John Feldt ERPA CPC QPA

To avoid estate taxes, which I believe was the case that got this to the supreme court, could a mother/daughter be considered "married"?

There have been cases where a "marriage" was disputed after a separation of the husband-wife when no actual divorce occurred, and then long after the separation (years, months, days, or hours after, who knows) one of the two gets married again while still legally married to the first spouse. The dispute here being over whether or not the two were still considered as married and/or whether or not the second "marriage" has any beneficiary rights as a "spouse" to and of the benefits in the plan. Of course this comes up when a lot of moola is at stake after the death of person who was double-married, and both "spouses" make a claim for the benefits. "Double-married?" . . . hmmm maybe that term will also be allowed to be considered as "married" now that the one man and one woman terminology has gone away?

But i think the total employee count can matter here. As my memory serves, I think the rule is not to cover "only", but to cover "primarily" - isn't it? So I think you can include some employees who are neither a management employee nor a highly compensated employee, as long as the plan "primarily" covers a select group of management or highly compensated employees. So, what is "primarily" then? Courts may differ here. Is it all management and HCEs plus a few other employees? Maybe, but as soon as it looks like the covered group is consisting of more non-HCE non-management employees, then the "primarily" requirement is certainly not met.

Can participants make pre-tax deferrals if the plan is not tax-qualified?

So, to get that exemption then, it must be for late deferral deposits, the excise tax must be contributed to the plan, the 5330 must go to the DOL with the VFCP application, and the excise tax must be under $100.

Same here. These code responses are very insignificant for 5500 filing purposes. However, unlike the voluntary 401(k) questionnaire where plan sponsors could simply mark any answer they wanted (just to finish the request without getting audited), the Form 5500 has this statement: Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules, statements and attachments, as well as the electronic version of this return/report if it is being filed electronically, and to the best of my knowledge and belief, it is true, correct and complete. If, upon examination/audit, the government agent begins to think that the Form 5500 questions were just filled in with something, anything, just to get the filing done, then you've likely got more trouble, not just a short closing comment made by the auditor to end the exam. So, it is best to get the best/correct answer in all questions at all times.

You may want to confirm just how discretionary that match is (as defined under the terms of the document). I have seen a document where the time-period was allowed to be a discretionary annual determination made by the employer. edit: wording

I view a "plan characteristic" as "plan" + "feature". The "plan" is the written instrument that the sponsor of the plan adopts. The "features" of the plan include anything that would be available under the terms of the plan. Thus, if the document allows a discretionary match and a discretionary PS, but has never used those features, I would still enter codes 2E and 2K. Similarly, if the document allows only deferrals (does not allow a discretionary PS or match). I would not use either codes 2E or 2K. edit: typo

The participant elected to have their DB benefit paid as an annuity. The plan document has a formula that specifically defines the benefit amounts payable under that form, so once the benefit election is complete, the plan pays that benefit as elected from the plan assets. Alternatively, the plan fiduciaries could use plan assets to purchase that annuity from an insurance company, thereby removing that liability from the plan. It may very well cost much, much more to do that than the amount that was being funded into the plan (unless the actuary knew what the participant was going to elect). That will depend on the annuity quotes you get back, the type of annuity selected, and the actuarial equivalence definition used in the plan to determine the amounts payable under that elected form of payment.

Right, so be sure to only use the pre-approved checkboxes if using a prototype and only use pre-approved text (and/or checkboxes) in a vol sub. and stay within the parameters outlined for any "other" open text fields.

