk of forfeiture has lapsed? With regard to question (2), what if the board terms the plan and accelerates the payments before the restrictive period has elapsed? Does the short-term deferral exception still apply? Thanks.

If I have a profit sharing plan and the decision was made NOT to submit for a new determination letter, do I still need to restate for EGTRRA to remain in compliance? Any thoughts? Most of the guidance refers to the remedial amendment cycles etc.

Does anyone have a very general sense for how variable a long-term employer's withdrawal liability is from year to year where the plan uses the presumptive method? I know it's the least variable of the methods for calculating withdrawal liabilility but wanted to get a more tangible understanding of how it compares. Assuming typical investment experience, what kind of variability can be expected - 10%, 50%? I realize there are many factors, but if anyone has clients who have been in a plan for at least 5 years and the plan uses the presumptive method, I'd appreciate any info about the w/d liab variability.

Anyone know where I might find some examples of calculations?

Reviewing two documents for the same plan.

1. Original document states that under $5K lump sums will be distributed within 90 days after end of plan year of termination of employment.

2. Proposed document states that under $5K lump sums will be distributed after a break-in-service.

Does 2 fail 411(d)(6)?

When I'm doing a DB val, I use a separate table for males and females. Say RP2000 Male combined funding for males and RP2000 Female combined for funding. Somebody in my office is arguing that I should use the Applicable Mortality Table for funding ...for both genders. We only do mostly small plans ...less than 10 lives.

I was under the impression that tables for funding were gender distinct?

Maybe someone has already run across this...participant has medical bills and requests a hardship. Just about the time the money is direct-deposited, the hospital says "oops, that bill is too high" and adjusts it to some minimal amount.

Is there any way to un-do that?

I moved a Roth account into a variable annuity. Now after 3 years, I finally got more info from my broker than prior to the move: Earnings are taxable prior to age 59 1/2, there is no return of principal, and he receives a commission for amounts withdrawn. He mentioned the surrender charges. I found this out by asking the broker to withdraw from the annuity to another Roth account. I'd like to seek recourse, but the amount may be too small.

Would you happen to know a remedy for this? A 1035 exchange, another broker or something else? Would moving from a Roth Annuity back to a regular Roth help?

I hope you may find time for this question.