Kevin C

I would expect the DC LRM's to be updated in either late 2010 or in 2011. The next submission deadline to get IRS approval of prototype and volume submitter documents will likely be 1/31/2012. The current EGTRRA prototype and VS documents were submitted by 1/31/2006.

There is a lot of information on the IRS website. Try this. http://www.irs.gov/retirement/article/0,,id=97182,00.html

Sieve, The EOB section you cite in your post #22 is in Chapter 3B, Part 2, Section X, Part B, 2.g.1)a) in the on-line version. The argument it references is in the prior paragraph, 2.g.1. That argument is that the match formula can be changed as long as the reduced matching formula applies only to contributions made after the amendment’s effective date. The opposing view is that some advisors take the position that once the requirements to receive the contribution have been satisfied, the participant has accrued a benefit for the entire year's compensation, even the compensation not paid until after the amendment is in effect. Your citation supports the first interpretation. The text also refers you to paragraph 1.e. Paragraph 1.e starts off with: "Compensation taken into account. If a benefit has accrued at the time the amendment is effective, presumably the protected benefit would be based on the compensation earned through the effective date of the new formula, but the IRS has not issued any formal guidance on this issue." You should look at another section in the EOB. In the on-line version, it is in Chapter 3B, Part 2, Section II, Part D, paragraph 5, Final allocation in plan year in which plan terminates. He says the IRS has not directly addressed the issue of how the compensation dollar limit applies and lists two primary interpretations. He says the more conservative interpretation, to prorate the compensation limit based on the termination date, was expressed in Q&A 16 from the 2001 ASPPA annual conference IRS Q&A session. The more aggressive interpretation is to not prorate the compensation limit unless the plan termination results in a short plan year. You have an interesting argument for why the amendment triggered 401(a)(17) proration might not cause a 411(d)(6) problem. To me, treating a retroactive effect of the amendment as if it applies to accrued benefits prior to the amendment defeats the purpose of determining if the amendment reduces accrued benefits. I also see guidance that suggests 411(d)(6) protection can apply to amounts accrued under the terms of a plan that exceed statutory limits. One of the requirements in 1.411(d)-4, Q&A 2, (b)(i) for a 411(d)(6) exemption for amendments reflecting statutory changes is that the amendment be timely adopted. If accrued benefits don’t included any amounts that could exceed a statutory limit if other events occur, why is this exemption needed? I agree with you that the IRS's statement regarding the 401(a)(17) proration issue makes it look like it would apply in circumstances other than just changing or suspending a SH contribution. It appears to me that if it applies when a SH contribution is reduced mid-year, it would apply any time a fixed contribution level is changed mid-year after participants have earned the right to receive the contribution. It also looks to me that their argument would apply to mid-year formula increases as well as decreases. I’m just not convinced that their statement is consistent with their published guidance. If they want 401(a)(17) proration to only apply to suspended or reduced SH contributions, they need to incorporate it into the 401(k)/401(m) regulations. Either way, we need some formal guidance on the issue. And finally, if the 401(a)(17) proration issue for a formula change is so clear cut, why didn’t the IRS include it in their LRM’s? LRM 6 – Definition of Compensation says “If a determination period consists of fewer than 12 months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is 12.” Then, it lists adoption agreement choices to define the Compensation determination period as either 1) the plan year, or 2) a 12 month period ending with or within the plan year. If a document follows the LRM’s, the only time it will provide for 401(a)(17) proration is when there is a short plan year. What are we supposed to do if the IRS says to prorate and the document says the opposite?

The only notice requirement I can think of that applies in your situation is the requirement to provide a summary of material modifications or updated SPD reflecting the amendment within 210 days after the end of the plan year. You can provide advanced notice of the change if you want to, but it isn't required.

I used the AIRE candidate number, too. My certificate arrived today. I mailed my application on 4/23.

The terms of the plan may prevent you from using at least some of the match towards the TH minimum prior to 2002. Our GUST prototypes say the match can not be used towards the top heavy minimum. Another GUST VS document says: However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Deferral Percentage" tests pursuant to Section 4.5(a) or the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account.

Look in 1.401(a)(4)-12. Then in 1.410(b)-9.

The amount can only be deferrals if it meets the requirements to be deferrals. The regulations say prefunded amounts are not deferrals. The document should say the same. Your proposed correction creates another operational failure. Rev. Proc 2008-50, section 6.02(2)(d): The CODA must be a qualifed CODA if you want to satisfy 401(a). I'd say that makes the 401(k) timing regulations relevant to the correction. I agree the funds should not be returned to the employer. They should be allocated correctly under the terms of the plan. The plan should say the funds can't be used towards future deferrals or future match.

I disagree with both of you. But, ignoring the regulations for a moment, what do your plan documents say? Ours say that amounts deposited before the earlier of 1) the performance of services with respect to which the deferrals are made, or 2) when the cash subject to the CODA election is currently available, can not be counted as either salary deferrals or matching contributions. If your documents comply with the final 401(k)/401(m) regulations, they will have similar language.

BG5150, what do the documents you work with say about the timing of salary deferral contributions?

