John Feldt ERPA CPC QPA

If it's a DB plan you still have to pass IRC 401(a)(26), assuming accruals are not all frozen.

It's just a reminder, not a disagreement. Many times participants enter on the first day of the plan year and the plan is written to ignore the service prior to that plan year of entry for benefit accrual purposes, in those cases the compensation prior to entry can be excluded (and sometimes that actually helps). The observation of this exclusion may lead some to think compensation prior to entry can be excluded, when really it's actually certain 12-month periods can be ignored for averaging compensation, which is perhaps why you were pointing it out. My post was only trying to lightly touch upon a small portion of the myriad of testing possibilities for Charles to think about. It appeared the percenption was that the plan required 9% for all NHCEs. From my experience, most plans have each participant in their own allocation rate class. Thus, giving all NHCE the same percent of pay is an employer decision and is only needed when the plan has very few NHCEs and all are needed to be in a certain HCE's rate group. This particular case perhaps has very few NHCEs? Also, one main question asked was about the average benefits test (for 401(a)(4) purposes). So we pointed out that test is not required when each HCE rate group meets the 70% threshold, and included a couple of ways to get a plan to that, one of which can include restructuring.

John, remember that the two can't be combined. If you are using testing compensation from date of entry you have to be using annual comp. If you are using average compensation then you can't use comp from date of entry. But you can exclude certain 12-month periods of compensation if, during such periods, the plan disregards the employee's compensation for determining benefits - see 1.401(a)(4)-3(e)(2)(ii)(A). See also 1.401(a)(4)-3(e)(2)(ii)© for allowing certain months of compensation to be excluded as well, but I've rarely had to apply that one. And, also, accrued-to-date testing must use average compensation. See 1.401(a)(4)-3(d)(1)(i) and 1.401(a)(4)-3(e)(2)(ii)(A), with exception for certain formulas.

Sorry Mike, I mean no disrespect, in my haste I failed to include your name.

As long as the plan does not hold employees out of the plan (from deferrals) for more than the age 21/1 YOS with semi-annual entry or anniversary nearest entry, then you can generally create an earlier entry requirement to fit whatever the employer thinks suits their workforce. For example, monthly entry after completing one calendar month of service with 160 hours is okay. Three months with 500 hours of service - okay. You can even say full time employees enter the plan immediately, and all other employees enter the plan once they have met the age 21/1 requirement.

The overstated accounts should be adjusted to show the proper values (and probably some communication explaining it to the participants if the employer(s) think that's needed). Otherwise, only those who have truly been paid benefits from the plan would fit into the category of possibly receiving an overpayment.

What does the EOB say? Oh, here it is (somewhere in the 2014 ERISA Outline Book): Example - enhanced match on first 4% of compensation with discretionary match on higher levels of compensation. A safe harbor 401(k) plan provides a 100% match on the first 4% of compensation deferred. The employer also wants the discretion to contribute an additional amount on deferrals exceeding 4% of compensation but not more than 6% of compensation, limiting the rate of the discretionary match to 100% of such deferrals. When presented with this example at a Q&A session at the 2012 ASPPA Annual Conference, the IRS stated that this would not satisfy the requirements for the ACP safe harbor. The enhanced match formula of 100% match on the first 4% of compensation deferred is used to satisfy the ADP safe harbor, and the discretionary match cannot be combined with the enhanced match for ADP safe harbor purposes. Thus, the discretionary portion must be separately analyzed and it fails the requirements for the ACP safe harbor because it doesn’t match deferrals below 4% of compensation. In other words, where a portion of the match is used to satisfy the ADP safe harbor, the remaining match also must be able to stand alone under the ACP safe harbor. Where that formula is discretionary, it must allocate matching contributions starting at the first dollar of elective deferrals and otherwise meet the requirements for the ACP safe harbor. The IRS didn’t provide a citation to support this interpretation of the law. Treas. Reg. §1.401(m)-3 does not explicitly state such a rule. The IRS’ concern, although not expressed in the Q&A session, might be that where the discretionary match applies only to deferrals above a certain level, the employer may decide to make the discretionary match only when only HCEs are deferring at such levels or only a low percentage of NHCs are doing so. . . . Note, too, that the IRS did not take the position that the discretionary matching formula caused the fixed formula to fail to satisfy the ADP safe harbor. It was just the ACP safe harbor that was failed. edited to add: So, that's not an official position, but certainly something to consider. If you don't have Sal Tripodi's The ERISA Outline Book, it might be worth a look.

If your document says forfeitures can be used this way, then rely on that document's opinion letter or its advidory letter and the employer can use those forfeitures to fund the safe harbor. If the plan says they "shall", then you must use them as the documentr indicates.

Self-dealing is a prohibited transaction.

If the question relates to a defined contribution plan, then look to see if the plan has any references or provisions that use early retirement, such as a waiver of allocation conditions upon severance due to reaching the early retirement date, or in-service distribution options at early retirement, etc. If there are no provisions tied to it, such as in-service, allocation waivers, etc., and if the plan's early retirement age is something that requires 6 years of vesting service (or something that is equal to or later than the date the participant becomes 100% vested), then it seems to me that you have a meaningless provision. Removal of such provision changes nothing, so it does no harm to keep it and it does no harm to remove it.

Check with your document provider as well. I don't know if anyone still requires the full retroactive date, but if they do, I think it would be effective as of the first day of the 2007 plan year.

No comment.

