John Feldt ERPA CPC QPA

410(b)(6)(C ) has a "you're okay for coverage" rule that applies for becoming or ceasing to be member of a controlled group and if the coverage under the plan is not significantly changed during the transition period. Selling assets, not stock? I don't see how that changes the controlled group.

Technically only the plan that covers just the HCEs fails. The submission would be regarding that plan's approach to the fix.

Thanks, I missed the point that Robert was terminated. The NRD of 55 and 10 applies to the portion of the accrued benefit that was accrued by the effective date of the NRD amendment (or if later, basically the date the amendment was executed). But be sure to take a careful reading of the document and the amendment. A) Solely based on the language you included above, it appears that you would calculate the accrued benefit that was earned at the time the plan was amended, using average compensation and service through that date. Since it does not appear that a "fresh-start" approach was used, preserve that benefit as a minimum and it's NRD is age 55. B) Now calculate Robert's benefit using the current formula which is a benefit payable at age 62 using current average compensation and all service. Looks like the participant should get the greater of the benefit from A) or B). If that's all the document says about the formula, then this looks like the amendment was a "wear-away" amendment. The "new" provisions of the plan eventually, with new accruals, would catch up in value to the old preserved minimum benefit and therafter exceed the old benefit in overall value, thus wearing it away.

Robert will have a portion of his benefit that is payable at 55 and another portion that is payable at 62. However, for valuation purposes, since the plan has no reduction for the age 55 ERB, the actuary could perhaps assume 100% retirement probability at age 55 for Robert anyway, and for those situated like Robert, thus making the data entry and calculations just a bit easier.

I agree that the 5% top heavy DC minimum applies, not 3%. If for some reason they aren't eligible for DC allocations, then you have a traditional DB annuity accrual of a 2% life annuity payable a NRD in the BD or in th cash balance plan (unless the plan language provides more than 2% as the TH minimim life annnuity). I would not worry about excluding by name unless the coverage test is less than 70% and you use the average benefits test to pass 410(b) instead of the 70% ratio percent test. The reasonable business classification only applies to passing coverage using the average benefits test. I also agree that it's better to exclude that group under the definitions for excluded employees - having a zero percent accrual group is not that helpful.

Are all of the employers of the controlled group actually participating employers in the plan? If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group. Suppose only 2 employers actually executed a participation agreement, adopting the plan for their employees. Also suppose the plan does not automatically make all employers of a controlled group into participating employers in the plan. If coverage passes when just these 2 employers are covered by the plan, then for 401(a)(4) you basically ignore the employees of those other employers who are not participating employers in the plan. edit: pesky typos

Look at Treasury Regulation 1.401(a)(4)-2(b)(2)(i). Is the allocation uniform?

If the PEO's plan document has language that does not allow the 401(k) plan assets of a withdrawing employer to be transferred to a new plan established by the withdrawing employer, then the employer perhaps should ask the PEO to kindly change that provision. Good luck with that! Maybe they do a SEP for the rest of the year, and then start up 401(k) twelve months after their employees get paid out from the PEO?

For 2014, before they ran out of time in the year to have enough wages left to be paid in order to even make such an election, did the employee fill out a deferral election that said something like this? "I elect to defer from my compensation the largest possible amount for each calendar year as permitted under 402(g), including any catch-up deferral if applicable." If they made such an election, and they still had enough wages left to be paid in the year when they made that election, then the plan has a failure to follow the employee's written deferral election. See Revenue Procedure 2013-12 (probably a 50% QNEC by the employer for the missed deferral). Otherwise, HCE or NHCE, either way, if there's no concern about committing tax fraud, then why bother to even issue a Form W-2 in the first place, and why bother with getting written deferral elections in place prior to withholding such deferrals?

Even though it shows up on the final pay stub, isn't a portion of it attributed to each pay period? Meaning, if they quit during the year, wouldn't they would still have some portion of the $1,000 added to their W-2? Perhaps the withholding answer depends on another section in the plan document. Or, if the document says that for purposes of elective salary deferrals only, under a uniform nondiscriminatory policy, the employer can administratively exclude certain non-cash compensation or other irregular compensation, like I have seen in some PPA documents, then I would have to check with the employer.

