John Feldt ERPA CPC QPA

I thought the first day of the plan year must also be available as a date of plan entry. If I find the cite, I will post.

For most small plans, this idea can cost a lot of benefits to make sure the plan satisfies 401(a)(26) (think zero return or less). Maybe employee benefit costs aren't an issue for the owners of the company. But worst of all for a small plan, you are setting up the plan to get the owner a lump sum payment at the 415 limit and the actual return comes in at 28% so now calculate the 415 pre-retirement discount at 28% from normal retirement. Tell him because the assets did so well he has to work another year and hope the investments don't go over 5.5% this time?

A plan covering the 100% owner (and spouse) is not subject to ERISA, so ERISA Section 404(a)(5) does not apply.

Generally, Yes. You can file VCP for a church plan. Certain corrections may require having or obtaining a determination letter. See section 4.10 of Revenue Procedure 2013-12. Since this is a nonelecting church plan, you have no reliance on any opinion/advisory letter if the plan used a prototype or vol sub document.

Perhaps it could look like this (see attached): 6-year cycle chart - Kidder.pdf

Now if they would just extend to January 31, 2016 then we would have, with no overlap: 2 years 401(k)/PS/MP 2 years DB 2 years 403(b) :repeat:

Seems right. The service piece might be 9/10 x 100% of pay - if 8 years is past service and one year is current service. Assumes life annuity form of benefit. No prior DB plan with that employer.

Yes, HCE and NHCE are not delineated in the top heavy rules.

The deadline for the first SH notice for a plan that is implementing its initial deferral option is: no later than the effective date for deferrals to begin.

§1.401(a)(26)-5. Employees who benefit under a plan (a) Employees benefiting under a plan (1) In general. --Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if, for that plan year, the employee would be treated as benefiting under the provisions of §1.410(b)-3(a), without regard to §1.410(b)-3(a)(iv). (2) Sequential or concurrent benefit offset arrangements (i) In general. --An employee is treated as accruing a benefit under a plan that includes an offset or reduction of benefits that satisfies either paragraph (a)(2)(ii) or (a)(2)(iii) of this section if either the employee accrues a benefit under the plan for the year, or the employee would have accrued a benefit if the offset or reduction portion of the benefit formula were disregarded. In addition, an employee is treated as accruing a meaningful benefit for purposes of prior benefit structure testing under §1.401(a)(26)-3 if the employee would have accrued a meaningful benefit if the offset or reduction portion of the benefit formula were disregarded. ... etc. ... (iii) Concurrent benefit offset arrangements (A) General rule. --An offset or reduction of benefits under a defined benefit plan satisfies the requirements of this paragraph (a)(2)(iii) if the benefit formula provides a benefit that is offset or reduced by contributions or benefits under another plan that is maintained by the same employer and the following additional requirements are met: (1) The contributions or benefits under a plan that are used to offset or reduce the benefits under the positive portion of the formula being tested accrued under such other plan; (2) The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis; and (3) The contributions or benefits under the plan that are used to offset or reduce the benefits under the formula being tested are not used to offset or reduce that employee's benefits under any other plan or any other formula. Be sure to meet all of the conditions in (a)(2)(ii) or (a)(2)(iii). (a)(2)(iii)(A)(2) - the employees in the DC plan benefit on a uniform basis. This can sometimes cause problems too.

I don't have the reference in hand, but I am certain that when a participant elects a lump sum payment in a DB plan, the "account balance" method can be used in the year the lump sum is paid. Otherwise, no, it cannot be used.

1. You are correct, only the balances vesting for the year count plus the vested contributions for the year count against the annual 457(b) deferral limit. Employee deferrals, vested employer contributions, and any prior non-vested balances that now become vested during the year - all of these add together and count against the annual 457(b) deferral limit ($17,500 ignoring any last-3 years catchups). Actually, i am not sure that the nonvested amounts are even considered as 457(b) amounts. 2. Correct, but you could easily exceed the limit in a future year when the nonvested amounts begin to vest and thus count against the 457(b) deferral limit in such future year. Suppose the in 2014 a nonvested employer contribution of $17,500 increases by 6% (earnings of $1,050) so it is now valued at $18,550 in 2015. Suppose the plan has 100% vesting upon death. The participant dies in 2015 and the $18,550 becomes vested, which will likely exceed the annual deferral limit for 2015. 3. 457(b) plans require a written plan document. The plan document dictates whether or not a vesting schedule applies. Many times the 457(b) deferral, whether made by the employer or by the employee, is considered by the employee as their wages that they could have been paid, but they put it in the plan. A vesting schedule on that amount usually does not sit well with them. Remember, the people actually eligible for a nonprofit corporation's 457(b) plan are not the rank and file employees (must generally be a top hat group).

Yes, suppose they are.

Suppose a new individually drafted defined benefit plan was established mid-2013 with a January 1, 2013 plan effective date. Suppose the plan was signed and executed and the plan document was submitted to the IRS with Form 5300 last summer. No contributions made yet, but liabilities for 2013 have accrued. Now suppose the client calls today and says business has turned so bad that they aren't sure they will even be in business a few months from now and they don't see any possibility for making any plan contributions. Also suppose the DB document says something like "...if, pursuant to an application for qualification, the IRS should determine that the Plan does not initially qualify as a tax-exempt plan under Code Sections 401..., then if the Plan is a new plan, it shall be void from its inception..." Since the IRS is still in the review process for this plan's determination letter application, would the IRS accept and even consider a request to them asking that they issue an unfavorable letter on this supposed plan? Has anyone done this? What do you recommend?

