Let's say that a plan is relying on the maximum disparity safe harbor from Notice 89-23 for purposes of nondiscrimination testing. For example, it gives a 5% contribution to NHCEs and a 9% contribution to HCEs. Okay, now let's further say that the plan's definition of compensation for allocation purposes excludes some things like commissions and bonuses, but it passes 414(s). When figuring out if the plan is nondiscriminatory, would this plan satisfy 89-23 or do you have to do a 401(a)(4) test using a safe harbor 414(s) compensation definition?

I am considering a Roth IRA. I want to make sure that I can designate anyone I choose as a beneficiary in the event I die. The person I would like to designate is not married to me nor related to me. Is there any problem with this?

It seems clear that the aim of the American Jobs Creation Act relative to NQPs was in the direction of "defined contribution" forms of NQPs. But as we all realize, DB NQPs were caught up in the "net." I am working towards constructing a "game plan" as to the most effective and efficient way to work with clients to assist them in bringing their DB NQPs into compliance with the Act. My role is that of actuary/consultant/administrator relative to these DB NQPs.

From my perspective, it seems premature for any client to make significant changes, at this point in time, to their SERPs or "restoration" plans (i.e., excess plans or those restoring benefits limited by the IRC §401(a)(17) compensation limitation). I say this because I anticipate that the next set of released NQP guidance will be more directed towards "defined benefit" NQPs. From what I can tell, the guidance is expected to be released around June 30, 2005.

It seems to me that the best steps to take now are to:

- Identify sections of the existiong DB NQPs that may be affected by the Act

- Participate in ongoing dialogs with the client and counsel so that we can:

-Discuss the pros and cons of "grandfathering" benefits in the DB NQP

-Discuss the ongoing complexity associated with having "grandfathered" benefits in the DB NQP that are still "coupled" with the qualfied plan as to distribution dates and forms of benefit (e.g., complexities in an "excess" plan)

-"Head-off" or redirect changes that could be an administrative nightmare.

I am interested in how others are approaching this challenge.

It seems clear that the aim of the American Jobs Creation Act relative to NQPs was in the direction of "defined contribution" forms of NQPs. But as we all realize, DB NQPs were caught up in the "net." I am working towards constructing a "game plan" as to the most effective and efficient way to work with clients to assist them in bringing their DB NQPs into compliance with the Act. My role is that of actuary/consultant/administrator relative to these DB NQPs.

From my perspective, it seems premature for any client to make significant changes, at this point in time, to their SERPs or "restoration" plans (i.e., excess plans or those restoring benefits limited by the IRC §401(a)(17) compensation limitation). I say this because I anticipate that the next set of released NQP guidance will be more directed towards "defined benefit" NQPs. From what I can tell, the guidance is expected to be released around June 30, 2005.

It seems to me that the best steps to take now are to:

- Identify sections of the existiong DB NQPs that may be affected by the Act

- Participate in ongoing dialogs with the client and counsel so that we can:

-Discuss the pros and cons of "grandfathering" benefits in the DB NQP

-Discuss the ongoing complexity associated with having "grandfathered" benefits in the DB NQP that are still "coupled" with the qualfied plan as to distribution dates and forms of benefit (e.g., complexities in an "excess" plan)

-"Head-off" or redirect changes that could be an administrative nightmare.

I am interested in how others are approaching this challenge.

Many small plans will be amended to reduce the automatic rollover threshold to $1,000 by 3/27/05 because the compliance with the new automatic rollover rules in too cumbersome.

However, many have participants, terminated prior to this amendment date with balances between $1,000 and $5,000, who have not elected to take their benefit and have not been paid out (perhaps some are lost).

How does this impact the plan? Will plans in this situation still have to comply with the new rules, at least with respect to the balances of the prior terminated participants? If so, many employers should begin an intense effort to eliminate these balances by 3/27! Or, can an amendment to lower the threshold apply to those prior term's?

ESOP is being terminated by company. My understanding is that the participant can take the shares without rolling them to an IRA in order to benefit from capital gains rates instead of ordinary income tax rates. The participant must pay regular rax rates on the basis but can defer any taxes on the Net Unrealized Appreciation of the stock. If they hold the stock for a year they then get the benefit of long term capital gains treatment.

