John Feldt ERPA CPC QPA

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?

Cash balance plan has just been frozen. 401(k)/PS not frozen. Top heavy has been provided in the 401(k)/PS. Keys are deferring at least 3%. With the DB frozen, does the 5% TH allocation requirement change to 3%? If so, where is that cited?

The document will state (I expect) that compensation for a self-employed individual will be their net earnings from self-employment, regardless of any election made in the adoption agreement regarding compensation. If they want to use up more of the $170,000, they could adopt a DB plan as well. edit: typo

That's been the fee since 2-1-2011, see internal revenue bulletin 2011-1, page 242. If you submit Demo 6, it's $4,500. Also, note that the 8717 still shows the lower fee, but you have to actually pay the higher fee from the new schedule.

"The IRS has been very clear that you can say "employees hired in 2005" even if employee X is the only one and you are obviously creating a group for an individual but don't name the individual by name." For some reason, I thought this "don't use names" question was gone when the IRS allowed individual rate groups in DC plans for testing. I've seen a lot of D letters for DB plans with names for accruals, including 5310 letters which including the 401(a)(4) test, again where the IRS had no problems with the plan using individual names. How clear has the IRS been and/or how long ago were they clear on this? Do you have a citation or reference from a conference maybe? Just curious. edited to add: avoiding names for coverage testing is understandable, since you won't be able to resort to the ABPT for coverage purposes if the 70% ratio is not met.

Where does that stem from?

My take is that if the design requires an amendment to the benefit formula every year, then I don't see that as a stable design. I would be concerned that the true benefit is not really defined and the employer is making it a discretionary formula subject to the annual plan amendment. I think that's a problem for a DB plan. We see these both ways. We see plans that need a relatively modest increase will make that as a permanent ongoing change. For us, the bigger plans with more employees have been more likely to make the amendment only apply to the exact people needed to pass and only for that year.

Under Treasury Regulation 1.401(a)(4)-11(g) you have 9.5 months after the plan year end (the year that failed) to amend the plan retoractively to make it pass. I think that includes 401(a)(26). However, doing so every year seems like a problem to me - could it be a violation of the definitely determinable benefit requirement? I do not think it would be the way to go forward each year.

Yes, the normal retirement age regulations (proposed as phased retirement regulations) require an age no earlier than 62 for in-service distributions from any pension accounts unless you can support an earlier retirement age as being typical for the employer's industry.

Thus, for coverage, you'll need to give that person a dollar to avoid that issue. However, if you have everyone in their own class but still have a last day condition, you'll have to amend out that condition in order to get through the coverage test. After that you can deal with nondiscrimination testing. edit: typo

After thinking about this, maybe there's more. Let's look at two plans: Traditional Old Plan A and New Plan Design B The provisions of Plan A require a last day and 1000 hours requirement and the allocation is pro-rata on compensation. The provisions of Plan B have no allocation conditions but each participant is in their own allocation rate class. Suppose each plan is otherwise the same and covers the same demographics in terms of wages and employee counts: they each have 1 HCE and 4 NHCEs during the year. Of the 4 NHCEs, 1 quits voluntarily with 1,000 hours in the year. Both employers contribute the same amount, and Employer B just happens to pick the 3 active NHCEs for the allocation and gives them a uniform percent of pay allocation, the same percent as the HCEs. Both plans pass coverage: 75% is good to go. So far, A and B look identical, but what about nondiscrimination? Plan A allocates a uniform amount as described under 1.401(a)(4)-2(b)(2)(i) and uses the exceptions in 1.401(a)(4)-2(b)(4)(iii) to say the "zero" allocation given to the terminee can be disregarded for uniformity purposes. Does Plan B get to apply the exceptions offered in (4)(iii)? According to the regulation, a plan does not fail to satisfy the uniform allocation formula "merely because the plan contains one or more of the provisions described in this paragraph (b)(4)" The way that regulation is written, it seems to me that if the plan document does not contain a last day or 1000 hour provision, then I think the plan must satisfy 401(a)(4) in some other manner (including the terminees), such as testing the allocations or by testing the equivalent benefit accrual rates derived from those allocations. Thus, I think New Plan Design B, although much more flexible, could be more dependent on the demographics than Plan A would be. Agree? Disagree? edit:typo

This is how they do all their cash balance plans? Both of them? Or maybe they only have one (for now).

