John Feldt ERPA CPC QPA

Is there any requirement for them to adopt by the EGTRRA restatement deadline? No. Restatements are only required in order to obtain a Determination Letter (or in the case of a pre-approved plan, to secure reliance upon an opinion letter or an advisory letter). As you've described, the language in this church's plan document and its amendments have no reliance without having ever filed a Form 5300 to apply for a D letter. If the plan were to be submitted at this time, the IRS would want all prior documents and amendments for review. As I understand it, if you applied for a D letter now and the IRS finds any problems with any recent good-faith amendments (like WRERA) which fall into the current cycle, the IRS will allow the plan to be amended retroactively, within the IRC 401(b) amendment period, in order to conform. This assumes those amendments were executed timely and in good-faith. Okay, what church would have a bad-faith amendment anyway. However, if the IRS reviewer found problems with some older plan language which was required to be in place by the end of a previous remedial amendment period, it is now too late for that language to be conformed without penalty because that remedial amendment period has expired. For example, if the plan did not timely adopt the TRA '86 language to comply with the new 415 limitations which were required back in the day shortly after I started working in this field, then the IRS would look at the chart at the end of section 14 of Revenue Procedure 2008-50 and say, "Hmmm, TRA'86, that's $20,000 please. Thank you, and have a nice day." - assuming the plan has 101 - 500 participants. Of course, that sure beats a random audit where they say much larger numbers, and then I'm not sure about the "thank you" and the "nice day" thing.

Generally, all qualified plans fall into the 5-year restatement cycle unless they meet the exception of being a pre-approved plan. Some churches actually do elect ERISA coverage under 410(d) and they can adopt a pre-approved plan and fall into to the 6-year restatement schedule. The churches that do not elect ERISA coverage under 410(d) cannot rely on any pre-approval letter from the IRS even if they adopt a pre-approved document - they are in the 5-year restatement cycle. Assuming they want to have a determination letter, non-electing church plans are subject to the 5-year restatement schedule. This applies to both DB and DC nonelecting church plans.

It's not that uncommon to see "prototype-formatted" documents for governmental plans. I think one of the frequent posters here at benefitslink mentioned to me that they had created a pre-approved document (an IRS vol sub with and it had an advisory letter) but that document also allowed certain boxes to be checked for use with governmental plan sponsors - EXCEPT the basic document also stated that making such an election meant that the plan sponsor could not rely on the IRS advisory letter. Sort of an IDP/Vol Sub hybrid document - pre-approved unless certain provisions are marked. Of course any Vol Sub document could be marked up in a way that takes it out of reliance.

My first (real job) employer had a matching contribution formula like this (back in the 80's and 90's). So, do you do a coverage test at each level to see what percent of NHCEs got a match at that level over the percentage of HCEs that got a match at that level, and then hope for 70%?

Any governmental plan in existence right now, regardless of how their document looks, is an IDP plan - there is no automatic reliance. Any governmental plan currently using a pre-approved document that has an opinion letter for a prototype or an advisory letter for a vol sub, cannot actually rely on such letter. As an aside, this also applies to any church plan that is not electing to be covered by ERISA under 410(d). The IRS will, for the first time, allow a pre-approved governmental plan defined contribution documents starting sometime in 2014 whenever the IRS releases all of the 2nd 6-year cycle (PPA restatement) pre-approval letters. No such option for non-electing church plans - all are IDPs - you can only submit a 5300 to get a D letter there.

Welcome to the 5-year restatement cycle. Yes, all 3 plans could have been restated and then submitted for a determination letter request by the 1/31/2011 deadline (that would be the recommendation). However, plans are not required to obtain determination letters, so you do not have a qualification error (unless you know your document has an error in its language). One exception, I think, if the plan had some operational error and wanted to rely on SCP, I think the plan has to have a D letter. Since you do not have a qualification error, you have nothing to correct. Instead, documents are open for scrutiny upon audit (where normally the D letter would protect the plan spnsor from such scrutiny). You should at least submit these plans during their next cycle (restate using the cumulative list that will be released in late 2014 and submit by January 31, 2016).

No. A carefully worded amendment done after the end of the plan year can target specifically any NHCE(s) to give them the amount needed for the plan to pass testing.

If the employer allocates 5% to the NHCEs who are eligible now and that allocation causes the plan fail 401(a)(4), then that's exactly one of the reasons 1.401(a)(4)-11(g) exists in the first place - to fix that failure. This does not look too aggressive to me considering the facts you've described. On the other hand, if the employer writes the plan to exclude all NHCEs from a PS plan, then after the year ends, adopts a -11(g) amendment with 20-20 hindsight to bring in only exactly the lowest cost NHCEs required in order to pass, then your on your own, I think that is too aggressive.

