John Feldt ERPA CPC QPA

Right, good to clarify - Carol is listing the dates for obtaining opinion and advisory letters. The OP mentioned cycle C, which I assumed was regarding the application for obtaining a Determination Letter instead.

Upon termination of a cash balance plan, isn't the interest crediting rate required to become fixed (based on some prior year's rates)? If that's true, will the accrued benefit still fluctuate?

No. Average compensation may be used for nondiscrimination testing per 1.401(a)(4)-3(e)(2), but the minimum gateway requirement (assuming it applies) is based on current compensation. So, for example, if you are testing a DB plan and a DC plan together as a tested "plan", and the highest HCE rate is 31%, then your aggregate gateway under 1.401(a)(9)-(b)(2)(v)(D)(1) is 7% of compensation, not 7% of average compensation. This can be offset as described in 1.401(a)(9)-(b)(2)(v)(D)(1) by the average actuarial equivalent of all the NHCEs benefiting under the plan.

One audit we currently have (a plan they selected at random we're told) is only focused on one of an employer's two plans. Started some weeks ago. We expect they will soon look at the other plan once they realize it was combined for 410(b) and 401(a)(4). I can keep you posted. We don't expect there to be any problems, but we're also only going to provide what they ask for, so we'll see what they ask.

For EPCRS purposes, section 5.09 of Rev. Proc 2013-12 states that if one plan of an employer is aggregated with another plan of the employer for 410(b), 401(a)(4), 403(b)(12)(A)(i), or for 401(a)(26) - although I did not think it was possible to aggregate plans for 401(a)(26) - then that plan is also considered to be under exam. So, you may already be under exam. Otherwise, it just depends on the agent.

FWIW: If you really want to invest in this kind of stuff, consider the capital gains taxes (lower?) vs the regular income taxes (higher?). Is it truly best to invest within the plan like this? Perhaps use your pocket change (money outside the plan) to invest in this kind of stuff instead.

The exception for "retirement" is certainly defined in the document - maybe re-read its meaning again to confirm that the exception was truly met? Otherwise, I think you are stuck and may want to add a note for future documents: put each participant in their own allocation class, maybe even exclude HCEs from SH if not already the case. As I'm sure you know, the company funds the contribution, not the doctor personally. So he should not have individual control over this, regardless of how the business internally accounts for these plan costs. If he could decide this personally, then the amount would be an employee deferral and 402(g) could be a problem.

Governmental plans are cycle C. But wait - read on! During this 5-year cycle, similar to the last 5-year cycle, the IRS is allowing governmental employers to elect to file under cycle E again, allowing this due to something about the phased retirement regs I think. With that in mind, knowing your gov plan is already an individually drafted plan, let's look at the 6-year pre-approved document cycle. Wouldn't it be nice if your gov document could be on a pre-approved document? Well, under the pre-approved 6-year cycle we are in now, the IRS is reviewing pre-approved governmental documents. The next 2-year window for restating pre-approved DC plan documents is opening up sometime maybe around March 31, 2014 and gov pre-approved plan documents should be available at that time. So, if your governmental plan might fit into a pre-approved plan document, then by electing cycle E, perhaps you could consider electing into the 6-year cycle and avoid the expense of an IDP altogther and its submission costs? Just have a pre-approved governmental document instead? This certainly won't work for everyone, but it may be worth looking into.

good point!

For example, a SH matching formula of 300% of the first 6% of pay deferred is okay - it does not cause the plan to fall out side of safe harbor status, and if that's the only employer contribution, the plan is top-heavy exempt. But, if you did 100% of the first 6% deferred for your SH match, you can then add: 200% of the first 6% of pay deferred as a fixed employer match at the same time. Now this fixed match can be subject to a vesting schedule, but to keep SH status (no ACP test), you cannot have a last day or any other requirement, other than a deferral requirement, in order to get the match. If these are the only matches in the plan, you can still be top-heavy exempt. The match of course could be limited by 415. Then there's the triple-stacked match, too.

