John Feldt ERPA CPC QPA

The Notice of Intent to Terminate is a requirement strictly applicable to plans covered by the PBGC. Yes, you can submit to the IRS prior to the date of plan termination. Don’t forget to include Form 6088.

If a plan sponsor with a calendar year DB plan is located in a covered disaster area for Hurricane Florence, their 5500 filing deadline is January 31, 2019. Is the minimum funding deadline also extended past September 15, 2018?

If they cannot produce the information for 2005-2007, I would just file all the returns through the late filing programs for all the years you have information available. If that means you only go back to 2008, then that’s all you can do. Will the IRS really look at the late filed 2008 5500-EZ and wonder where 2007 is, or will the stack of late-filed returns simply go into some filing system never to come up again?

My understanding is that an open MEP is actually a string of single employer plans. In 2012 Adam Pozek posed several optional names, such as “faux MEP”, “Not a MEP” and so forth. If the employers do not share enough common economic interests, other than combining their plans, then it is not a MEP. Read through the DOL’s response to Robert J. Toth, Jr. in 2012 regarding the TAG Resources 401(k) Advantage “Plan” under Advisoty Opinion 2012-04A. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/2012-04a I don’t see where that same exception for a MEWA would apply to a retirement plan, unless perhaps if the “MEP” is a fully insured plan?

Have you considered the retirement-exit strategy? Would that cause PTs? Would the tax situation be worse or better if it had been invested without using any plan funds? Capital gains vs. regular income tax?

For the cost of just a few pennies per day for each $1,000 that is late, use the payroll date. If you're investigated by the DOL, they now can't question the choice regarding the loss date. Using the pay date eliminates that scrutiny.

So if they defer (or don’t defer), and thus get the match as pw (or they get no match), that deferral election can also affects their wages that are required to be paid, not just their match. So the match and the wages can both be contingent upon the election to defer. For example, a pw contract requires $42 per hour. The plan does a pw match equal to a dollar for dollar match of 5% of pay. Gilligan’s pay is normally $40 per hour. He chooses to defer nothing. That election gets him $2 more per hour in wages. Next time, Gilligan elects to defer $2, and that election gets him $2 of match but no extra wages. Finally, on the next job Gilligan defers $1 per hour. This deferral election turns into both $1 of match and $1 of extra pay. IRC 401(k)(4)(A): Benefits (other than matching contributions) must not be contingent on election to defer. The amount of extra wages required to satisfy the contract, are contingent upon deferrals. Does that violate 401(k)(4)? It’s not a problem with the pw contract, certainly any type of employer contribution can be used to satisfy that. To me it’s a tax qualification question. IMO, the most solid ground here would be to have a document that has IRS approval for using prevailing wage as a match. Maybe that’s too cautious?

That’s correct. The answer will be found in your plan document to see if they are treated as having received a “deemed distribution”. That will be your official cite.

A non-electing church plan is not subject to ERISA. In order to benefit from the ERISA preemption of state law, they would need to make an irrevocable election under 410(d) to have ERISA apply. It is my understanding that making such an election would then require the usual participant protections and disclosures, among other things, including the anti-cutback rules.

Non-ERISA Church plans are not subject to the IRC 411 anti-cutback rules, but state rules may apply. More importantly, the terms of the plan apply. I’ve seen quite a few church plans that had the IRC 411 anti-cutback rules in the plan document.

See Treasury Regulation 1.401(a)(4)-4, Nondiscriminatory availability of benefits, rights, and features. Be sure to look at (b) "Current Availability" and (c) "Effective Availability" as these are both required to be met to satisfy the requirement.

Is this non-profit a church? A church 401(a) plan can be merged with a 403(b) plan, but.... the PATH Act of 2015, which allows this under a new Code Section, 414(z), has no regulations written yet. When this was added to the Code, the Treasury was directed to issue rules on what is required. I have not seen guidance on this yet. So the Code is all you have: 414 (z) Certain plan transfers and mergers (1) In general Under rules prescribed by the Secretary, except as provided in paragraph (2), no amount shall be includible in gross income by reason of— (A) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b) to an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches, (B) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from an annuity contract described in section 403(b) to a church plan that is a plan described in section 401(a), if such plan and annuity contract are both maintained by the same church or convention or association of churches, or (C) a merger of a church plan that is a plan described in section 401(a), or an annuity contract described in section 403(b), with an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches. (2) Limitation Paragraph (1) shall not apply to a transfer or merger unless the participant’s or beneficiary’s total accrued benefit immediately after the transfer or merger is equal to or greater than the participant’s or beneficiary’s total accrued benefit immediately before the transfer or merger, and such total accrued benefit is nonforfeitable after the transfer or merger. (3) Qualification A plan or annuity contract shall not fail to be considered to be described in section 401(a) or 403(b) merely because such plan or annuity contract engages in a transfer or merger described in this subsection. (4) Definitions For purposes of this subsection— (A) Church or convention or association of churches The term “church or convention or association of churches” includes an organization described in subparagraph (A) or (B)(ii) of subsection (e)(3). (B) Annuity contract The term “annuity contract” includes a custodial account described in section 403(b)(7) and a retirement income account described in section 403(b)(9). (C) Accrued benefit The term “accrued benefit” means— (i) in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan, and (ii) in the case of a plan other than a defined benefit plan, the balance of the employee’s account under the plan.

