John Feldt ERPA CPC QPA

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?

The way I read that provision, yes, they enter. The age requirement is waived for everyone hired on or before a certain date. Similarly, if the plan had only waived the service requirement, but maintained an age 21 requirement: If your age 17 example employee was only working 600 hours per year, they would enter at age 21 (4 years later) even though they never completed a year of service.

The IRS has not yet opened the restatement window for 403(b) plans, so a PPA restatement is not required, nor is it even available, generally speaking, loosely equating restatement to mean a requirement under a remedial amendment period to maintain a plan's relaince on its written plan language. 401(k)/PS/MP/Target plans are in the PPA restatement period now (ends 4/30/2016), but not the 403(b) plans. Restating a 401(k)/PS/MP/Target plan gives the plan reliance on the pre-approved PPA IRS opinion/advisory letter that they provide to the document sponsor. No 403(b) plans have opinion or advisory letters yet (nor can they get one yet). Any "restatement" by a 403(b) plan is just an amendment with no reliance. Maybe the IRS will open the 403(b) restatement window 3 years from now?

Okay - thanks!

Does anyone have a suggestion for an expert witness regarding a minimum distribution under 401(a)(9) from a DB plan? On party says 401(a)(9) would be violated if the amount argued by the other party is actually paid.

October 31 is not quite right, assuming it's a calendar year plan. -11(g) amendments must be executed within 9 1/2 months after the end of the plan year. So that's October 15, 2014 to make a correction for calendar year 2013.

Correct. It has to be an individual that would make the plan subject to PBGC coverage.

A multieemployer plan cannot use a pre-approved document. Explain the issue to the IRS in the 5310 application and see if they accept that as an urgent business need. The best you can do is tell it like it is and hope for the best results. The fastest D Letter I've ever seen is 3 months on a bankruptcy 5310 application. FYI.

Seems okay. Does the plan only allow lump sum? If he wants to take only a portion, you may want to look at the distribution options available in the plan to see if he can take only a portion. A lump sum is a payment of the entire balance to the credit of a participant paid within the participant's tax year. IRC 402(d) or (e) something. Are you concerned about the "one per year" rollover issue? That does not apply to direct trustee to trustee rollovers - so if the money is paid directly to the IRA, then that does not count against the one per year limit.

Maybe this has been addressed, but perhaps the sole proprietor might hire an employee and provide coverage for that employee in these plans. If the sole proprietor is a farmer (or insome other "field" that is not exempt automatically from PBGC coverage), then covering this employee now requires the DB plan to be covered by the PBGC and the IRC 404(a)(7) combined plan deduction limit is thus vanquished. Add slain dragon icon.

oil is a liquid.

The document is likely written to have employees who are participants in both plans receive the top heavy in the DC plan. Since this person is not in both plans, this language can't apply to them. Thus they get the DB top heavy minimum. Oops. 401(a)(26) counts all employees like the denominators used in 410(b). So, generally your 410(b) denominators for NHCEs and HCEs combined are used to determine your total "count". That total count is multiplied by 40% (minimum 2 if 2 EEs, maximum required 50). Yes, statutory exclusions apply in generally the same way that they apply under 410(b), like for CBA excludable employees.

No, that was not said. Only if using average compensation, like you said.

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.