Correct. There is no RMD requirement if the owner is still working, even though they own over 5% for the first time now at age 74.

I generally use the most recent valuation date that was available, but if the assets as of the date of plan termination are available, I prefer to report those amounts. In some cases, we have submitted the 5310 prior to the actual date of plan termination or even on the date of plan termination, so you have no choice but to use the most recent valuation of assets for that type of submission.

I agree with filing with $0 begin/end. The plan exists right - it was executed?

Under 2013-12, I think they limited that restriction to just QNECs for ADP/ACP test corrections.

So they can make an informed election.

I assume A is a NHCE. If so, then it seems okay to do this in my opinion. You are not changing the safe harbor provisions. You are not taking away anything that the existing participants would have otherwise received. The plan needs to satisfy nondiscrimination somehow, so giving this NHCE an allocation, as described, satisfies and is the purpose of 1.401(a)(4)-11g. Technically, you open the eligibility for that participant for the nonelective profit sharing only, and if you want to limit that only to the year ending 12/31/2013, you could do that as well, making not eligible in 2014. But if you'll need them in the design for 2014, then you could just let them in and keep them in.

You run the valuation at the beginning of the year. At the same time, you run the testing for the prior year. In your beginning of the year valuation, you also mention any 401a26 problems that might occur in the current year, you mention any 401(a)(4) problems that might occur in the current year. If the plan is not PBGC covered, you watch out for and mention any possible deduction limit issues that could apply in the upcoming year. For each of these you discuss any needed changes or make suggestions. In your case, did the new entrants cause a 404 limit issue or something - what was the problem?

And if the DB plan is subject to the PBGC coverage requirements, the combined plan 404 deduction limit under 404(a)(7) also goes away.

As noted above, some DB plan documents define it for top heavy "valuation" purposes.

We've done a few very late amender VCP filings, including TRA 86, GUST, EGTRRA. We did the TRA, GUST and EGTRRA documents and the interim amendments needed after EGTRRA. These have received approvals, and the only request from the IRS was to use a new listing to spell out each section of the code that was missed on the late interim amendments after EGTRRA. These were under 2008-50. Working on another TRA, GUST, EGTRRA as well, not submitted yet. All of these were money purchase plans handled without TPAs and each one found out they had a problem a distribution was to occur. In each case, the Bank IRA about to receive the rollover asked for proof the plan was qualified. How they found us was a different story. We recently came across one where the original plan started in 2002. No original signed document could be found (they got rid of it when the entire plan was restated in 2003 to change from PS only to 401k), but they found other signed evidence that the plan was timely adopted. Submitted under 2013-12, waiting for response.

No, unless the plan document is written to add that as a requirement.

You're welcome. That's what my boss says. Maybe he's just saying I write long answers when a short one could suffice....

Tom is right, of course. The example I provided was both restructuring and has over 70% in each rate group. Let's do an example without the restructuring: 2 owner HCEs, age 55 and age 45 4 NHCEs Testing the entire plan on a benefits basis (the ebar for the younger owner is higher than the ebar for the older owner) Rate Group 1 (Age 55 HCE): 3 out of 4 NHCEs are in the rate group of the age 55 HCE, and both HCEs are in that rate group, so that group is: ( 3 / 4 ) / ( 2 / 2) = 75% Rate Group 2 (Age 45 HCE): If only 1 out of 4 NHCEs are rate group of the age 45 HCE, you would get ( 1 / 4 ) / ( 1 / 2) = 50% That is not 70%, so you can either: run the average benefits percent test, or allocate more $ to just one of the other three NHCEs. In this example, the plan only needed to give $200 to one of the other 3 NHCES to get them in the age 45 HCE rate group. In contrast, it would cost the employer an extra $3,000 in employee benefit costs to get the average benefits test to pass. So with an extra $200 allocation, we now get 2 out of 4 NHCEs in the age 45 HCE rate group, so that group is: ( 2 / 4 ) / ( 1 / 2) = 100% Both rate groups are over 70% so the average benefits percentage test is not required. Of course the employer could still say, no let's allocate $3,000 extra instead of just $200 to one person. Sometimes the best option is to combine restructuring with cross-testing. Also look at the actual dates of birth: testing using age last or age nearest can make a noticeable difference - and be sure to impute disparity if the HCE comp exceeds the integration level. Remember to try testing using average compensation if the owner compensation drops and to look at the possibility of testing using compensation from date of entry if that will help you (or apply both of those assumptions). Or you can test using compensation with or without including deferrals in the compensation definition. Will the top paid group election affect the results - may want to look at that sometimes, if it's not past the end of the plan year. Even more fun is to test using the accrued-to-date method (using the annual method is an alternative). If a plan needs the average benefits test to pass, you also have the option of averaging the ebar for any individual in the average benefits percentage test (rare). And don't forget to check out the rate group banding option (rare, but more useful in larger plans). There are more testing options to name here, but who's really still reading this at this point anyway? Oh, and if your document is written without flexibility for testing, then forget most of that above - you'll have to follow the document and miss all the fun (sad face). When you add a DB plan (traditional or cash balance) into the mix, you also may need to try varying assumptions are differing crediting rates, A.E., mortality - sometimes 8.5% GAM71 gets you to a lower NHCE requirement, other times it's IAM83 Female with a post retirement rate of 7.5% (especially if using the DB benefits to satisfy a portion of the gateway). And watch out for the combined plan deduction limits if the DB plan is not subject to PBGC.