I am pretty sure I know that the following is a prohibited cutback of a protected benefit under 411(d)(6). Do you agree?

Plan allowed in-service distributions of vested profit sharing amounts at age 59.5. Sponsor wants to amend so as to require participants be 100% fully vested before they can take an in-service distribution.

The sponsor cannot do this; agreed?

The 2015 5500 updated the definition of line 4l on the Schedule H to

Line 4l.

You must check “Yes” if any benefits due under the plan were not timely paid or not paid in full.

This would include minimum required distributions to 5% owners who have attained 70½ whether or not retired and/or non-5% owners who have attained 70½ and have retired or separated from service, see section 401(a)(9) of the Code. Include in this amount the total of any outstanding amounts that were not paid when due in previous years that have continued to remain unpaid.

Does anyone know why this was not included in the "Changes to Note" in the 2015 instructions? It does not appear to be optional.

Mandatory employee contributions to a governmental 401(a) DB are after-tax. If an employee separates from service prior to becoming fully vested, they may elect to take an ERD of after-tax employee contributions (no employer contributions or earnings). Is the employee permitted to initiate a direct rollover to another eligible plan or IRA of these solely after-tax employee contributions?

Controlled Group: 1 plan is safe harbor and 1 plan is not.

Plans do not pass coverage separately. Can I permissive aggregate the SH and non-SH plan for to pass coverage? If I can, I understand I now have to run an ADP/ACP test on a combined basis.

In other words, for SH plans you are deemed to pass ADP and do not have to run a test. But am I 1) "allowed" to run a test 2) run a test on an aggregated basis with a non-SH plan. (Assume same plan year end and testing method)

Any thought would be greatly appreciated.

Other than through a rabbi trust, is there any way a company can be prohibited from using their nonqualified plan assets as collateral for loans?

I'm not aware of any. Does non-assignment play into this?

I am the TPA on a 401(k) Plan that has life insurance policies and the premium payments are paid directly from the life insurance policy holders 401(k) participant account.

How should these premium payments be reflected on the 5500?

The Plan Auditor is telling me the change in value is netted against the premiums paid and is reported on line 2b(5)(b) on the Schedule H.

Any help is greatly appreciated.

We are the advisor on a bundled plan whose ADP/ACP testing was done incorrectly. The client questioned it and eventually was told that any further questions would result in a $200 per hour fee to answer. Then they came to us for assistance.

The explanation I received from from the provider when I was unable to duplicate their results was that the difference related to orphan match due to the ADP test refunds. According to my calculations, both of the people receiving ADP refunds had sufficient remaining deferrals to justify the full match remaining in their accounts.

When pressed for an explanation, I was told that because the plan requires a match per pay period and they refund the most recent deferrals first, the match associated with those pay periods must be forfeited. I had never heard of doing it that way, and told them so (hoping my ASPPA designations would carry at least some weight). They responded saying that they had never heard of refunding unmatched deferrals first as I suggested and they didn't believe it would be allowed.

A brief review of their basic plan document revealed language requiring that unmatched deferrals be refunded first. I referred them to that language and asked that the tests be corrected. In response, I was told that they would look into it.

Ignoring the language in this document, has anyone ever heard of refunding based on LIFO as a basis for determining orphan match to be forfeited?

How long would you wait for an answer?

Client currently offers variety of ERISA-covered welfare plans and wants to consolidate into single wrap plan. Plans include a self-insured health plan (with VEBA) and a combination 125/health FSA/dependent care plan (single plan document, single plan number). I have read conflicting opinions on whether including a health FSA in a wrap is advisable given the existence of the self-insured health plan/trust. Some advise against it because the trust requirement (which would not otherwise apply to the health FSA given DOL 92-01) will then apply to the FSA pre-tax contributions. Thoughts?

A small DB plan was merged into a larger one as of 12:01 a.m. on January 1, 2016. I have no idea why the documentation said this, but it was done intentionally with professional advice. Participants were told the merger was occurring as of 12/31.

Can/should I file a final return for 2015 for the smaller plan?

We have a prospective client that has 50% ownership in two entities. They do not have a controlled group but meet most of the criteria of being an affiliated service group.

They are in the lending business. They basically attract investors and then make loans to businesses in a specific industry. The prospect has a lot of knowledge in that industry.

Generally, a service organization is one in which capital is not a material income producing factor. In this case, capital is a material income producing factor. In every other respect, the entities resemble service organizations that together provide services. Would these be considered service organizations?

Thanks.

Recently won a client with 3 small DB plans (80, 20, and 5 participants). The prior actuary is refusing to release the data unless the client pays exit fees of $500 per plan (they are paid up otherwise).

Questions:

1) Are exit fees common? In over 15 years, I have not seen them (especially in the small market). $500 for a 5 person plan seems rather excessive.