For participants under 59 1/2, does the 10% excise tax apply? I do VERY LITTLE work anywhere near the ESOP field but have been asked by a client to help with this question.

Thanks for your help.

-A bad round of golf beats a good day at the office!

We posted a message a view days ago, but have yet to receive a response--which causes us to think that either our questions were nonsensical or we are the only firm in the country thinking through AJCA issues relating to defined benefit type SERPs. Since it is unlikely that we are unique in the latter sense, I will try to more clearly state the issues (as we understand them).

Code Section 409A applies to “nonqualified deferred compensation plans” which are defined in IRS Notice 2005-1 as “any plan. . . that provides for the deferral of compensation (within the meaning of Q&A-4).” Q&A-4 in IRS Notice 2005-1 provides that “[a] plan provides for the deferral of compensation only if, under the terms of the plan and the relevant facts and circumstances, the service provider has a legally binding right during a taxable year to compensation that has not been actually or constructively received and included in gross income, and that, pursuant to the terms of the plan, is payable to (or on behalf of) the service provider in a later year.” There is a general consensus, which we believe is correct, that a defined benefit type SERP qualifies as a nonqualified deferred compensation plan and, as a result, as a plan subject to Code Section 409A.

Plans subject to Code Section 409A must comply with a number of new rules. For purposes of this post, we are concerned with (1) the rule requiring completion and submission of a "deferral election", (2) the rule requiring that annually deferred compensation be reported on Form W-2 (or Form 1099, as appropriate) and (3) for purposes of applying the grandfather rules, the rule dictating how much of a participant's benefit in a defined benefit type plan was earned prior to January 1, 2005.

The last rule is relatively easy to understand because it is explained in Q&A-17(a). However, the IRS, to our knowledge, has yet to flesh-out guidelines relating to the computations necessary to satisfy rules (1) and (2). In order to comply with rule (1), a 2005 deferral election must be completed by March 15, 2005. Since we cannot be the only firm concerned with whether a defined benefit type SERP is subject to rule (1) (despite Grumpy455's response to our earlier post) and, if so, how the amount of the deferral in that context should be quantified, we are soliciting comments/suggestions from other similarly-situated practioners. Any comments are greatly appreciated. Thanks.

Plan excluded a few eligible employees from making deferrals and receiving a Match. Under RP 2003-44 the suggested correction method is to make a QNEC for the missed deferrals and the related Match.

If the intent is to put the Plan where it would have been had no error occurred, rather than make a QNEC for the Match, are you suggesting an alternative would be to make the missed employer Match but put it into the "regular Match" source and subject it to vesting and the other plan provisions applicable to the Matching contributions?

If you do, are you suggesting VCP for this method or just applying SCP criteria?

Sec. 125 says that a participant must make an irrevocable election prior to the start of a plan year. However, in the event of a family status change under HIPAA, the participant may modify their election.

HIPAA defines a family status change as it relates to a dependent or SPOUSE. A domestic partner cannot be considered a spouse, because DOMA limits the definition of spouse under federal law, to an opposite sex married partner.

So, for a long time, we and others, provided for family status changes in elections in the case where a domestic partner could be qualified as a dependent.

Now, my read of the new definition of dependent after WFTRA, is that the domestic partner would, among other requirements, have to make something less than the amount of the personal exclusion for tax purposes (about $3900 or so I think?) in order to qualify as a dependent.

So, as a practical matter, it looks like only non-working domestic partners (or those with only casual incomes) could form the basis of a family status change for a cafeteria plan.

(NOW MY QUESTION): Recently, I was advised by someone that the most recently released HIPAA final rules contain a loosening of this and would, going forward, permit inclusion of a domestic partner in the definition of spouse or dependent. However, I can't find the source of this and the person who told me, although usually reliable, cannot point me to a particular cite I can use to verify.

Is this correct? Does anyone know more about this yet? Please advise. I have participant requests pending and when we went to our outside provider, they didn't even know about the impact DOMA had on HIPAA so they were even less help.

Thanks!

