John Feldt ERPA CPC QPA

If you intend to avoid the 1/3 gateway or the 5% gateway minimums by providing smoothly increasing allocation rates, my opinion is that the document must spell out the allocations rates and the years of service needed for each rate. I asked SunGard about having the document provide a discretionary profit sharing allocation, but to also spell out that these rates and allocation methods apply in the event that the employer, in its discretion, decides to make a contribution. SunGard thought it could work, but they hesitated a bit and suggested that the document should probably be submitted for an IRS Determination Letter to get reliance due to the formula having a discretionary nature to it. Of course, this is a rare employee demographic where this allocation formula works, especially since the plan must still pass the average benefits percentage test under 401(a)(a) when using this allocation. Has anyone ever tried writing this up as discretionary, but defining the allocations and rates in the event the employer does contribute? If so, did you submit for a D Letter?

In a recent SunGard webinar, S. Derrin Watson didn't think the IRS would go for that. I think that a Mass Submitter could certainly propose that in their 403(b) document submission for the IRS to review - there is no harm in making an attempt to do that. Just don't hold your breath thinking that they will give it a stamp of approval.

Does this relate to your question? http://benefitslink.com/modperl/qa.cgi?db=qa_who_is_employer&n=294 This does not appear to help with the "controlled group" issue.

"reputable recordkeeper" reputed for what?

Then, if he really does want the SH to become Roth, have the plan adopt the Roth Transfer option that was enacted by Congress and passed by the President earlier this year. Then it becomes Roth in nature and gets taxed like an individual Roth rollover. The contribution of the SH cannot go in as Roth, but I think this might get him closer to the place he thinks he wants to be. Does that help?

COVERED COMPENSATION 1982 Calendar Year of 65th Birthday Table I Table II 1982 10,800 11,004 1983 12,000 11,892 1984 12,600 12,708 1985 13,200 13,464 1986 14,400 14,172 1987 15,000 14,820 1988 15,600 15,420 1989 16,200 15,996 1990 16,800 16,524 1991 16,800 17,016 1992 17,400 17,484 1993 18,000 17,916 1994 18,600 18,336 1995 19,200 19,128 1996 19,800 19,908 1997 21,000 20,700 1998 21,600 21,492 1999 22,200 22,272 2000 22,800 23,064 2001 24,000 23,856 2002 24,600 24,588 2003 25,200 25,332 2004 25,800 26,028 2005 27,000 26,736 2006 27,600 27,432 2007 28,200 28,140 2008 28,800 28,812 2009 29,400 29,424 2010 30,000 29,976 2011 30,600 30,492 2012 31,200 30,984 2013 31,200 31,440 2014 31,800 31,860 2015 32,400 32,136 2016 32,400 32,316 2017+ 32,400 32,400

I agree with Effen. If the plan uses a variable rate, the value of the annuity at retirement age, when based on the current interest rate, is unnecessary and is more likely to be meaningless. Perhaps you could make a long-term interest rate assumption to use every year so the statements have more consistent values shown. Use that to project to retirement and to convert to the annuity, but be sure to pick the assumptions wisely to avoid disappointed participants. Be sure to disclose those assumptions in the statement, explaining that the actual results will vary. Or better yet, don't show the annuity with the projection.

Correct, I keep thinking of the usual employer desire to have a somewhat uniform PS allocation. I've seen the individual method used less often.

1. The cash balance credits themselves cannot directly be counted dollar for dollar as part of the gateway (they aren't actually contributions, they're just hypothetical notional accounts written on paper). However, see Treasury Regulation 1.401(a)(4)-9(b)(2)(v)(D)(3). This allows the average actuarial equivalent value of the benefit accruals in the cash balance plan for the NHCEs who benefit under both plans to be considered as satisfying a portion of the gateway. Caution: the actuarial value is not equal to value of the account balance credits. 2. The terms of the plan document must be followed, so if it requires prorata PS for a group, then you are correct. I agree that each participant should probably be placed into their own individual allocation group, assuming passing 410(b), coverage, is not an issue. That said, perhaps you could do this: Step #1. have the employer contribute and then allocate a pro-rata PS amount - an amount that you know is the minimum that any NHCE participant will receive as PS. Step #2: Run the combined plan 401(a)(4) test - uh oh, it fails. Step #3: Adopt a corrective amendment under 1.401(a)(4)-11(g) to correct the 2012 failure. Under the amendment, language will be needed that provides various additional PS to the various NHCEs as needed in order to pass testing. Step#4: Allocate the additional PS as specified according to that amendment. Just a thought.

I went with ERPA, CPC, QPA - but I've seen most folks go with CPC, QPA, ERPA.

No. Assuming they (combined) own 100% of the business. An owner-only plan like this is not subject to ERISA, and thus not subject to ERISA 204(h).

We have seen the OEE rule applied only a few times to avoid the gateway for that group, and it only worked when the over 21/1 group had enough younger folks to pass testing without those under 21/1. Sometimes the cost difference drives the decision: add more people from under 21/1 to pass, or just increase the PS allocation to those over 21/1. What's the net difference?

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?