Bird

Belgarath, I agree that you could theoretically change the allocation method for participants who haven't earned the right to an allocation. But I don't know exactly what that means...are you going to say the allocation method is integrated for everyone, except for those who haven't earned the right to an allocation? And that allocation method is...groups? How do you have a plan with two allocation methods? I'm not saying it's impossible*, but it would require some tricky drafting at best, and I don't see that it is accomplishing anything in this case, where it is reasonably assumed that most or all participants have in fact earned the right to an allocation. *Maybe it is impossible. Suppose Joe has not earned the right to an allocation, and you carve him out and say "Joe gets whatever we say he gets, and everyone else gets a pro-rata allocation." Now suppose you decide to give Joe more than everyone else, because it helps with testing. Haven't you taken something away from the others? If the employer contribution is "50,000" and you decide that Joe gets $900 because you say so, but someone else gets less than they would have if you had just allocated the whole $50,000 on an integrated basis, then you've taken something away from them. I think this is a case where "definitely determinable" comes into play, even though the IRS threw in the towel on that long ago by allowing groups. Trying to have both integrated and groups in the same year doesn't work (unless it was set up that way from the beginning, but then why bother with two formulas). I think you could eliminate Joe from an allocation but don't think you could change the allocation method itself when someone else has earned the right to an allocation. I hope this makes sense...sort of a stream of consciousness post for July 31.

I agree with using the age of the oldest bene.

You like badly written regulations?

They wouldn't get anything anyway. It's the others that are a problem.

In this link from "DWC - the 401(k) experts" they spell out what I believe is the standard industry interpretation and what I believe has been explained by the IRS informally, for this exact situation. I'm not citing them as the ultimate authority but they didn't make it up either; this has been repeated many, many times and I didn't think there was really any debate about it. My emphasis in bold. Profit Sharing Allocation Methods From time-to-time, a plan sponsor may wish to change the method used to allocate profit sharing contributions — maybe from salary proportional to new comparability. This is one of those situations in which the anti-cutback rule described above must be applied on a theoretical basis to determine when a change can occur. The reason is that participants are considered to have earned the right to share in a profit sharing contribution allocated under the existing plan-specified method once they have satisfied all of the plan’s allocation requirements. This is true even when the profit sharing is discretionary and the employer is not required to make any contribution at all. Consider these two variations on the theme: A plan that requires participants to be employed on the last day of the plan year to receive a contribution has until December 30th (assuming a calendar year plan) to amend the allocation method. A plan that requires participants to either be employed on the last day of the year or complete at least 501 hours of service can only change the allocation method up until the date on which the first participant works his/her 501st hour for the year. At that point, changing the method would eliminate a right the participant has already earned. Plans that do not impose any additional requirements on the profit sharing contribution cannot change the allocation method once the year starts. See IRS Technical Advice Memorandum 9735001 for additional information.

I think it is TAM9735001 Key language: " Under section 1.411(d)-4, A-1(d)(8), the conditions for receiving an allocation of contributions or forfeitures for a plan year are subject to section 411(d)(6) after such conditions have been satisfied. That is, once a participant has satisfied the conditions for receiving an allocation, the participant's right to an allocation becomes section 411(d)(6)-protected, and a plan amendment cannot add further conditions. "

The gist of the TAM Mike referenced was that once someone (anyone) has earned the right to a benefit under existing plan provisions, the formula can't be changed. In this case, let's say Mary is still employed with 500+ hours of service. If she quits, she has 500+ hours of service and gets an allocation. If she is still working at the end of the year, she gets an allocation. There is no scenario in which she does NOT get an allocation, therefore she has satisfied the requirements to get an allocation and the formula can't be changed.

As you note they are different at beginning at end. I don't believe there are any calcs on the K-1 that use either number; it is just informational (but I'm not an accountant and don't prepare them so could be all wet, but I remember trying to tie different numbers out at some point and learning that almost nothing ties to anything). You are talking about contributions for non-partners, right? I doubt anyone thought that through so someone (else) is going to have to make a determination on that. I'd think some kind of average partnership percentage for the year is fair.

Presumably, most or all participants have 500 hours of service by now. So if they terminate between now and end of year, they would be get a contribution under the existing language. I've always understood that to mean it's too late to amend the formula. You could, however, start a new plan with the language you want and just not make a contribution to the old plan.

Mmm, I thought it was "We don't need no steenking [badges]" from Blazing Saddles. Ah Larry, always taking the practical approach. Good to have you here. Ed Snyder

I'm having a hard time reading this because there seems to be some kind of ownership attributed to "the fee" but I think I get it. Arguments can be made either way but I'd vote for any per participant fees to be paid exactly that way, per participant. A base fee could be done pro rata on assets or per capita on participants; I'd vote for pro rata. (Arguably, your old method of calculating a total fee and allocating on assets was not fair to those with more assets.)

Unless he adds "...unless my wife is willing to waive her rights and let you be beneficiary." Then he can start a whole new sh*tstorm.

I think you are spending way too much time on this. Everything that is going on here is related to the client's decision to fire you. You (I would) tell him that if you take no further action now: there is a 99+% chance that nothing will ever happen. there is a .005% chance that there will be a $1000 penalty. there is a .001% chance that they will try to assess a humongous penalty, and a .05% chance that if that happens, we can't get it waived. Let him decide. (And I would present this in such a way that, while it is clearly his liability, there is no way in a million years that I would actually do anything if I were making the decision.)

That's a good question. I'd vote for him being eligible.

You mean the platform will charge $100 to make any correction? You leave it there, and either call it a gain or use it for PS or match that would otherwise be contributed.

What part(s) of the return would you be amending?

Switched from Relius to FTW last year and haven't looked back.

Sorry, didn't notice the "often" in "how often" in your original post. I don't know but at least one of the recordkeepers we use makes it sound like there is a requirement and insists that it be done by Jan 15 of the following year. When asked what happens if it's not done by then, they're not sure.

For instance, there might be 50 bps built in to fund expenses for advisor comp as 12b-1 fees ("commissions"), but the advisor works on a fee basis and takes 35 bps. 50 goes in, 35 goes out, and 15 stays behind. It can be used to pay plan expenses or it can be allocated to participants. I don't have a cite for that (and was always curious about the term "ERISA account" and variations; I think someone decided that gave it an aura of goodness or something, not that there's anything wrong with such accounts).

But if you use the "answers only" version of the AA that gets it down to a manageable 10 pages or so. That said, I don't expect many sponsors bother to read that. I do not think it is realistic to expect a plan sponsor to read the BPD..."nutty" would begin to describe that.

Re-thinking this, I agree with QDROphile - I don't think there is any requirement that the spousal consent be obtained contemporaneous with the designation, so just getting the consent now may be the simple and direct way to handle the issue.

I started to say no way but now I'm not sure. I think that just maybe, she could disclaim a certain portion, 2/3 would do it as you suggest. I'd ask my document provider and of course get an attorney to confirm.

It would be a mistake for them but not for the plan to follow their (stupid) instructions. I don't quite get why you are creating an artificial situation. We would certainly have correspondence with them before processing a distribution, and get them to sign a form. If they didn't elect out of WH, we'd talk to them and get them to do that. I don't see a scenario beyond that where they actually elect WH, but if they did, then we'd follow their instructions.

From IRS page on Pensions and Annuity WH: Get the bene to elect no WH and move on to the next thing.

Good info. I remember telling clients that they were the ones subject to penalties if they didn't follow up to get full disclosure.