And just remember, some allocations require total compensation, such as TH minimums or the 5% Gateway, if those are applicable to your plan.

It's a fiduciary question. For the services provided and the amount of assets involved, is 20 bps reasonable? It depends on all the facts and circumstances.

Not exactly your scenario, but a similar argument perhaps: Suppose the employer is a PC, not subject to PBGC, and is adding a DB plan on 12/31/2012 and they combo-test it with the DC plan which is in a standardized PT document with a pro-rata PS allocation. They are subject to 404(a)(7), so they hope to only allocate 3% to the HCEs and 7.2% to the NHCEs. Initially, they contribute and allocate 3% of pay for all participants as the nonelective (pro-rata). They now run 401(a)(4) for the combined plans and it fails (we knew that would happen). The DC plan is now amended using -11(g) by adopting a vol sub document with "each in their own class" retroactively effective for the prior year. Now, to pass 401(a)(4), only the NHCEs receive additional PS allocations. Is all well under this scenario?

Yes, 411 does not allow the 415 lump sum to decrease? or, yes, the 415 maximum lump sum is now lower?

An employer has A.E. defined as 7% interest and uses the applicable mortaility table. An HCE-owner terminated many years ago but the plan is restricted due to 110% C.L., so no payment has been made. The plan will soon be out from under this restriction. This terminated HCE is at the 415(b) limit and is at retirement (age 65). The 415 limit for lump sum purposes is calculated using the 7% plan rate. This HCE had been a 50% owner years ago, but no longer has any ownership. He had made some verbal agreements years ago about his plan benefits before selling his 50%(without consulting their actuarial service provider), and the amount payable now is higher than he had agreed upon. The current owner and this terminated HCE discussed the issue and they want to know if it's possible to lower the lump sum payable for the terminated HCE. He intends to elect a lump sum payment. If the plan amends the definition actuarial equivalence to 8.5%, no other participants lump sums are affected since they are all based on 417(e) minimums. All accrued benefits are unchanged. Due to the 415 limitations, the lump sum for this HCE would now be limited to the lesser of the amount determined at 8.5% or at the 415 rate of 5.5% - is this correct? Does 411 prevent the lump sum amount from being lowered in this manner?

As to your questions, I am not aware of any "safe harbor" formula that automatically satisfies nondiscrimination in a pension equity plan. However, I have only worked with a few pension equity plans, but none since PPA of 2006, so I could be wrong about this. Yes, you are correct that a determination letter can be obtained for a qualified plan when a company submits the plan to the IRS. After the IRS reviews the document (and maybe after some negotiated language changes), the IRS generally issues an opinion saying the written language of the plan satisfies the requirements of the applicable IRS cumulative list. Getting a determination letter from the IRS is voluntary, so not all plans have one. However, I think of a D letter as clothing. It's not required for a plan to have an IRS opinion letter, advisory letter, or determination letter - BUT, I think of the plan as being naked without one of those, allowing the IRS to see everything, giving them the option to challenge any text in the document if they choose to audit the plan. So, it seems likely that most Fortune 500 corporations would have a determination letter for each of their qualified plans, but since it is not required, some might not. Firms could apply for an opinion regarding each amendment, but I think this is rare. Instead, the IRS has a remedial amendment period that allows a plan to be "fixed" when it applies for its determination letter, even if the fix is retroactive in nature (although some limitations may apply). For individually design plans (those that are not pre-approved), like pension equity plans, cash balance plans, ESOPs, governmental 401(a) plans, etc. the remedial amendment period is a 5-year cycle based on the EIN of the sponsor or based on the type of plan sponsor as described Rev Proc 2007-44. This five-year cycle was designed to ease the IRS burden of having large spike in applications all at one time, so most individually designed plans now submit for a D Letter application once every five years with the deadline being based on the last digit of the plan sponsor's EIN. A determination letter has some importance, other than the audit protection that it provides. In certain individual bankruptcy issues, assets in a plan covered by a determination letter have protection from creditors. Also, if the plan has a significant operational error that needs to be fixed, the plan has to have a Determination Letter as one of the conditions if they want to self-correct the problem. If a participant wants to prove that their rollover is qualfied, a copy of a D letter can sometimes be used as proof. The determination letter does not protect the plan against plan provisions that violate ERISA, the law (unless the regulations or other guidance has rendered such provision of the law as inapplicable, such as 401(a)(26) for DC plans). But, the D letter does protect the plan's language regarding provisions that might disagree with the interpretation of the law as spelled out in various regulations, However, the IRS does not just hand out these letters, they can and will require plans to remove or amend language that does not meet their standard for meeting the qualified plan requirements under 401(a). I hope this has helped.