The IRS seems okay with this, but the DOL says you only get the "relief" to use their interest rate if you file VFCP. For a plan that owes a small amount of interest, filing a VFCP is a ridiculously expensive exercise.

http://benefitslink.com/boards/index.php?s...st&p=207952

for this particular individual, the odds were 100%

Watch out, them's big words Mr. Kit. (for those of you watching at home or getting the text only version, the previous post has "under the plan" in bold and in the largest size font available).

I think the only proof we can provide is to show when a plan is required to be restated, not the other way around. Proving the negative can be problematic since the regulations do not need to say "a plan is not required to be restated" nor do the regulations have to say "a plan is not required to be printed in black ink". Revenue Procedure 2012-6, Section 7.05 .05 Individually designed plans must be restated when they are submitted for determination letter applications. For this purpose, submission of a working copy of the plan in a restated format will suffice. Where a working copy is submitted with executed amendments integrated into the working copy, all such amendments must also be separately submitted. The Service considers a working copy as a document that incorporates all previously executed amendments into one restated document. The intended purpose of a working copy in a restated format is only for ease of review and plan administration and it is not a document that is intended to be adopted. The Service reserves the right to make a determination as to whether the working copy is in a restated format that will facilitate the review of the plan. Does this help?

A standardized plan: No allocation conditions for those employed at the end of the year. 500 hours are required only for those that quit during the year. Suppose the plan allocates using an integrated formula now. 1. If Bob has 125 hours now and he is still employed at the end of the year, can an amendment be done today to change the allocation to be "each person in their own class?" 2. If Bob has 501 hours now (say it's March 31) and he is still employed at the end of the year, can an amendment done on March 31 to change the allocation to be "each person in their own class?" Is this the question?

Governmental plans are in cycle C (DB and DC alike). Except the Treasury allowed governmental employers to file in cycle E at the end of the first 5-year cycle only in order to give extra time to their bedfellows to figure out a few things before submitting the plan. So, if the employer wanted to have the document reviewed by the IRS so the plan could have a determination letter, I think the filing deadline was January 31, 2011 (13 months ago). If the employer is not interested in having a determination letter for their plan, they do not need to restate the document. You have another cycle C window opening February 1, 2013 and closing January 31, 2014 to apply for a D letter again - so you could restate using the cumulative list that will be released at the end of this year and then try for a D letter during this next cycle. In 2014, when the next DC restatement window opens, I think the IRS will allow pre-approved governmental DC plan documents, which may get some of these governmental DC plans out of the 5-year cycle and into the 6-year cycle.

The Pension Protection Act added a rule about the crediting rate and A.E. that must be used after the date of plan termination for a cash balance plan. Check the plan document for that language. It probably says something like: if the crediting rate is variable, then the rate for determining the accrued benefit is the average of the plan's crediting interest rates for the last 5 years; and that the interest rate and mortality used for determining annuities shall be those in effect under the terms of the plan on the termination date, except if the interest rate is variable, the same 5-year averaging rules will be applied.

If, in the DB plan, the HCE accruals are maxed and the NHCEs are merely there to satisfy 401(a)(26), then the most efficient use of the employer dollars in the DC plan may be to provide allocations above 6% for the NHCEs and below 6% for the HCEs. Just enough each way to keep the overall allocation to 6% of all combined eligible compensation. For example, increase the NHCEs to 7% of pay in the DC plan and reduce the HCEs to something below 6% - just make sure the DC plan is not allocating more than 6% of compensation overall (the 6% is plan limit, not a person-by-person limit). If the average of the actuarial equivalent allocation rates in the DB plan equals 0.50% of pay, then the 7.50% gateway is met. It can also be helpful to bring in an ineligible employee or two by lowering any age or service conditions. This gets more eligible compensation into the equation to help with the 6% limitation. Or, if the active participant count is close to 25, a lower age or shorter service requirement could perhaps get the plan over the hump, so to speak, to now (and for as long as the plan exists) require PBGC coverage due to the plan's active participant count.

The math is what it is. A 7.5% of pay cash balance credit when projected at 5%, converted to an accrued benefit, and then converted to a testing value at 8.5% will result in a value that is less than 7.5% of pay. It is not uncommon to place the large benefits for the HCEs in the DB plan with the gateway for the NHCEs in the DC plan because of how the math works. The overall combined-plan gateway, if it's 7.50% as a percent of pay, can be a combination of DB and DC as you are aware, but the DB benefits for the NHCEs are usually only provided in order to satisfy 401(a)(26) and thus they are fairly small, and will only account for a small portion of the gateway. If offsetting, it can be offset by the average actuarial value of the NHCE accruals in the DB plan and I think the offset can only be applied to the NHCEs that are in both plans. If you are testing the 2 plans together it is generally to your advantage to provide the majority of the gateway to the NHCEs in the DC plan as it helps much more (than a DB accrual would) with with the average benefits percentage test (if needed) and the rate group tests.

