John Feldt ERPA CPC QPA

You can submit an incident to SunGard, I'm sure they will help you. Perhaps the "describe" line of the in-service section could have the age 62 restrictive language. It could say the age 62 restriction only applies to former pension accounts - I think that same language you place their will show up in the SPD unless you use a language override.

We've seen a few takover plans where the prior provider put in a cash balance credit equal to the present value of about 10% the 415 dollar limit using 5.5% interest but not to exceed the difference between the partipant's actual cash balance account and the present value of their full 415 limit at 5.5%. They even did something like that for the credit for the NHCEs based on the 0.50% of pay. Lots of PV calculations for no real gain. hArd for any participant to project their own potential benefits. I recommend using the approach described by Effen. Use your funding cushions to allow the higher deductions, then amend as needed near the end to handle any excess as 401(a)(4) testing would allow.

What?! You aren't actually Austin Powers? Sir Augustine Danger "Austin" Powers, International Man of Mystery?

I received one at the office on October 2. Then got another one at my home address on the 3rd.

If you have enrollment forms in place for all employees, including affirmative elections to defer zero by those not deferring, then you have the evidence you need to operationally say this automatic enrollment only applies to new entrants. The written plan language can say it applies to each participant that does not have an enrollment election in place. That should get you where you want to be. Watch out for rehires and watch out for resuming deferrals after the hardship suspension (if the suspension provision happens to apply in your plan). Check your plan language (or perhaps the enrollment form itself) regarding how old deferral elections are treated after such events.

If they cannot cite any specific provision that is in violation, then: I've shortened this quote based on the most recent response indicating that nothing in the plan changed.

No general test needed. See Treasury Regulation 1.401(a)(4)-2(b)(2)(i) and 1.401(a)(4)-2(b)(4)(vi). Treasury Regulation 1.401(a)(4)-2(b)(2)(i): Basically says a uniform percent is a safe harbor and a uniform dollar amount is a safe harbor. Treasury Regulation 1.401(a)(4)-2(b)(4)(vi): Basically alllows the greater of two or more safe harbor allocation formulas, or the sum of two or more allocation formulas as long as: they are the only allocation formulas, available on the same terms to all eligible employees (okay to exclude HCEs), and the top heavy minimum can overrides the allocation otherwise given if needed to meet TH even if only given to non-keys. By "safe harbor" above, they mean no discrimination test needed for the allocation of the employer contribution. It is not referring to the "safe harbor" 401(k) provisions for the 3% SH or the SH match used for avoiding ADP/ACP.

Plan sponsor decided (without service provider knowledge) to contribute the 3% safe harbor throughout the plan year. Safe harbor is based on full year's compensation, including wages prior to date of entry. For new entrants, the plan sponsor contributions made during the year were based only on wages paid after date of entry. After the plan year-end, the service provider calculates the full SH amount due. Plan sponsor contributes the remaining amount due well before the safe harbor contribution deadline (before the end of the plan year following the SH year). The plan sponsor feels that they short-changed the new entrants, so they want to contribute an amount to make up for "missed earnings" on their safe harbor contributions that were made after the end of the plan year. Since no contribution is actually late, is there any justification for a "corrective contribution" to be made to the plan as described?

Depends on the "test" you're talking about. If the plans had to be aggregated to pass the coverage test, then they have to be aggregated for 401(a)(4), so any differences in a benefit, right, or feature should also be tested under 401(a)(4).

Social Secuity tax and/or Medicare Taxes may still apply.

I didn't find the link, but if the plan can pass coverage without them, I think you'll need to find another way to exclude them, such as by job title or other classification perhaps based on that special project. If you can pass coverage using the 70% test, then you could exclude by name, but that would not be logistically practical. Otherwise, the temporary employee exclusion provision will only exclude them for a short time, meaning they will be eligible, even if they are a temp/part-time/seasonal employee, after they compete a year of service (2-years if the plan has a 2 years of service entry requirement).

Nothing is changed - the new document did not do something that is not allowed, like exclude certain employees retroactively (e.g. it excludes leased employees now)? It did not add a new safe harbor provision retroactively (e.g. safe harbor 3% now excludes HCEs)? Maybe something else more obscure in the changing of the basic document (if pre-approved plan)? Or, was the old document a GUST document and the new document is EGTRRA? If so, they're saying the EGTRA deadline was missed? I agree the new provider should point out the items that they believe are in violation.

That's great. Again, from a document standpoint, the profit sharing is "discretionary". It doesn't matter if the employer did 7% per year since the document does not say "7% per year". Changing the groups or the conditions does not make the amount become 5% or 7% or 0%, it's still "discretionary". That's not a change since it's still an employer decision, just as it was before. In fact, if each person is now in their own class, nothing is stopping the employer from allocating the same amounts/percentages the same way they always did before (assumes passes testing). Again, that's because it's always been discretionary and is still discretionary. You have been advised however, that some tread very, very, very cautiously with regards to this topic.

