John Feldt ERPA CPC QPA

Mom and Dad own 100% of a corporation and they employ their adult daughter (age 43). The type of business is NOT one of those professional businesses that are automatically exempt from PBGC coverage. No other employees. A DB plan is set up to cover all three employees. The plan is subject to PBGC. Agree? Assuming nothing changes other than the daughter later becomes a 100% owner and Mom and Dad retire from working, 404(a)(7) applies and PBGC coverage ends, right?

Also, the assets of the plan are to be used only for the exclusive benefits of the participants and beneficiaries of the plan and to pay reasonable plan expenses. If this person is not truly entitled to a benefit, wouldn't a payment from the plan violation of this rule? Or is a "payoff" to a bothersome participant considered a reasonable plan expense? IMO, even if the employer just wants the problem to go away, they should be careful to not to issue them a check from the plan without finding sufficient satisfication to support that this person is truly a participant with an unpaid benefit. If they find no evidence to suggest this person is entitled to a plan payment, then if they think the participant would go if any type of payment was made, maybe they could make a payment from their own pocket, not from the plan. But that would not necessarily end anything, since the participant could still argue their claim since no payment was made from the plan. FWIW.

Ah, master is wise to shun statements or declarations that have no merit or support as backup. What does master teach regarding casual comments lightly humored intended to assist in perspective refocus?

"the 412(i) decission is not about bigger tax deductions in exchange for lower yield. It's about safety, predictability, and upside investment potential without downside risk." Oh, of course - what was I thinking - all along I thought the hidden, but real reason for the 412(e)(3) plan, a.k.a. 412(i) plan, was so the insurance salesman could finally buy that yacht. If that's not true, then who knows, maybe Ned Ryerson doesn't even sell these 412(e)(3) plans?

ADP testing.

The criteria for determining “substantial business hardship” includes (but is not limited to): • whether or not the employer is operating at an economic loss; and • there is substantial unemployment or underemployment in the trade or business and industry concerned; and • the sales and profits of the industry concerned are depressed or declining. I know of no other guidance on this and because it is a facts and circumstances determination, in my opinion the Employer must make the final determination as to whether or not this definition is met. Does anyone know of any cases where the IRS has taken this issue to court?

Okay, amen it is. Thanks Tom.

I could be forgetting something here, but I think a safe harbor plan's withdrawal and vesting provisions must be spelled out in the safe harbor notice itself, and not just covered by a cross-reference to a relevant section in the SPD. The section of the regulations regarding this SPD cross-referencing fails to include the withdrawal and vesting provisions as an available cross-reference. In other words, the notice content requirement of 1.401(k)-3(d)(2)(ii)(G) is not listed in 1.401(k)-3(d)(2)(iii). I thought this might have been discussed at an ASPPA annual conference or other conference years ago? Or maybe something was said or done concerning this? Is there a place where we can electronically search the conference Q&As? I see an November 2006 reference to this issue (thanks Tom): http://benefitslink.com/boards/index.php?s...st&p=140633 I understand that a cross-reference must be more specific than just saying to look at the SPD, the regulation states it must reference the "relevant portions" of the SPD. However, it's not allowed at all for withdrawals and vesting. Can I get an amen confirming that still the case?

Funny. When an issue comes up, e.g. the Final NRA Regs interim amendment, the Final 436 Regs interim amendment, or even some individual plan amendmens, we prefer to discuss the issue with the actuary before writing the amendment. Other amendments, such as a plan freeze amendment, would certainly not need such discussion, although the actuary would have already been involved with answwering any impact questions re: funding, effect on financials, etc. If the amendment increases benefits, confirmation of the funded status takes place (if not already determined). FWIW.

Are you saying that the RASD requirement would only have to apply to vested terminees who do not start their payments at NRA (if proper susupension of benefits notices are given to actives)? If the plan gives proper and timely suspension of benefits notices to all participants who do not start their payments at NRA, the plan must still allow a vested terminee who delays past NRA to start their pension retroactively to NRA once they provide their distribution election - if the plan has RASD language - correct? Absent such RASD language, the plan would be required to actuarially increase such benefits for these vested terminees - correct?

Could you put in a fully subsidized early retirement benefit payable at 58 and 10? and change the NRA to 65/5? Will that fit the prototype? Will the actuary be satisfied with that solution?

The auditor talked with their manager they determined the SPD was sufficient and no further action is needed concerning this issue. Here's generally what we said: We understand that 29 CFR 2520.102-3(q) states: "The identity of any funding medium used for the accumulation of assets through which benefits are provided. The summary plan description shall identify any insurance company, trust fund, or any other institution, organization, or entity which maintains a fund on behalf of the plan or through which the plan is funded or benefits are provided." We believe this issue revolves around the interpretation of the above regulation. The plan does not utilize the services of a corporate trustee, nor do they invest solely in insurance products. The plan’s funding medium is a trust. In the opening paragraph of the plan’s document, it states the “Employer establishes a plan and Trust . . . by executing an Adoption Agreement.” Section 1 of the plan defines an account as “the separate Account(s) which the Plan Administrator or the Trustee maintains under the Plan for a Participant.” This means the accounts are maintained not by the mutual fund company, but by the Trustee, who has full control and authority of where such accounts shall be invested (including a plan that allows participant-directed investments - see section 7). Section 4 states that an “adopting Employer's Adoption Agreement and this basic plan document together constitute a single Plan and Trust of the Employer.” Section 8 states “By its signature on the Adoption Agreement, the Trustee or Custodian accepts the Trust created under the Plan and agrees to perform the obligations the Plan imposes on the Trustee or Custodian.” Section 20 explains the investment powers and duties of the trustee of the trust. Thus, the Summary Plan Description has disclosed the named trust, which is the plan itself, and has also identified its trustees, thus satisfying this regulation. We would be happy to discuss this with you and your manager, if possible. A big Thank You to all the replies above here at Benefitslink to help us get this closed out.

shouldn't the IRS know the rules? Yeah, but you have to expect inconsistency sometimes. Note for future: only give the IRS exactly what they asked for. Don't give extra information, like failed versions of tests that occurred before a testing method was found that passed.

