M R Bernardin

I'm not sure about 416, but the grace period for 410(B) is the end of the plan year following the plan year in which the acquisition occurred, provided each plan satisfied 410(B) prior to the acquisition. You can find this in the regulations under 410(B).

Although some would argue otherwise, I think this is permissible so long as there was a bona fide separation from service and the plan document does not preclude payouts if the participant is reemployed before the distribution occurs. You need to be careful so that you do not make an impermissible in-service distribution but, on the other hand, the plan document clearly gives the participant a right to a distribution upon termination and most documents do not address what happens upon reemployment. We asked an IRS agent his opinion, and he agreed a distribution was permissible if the separation was bona fide. Of course, you can't rely on that.

Theoretically, you could give a safe harbor contribution to less than all HCEs, since the only requirement is that all eligible NHCEs receive the safe harbor contribution. For example, we have drafted documents to provide the safe harbor for all NHCEs and all HCEs who are non-keys. There is nothing to prevent you from discriminating against other HCEs, so long as a nondiscriminatory group of employees benefits under the safe harbor contribution under 410(B) and so long as each benefitting employee receives a uniform rate of compensation under 401(a)(4). However, as the prior post indicates, the employer may be required to disclose to the other HCEs who is getting the safe harbor contribution, and that may be unpleasant. I do not believe you can give the safe harbor only to certain members of a controlled group, unless each member is covered under a separate plan. It is not sufficient that the plan satisfy 410(B), but that all eligible NHCEs in a "plan" (as defined under 410(B)) be covered. A single plan can consist of more than one "plan" for 410(B) purposes, e.g., statutory employees vs nonexcludable employees can be disaggregated and treated as separate plans, bargaining unit employees vs other employee population can be disaggregated and treated as separate plans. But there is nothing under 410(B) that allows different control group members participating in the same plan to be disaggregated and treated as their own separate plan. [This message has been edited by M R Bernardin (edited 02-24-2000).]

I think the current thinking on this is that you leave the deferrals in the plan, place them in a forfeiture/suspense account for future use, and make the participant whole outside of the plan by reimbursing them the amounts erroneously deferred. I would think you would also adjust the W-2 to show that nothing was deferred by this individual.

Have you looked at Section VIII.G of Notice 98-52? I interpret that section to mean that generally no MU testing is required, since the deferrals under the safe harbor CODA are disregarded in applying the MU section of the regulations.

Until the end of the RAP, you don't have to have any safe harbor language in your plan document at all. If you provided timely notice to employees about which safe harbor formula you were going to use, you should be okay. By the end of the RAP, you should have more definite plan language than it sounds like you currently have.

A 1041 is used to report trust income; it is the tax return for a trust, generally including non-qualified trusts. But if you have read the instructions, you will see that there are alternative ways of reporting the trust income for grantor trusts, since the income is includable in corporate income. Also, sometimes a trustee's powers are so limited that the IRS does not consider there to be a separate taxable entity, so that a company with a non-qualified trust might take the position that a 1041 is not needed.

These may seem like "basic" questions, but they are not. If you were to look at the DOL regulations defining employee benefit plan, you would get some idea of what has to exist in order for there to be a plan subject to ERISA. It sounds to me as though you have a pension benefit plan (something which provides retirement income) whether or not there is a formal document in place. And if you do have an ERISA pension benefit plan without a document, etc., then you may have some problems. There are also a number of court cases which construe whether a plan exists. They revolve around factors such as whether there are discernible benefits and whether an administrative scheme is necessary to pay benefits. As for qualified vs. nonqualified, there aren't really any rules that have to be followed to obtain nonqualified status; the rules that are observed in nonqualified plans are to avoid the effect of having employees recognize income before they actually receive benefits (i.e., avoiding constructive receipt). If no funds have been set aside to pay benefits, and employees have no vested rights to benefits, and no right to currently draw on the benefits, and derive no economic benefit from the possibility of receiving benefits in the future, then the payments should be income as they are received. I have no idea how these payments would be reported, but the instructions to the 1099 and W-2 should be helpful once you can decide how to categorize this "arrangement."

I agree with Dave; the current extended RAP will cover any amendment made since approximately the end of 1994, and any plan adopted since approximately the end of 1994, whether the disqualifying defects (if any) relate to the GUST laws or not. However, if you have amended your plan to do something that is fairly aggressive, the earlier you submit it for a ruling, the better, since the RAP only gives you the ability to retroactively cure something, and you probably don't want to have to go back for 3-4 years or more to fix a defect. The non-GUST RAP is generally the due date for filing the employer's tax return for the year in which the change was made. Look at the regulations under 1.401(b) for more guidance.

Maybe what the CPA is saying is that the only way to absolutely ensure the key employees don't defer while the plan is top heavy is to have them sign a participation waiver. I would agree with that. You can perhaps have an informal arrangement with your key employees that they will not defer, but if the plan document does not exclude them from participation, then if the keys change their mind and decide they want to defer, the employer could not prevent it.

