John Feldt ERPA CPC QPA

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.

I agree, but I think the frizzy guy prefers to use job classes or something other than the names. If the DC portion of the DB/DC combination does not have allocation conditions and has each person in their own rate group, then you could argue that you have a very flexible option to handle 410(b) and 401(a)(4) no matter what happens to the demographics.

The 25% of pay deduction limit thus ignores the first 6% of pay going into the DC plan (of employer money). Effectively, this makes your combined plan maximum deduction equal to 31% of eligible compensation. Or if you prefer, after ignoring the 6% in the DC plan (since it is deductible), the additional remaining combined plan maximum deduction is now equal to 25% of eligible compensation.

An employer with 2 employees has a profit sharing plan and a money purchase plan. The owner was cutting costs by doing everything in-house for the last umpteen years, so neither plan has been restated for EGTRRA, GUST was also done late, and the 415 limits have been exceeded each year for many years now (10% in one plan and 15% in the other: overall 25% of $245,000). The IRS just sent a random audit letter regarding ONLY the money purchase plan. This employer is now willing to pay whatever it takes for someone to help him and admits to having handled the plan poorly. The PS and MP plans are not combined for 401(a)(4) or 410(b). Under section 4.02 of EPCRS: If the plan or Plan Sponsor is Under Examination, VCP is not available. Under section 5.07(2) it explains what is meant by Under Examination, and it says the plan is considered to be under examination if it is aggregated for 415. I don't think the PS plan can be submitted under VCP now, due to that language. Agree?

$30,880 (using the 2011 limits)

I agree - this sentence in particular from that paragraph: "In addition, the minimum allocation gateway of §1.401(a)(4)-8(b)(1)(vi) and the minimum aggregate allocation gateway of paragraph (b)(2)(v)(D) of this section cannot be satisfied on the basis of component plans." But I'd like to hear Mike's take on this.

If, by average benefits test, you mean test on a benefits basis or cross-test, then you just need to make sure all NHCEs get the gateway and if top heavy, that the non-keys all get a top heavy minimum.

The rules allow the OEE group to be considered as part of a separate plan and thus not entitled to a gateway (except if TH, the TH minimums still apply). I'm surprised your document requires the OEE group to get the gateway.

Have they considered what they may have to do in the second year to make this carveout work for longer than just one year? Tight carveouts like this have a tendency to fall apart quickly after a short time by either failing 401(a)(26) or 410(b) or both.

Can we still use the old form 2848 (from 2008) for plan D Letter requests submitted by January 31, 2012? I also see they've updated the Form 8717 (November 2011).

Dad owns 100% of a Barber Shop. Dad and Son each own 50% (exactly) of a rope-making business (not related to haircuts). The son is over age 21. Controlled Group? I think not, as long as the son owns 50% (or more). Assumes no rights to buy stock or any other such oddities. Adult Child Attribution: If an individual has a child (or a step-child if the individual had adopted such child) that is age 21 or older, the child’s ownership interest in a business is attributed to the parent, but only if the parent owns more than 50% of the same business. To determine the 'more than 50%' ownership, direct ownership plus any other ownership attribution must be included other than the “adult child attribution”. Likewise, if the child has a more than 50% ownership interest in a business, then any ownership held by either of the child’s parents in that same business is attributed to the child. Confirm?

The 402(g) limit is an individual limit. Assuming you are a taxpayer that is taxed on a calendar year basis, then your calendar year 402(g) limit for 2012 is $17,000 + $5,500 (if age 50) = $22,500. By "contribute" I assume you mean "defer from wages". Combine all of your 401(k) deferrals, SIMPLE 401(k) deferrals, and 403(b) deferrals together. Does the total exceed $22,500? If so, then you are over the limit. the 457(b) limit is separate from this and not counted against the individual 402(g) limit, but it does combine all 457(b) annual "deferrals" together.

What legal recourse would you have if you find someone in [not the U.S.] has been stealing confidential data regarding the participants of your clients? What court do you go to?

Your Mileage May Vary?