Starting some DB benefit accruals now in a brand new plan at age 44, if they are less than one-tenth of the 415(b) limit, can leave room for much much larger contributions at age 50 than a brand new DB plan that first starts up at age 50. Just something to consider. Also, consider that the contribution limit in a 401(k)/PS plan is an annual contribution limit each year with no lifetime limit, but the DB benefits have a single lifetime maximum. When the DB contributions become large enough to squeeze back the contributions on the 401(k)/PS plan because of the deduction limits under 404(a)(7), you don't get those unused contributions from the 401(k)/PS plan back again in any future year. This could also affect how soon you want to establish the plan.

Assuming this is a DC plan only, the "gateway" itself is never more than 5%. Now, there could be additional profit sharing above the 5% minimum gateway (as needed to help pass 401(a)(4), maybe to just one person), but gateways over 5% only begin to apply when a DB plan is involved. Probably Mike had a typo and really just meant 5%. Mike is also right about the amount to give to the 2nd component plan - it has no bearing on the others (unless a lot of money is going in and the 404 deduction limit becomes an issue), just make sure the gateway is applied to the whole plan, not just to one component plan within the whole plan. edited to add: Okay, now if you are using some compensation (less than total comp) that passes 414(s) and you want to use the 1/3 gateway at 5.5%, I can see how that is workable and could actually be less than minimum gateway using total 415 compensation at 5%.

Depending on how many NHCEs you have, you could component test, sometimes called restructuring. In essence, you have two plans for testing: Plan 1: Test the older HCEs and the youngest NHCEs on a benefits basis. Plan 2: Test the young HCEs and the older NHCEs on a contributions basis. Make sure each "plan" passes the 70% ratio test for coverage. Also, make sure the plan document allows non-uniform contributions. Edit to add: Tom got here first - listen to him.

Sounds perhaps like it's a pension equity plan.

You are correct, the deadline is the partnership's tax filing deadline plus any extensions. I assume you're talking about a Form 1065 for the partnership. Consider having the contributions made by the partnership into the plan. Individuals contributing to a plan sounds a lot like a deferral (a lower limit) or like a voluntary after-tax contribution.

The 10% penalty exception actually allows you to terminate when you are age 54 as long as the year that you separate contains the 55th anniversary of your date of birth. Example: You terminate February 2013 and are paid out. You reach age 55 in October 2013. No 10% penalty. Also, for payouts after 8-17-2006, there's is another exception at age 50 for payouts from a DB plan for qualified public safety employees.

So the question becomes: What is significant? If no significant changes have occurred, you are okay to rely on the prior test result in this 3 year period. I think the IRS would be the final decision maker on what is significant. Is it really that hard to just test again? If this is a small plan, it won't take much to be significant.

Might be a good thing - no 404(a)(7) limitation if you're PBGC covered.

If this is done, the RMD for the qualified plan for 12-31-2012 had to be made (assuming one was required). I think the extension for QCDs being used to count as an RMD was only for IRAs?