In this case we actually have a copy of the plan documents/amendments that were in effect at the time the plan terminated. Our concern remains, when already paid a lump sum with rates below 5.50%, what is the 415 offset for maximum lump sum purposes in the new plan when it is established later?

Suppose an employer terminated a DB plan several years ago. The plan was 100% funded, the 100% owner was not even close to the 415 limit and was paid a lump sum based on the low 417(e) rates at the time, which were less than 5.50%. The 415 lump sum limit was not exceeded at the time even though the 417(e) rate was under 5.5%. The same employer sets up a new DB plan now and the 100% owner will again be accruing benefits. The offset of the 415 limit is the question. Since the 1st lump sum was based on rates below 5.5%, should the "extra" amount (the amount paid which exceeded the lump sum valued at 5.5%) be also considered as part of the offset of the new plan's 415 limit? Also consider the converse: If the 417 rates were high so the lump sum paid was less than an amount calculated at 5.5%, can the participant get any "extra" accrual to make up for that in the new plan? What if that DB plan terminated before the 5.5% rules were in effect? What if the second plan is a cash balance plan? This may help illustrate what I am asking: If an employer had 2 DB plans at the same time, and each plan accrues 50% of the 415 limit for the 100% owner, the maximum lump sum is still based on the 5.5% interest rates which override the lump sum that would otherwise be required based on the much lower 417(e) rates, right? I am inclined to say that the rates at the time for the old plan were simply the rates at the time, so just offset the 415 limit in the new plan by the accrued benefit that was paid. Thus, if rates are higher or lower than 5.5% either time, a consistent result might be achieved? Your thoughts?

If you want less plan language to be open for scrutiny by the IRS, the EGTRRA restatement takes away their ability to look at the goo-faith EGTRRA amendment, the good-faith 401(a)(36) amendment, the Final 415 regulations amendment, at least, and folds them into the plan's opinion letter (I assume you're talking about a prototype). This leaves only a few interim amendments that are not part of the opinion letter that they can review. If you don't restate, don't forget to adopt the RMD regulations amendment and PFEA. If they haven't already adopted them, they should before the date of plan termination.

Yes, it would be an operational error, failure to follow the terms of the plan.

Speaking from a relatively small plan experience (at the present time), we have seen a large increase in employer interest for charging reasonable plan fees to participant accounts, starting right at the end of 2008. None of them really even knew (or cared) much about the proposed fee disclosure rules in place at that time. Many employers looked at every possible cost they had, including their plan fees. These plan fees were part of this consideration for our clients since we don't provide "free" plan administration unlike many bundled providers claim to do (but they do disclose their fees, for example, in various places on pages 27 through 48 of a contract written in 8 point font, or smaller). With declining revenues, employers had to make changes, and quickly (you know banks don't loan money because you need cash to cover payroll - you have to show the bank a plan to make a profit so they can be paid back). Some were looking for any possible way to keep the business running (some failed to be able to do that). Not that plan costs are a big chunk of an employer's business costs, but for these smaller plans, it was not insignificant. Because of that, we saw a large number of plans begin to shift some costs to employees (quite a few did this at the same time the plan was restated for EGTRRA with the a SPD being done). I don't think it's a majority of plans, but a much larger percentage now are doing this than before the end of 2008. Perhaps it's the bigger plans that are shifting now that your seeing? Even if they are, the service provider agreement will still need to disclose all the fees being paid from plan assets, so I don't see just that requirement would be significant enough to make an employer change their approach for how the plan gets paid for. These comments are probably not worth $0.02, but that's what I'm throwing in.

Could be. For some employers, their bill from their service provider might include a "per participant" fee. If so, perhaps the employer is looking for a way to lower their own out of pocket cost attributed to those people who are no longer producing anything for their company anymore and perhaps this small fee will convince those folks to agree to a distribution. Hmmm - is that also a little cynical?

I think the new fee discosure rules will require that you disclose the fees in advance of such fees being charged to the partciipant's account. The current rules would say that you have the normal 210 days after the end of the plan year in which the change was put into effect, but since the new rules will affect the plan before that time, I think you should disclose these fees before the effective date of the new fee disclosure rules, at the latest.