John Feldt ERPA CPC QPA

They'll need to provide an advance 204(h) notice with an explanation of the magnittude of reduction. 15 days advance notice for under 100 participants, 45 days for 100 and up. I think this type of accrual might cause the plan to change from its nice old "safe harbor - no testing needed" accrual formula and cause the accruals to be general-tested under 401(a)(4). This is because the averaging period now used will no longer end on the date of determination for the accrual of benefits. How will benefits be provided to new entrants? What will be used for their average compensation?

We have had some luck with pointing out things like this in the cover letter filed with the IRS Determination Letter request, explaining that if the Service believes that the issue warrants a VCP application that we'd like to do that. In a couple of cases in particular we noticed an older DB document had what appeared to be a translation problem with the formula itself which was fixed later when the plan was restated. In those cases the agents did not ask the sponsor to go VCP. In another case, with an unsigned interim amendment from an older takeover document, the IRS did respond by asking that the sponsor submit VCP. If you're plan problem is a missed restatement for a pre-approved document (since it was not signed) they will likely apply the fee schedule found in Rev Proc 2013-12 section 14.04.

The reviewing agent will certainly ask for a signed plan document, so I'd suggest that they look with their vendors to see if anyone kept a signed copy. If the document you submitted was truly never signed, does the client have a signed document that is up-to-date and is signed? If so, you need to send in the correct document to replace the unsigned version. If they don't have an up-to-date document, your fees are listed on page 74 of Rev Proc 2013-12 in section 14.04, but perhaps you could contact the agent and ask that the plan file under VCP regarding the unsigned plan issue.

I've seen a couple of cases where the bankrupt client wanted to fund the safe harbor for just the NHCEs from the HCE owner balances in the plan. This was submitted to the IRS and clearly explained in the submission and the IRS issued a Determination Letter allowing the action. If they had not accepted that, the other option being considered would have been to allow the HCE owner to distribute their balance, give enough of those proceeds to the employer, then attempt to fund the plan, but all the creditors in line for those funds would have turned that into a problem and the NHCEs in the plan still probably would not have received their 3% SH allocation.

Lou has it. Perhaps the first question is this: is a Solo-K actually the right plan for your needs? This answer you can likely get a straight answer at no cost from most TPA firms (after they review your complete situation). If a Solo-K is right, and you decide to take the "no thanks, -- I can do it myself" route, you will have some initial questions. The answers to these questions may raise more questions. Soon you may wonder if there are other questions that you also should be asking? So here are some of those questions, but it's merely a small, small sampling - this is not even the tip of the iceberg: When the IRS audits, will you have proper deferral elections on file that match up with the deferrals that were actually withheld? If you're a sole proprietor with no paychecks, how do you withhold deferrals and when do they get deposited? If you wrote a check to the plan instead of withholding from a paycheck, is that okay for a deferral, or is that only Roth, or neither? Will you be able to provide copies of each timely executed IRS-required interim amendment that the IRS auditor has on their checklist? Will you know which ones are not applicable to your plan (and why) so you can explain that to the auditor? When you say contributions will be made timely, what is the deadline for a deferral deposit vs. the deposit deadline for other contributions? What if your tax return filing deadline falls on a weekend or Federal Holiday - will that also extend your deadline to make the employer contributions? What constitutes a prohibited transaction? Do you have to file a different type of 5500 based on the assets you're invested in? Can the plan's investment in real estate have the property tax bill paid from your personal account? And can the renters of that property just write you a check and then you deposit the same amount into the plan later? If you need to fix some things on that property (the asset held by the plan), can you just do that work yourself and do you have to pay yourself any wages for that work? How does the W-2 get done then? What if you have "contract employees" (we hear that a lot) - are they employees or just contractors - does it matter who pays them, or who controls their work, or both? Does the plan need to have a fidelity bond, or is it exempt? Can your spouse also be covered by a Solo-K? What if it does cover your spouse and then you get divorced, does that change something about the plan? If so, when? What about the other businesses that you own, or other sole proprietorships you are involved in - does anything special need to be done to make sure that they are included (or not included) under the plan? If you're self-employed, how is the actual net earned income determined for getting to the deduction limit - how do deferrals and employer contributions affect that number - the same, or different? What about Roth - same or different? Can you do a Roth conversion in the plan, and if so how is that handled? What about this after-tax employee contribution thing - is that a deferral or an employer contribution (or neither)? When might that truly be something to consider for your plan? What if you make a mistake - are some mistakes fixable, not fixable, or are there specific ways these should be handled? What if you sell your company or buy another company - that won't affect the plan, will it? What are the proper steps to terminate the plan and what deadlines apply to the termination? If the plan assets upon termination are still under the 5500EZ filing threshold, does that mean no filing at all? How about the Form 1099R - what code(s) should apply and can it just be filed on regular paper from my printer? When the plan terminates, are there some special forms that need to be signed for the proper distribution to occur? All these and much, much more you can just ask here, or, perhaps you prefer to devote that time to your business to making a larger profit or to really anything other than this tedious stuff? Of course any answers you receive here have no reliance, some will be conflicting at times, and I'm pretty sure Dave Baker does not have an errors and omissions insurance policy that backs up the answers provided by this board, after all, it's just a message board. Well, an awesome one, for sure. Plus, if you do rely on just this message board or any other "free" advice, who will be watching out for you? For example, who will review your investment statements to ask what A, B, and C transactions really were, ask the right follow-up questions for you and then add notes and other information to your file for later when you get audited. Also, when a new law, new regulation, or perhaps some other obscure guidance is issued, who will be calling you or sending you an e-mail explaining the issue and perhaps even suggesting that you consider making a change to your plan to avoid the new X or Y tax, or so you can take advantage of rule Z? Shall we continue? Oh, look at the time. Let's just call it a night. Good night! (and Merry Christmas!) edit: there was a typo in there somewhere, and there's probably still some in there even after this edit.