The IRS has not updated EPCRS for correcting a 403(b) plan for missing the 2009 deadline to have a plan document that complies with the written plan requirements that were part of the final 403(b) regulations. There is no remedial amendment period for a 403(b) plan yet - the IRS has not yet released anything in that regard either. Thus, the terms "GUST restatement" and "EGTRRA restatement" have little real meaning for a 403(b) plan. Regarding PPA, HEART, WRERA, etc. - I don't recall seeing any guidance from the IRS on the amendment deadline for a 403(b) plan (the statute has its own deadline that the IRS sometimes extends), so if you missed the statute deadline, there is no correction option under EPCRS for that either (so amend now).

Sorry, I only vaguely remember posting the original question. So, although the OP does say "cross-testing" it is really referring to the general test on a contributions basis, not on a benefits basis.

We asked SunGard, and Robert said it's a matter of interpretation as there is no guidance other than the regulation. He basically said he's never heard of this being brought up as an issue by the DOL for any of their SPDs, but there's no knowing how many of their SPDs have been reviewed by a DOL auditor.

According to a DOL auditor, a plan's SPD is deficient if it does not name the investment provider for the plan. For example, a company officer is the plan's discretionary trustee and that discretionary trustee had chosen an investment platform (example: Principal, Hancock, Nationwide, etc.) as the investment vehicle for the participants to direct the investment of their deferrals and to direct the investment of any employer contributions. The participants receive enrollment kits to direct their investments. The discretionary Trustee choses a fund lineup, but has the authority to change that and to change the investment platform, if they deem it to be necessary/prudent to do so. Assume the plan does not have a corporate trustee nor does it use a separate trust agreement. The DOL auditor says the SPD must satisfy 29 CFR 2520.102-3(q): "The identity of any funding medium used for the accumulation of assets through which benefits are provided. The summary plan description shall identify any insurance company, trust fund, or any other institution, organization, or entity which maintains a fund on behalf of the plan or through which the plan is funded or benefits are provided." The DOL auditor then says that if the SPD does not identify where the plans assets are invested, the SPD is deficient. They say: An example of the language that we would look for is, 'The trust assets are being held in a Trust Account at: Mutual Fund Company Name 123 Main St. City, State 12345 (XXX-XXX-XXXX)' " They then say that any SPD without the above language would need to be amended. Most SPDs have only the trustee name and address and phone number, nothing about the investment platform. Are the SPD's for the participant-directed 401(k) plans in this country out of compliance if they do not name the place where the assets are invested? I wouldn't think so. Comments? Suggestions on a response?

Will a component plan testing approach help?

The plan document may say something about that - I'd check there first.

The IRS has promised a correction option for the 403(b) plans that missed their document deadline, but that promise is at least a couple years old, and no such option exists yet. So don't hold your breath. It would be a good idea to have a document adopt now, but I would probably leave out any retroactive language until such time that the IRS really does allow a 403(b) document failure to go in under VCP. As for deferral only, there's a DOL FAB out there that talks about this issue. SunGard has a brief summary here: http://www.relius.net/News/TechnicalUpdates.aspx?ID=502

No. See Treasury Regulation 1.401(a)(4)-3(e)(2)(i) and (ii). I believe it says you can only use current plan year compensation if the measurement period for determining the accrual rates is the current plan year (with an exception for accumulation plans).

No document - perhaps it's a church?

And, even if the document does not have failsafe provisions, then we still don't know answer without running an average benefits percentage test for coverage.

And that satisfies the IRS. However, when the DOL investigation begins, and they have not been consistent on this, we've found that some DOL investigators will not allow the interest rate from the DOL VFCP online program to apply if the employer did not file a VFCP application. Now, suppose the calculator says the additional interest due is something like $67. How is it justifiable to spend gobs of time to prepare a VFCP application? Maybe that will protect you from paying an extra $18 of possible lost earnings if you get investigated later perhaps? How much does it cost you to prepare the VFCP filing? Does that cost justify the value of any protection you've gained by doing the filing? So here it's important to communicate to the employer how our DOL and IRS play together - explaining that the IRS is okay fine with using the DOL online calculation (see Rev Proc. 2008-50). BUT, if the employer does not file a VFCP application and later the DOL investigates, the DOL may require the employer to cough up some extra lunch money to put into the plan because the DOL agent might not accept the use of their own DOL online calculator. If the employer understands that there is a risk with no VFCP filing, and they understand the cost benefit to remove that risk, they can make an informed decision.

I think you should be able to test by imputing disparity - use 100% of the taxable wage base. This should give you the results you seek.