Randy Watson

I'm trying to figure out whether a DB plan is a 412(i) plan. Is there anyway to figure this out by looking at the plan document and nothing else?

Thanks, Alf. The person that drafted the plan has a provision stating that each participant in the plan constitutes a separate allocation group. Is that possible?

Can someone tell me what plan provisions are required in a dc plan as far as new comparability plans go? For example, is it necessary to include an explanation of the gateway test etc....? This does not seem necessary to me. I believe that we can essentially state that allocations will be made to the various classes of participants and that 401(a)(4) will be satisifed through cross testing. Someone please help.

The two options under SCP would be to have the participant's forfeit the true-up (which the sponsor is not thrilled about) or do a retroactive plan amendment. Unfortunately, the retroactive plan amendment that we need to draft is not the type of failure that can be corrected by a retroactive plan amendment under SCP. Assume for a moment that the failure is corrected under VCP...do you see any deductibility issues? Thanks.

Plan sponsor made true-up contributions to a 401(k) plan when the plan document did not provide for true-ups. We plan to correct under VCP with a retroactive plan amendment that permits true-ups. Are there any problems with the fact that the plan sponsor took a tax deduction for the true-ups? It seems to me that submitting under VCP would correct any qualification issues and thus preserve the deductability of the contributions. Any comments?

That's the one I was afraid of. But wouldn't you think that the purpose behind that prohibition is to prevent the disqualified person from receiving comp from the plan in exchange for his goods and services? Does it matter that the plan received a unilateral benefit? This person was not aware of the PT rules when he improved the land and did not consult with anyone. There was no attempt to treat the improvement as a contribution/deduction. He merely made the improvements with the intention of distributing the property from plan upon retirement.

A plan holds real property as an investment. The sole participant in the plan improves the property with his own money. Assume that the participant does not benefit from the improvement in any way whatsover (other than from being a participant in the plan). Would the participant's improvement of the property be a prohibited transaction?

The current loan policy use to have a cure period that required payment by the end of the amortization period. The loan regulations state that a cure period cannot continue beyond the last day of the calendar 1/4 following the calendar 1/4 in which the payment was due. What if the purpose of the modification is to comply with the regulations (i.e., reducing the cure period so it complies with the regs)...do you think that it's that still a cutback?

Would modifying a participant loan policy be a "cut back" if the cure period for making up a missed payment is reduced? The 411(d)(6) regs state that the availablility of a loan is not a protected benefit. Any thoughts?

I'm not so sure an agreement needs to be in place prior to issuing the SPD or SMM. If you read closely, the regulations only require that you provide pretty general information in the SPD or SMM. For example, the SPD or SMM must inform the participant that amounts will be "invested in an investment product designed to preserve principal..." or "the extent to which expenses will be borne by the account holder alone or shared with the distributing plan or plan sponsor." The specific information is not required to be disclosed unless the participant requests it from the contact listed in the SPD. So theoretically, I can furnish the SPD or SMM with the general information prior to executing an agreement because I do not have to provide any detailed information until an automatic rollover is made. Here are a couple of my concerns. If I need to put detailed information in the SPD then I'll need to issue an new SPD or SMM everytime we use a new IRA provider. Also, would we really have one agreement in place that is enforceable by every single participant involved in an automatic rollover? It seems to me like we would execute an agreement for each participant.

I've seen some articles indicating that the written agreement required under the new regulations must be entered into prior to the issuance of an updated SPD or SMM due to the specific information required to be disclosed to the participants. I've reviewed the disclosure portion of the regulations and found nothing that would suggest or require the written agreement to be executed prior to the issuance of the SPD or SMM (or even require the IRA provider to be selected at that point in time). In general, the regs state that the SPD or SMM must include an explanation that the rollover will be invested in an investment product designed to preserve principal (etc...); include a statement on how the fees will be allocated; provide the name and address of a contact so that more information regarding the automatic rollover rules, the IRA provider and the fees can be obtained. Does anyone know why these articles are stating that the written agreement must be executed prior to providing the SPD or SMM? Granted, having the agreement in place prior to the disclosure would make things easier. Does anyone have an opinion on this?

Okay, I think I got it. Please tell me if I'm wrong. The first few lines of Section 1.411(b)-1(2)(B) provide that "The annual rate at which any individual who is or could be a particpiant can accrue the retirement benefits payable at NRA under the plan for any later plan year cannot be more than 133-1/3..." The "retirement benefits payable at NRA" are different for each class, which means as long as you are accruing retirement benefits in a particular class you may not violate the 133-1/3 rule. However, if you move to a new class you are eligible for a different "retirement benefit payable at NRA" and are starting with a clean slate for 133-1/3 purposes. Are you relying on any authority when you say that you do not assume a change in class? How do you know that this is a "form" requirement? I'm sorry that I am asking so many questions that probably seem very simple, it's just that I rarely deal with DB plans. I greatly appreciate your help.

Are participant loans taken into account in calculating the value of a participant's benefit for purposes of the involunary cash out rules?

Assume a person is in Class C where benefits are equal to .50% of compensation x each yos. Now assume that person is promoted and is now eligible for Class B benefits, which are 1.5% of compensation x yos. I think this is a violation of the 133-1/3 rule. Do you need more facts?

I like your analysis a lot. I understand that each class would be a subplan for discrimination purposes, but what authority gives me the ability to treat each class as a subplan for purposes of the accrual rules? In addition, won't we violate the 133-1/3 rule if a person moves up in class?

We recently acquired another corporation that had a dc plan similar to ours. We are rolling outstanding participant loans from the acquired company's plan into our plan. Do we need to execute new notes for these loans since the original notes were between the participants and the prior plan? I'm thinking that we do need new notes because our plan is not a party to the notes. The service provider said that this is not necessary. Any thoughts?

Thanks, AndyH. Please tell me why you think we're okay.

Does anyone have an opinion on whether a db plan would violate the 133-1/3 rule under the following circumstances? The db plan is a cross tested plan that provides benefits based on employee classifications....Class A, Class B and Class C. Assume that Class A provides a benefit that is more than 133-1/3 percent of the benefit under Class B and the Class B benefit is more than 133-1/3 of the Class C benefit. With no other facts, it appears as though this would clearly violate the 133-1/3 rule. However, there is no natural progression between classes, meaning a participant does not necessarily start out as a member of Class C and then move up to B and then A. For example, an individual may start out in Class A. Likewise, an individual may start in Class B and never move to Class A. The purpose of the classifications is not to evade the vesting rules by backloading. However, it may appear as though backloading is taking place since individuals may move between classes. Any theories or opinions would be greatly appreciated. Thanks!

This is kind of an odd question and my gut tells me that it cannot be done. Can a plan be conditionally adopted? For example, suppose an employer adopts a plan on 7/1 on the condition that a certain event takes place on 9/1? If the event takes place on 9/1, the plan's initial effective date would be 7/1. Would this be any different than contributions being conditioned on their deductibility? References to any guidance would be appreciated.

If a 457 agreement is in place for a terminated employee, does that agreement have to be amended to reflect recent changes in the law?

MGB, is the IRS position documented anywhere?

I agree. Thanks for the comments.

I think the comment on severance is helpful, although I believe our situation is much different considering a person who severs from employment could hardly be considered an employee. How about someone on paid FMLA leave. Can they defer?

The plan document does not address this issue. Basically I am wondering whether someone on leave is considered an employee since only employees can make deferrals.

Is an employee on paid leave permitted to make 401(k) contributions from that pay? Any comments and/or citation would be appreciated. Thanks.