My understanding is that when prevailing wage contributions are used to offset another type ofemployer contribution, the prevailing wage contribution must take on certain attributes of the contribution that it is offsetting. Thus, if an employee receives 2% of pay for the year as a prevailing wage contribution, and that offsets the 3% safe harbor nonelective so the employer only has to contribute an additional 1% of pay to satisfy that safe harbor, then the 2% prevailing wage contribution is not eligible for a regular in-service distribution before age 59.5 - same as safe harbor contributions. Similarly, instead of safe harbor, if the employer plan uses prevailing wage to offset profit sharing and the employer provides 6% profit sharing, then the 2% prevailing wage contribution plus the remaining 4% are both eligible for regular in-service before age 59.5 if the plan has such an in-service option.

Depending on the facts and contribution types in the plan, perhaps they would agree with a conversion a 457(b) for the deferral portion of the plan and to a 401(a) for the employer contributions. Or better yet, was the plan adopted and in effect before May 6, 1986?

If some NHCEs receive zero allocations, they are treated as excluded from the plan, so be sure you aren’t inadvertently violating the maximum age/years of service exclusion. For example, if the decision is made to only allocate to participants with five years, then the plan isn’t meeting the requirements unde IRC 410(a).

A pension plan, subject to IRC 412 provided a timely 204(h) notice in January 2018 stating the plan will be frozen, no more benefit accruals, effective March 31, 2018. The amendment was provided to the employer at the same time with a March 31, 2018 effective date. We just received the signed amendment back, and it was not executed until May 10, 2018. How is this amendment treated? As freezing the plan on its date of execution, May 10, 2018? Or is the amendment treated as not in effect? What additional action should be taken?

This is informal guidance taken from the IRS website link shown in the above post. Some may argue that it is not required to be followed (at your own risk). Correct deferrals finally begin by the first payment of compensation made on or after the earlier of: The last day of the second plan year after the plan year in which the failure first began for the affected employee, or the last day of the month after the month the affected eligible employee first notified the plan sponsor; and Within 45 days of being given the opportunity to make salary reduction contributions (or the commencement of auto-enrollment contributions), the affected participant must receive a special notice. See Appendix A.05(9) discussed in Rev. Proc. 2016-15 for details as to the specific content that must be in this notice. If the participant terminates employment before the notice is provided, then this requirement has not been met.

Yes, and if the IRS agent's manager disagrees (only Eligible Employees can have an entry date), you just negotiate the smallest possible sanction under audit cap.

From Rev Proc 2016-51: Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan’s minimum age or service requirements, or (ii) has completed the plan’s minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. Depending on the IRS agent that audits the plan, you could have an issue. Some agents are very strict about this and say that the language above is very specific about age or service or entry dates, and is not applicable to correcting an excluded class. Perhaps the employer should think that over and consider the option to refund the deferrals and placing any ER allocations in a suspense account?

Ask your document provider to be sure. They may have a different answer for cash balance vs a DB plan that is already on their preapproved document.

Takeover of an existing 401(k) plan on a vol sub document. The plan has 500 hours but no last day requirement for its discretionary pro-rata profit sharing formula. The owner's spouse has a business with no employees, just self-employed, but is not a participating employer in the plan. They are a group under common control, they do not meet the spousal exception. They want to add the spouse's business to the plan as a participating employer, but want the profit sharing allocation under that business to be a different percentage. Meaning the plan sponsor can allocate X% but the newly added employer could allocate Y%. Issues?

I can't speak as to whether or not it increases the likelihood of an audit, but I am not much of a gambler. More often I've seen PBGC audits of terminated plans rather than IRS audits of terminated plans. If it is a cash balance plan, I highly recommend either restating to the pre-approved document prior to termination, or submit to the IRS under form 5310. For example, I have seen a few agents question the definition of accrued benefit in a cash balance plan as they do not find the existing definition to be written exactly as their manual describes.

There is no cite because there is no requirement that any plan be restated upon termination. They can choose to restate and it may be very wise to restate, but the IRS does not require wise choices.

A SIMPLE automatically covers all of the employers of the controlled group. Check the language in the document about who is considered to be the employer and the language should be found there.

If this is attempted with a qualified plan you’d have to look at IRC 410(a). Regardless of having the allocation apply only to the NHCEs, if it’s based on 5 years of service, you may have violated 410(a) if the other NHCEs under 5 years get zero PS. Or is the plan established to only cover the one NHCE? 409A could only cover top hat employees - would they be in that group? Maybe the short-term deferral solution is the best option to fit their goals.