I agree with Sully regarding Section 6.05(1) of EPCRS Rev Proc 2013-12: "a determination letter application is not required ... if the correction by plan amendment is achieved through ... the adoption of a prototype of volume submitter plan with an opinion or advisory letter..." For SCP purposes, 6.05(2)(b) starts "Except as provided in 6.05(1) ..." Does that mean that the adoption of a plan amendment to fix the issue as described under SCP is therefore not subject to D letter submission if you were able amend by using a pre-approved document? Going outside a prototype or a vol sub you must submit. Here's an small excerpt from that SunGard Relius technical update. Full text is here: http://www.relius.net/News/TechnicalUpdates.aspx?ID=964 Must a plan that adopts retroactive corrective amendment under SCP file for a determination letter for the plan? EPCRS gives a general rule requiring a determination letter submission: Except as provided in §6.05(1), in the case of any correction of an operational failure through plan amendment under SCP that is permitted under §4.05(2) …, a plan sponsor must submit a determination letter application for the plan, including the corrective plan amendment, during the plan’s next on-cycle year, or if earlier, in connection with the plan’s termination. §6.05(1) has exceptions to this general rules: Notwithstanding any other part of this §6.05, a determination letter application is not required and may not be submitted with the VCP submission if: the correction by plan amendment is achieved through the adoption of an amendment that is designated as a model amendment by the Service or the adoption of a prototype or volume submitter plan with an opinion or advisory letter as provided in Rev. Proc. 2012-6, 2012-1 I.R.B. 197, on which the Plan Sponsor has reliance (or is treated as having reliance …), or the failure corrected is a demographic failure. Therefore, if a plan sponsor incorporates its retroactive corrective amendment within its approved prototype or volume submitter document, the plan sponsor not only does not need to submit a determination letter application with respect to the corrective amendment, the IRS prohibits such an application. However, if the plan is on an individually designed plan document, the plan sponsor will need to include the corrective amendment as part of its next determination letter application.

Is the match a safe harbor match?

That's good that you limited the amount to $51,000. I have seen more than one owner-only prospect bring an out-of-date MP plan to us (not restated for EGTRRA, GUST, etc.) where a buddy of theirs had been only applying the compensation limit and having them contribute 25% of the 401(a)(17) limit into the plan each year. In one case the owner was about to put in $62,500 for 2012 but they had just been selected for an IRS audit. Since they had not done anything to their plan document since GUST or maybe before that, they got scared and started calling around. Since we would not help them backdate any old documents (isn't that something like tax fraud?), they found an "ERISA Counsel" somewhere who "found" up-to-date documents and, by golly, the execution dates on the document were no problem. We assume they still had to deal with and somehow use up the accumulated excess unallocated amounts (because of the excess contributions).

Assuming the plans are required to be aggregated for coverage and for 401(a)(4), assuming a gateway minimum is the best option for passing 401(a)(4), assuming the TH minimum is provided in the DC plan, and assuming the highest HCE aggregate rate exceeds 35% of compensation: 1) Yes, by what you've described, it seems that a total 7.5% allocation is required for this participant. As to mattmc82's comment, by virtue of the plans being top heavy, wouldn't the TH minimum apply even to a separate 401(k) plan with just 1 YOS, which then triggers the TH minimum and the gateway contribution? What did I miss? 2) If the amendment was not clear that the change in vesting only applies to participants with one hour of service on/after the effective date of the amendment, then that terminee could be 100% vested. However, be sure to go back into the plan document itself to the vesting section and/or to the amendments section to see if it already has language saying something like "in the event this section or the vesting section is ever amended, the new provisions only apply to participants with one hour of service on/after the effective date of the amendment unless the amendment states otherwise." Let us know what you find.

I think this might fall under 411(d)(6) protection under the optional forms section (just a starting point to look into further). §1.411(d)-4. Q-1: A-1: (3)(b) Optional forms of benefit (1) In general. The term optional form of benefit has the same meaning as in §1.411(d)-3(g)(6)(ii). Under this definition, different optional forms of benefit exist if a distribution alternative is not payable on substantially the same terms as another distribution alternative. Thus, for example, different optional forms of benefit may result from differences in terms relating to the payment schedule, timing, commencement, medium of distribution (e.g., in cash or in kind), election rights, differences in eligibility requirements, or the portion of the benefit to which the distribution alternative applies.

I am of the same opinion, but after a very brief limited search for a code/reg/otherwise that confirms this, I took the Benefitslink shortcut to ask. I will search further next week.