We have some that do. We look at which employees would be moved from the HCE to the NHCE group, and then at what those employees have deferred in the past. If their deferral rates are high, treating them as NHCEs would be helpful. If their deferral rates are not high, keeping them as HCEs is usually best.

You may want to take a look at the Frost and Aetna advisory opinions issued by the Department of Labor back in 1997. The Aetna opinion is at http://www.dol.gov/dol/pwba/public/program...ry97/97-16a.htm the Frost opinion is at http://www.dol.gov/dol/pwba/public/program...ry97/97-15a.htm [This message has been edited by Dave Baker (edited 10-13-1999).]

I would have thought it would be okay to recognize compensation with the acquired entity, based on the theory that your client is a continuation of the prior employer and that compensation paid prior to the acquisition is somehow imputed to your client as the successor employer. But I see that the 414(s) regulations permit the use of "prior employer" compensation only for defined benefit plans. This would be an interesting subject for a PLR.

If the document which covers the union employees doesn't exclude the non-union employees, you could have a serious problem, not under 410(B), but just because the non-union employees are going to be entitled to participate and receive the match.

Draft an amendment to exclude them using a nondiscriminatory classification, as you were suggesting. For example, the Plan excludes anyone hired to assist with short-term work fluctuations, etc. (maybe call them persons classified as "influx workers") Then submit the plan to the IRS for a determination letter. Explain to the client that the language might not be approved and what the consequences will be if the IRS objects (e.g., having to possibly contribute a QNEC for those excluded). The IRS may approve the exclusion and the client would have reliance. It has happened before.

The regulations cited provide relief from the anti-cutback rules, but only with respect to people who turn 70-1/2 in a calendar year after the calendar year in which an amendment eliminating the RMD option is adopted. For example, if you adopt an amendment in 1999, you don't have to worry about RMDs for people who turn 70-1/2 in 2000, but that does not mean you can retroactively eliminate the RMD for those who turned 70-1/2 in 1999 or earlier years. If you don't amend within the remedial amendment period, you will not be able to eliminate the RMD option at all, except with respect to future accruals.

It seems to me there were some plr's that held waiving the benefit might allow you to voluntarily terminate under PBGC rules, but that the IRS' opinion was that it did not satisfy minimum funding obligations.

Since a trustee to trustee transfer is not a distributable event, it may be permitted when the terms of the plan and trust allow for it. Usually, it is not permitted except in circumstances where there has been some sort of merger, corporate change, etc., and then it is done on a group basis rather than on an employee-by-employee basis. But, there is nothing to prevent a plan from permitting this on an individual basis. For example, it may be allowed when an employee transfers from one member of a controlled group to another, both of whom maintain separate plans (particularly if the plan defines separation from service as termination from all controlled group members, so that the employee would not otherwise be entitled to the distribution).

I believe an IRS official indicated at an ASPA conference that refunds could not be excluded, so that you would still have a top heavy plan. There may also be some guidance in the top heavy examination guidelines.

I'm not sure I understand the question. Why wouldn't the relevant years be calendar years 1987-1996, since those are the last ten calendar years prior to termination? (Obviously, using the three consecutive years which produce the highest average.)

Just curious, does the plan permit in-service distributions prior to age 59-1/2? If so, the plan could probably eliminate the minimum distribution option without worrying about cutbacks. I agree with your analysis that no excise tax should be owing. However, since the employees eventually elected to defer anyhow, rather than take a distribution, it might be enough of a fix to simply get their elections on file (sort of similar to getting a spouse to consent to an optional payment form when the plan administrator failed to get consent initially). It should only be when they do not elect to defer that a distribution ought to be required. You might want to check other guidance issued by the IRS in late 1997/early 1998 on this, because there were many employers who failed to issue timely election notices.

I agree that you should first look at the plan document to see who should be the payee of benefits owing to a minor beneficiary(ies). If it says the plan pays to the guardian of the minor(s), then you need documentation that the "mother" is also the guardian, such as a letter of appointment or other court order appointing the mother as guardian (capacity as parent is not generally the equivalent of legal guardianship). If it refers to the Uniform Gifts to Minors Act, you might not need a court order/appointment, but would want to verify the relationship.

In my experience, many plan documents are very vague as to how to handle this situation. Some do not address the rehire of a former employee who was not previously a participant. Others say that a rehire who was not previously a participant is to be "treated as a new employee for all purposes." Having looked at the regulations on crediting of hours of service, it seems to me that there is no authority for disregarding prior service when determining eligibility to participate (although prior service can be disregarded for vesting purposes under various circumstances). Thus, I believe that in your situation, the rehire gets credit for her prior service so that she already has her year of service upon rehire and is immediately eligible to participate. Does anyone disagree?

There is also an exemption from the 10% penalty tax for distributions made from an IRA (not from a qualified plan) to an unemployed individual to cover the cost of health insurance premiums while unemployed.

Florida doc stamps would apply under the Florida statutes, since the notes are being executed in Florida. I believe the TAA you apparently found is all there is specifically on point, and that it clearly says that it applies to ERISA employee benefit plans. This is consistent with the Florida DOR's position on audit as well. If you want to take a contrary position, there will obviously be risks.