Notice 2005-1 provides that the acceleration of vesting under a nonqualified plan is not itself an impermissible acceleration of payment under Code Section 409A. Since that is the case, any reason why a plan couldn't provide for acceleration of vesting upon a change in control the definition of which does not track the definition in 2005-1? I would certainly think you could be more restrictive, but it seems like you could define it as you wish if it is triggering only accelerated vesting, but not distribution.

Does anybody know anybody who is willing to open IRAs for the dispossessed participants with small balances? Everyone I have spoken to says they don't want them because they can't make any money from them.

For purposes of determining when a cause of action accrues under ERISA 502(a)(1)(B), the participant must have made a formal claim for benefits. However, my understanding is that under the discovery rule if the plan has made a clear repudiation of the benefits claimed such that the participant should have known of the denial, then a "formal" claim is not necessary. We are certain that we definitively told the participant's attorney that the person is not entitled to benefits. Can the attorney's knowledge be imputed to the participant such that the SOL begins? Any help/guidance/cites will be greatly appreciated

I am running the general test for a short plan year 7/1 -12/31. Under 410(b)-5(d)(3)(ii) it states: An employee’s employee benefit percentage is determined on the basis of plan years ending with or within the same calendar year. These plan years are referred to in this section as the relevant plan years or, in the aggregate, as the testing period.

Now in 401(a)(4)-1©(3) it states: The requirements of paragraph (b) of this section are generally applied on the basis of the plan year and on the basis of the terms of the plan in effect during the plan year. Thus, unless otherwise provided, the compensation, contributions, benefit accruals, and other items used to apply these requirements must be determined with respect to the plan year being tested.

I am a bit confused as to how to run the AB%T. Do I include both plan years that end in 2004 or not?

Does an insurance policy inside a Welfare Benefit Trust have spousal consent requirements like a qualified plan where in order to name a beneficiary other than a spouse it requires spousal consent ? (I don't think this would apply but just want to make sure). Thx.

409(p) requres the present value of synthetic equity be determined, but gives no hints regarding the discount rate. We are a TPA firm rying to perform the test properly. I have received no responses to my message board post on 11/17 regarding this issue, so I thought I'd try this.

In a cross tested top heavy profit sharing plan with no 401(k) feature, does there need to be a 3% minimum contribution to NHCEs? The ER has contributed $0 for 2004 and does not want to contribute anything. Thanx.

Funny, lots of views, nobody responding.

I represent a recordkeeping firm, that is preparing to market a solution for the industry. I am doing some polling to determine interest in such an offering.

I'm not a DB person, so pardon my terminology if it isn't quite accurate.

With the EGTRRA change, you no longer count service after 2001 for additional TH accruals if the plan is frozen. However, it seems to me that there's no mention of freezing the benefit - if your average comp goes up, then you have the same TH percentage, but of a higher salary.

For example - prior to a plan freeze effective 1-1-2002, participant has accrued a TH benefit of 6% of a high-5 average salary of 20,000, or 1,200. Three years later, with the high-5 average being 30,000, is his TH benefit:

A. still 1,200, or

B. 1,800?

I'd vote for B, as I see nothing in the statute or regs which indicates otherwise.

Additional twist - suppose as of 1-1-02 the client adopted a PS plan that specified that the PS plan would provide TH benefits of 5% if required, but for 2004 there is no contribution to the PS plan. If the answer to the DB question is (B), then does this reqire a contribution to the PS plan? I guess that depends on whether the increase to 1,800 is considered "accruing" an additional TH benefit? Anybody wrestled with this question yet? My inclination is no contribution to the PS plan, as no HC is accruing a benefit in the DB plan.

A client excludes non-resident aliens from their retirement plan. There is a "substantial presence test" which states that if an individual is present in the United States for at least 183 days over the current and preceding 2 years that that individual would be redefined as a resident alien. If that is true, that individual would need no longer excludible from the plan.

Is that a correct analysis? Any comments?

We have a non-qualified Employee Share Purchase Plan that offers a 15% discount. We are currently taxing employees on the discounted amount for Federal, State, FICA and Medicare.

Are we taxing employees correctly on the discount?