Recommend they file the 5330 with no tax due.

Safe harbor plan, and the vesting schedule is going to be amended? Hmmm. Would some folks say this amendment should be adopted before the beginning of the plan year?

Yes, understood.

For the nonelective a4 testing, in 401(a)(4)-12, the definition of "employee" is an employee who benefits under the plan for the plan year.

After-tax voluntary employee contribuitions are aggregated with the other employer contributions and elective deferrals (but not catchup deferrals) for being limited by the 415 limit.

Not a prohibited transaction, but the distributions now lacked a distributable event, except for terminees and those eligible for in-service distributions. Look at Rev. Proc 2013-12 to see how a distribution gets corrected when paid out before it was eligible. Also, has the plan kept up with all its required amendments? Since assets are not paid out, the plan is ongoing, and thus has to keep its document language up-to-date for compliance purposes.

I've seen both occur, but again, these are rare and only stick out in memory because of how extreme these cases are: 1) the takeover of the plan where the prior low-fee actuary could not even explain how the system came up with the values, but that "it must be some entry-point programming affecting the numbers", and 2) the high-cost large-firm actuary that automatically charged a higher fee each year for 20 years until the client realized that other large firm actuaries with better experience and capabilities were charging perhaps 25% of that amount for those same services (they did not even ask their current actuary for an RFP when they realized that). Years ago, item #1 used to be the takeover from the prior low-fee actuary who did not realize that the schedule B had a balancing equation, and you would get a revised schedule B over and over until finally one was close enough to balancing that you simply had to accept it and move forward.

hilarious

Test on a contributions basis, impute disparity at 100% TWB.

They do not count against the 404(a)(7) limit. So , yes, it can be good for an owner-only DB/DC combo where the owner is not wanting (or needing) all contributions to be tax deductble.

What does the employer want to do? Do they want to pick just one employee (perhaps the lowest cost employee based on their wages and number of years to retirement) and give them a benefit in the cash balance plan? Or do they feel that covering just one would potentially cause some internal employee relationship problems? If so, are they willing to spend a little more to provide a perceived uniform benefit (although still only one non-owner employee might actually be considered as benefitting high enough for the 401(a)(26) test)? Once you find out, amend the plan accordingly. Combine the plans for coverage testing and 401(a)(4) testing. Hopefully the original design anticipated an employee getting into the cash balance plan so that the employee benefit cost isn't sky high. Remember, you can offset the overall gateway minimum by the actuarial value as a percent of pay of the cash balance pay/service credit provided to the NHCE (which is NOT equal to the cash balance credit itself). If multiple NHCEs receive cash balance pay/service credits, you can offset evenly (most common) by the average actuarial value, as a percent of pay, of the cash balance pay/service credits for each NHCE. Alternatively (not as common), you could offset each NHCE's gateway by the actuarial value, as a percent of pay, of their own cash balance pay/service credit.