2) In my view they are essentially holding the data for ransom. Based on IRS Circular 230 and actuarial code of conduct, I don't believe this is allowed. Plus, this fee was not previously disclosed to the client.

3) Coincidentally, a couple of years ago this firm took a client from us (with 3 DB plans). We transferred the data and answered follow-up questions (no fees charged). I asked for the same professional courtesy, and they are flat out refusing.

Options?

We have an S-Corp that owns a related entity. I know the synthetic equity of a related entity is included in the S-Corp's 409(p) testing.

Several participants have profits interests in the related entity. This gives them a right to share in the profits of the related entity, but it's not directly related to the value of the stock of the related entity.

Should we include these profits interests in our 409(p) test?

If so, how do we determine the number of shares the profits interests are equal to for purposes of the 409(p) test?

Well here's a new one (at least for me). Participant and spouse file for divorce, obtain a QDRO and submit it for processing. They subsequently reconcile and request that the QDRO not be processed -- but the transfer has already happened. Is any correction required/allowed?

Participant invests in a hedge fund set up as partnership. The partnership agreement provides that 20% of the income apportioned to the limited partners (participant) should be allocated to the general partner. The don't call this a fee, but rather an incentive allocation.

I understand the difference from a tax perspective, but for 5500 purposes do we call that incentive allocation a fee?

Thanks in advance for any guidance.

We have a Non-ERISA 403(b) Church Plan that is looking to add automatic enrollment. they want to apply it only to employees who will be eligible to receive the match (which has a stricter eligibility requirement than salary deferrals). Is this something they would be allowed to do?

Normal Retirement Age is later of 55 or 5 years participation. Participant directed 401(k) with a Profit Sharing Allocation. If there is no investment election on file, the Profit Sharing is invested in the Target Date Fund closes to NRA.

Question - According to the QDIA the Target Date Funds are based on the participant's 65th birthday. Since NRA is 55 do the Target Date age brackets need to be based on age 55 vs 65??

Thanks

Does anyone have experience with what IRS will accept as a correction when participants were offered investment options that the plan document did not permit?

Situation is that participants were allowed to self-direct their own accounts. The trust document specifically said that they could not self-direct to a limited partnership. The trustee nevertheless permitted participants to do this.

The failure is probably not "significant," and even if it were, we're probably within the time for correcting a significant operational failure, so we should be able to use SCP. However, even under SCP, we're supposed to correct the failure. And we have no idea how to do this.

IRS guidance says that amending the plan to retroactively cause it to reflect what was actually done is available only in three specific situations, none of which is this one. So presumably, we're supposed to retroactively take these people out of the limited partnerships. But how would we even do this? Presumably, they would argue that but for being allowed to invest in the limited partnerships, they would have invested in whatever, with 20/20 hindsight, has proved to be the most favorable option. But if the employer makes a contribution equal to the income they "lost" by not being in the most favorable option, that contribution would go to the most highly compensated employees (because they were the ones most likely to choose the limited partnership option), which doesn't sound right. But if we retroactively put them in the default option, I'm concerned with a 404© or other ERISA violation (not to mention, severely ticked off employees if that is less favorable than the limited partnerships).

Any other options? Or has anyone had a failure that was significant enough and had gone on long enough that they had to go in under VCP, and thus gotten some IRS guidance on how to fix this?

We have three dentists, each with their own PC. Together, they also own (1/3 each) in a partnership that does the billing for the three dentists, collects the rent from the dentists and pays other dental expenses.

Each dentists has his own plan.

There are two employees in the partnership, one works 70% for one dentist, 30% for the partnership (PT 600 hours) - receives W-2 from each.

The partnership employees are not on W-2 for the other two dentists.

Don't the two employees have to be covered in the plans of dentists 2 and 3??

Need to find a Qualified Termination Administrator for an abandoned plan in the Norfolk, Virginia area, any recommendations appreciated.

Checking my memory - is any of the following untrue? (I know there are additional details that I've left out, intentionally)

Re nondiscrimination testing using rate groups.

1. Each rate group must pass either the ratio percentage test, or the average benefits test.

2. For any rate group (or groups) that fail the ratio test above, the average benefits test must be passed for that rate group.

3. Average benefits test consists of two parts, both of which must be passed. One is the nondiscriminatory classification test, (let's call this 4) and the other is the average benefits percentage test (let's call this 6).

4. The nondiscriminatory classification test is itself a 2 part test:

(a)(i) determining the ratio percentage for each rate group (which you probably already did, unless you skipped the ratio percentage test and went right to the average benefits test) and checking to see if the percentage in (a)(i) is =>the testing percentage in 5 below.

5. Several steps, which I won't go into here.

6. Average benefits percentage test - this is performed at the PLAN level, not the individual rate group level. And this may require recalculation of benefits percentages used previously.