The 411(d)(6) issue I see has to do with the SH contribution earned for compensation already received by the date of the suspension. We have a number of plans that allocate the SH contribution either quarterly or each pay period. Even in those plans with annual allocations, participants have earned the right to receive a required contribution under the plan's formula before the suspension becomes effective. Most of our SH plans have at least one participant who earns in excess of the 401(a)(17) limit. Suppose the top salesman in a basic SH match plan earns $30,000 per month and defers 5% of comp. He terminates at 6/30/09 with $180,000 in comp and a $7,200 SH match. Now, take the same salesman and suspend the SH match at 7/1/2009. He still has compensation of $180,000, but because of the suspension, we can only count $122,500. His safe harbor match for 1/1/09 - 6/30/09 is now $4,900. The amendment reduces his accrued benefit by $2,300. How can an amendment reduce his accrued benefit if there is no 411(d)(6) exemption for the amendment? The preamble statement says the proration applies for a reduction in the SH contribution, not just a suspension. If the contribution continues at some level for the entire year, how are you using compensation for a period of less than 12 months for a plan year?

This sounded like great news, until I read it. The non-elective safe harbor can only be reduced or suspended mid-year if the employer incurs a substantial business hardship comparable to a substantial business hardship described in Section 412©. Notice, timing and ADP/ACP testing requirements also apply. Our clients who have been inquiring about suspending safe harbor contributions are looking at options to avoid incurring a substantial business hardship. I don't see anything in the new rules that helps them. And check out this little jewel from page 11: I don't see any mention of a 411(d)(6) exemption for an amendment to reduce or suspend SH contributions.

Accrued benefits are only part of the issue. "The conditions for receiving an allocation of contributions or forfeitures for a plan year after such conditions have been satisfied" is a 411(d)(6) protected benefit. See 1.411(d)-4, Q&A 1 (d). Another option is to have a short plan year, then start the new requirements at the beginning of the new plan year.

It was an EGTRRA change. As you say, it was allowed, but not required. It was part of the model EGTRRA good faith amendment language.

Here is part of the preamble to the final 404© regs published 10/13/1992.

It sounds like they requested a determination letter from the IRS regarding the termination of the plan. The determination letter is a written IRS opinion that the termination of the plan does not adversely affect the qualified status of the plan. If that is what they did, they were required to send you a Notice to Interested Parties within 10-24 days prior to filing with the IRS. If you can't find your copy of the notice, ask HR for another copy. It will show the date the filing was going to be sent to the IRS. Let us know when you find out what the filing date was. The IRS is pretty slow processing these requests. One of our clients sent in a request for a terminating ESOP in April 2008 and still has not received the determination letter.

The preamble quote came from the final 401(k)/401(m) regulations. I can't find any mention of a one-time irrevocable election in the 403(b) regulations preamble. I'm reading the one-time irrevocable election rules to say the election applies to all current and future plans and arrangements sponsored by the employer. I don't see anything in the universal availability rules that gives an exception for someone who has made a one-time irrevocable election.

What does the plan document say about allocation of investment gains/losses? With a self directed investments, I would not expect there to be anything that would allow you to take part of the gain from one participant and allocate it to others. I agree that using the extra gain to reduce a correction amount for a future error by the TPA would be a PT. It would be using plan assets to benefit a disqualified person. We've always taken the approach that the participant keeps the gain if the mistake works to their benefit. If the mistake makes them worse off, the responsible party pays the difference.

Sorry, but you can't amend the safe harbor match provisions mid-year.

If the participant is eligible to defer in the 403(b), then it is too late to make a one-time irrevocable election. See 1.401(k)-1(a)(3)(V). The preamble to the final regs says: Note: There is a typo in this preamble section. The preamble section refers to 219(g)(5)(D), but the regulation refers to 219(g)(5)(A). The reference to 403(b) is in 219(g)(5)(A)(iv).QDRO, wouldn't a one-time irrevocable election in a 403(b) cause a problem with the universal availability requirement?

John, Did you find something that says a participant loan can be rolled over into an IRA? I didn't think that was possible. 1.401(a)(31)-1, Q&A 16 says that a plan may allow rollover of a participant loan to qualified trust described in section 401(a) or a qualified annuity plan described in section 403(a). I don't see any mention of IRA's. 1.402©-2, Q&A 9 says a distribution of a loan offset can be an eligible rollover distribution. But, it is for a 60 day rollover of an amount equal to the loan offset, not a rollover of the loan.

It could be worse. We had a client get a DOL audit in 2007. They asked for complete records from 1/1/2002 forward. I handled a DOL audit a few years ago for a plan where we did not do the plan work. The client had trouble getting the requested information from the prior service providers. When I explained the situation to the agent, he subpoenaed the prior service providers to get the information he needed.

Is that a yes or a no? The ASC modified bottom-up QNEC language complies with the final regs.

Blinky, Does the Relius document have bottom-up QNEC language? I heard the IRS was making document providers remove it, but the ASC document was approved with modified bottom-up provisions.

You can't change the SH match mid-year and remain SH. 1.401(k)-3(e)(1) prohibits mid-year amendment of the provisions that satisfy 1.401(k)-3. You can reduce or suspend the SH match during the year if you follow 1.401(k)-3(g). One of the requirements is that the plan be amended to provide that the plan satisfy the ADP test for the entire year using the current year testing method. Another requirement is that the match be funded through the effective date of the change, including the 30 day notice period.