Not really a big deal, but FYI: If the plan is not safe harbor, when you do the coverage test you won't be able to exclude terminees with under 500 hours if they are allocated nothing, because that exclusion from the test only applies if the SOLE reason for them getting no allocation is because they did not satisfy the allocation conditions. Thus, with no allocation conditions in place, they stay in the count for the test. This would be rare plan to find out there, but just FYI. With no allocation conditions, you have the most flexibility, adding conditions will just limit the plan's options.

Soon it will be too late for 2012. For 2011 it is too late unless they provided a safe harbor "maybe" notice within a reasonable period of time before the first day of the plan year (30 days is deemed reasonable). If they did this and they want to be safe hrabor in 2011, then an amendment must be signed by December 1, 2011 and a supplemental notice must be given out by December 1, 2011. That's December 1, not December 2 - this deadline is 30 days before the END of the plan year. edit: sorry, these comments are meant for an existing plan, wanting to add safe harbor.

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

Oh, sorry about that, Kevin's right - I'm sure your 415 amendment has yougoing to Rev Proc 2008-50 for the solution. Look at 6.06(2) and (3) (page 35 of my version). Here it is: (2) Correction of Excess Allocations. In general, an Excess Allocation, as defined in section 5.01(3)(a) of this revenue procedure, is corrected in accordance with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this method, the account balance of an employee who received an Excess Allocation is reduced by the Excess Allocation (adjusted for earnings). If the Excess Allocation would have been allocated to other employees in the year of the failure had the failure not occurred, then that amount (adjusted for earnings) is reallocated to those employees in accordance with the plan's allocation formula. If the improperly allocated amount would not have been allocated to other employees absent the failure, that amount (adjusted for earnings) is placed in a separate account that is not allocated on behalf of any participant or beneficiary (an unallocated account) established for the purpose of holding Excess Allocations, adjusted for earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year(s). While such amounts remain in the unallocated account, the employer is not permitted to make contributions to the plan other than elective deferrals. Excess Allocations that are attributable to elective deferrals or after-tax employee contributions, (along with earnings attributable thereto) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of § 402(g), § 415, the actual deferral percentage test of § 401(k)(3), and the actual contribution percentage test of § 401(m)(2). If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee’s after-tax contributions (adjusted for earnings) and then the unmatched employee’s elective deferrals (adjusted for earnings). If any excess remains, and is attributable to either elective deferrals or after-tax employee contributions that are matched, the excess is apportioned first to after-tax employee contributions with the associated matching employer contributions and then to elective deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for earnings) which constitutes an Excess Allocation is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year(s). Such unallocated account is adjusted for earnings. While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan.

Look at the 401(k) document, I would bet that it says something like: "If a Participant receives an allocation of an Excess Amount for a Limitation Year, the Plan Administrator will dispose of such Excess by first returning to the Participant any Employee Contributions (adjusted for Earnings) and will forfeit any Associated Matching Contributions, to the extent necessary to reduce or eliminate the Excess Amount, secondly by distributing to the Participant any Elective Deferrals (adjusted for Earnings) and will forfeit any Associated Matching Contributions, to the extent necessary to reduce or eliminate the Excess Amount." etc. etc. etc. Added upon edit: Also: can you offset the 7.5% by the average actuarial value of the DB accruals? If might not help much anyway, just a thought. Also, if the DB has accrual requirements, like 1000 hours, you might not be able to say that it's usable for a gateway offset, I think, since the gateway cannot have any allocation conditions.

Hope the plan allows catch-up and they are catch-up eligible? What does the 401(k) document say happens?

Of course, they don't have to restate and submit at all if they don't want the protection offered by having a determination letter.

457(f) = no 457(b) of nonprofit corp = no 457(b) of government employer = yes, but then the assets take on characteristics of an IRA and the pre-age 59.5 withdrawal excise tax of 10% could apply (if it's taken out of the IRA before 59.5, just FYI).