Why not show the efficiency of just the employer dollars as your first total, then on separate line below that include an efficiency with the owner deferrals included. You can explain that the actual efficiency lies somewhere in between but is based on the owners' individual tax situations.

Right, using comp prior to entry or not is a plan provision and can be excluded regardless of whether the1/3 gateway or the 5% gateway applies. I was trying to point out the difference between the compensation definition that can be used for the 1/3 gateway vs. the compensation definition that must be used for the 5% gateway. For example, if the plan excludes bonuses, then you can use that for the 1/3 gateway, but the bonus can't be excluded if the 5% gateway applies. Just a minor point.

If the benefits you describe will pass the nondiscrimination test and if you think defining the plan's crediting rate at zero percent will be okay with the IRS (I'm not sure on that, but it seems okay). Using a lower crediting rate generally translates into a much, much higher cash balance pay credit or service credit requirement for the NHCEs in order to pass 401(a)(26), so you might want to look at more scenarios than just one at zero percent. As to the choice of investment, I tend to think of the DB assets as the conservative portion of a larger portfolio because in a DB plan (a cash balance plan is a DB plan), there is one more very important factor that does not apply to a defined contribution plan. This factor must be considered when deciding on the investments to choose, and that perhaps this factor may be the most important factor of all: the risk of having the investments not doing as well as expected is not just a loss, it is a loss that causes the employer to have to contribute more to the plan. I am not investment savvy, so don't take this as investment advice!

Matching contributions are not included in determining the highest HCE rate of nonelective allocations for determining the gateway minimum. Thus, the gateway minimum is 3.34% of the plan's definition of compensation for nonelective allocation purposes. This is 1/3 of the highested nonelective allocation given to any HCE in the plan. If the highest HCE nonelective allocation was over 15%, then the 5% minimum gateway applies, but that is generally 5% of total compensation, not of plan-defined compensation. However, if no nonelective is allocated to an NHCE, then no gateway applies to them. For example, if the plan is top heavy and an employee quits before the last day, and your plan has each participant in their own allocation rate class, and if coverage can still pass the ratio percent test for the nonelective portion of the plan with this employee getting a zero, and if they are not getting any forfeiture allocated as a nonelective, then because no nonelective is allocated to them, no gateway applies. But any allocation at all to such NHCE thus triggers the full gateway requirement for them. Reminder, as I can tell you know, but perhaps for some other readers here, the gateway merely allows the plan to test the allocations as benefits payable as annuities at the testing age. Merely providing the gateway does not mean the plan actually passes the 401(a)(4) test.

If an employer makes a "mistake" and establishes a new qualified plan, that negates the SIMPLE, disallowing any contibutions made to that SIMPLE for the years in which both plans are maintained. The Q&A above does not mention this, but if the employer adopts a regular qualified plan, it should say that no contributions should be made to the SIMPLE and any contributions already made to the SIMPLE during the same year will have some corrective steps that need to be applied. See item 3 on this link:http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide and see this link: http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-Your-business-sponsors-another-qualified-plan

Pretty sure that document's checkbox for "100% vesting upon death" only applies to employees that separate service due to death, not just to participant death. Check with Robert Richter or someone at SunGard.

Seems unlikely that a document would truly allow full vesting. Suppose the employee terminated 3 decades ago, was 40% vested at that time, and dies now or reached normal retirement age now. Does the plan say anything about when forfeitures occur?

As long as you understand that "elect" means the written and executed (signed) adoption agreement for the plan had been properly marked with the checkbox that defines compensation as W-2 wages.

Once you get a feel for how this works, however, I agree that the Larry Deutsch Enterprises' Non-discrimination Testing Symposium is very much worth the cost to attend. It was exremely worthwhile for me anyway. Now with another portion of the cash balance regulations being finalized, I am considering attending another (so I can ask a bunch of questions).