Under §1.411(d)-3(g)(6)(i), the term early retirement benefit means the right, under the terms of a plan, to commence distribution of a retirement-type benefit at a particular date after severance from employment with the employer and before normal retirement age (emphasis added). If a PS plan has an in-service distribution option at age 55, can this be amended to age 59.5 for all existing balances without violating 411(d)(6)?

Where the document does not specify, you must still comply with applicable law. The regulations interpret the law, and I think the regulations require the actuarial increase if the notice is not provided, but you may wish to seek a legal opinion in the matter.

Most likely you hope to project the DC numbers to age 65 to utilize the 8.5% projection rate for the extra 10 years. So when you start looking at a DB/DC proposal, a request to amend the PS plan's NRA might be recommended when this is found. Certain odd situations may differ, but if the amendment makes sense for a client, be sure the rights at the old NRA are preserved for the benefits already accrued.

Generally yes, you must give the greater of the continued accrual with the additional service/wages as they apply, or if greater, the actuarial increase of the prior accrued benefit. Is it worthwhile to try EPCRS and see if the IRS might allow you to give the notice now (late)? They might or might not agree to that depending on the facts of the situation, but maybe that could get you out of some or all of that extra accrual?

"No, as long as it is fairly valued. " "The problem, of course, is determining the fair value." very true

The powers and authority granted to the Plan Administrator should be reviewed - these should be listed in the plan document and likely include the authority to direct the Trustee regarding all disbursements from the Trust and to obtain and maintain a record of all data necessary for proper administration of the plan. It might be reasonable to first perform a search using someone like PBI (http://pbinfo.com/) or some other firm to obtain clues as to whether or not the payee might actually be deceased (I am not with PBI but a client of mine used them for a while when I was with another firm). If the payee does not show up on the list of possibly dead, then some type of written correspondence should go out to address regarding these uncashed checks. As a fiduciary, your obligation is to all of the participants in the plan. If you keep sending out benefit checks that aren't being cashed, but are just piling up on a doorstep, then I would get concerned about other potential problems, so ignoring these uncashed checks does not seem prudent to me. So, if you have no assurance that the check is actually getting to the payee, it seems to me a reasonable fiduciary would at least send correspondence to the address of record, mention that the checks have not been cashed, and explain what steps the plan administrator intends to take. These steps could include a temporary cessation from sending such payments until such time that the participant responds. Perhaps suggest direct deposit in this correspondence. Hopefully these checks have strict expiration dates, perhaps 90 or 180 days after issuance. After the checks expire, the payee would have to contact you or the bank anyway to get the funds re-issued. Also, remember, you probably should not just rely on the results of the death search, sometimes a false negative can show up on the list. You should send correspondence to explain that the payee was listed in an outside agency database as deceased, and you are requesting something to confirm the actual status of the payee in order to keep your records accurate.

Conversely, suppose Joe is NOT paid now and the value of the asset drops another 99% over the next 18 months. If Joe was presssured to wait for the value to increase, but it never did, maybe the problem just got worse?

If testing using the accrued-to-date method, average compensation must be used with a uniform averaging period for all participants (at least 3 years, or all years of employment for individuals with less than 3 years). Under accrued-to-date testing, the number of years to divide by are the number of years the employee benefited under the plan, so if they are being brought in under a -11(g) amendment, you'll just have one year for your denominator for that NHCE. If the NHCE was hired in late 2011 with low 2011 wages compared to 2012, that makes a low average wage. Then, with the allocation for 2012 based on the higher 2012 wages, this produces a larger EBAR than you would get using the annual method with annual comp. I would not suggest designing a plan on this, but only look for it when your other normal testing avenues fail.

If the "plan year" (I believe that to be both the first day and the last day of the plan year) for the 401(k) plan does not coincide with the plan year for the cash balance plan, the plans will not be able to be tested together, and this may be a problem. The termination and distribution from the 401(k) plan as you described changes the last day of the plan year for testing purposes. I think a "successor" plan is what you want to avoid. If you wait for 12 months after the last distribution occurs to set up another plan, then you have a legitimate distributable event when the first plan terminated. If the second plan is set up too early, then you have a successor plan and the distributions from the first plan are in jeopardy.