Of course, the amount was discretionary before the plan year started, and it is still discretionary. No change is happening there mid-year. No cutback occurs when putting each person in their own class because the plan has a last day requirement. With that, some would then say that such an amendment does not violate the final 401(k) regulations, and then they would caution you that it might perhaps violate the personal view of some IRS agents regarding the interpretation of those regulations, but that's not everyone's view. I think the IRS intends to write guidance about what changes are permitted mid-year for SH plans.

Treasury Regulations Sections 1.401(a)(4)-1(b)(3) which refers you to 1.401(a)(4). Be sure to look at 1.401(a)(4)-4(e)(3)(iii)(C ).

If the participant has met the plan's requirements to be eligible for an in-service distribution (e.g. is age 62 and the plan allows in-service at 62), then it may be very wise to pay it now before the participant gets older (the lump sum value of the 415 limit can and does decrease from age 62 to age 65). Any remaining assets can be handled through the usual plan termination steps. You may want to include language with the plan's resolution to terminate that explains the plan sponsor's intent with regard to the handling of plan assets and make sure any existing plan language is amended to allow that to happen (many DB plans state that any excess asstes revert to the employer). If the excess assets are transferred as soon as administratively feasible after the date of plan termination, then you should be okay. Don't move the money out until the official date of plan termination has occurred! edit: typo

Tom, What if the safe harbor covers only the over age 21/1 group and you want to amend the portion of the plan that affects only the under age 21/1 group? Would your document provider really not allow that? Seems okay.

Does the plan have a last day requirement for accruing a benefit? If not, then they should receive allocations that meet the current allocation formula. What is the current allocation formula? Pro-rata? Integrated?

"he may be able to take a $50,000 salary and allocate $50,000 in a profit sharing plan to himself and be done. No deductible problem as it is not deductible anyway and no 415 problem as up to 100% of salary can be allocated." Agree. Compensation must be reasonable, of course.

Some say this is a questionable amendment. Others would ask more questions, such as "Have the participants satisfied the allocation conditions for the plan year already?

Okay. Some plan documents require the plan sponsor to gather proof that all resources have been depleted before the hardship distribution can occur. Those plans do not need to require a suspension of deferrals. Other plan documents require less effort by the sponsor regarding the "proof" needed before a hardship distribution can occur, but those documents also require a 6-month suspension of deferrals. Many volume submitter plan documents allow an employer to elect one or the other. Some employers want one way, some the other way. That is how it is. Hopefully most consultants at least think the plan's operation must match it's written terms. So let's hope that issue is now covered. Back to the OP. What does the employer want to do? (I think that's partly what was suggested by Tom's post). They certainly cannot say the automatic deferral only applies to new entrants only.

Based on the regulations that came out this morning, it looks like a fixed interest crediting rate of 6% is allowed under the regulations for a hybrid plan. What I would like to know is when this is effective. The regulations are generally effective January 1, 2016, but it also states "The rules in these final regulations that merely clarify provisions that were included in the 2010 final regulations apply to plan years that begin on or after January 1, 2011, in accordance with the general effective/applicability date of the 2010 final regulations). In addition, these regulations amend §1.411(b)(5)-1 to provide that §1.411(b)(5)-1(d)(1)(iii), (d)(1)(vi) and (d)(6)(i) (which provide that the regulations set forth the list of interest crediting rates and combinations of interest crediting rates that satisfy the market rate of return requirement under section 411(b)(5)) apply to plan years that begin on or after January 1, 2016. footnote 9" footnote 9 says: "The 2010 final regulations provide that these particular provisions apply to plan years that begin on or after January 1, 2012. The intention to delay the effective/applicability date of these provisions was announced in Notice 2011-85 and Notice 2012-61. Notice 2012-61 announced that these provisions would not be effective for plan years beginning before January 1, 2014. So, can the use of a 6% fixed rate be relied upon in 2014 or 2015?

I agree with Sall (the EOB). Standing on January 1 and looking around at the data on that very day, you can't see the future to know if they will actually enter, thus they are not really participants in the plan yet on January 1. They become participants only AFTER they meet the eligibility requirement. The retroactive nature of their entry date is only operational for plan provision purposes, but not for the beginning of year participant count on Form 5500.

Okay. Please post their view on this after they respond - thanks!

You're saying the plan includes compensation prior to date of entry (includes compensation while NOT a participant), right? So allocations in the plan are determined based on full plan year compensation, even if the participant becomes eligible on, say, October 1, 2014. Since the plan overall is effective as of 1-1-2014, but safe harbor is only effective starting 10-1-2014, it seems to me the participant is eligible for the plan, but is not eligible for safe harbor (they did not meet the safe harbor entry date - they also could not defer). If they were still around on October 1, then they are eligible for safe harbor (and deferrals) and the safe harbor then would be allocated using full plan year compensation, including wages prior to 10-1-2014. What does your plan document provider say?