From the OP it does not sound like the plan document allows a true-up. If the plan's document states the calculation of the match is done on a payroll-by-payroll basis, then you must not true-up at the end of the year. In that case the match, as calculated, would need to be deposited at least quarterly equal to the sum each of the payroll-by-payroll matches calculated for that quarter. This can cause problems for HCEs that were not provided an explanation of how the match gets calculated and, thinking they'll get the whole match anyway, make their entire deferral for the year from just a couple of paychecks (or from a bonus).

Thanks!

Yes.

I almost did exactly that. A colleague of mine was asking a question about a reversion from a DB plan (hadn't seen those in a while), and I almost posted a question about the 20% excise tax. Had the question written up, then decided to search one last time and found my post from 2008 with a reference to Rev Rul 2003-85. He was kind enough to not laugh too much.

Yes. If the restatement and restated SPD will not make it within the 210 day deadline following the end of the fifth plan year. I know several other providers that do this, but also know many more that do not. IDP plans applying for D letters get restated every 5 years anyway, so a new SPD is likely generated from that every 5 years. Too bad the 5-year SPD rule from the DOL is not lined up with the 6-year restatement period for pre-approved plans.

Does the plan have language that identifies employees by age directly or indirectly, such as "the formula for group B is 0.50% of pay and Group B consists of employees born after January 1, 1980"? Does the plan have language that excludes employees by age directly or indirectly, such as "NonHighly Compensated Employees identified by the Employer as 'Apprentice B' Employees are excluded from the plan" - and the employer definition of an 'Apprentice B' employee is any employee born before January 1, 1980? If the plan has something similar to either of those, you have a problem. Otherwise, no problem.

That’s right – employers are not required to obtain IRS approval of their plan’s written language. Obtaining an IRS determination letter provides the employer with the assurance that the plan's written language is currently in compliance. In Revenue Procedure 2012-13 (see sections 4.03 and 4.10), the IRS indicates a plan may be required to have or to obtain a determination letter in order to fix certain errors. If a significant operational error occurs, the option to self-correct under Revenue Procedure 2012-13 is not available if the plan does not have a determination letter (an exception currently applies for 403(b) plans). Another benefit of having an IRS determination letter occurs when the plan gets audited by the IRS. The tax-qualified status of the plan requires the plan to operate in accordance with the terms of the written plan and in accordance with current law. The written plan must comply with the requirements of the Internal Revenue Code and applicable regulations/guidance. That makes two broad areas where the IRS can target their audit: 1) the plan’s operation and 2) the plan’s written language. If the plan has a determination letter, half of the target is protected, making a smaller target zone for the IRS agent, assuming all good-faith amendments are up-to-date. If the plan operates according to the law/regs/guidance but it has no determination letter, an IRS auditor can read any portion of the written plan to look for a failure. They have a checklist to help them to look for omitted language and for impermissible provisions. When found, the IRS can sanction the employer under audit cap, which is generally an unpleasantly high fee, usually much more than the cost to apply for a determination letter. That said, your question is about a governmental plan. The IRS is a governmental agency, so if they audit a governmental plan, I’m not sure they would be as strict as they are with a private sector plan, but this is only my take on it and this comment should be considered anecdotal at best. FWIW, I hope that helps.

404a5 would not apply since this is not a participant-directed plan.

We ended a recent IRS audit where the IRS wanted mathematical proof that the cash balance plan passed 401(a)(26) for 3 years: the year before the year of audit through the year following. During the course of the audit, we noticed the employer had made a mistake in providing their census information - this was regarding employee termination information for one of the years. This caused a problem that the employee count increased and the plan would need one more individual with a 0.50% benefit accrual to get over the 40% requirement. We looked at accrued-to-date, fresh starts, averaging compensation over various periods, etc., but could not quite get one more person over the 0.50%. The best result was to get one more participant accruing a benefit of about 0.45%. The IRS closed the case without requiring any action, but they explained that they only closed it because of several two main factors: the additional accrual needed to get one more person to 0.50% would have an insignificant benefit value, and because the plan was already terminated and the participants were paid out, it was not worth requiring action. FWIW.

I saw the headline of this post and assumed a member of Congress had originated the post, either that or Mark Twain somehow got in here.

The Form 1099-R instructions state: Use Code 4 regardless of the age of the participant to indicate payment to a decedent's beneficiary, including an estate or trust. Also use it for death benefit payments made by an employer but not made as part of a pension, profit-sharing, or retirement plan. So, if the participant's benefit is paid to their survivor, it seems that code 4 is the correct response. Even if the payment to the survivor is a refund of employee contributions, it is still a payment due to the death of the participant. Code 2 says: Use Code 2 only if the participant has not reached age 59 1/2 AND you know the distribution is: A Roth IRA conversion (an IRA converted to a Roth IRA). A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331. A governmental section 457(b) plan distribution that is not subject to theadditional 10% tax. But see Governmental section 457(b) plan distributions, earlier, for information on distributions that may be subject to the 10% additional tax. A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55. A distribution from a governmental defined benefit plan to a public safety employee (as defined in 72(t)(10)(B)) after separation from service in or after the year the employee has reached age 50. A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v). A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA). Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4. A distribution to an alternate payee is an exception to the 10% excise tax, so it seems that code 2 is the correct response, if under age 59.5.