You have written plan? The document probably spells out the requirement. Drawing up a new plan? Take a look at the new LRMs which will be applicable to the first set of pre-approved 403(b) plans, see page 19, number 29, at http://www.irs.gov/pub/irs-tege/403b_lrm0315_redlined.pdf Although this language is not likely in plans now, here's what the LRM says: The blank should be filled in with the plan section number corresponding to LRM 17. A plan may allow for reasonable administrative procedures for plan entry for making elective deferrals, including a reasonable period for providing a participant notice of the right to defer and a reasonable election period, provided that §1.403(b)-5(b)(2) of the Treasury Regulations is satisfied. A plan that provides notice of the right to defer no later than 30 days after commencement of employment, allows the participant to make an election up to 30 days after notice is provided, and provides that the participant’s election will be effective as soon as administratively practicable will be treated as having reasonable administrative procedures that do not cause the plan to fail to satisfy §1.403(b)-5(b)(2). So, it looks like there is some hope for at least up to two 30-day periods once those documents get approved by the IRS.

What if the ineligible class was "collectively bargained" and the employee had been part of a union that had bargained in good faith such that participation in this plan was not available for the union as part of their overall wage/benefits negotiations. The union employee gets promoted to a non-union management job. Would their union wages, which were bargained to not be available for treatment for this plan, nonetheless be included in the calculation for the top heavy minimum?

All or none. Except, anyone who is benefitting must be included. Reminder, if the ONLY reason they are not benefiting is because they fail to meet a condition (like hours or last day), then they can be excluded. For example, suppose a plan has an hours requirement to get a PS allocation. Employee terminates before meeting the hours requirement, they have under 500 hours, and they get no PS allocation: they can be excluded from the 410(b) test for the PS portion of the plan. All similar employees would have to be treated the same for 410(b). In contrast, suppose a plan has NO requirements for getting a PS allocation, but they have each person in their own rate group. Employee terminates and the employer allocates $0 to that group. Even if they have under 500 hours and they get no PS allocation: they can NOT excluded from the 410(b) test for the PS portion of the plan. Why? Because the sole reason they are not getting an allocation is NOT because they failed to reach the plan's conditions, instead it's because the employer decided they get zero. edited to add the cite: treasury regulation 1.410(b)-6(f)(vi): "it is applied with respect to all employees"

You might want to get paid in advance for the plan termination work. Recommend to explain (in writing) the problems, consequences, and provide your recommendation to file the plan under EPCRS so the eventual distributions will retain their tax-favored status as well if rolled over.

Without an amendment to exit safe harbor, the ADP/ACP test does not apply. Plan is still safe harbor, just not in compliance, although technically the safe harbor contribution is not due until 12 months after the end of the plan year, earlier if the SH was not an annual true-up. Sound like the employer stopped withholding deferrals from wages without the proper legal action allowing them to do so. These are operational defects which now jeopardize the plan's tax-favored status. Perhaps when they enter into bankruptcy they won't care about that either.

Did they exit safe harbor by amendment and also amend to remove the deferral option from the plan? The method suggested, to run ADP/ACP testing would apply then. Otherwise it's still a safe harbor plan (no ADP/ACP test), but is disqualified as Lou said. An EPCRS correction should be considered to bring back its tax-favored status. Where deferrals still withheld from paychecks?

GMK: Yes, very well articulationed.

Suppose the employee quit (fired) November 30, 2014 and had just turned in a deferral election form the day before for 2015. The get no "regular" paychecks after November 30. Also suppose their normal entry date would have been 1-1-2015. Then on February 14, 2015 their 2014 "commission" gets paid. Longer lag in time, but the same answer to the above question should also apply here too, right?

Maybe their class should receive an allocation of $1.00 each?

If the 403(b) plan is a nonERISA church plan and allows investments other than mutual funds and annuities, then a written document is required, even if it is a deferral only.

If it's a DB plan, it's exempt from PBGC, but I agree, it's not eligible for the EZ.

Short answers: Q1. Can the Simple IRA be terminated 3/1/2015 and EEs begin participating in the 401(k) Plan? A1. Not without consequences to the amounts already contributed to the SIMPLE for 2015. Q2. If so, the contributions made to the Simple IRA are counted towards the 402(g) limit, correct? A2. No. Contributions to an IRA are not used to offset the 402(g) limit. Longer responses: For a SIMPLE, there is a transition period, much like 410(b)(6)(c ), but it's a year longer, described under Internal Revenue Code Section 408(p)(10)(C ). If the Employer maintaining the SIMPLE plan satisfies the conditions required, they can continue to maintain the SIMPLE IRA during the transition period, even if the company stock sale means the Employer now also maintains a 401(k) plan. Conditions: 1.The Employer with the SIMPLE IRA must not change the coverage of the SIMPLE plan significantly, other than employee turnover related to the stock sale, if any. 2.The Employer with the SIMPLE IRA cannot also adopt another qualified plan (other than becoming the sponsor of a qualified plan due to the transaction to buy the stock of an employer that maintains a qualified plan) The transition period starts on the date of the business transaction and ends on the last day of the second calendar year following the end of calendar year in which the transaction occurs. Example 1: Company A maintains a SIMPLE IRA and no other plan. Company B maintains a 401(k) plan. Company A buy 100% of the stock of Company B on March 1, 2015, thus Company A now sponsors both a SIMPLE IRA and due to its ownership now of company B, it also maintains a 401(k) plan. The transition period begins March 1, 2015. The transition period can extend as long as December 31, 2017 (the end of the 2nd year following the year the transaction occurred. Example 2: Assume the same facts as example 1, but assume Company A adopts the 401(k) plan as a participating employer on July 1, 2015 and allows its employees to participate in the 401(k) plan starting July 1, 2015. In this example, the transition period begins March 1, 2015 but ends on June 30, 2015 due to the change in coverage. All contributions made to the SIMPLE for 2015 are now invalidated and must be returned by April 15, 2016, although the 25% penalty on the return of such contributions would not likely apply, and/or relief under Revenue Procedure 2013-12 can be sought. Example 3: Assume the same facts as example 2, but assume Company A ends the SIMPLE plan effective December 31, 2015 and adopts the 401(k) plan as a participating employer on January 1, 2016, allowing its employees to participate in the 401(k) plan on January 1, 2016. In this example, the transition period begins March 1, 2015 but ends on December 31, 2015 due to the change in coverage. Any contributions made to the SIMPLE for periods after December 31, 2015 are not valid. In example #2 above, the 25% penalty would not apply to any excess contributions made to a SIMPLE IRA for the year in which a qualified plan is established. This ONLY applies to the amounts contributed to the SIMPLE IRA for that year and only if such amounts were returned to the participant by the due date of their tax return for that year. Money deposited for a prior year does not meet this exception from the penalty tax and the usual 2-year rule still applies to determine if such tax applies to any distributions of the rest of the SIMPLE IRA accounts. Remember, if a withdrawal is made from a participant’s SIMPLE IRA account within 2 years from the day contributions were first deposited to the participant’s account, the 2-year rule applies a 25% penalty (instead of 10%) to the withdrawal in addition to regular income taxes (even if the amount is rolled over to a regular IRA or a qualified plan). But that also means the 25% penalty does not apply to anyone who is exempt from the regular 10% penalty, such as someone who is at least age 59½ at the time of the withdrawal, or who satisfies one of the exceptions under section 72(t). The SIMPLE-IRA withdrawal is reported by using code "S" on Form 1099-R to report premature distributions taken within the first two years. When an qualified plan is established, the exclusive plan rule for the SIMPLE states that it's the SIMPLE plan that becomes invalid due to the presence of the qualified plan (or of another SIMPLE). Once the transition period ends, hopefully the employer has taken action so they only have one plan in place, otherwise the SIMPLE plan has an error. The IRS has a fixit guide for this at http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-Your-business-sponsors-another-qualified-plan

To avoid "disqualifying" the distributions from the old plan, wait 12 months after all benefits were distributed from the prior 401(k) plan to avoid the successor plan rule.

As long as the participant made an elective deferral equal to at least the catch-up ($5,500 for 2014), then yes, they can be provided the entire $57,500. Meaning, it is not just the 402(g) limit or ADP test failure that creates a "catch-up" deferral. If the plan limited regular deferrals for HCEs to 5% of compensation, they could still defer 5% of pay plus $5,500 (but they can't defer more than their wages, of course). In your case, deferrals get classified as catch-ups due to the 415 limitation. If the combined ER and EE allocations are enough to push the total allocation over the $52,000 limit for 2014, then deferrrals are classified as "catch-up" deferrals as needed up to the $5,500 limit. Of course, as you noted, all other testing still has to pass: 410(b), 401(a)(4), etc. I have not yet seen a document that would not allow this, but double check your plan language just in case. For example, it should say something like this: Catch-Up Deferral. A catch-up deferral is an elective deferral by a catch-up eligible participant and which is greater than: (1) a plan limit on elective deferrals; (2) the annual additions limit under section 415(d); (3) the elective deferral limit under section 402(g) or (4) the ADP limit under plan section X.X.

Yes, but I think they have to have a written plan document that allows such investment. Otherwise, I don't think a non-electing (non-ERISA) church plan has to have a plan document for a 403(b) plan that invests only in mutual funds and annuities. Also, it is my understanding 403(b) plans are generally not in trusts or have trustees, in contrast to this being required for qualified retirement plans. This reply of "Yes" is not advising you on the suitability of investing in difficult to value illiquid or ridiculously speculative assets for retirement income purposes, and certainly not advising you on investing in tulips or other "collectibles".