John Feldt ERPA CPC QPA

Although the IRS mentioned that someday they might devise some limited cash balance plan language that will allow such a plan to fit in a pre-approved document, that day has not arrived (as far as I know). I think they mentioned it several years ago, but I do not recall where, maybe at an conference, webcast, or an IRS phone forum. Right now, adding cash balance plan provisions to any of those type of documents will destroy the document's reliance on its opinion letter or its advisory letter. Cash balance plans still must use individually drafted plan language (IDP language). Of course, they can start with a document that looks like a pre-approved document, but the cash balance language means it has no reliance. In any case, be sure to submit to the plan document to the IRS for a determination letter during it's cycle (or some exception to the cycle under 2007-44). There are providers out there that offer cash balance documents: Datair, SunGard Corbel, FT. William?, Accudraft?, McKay Hochman (Newkirk)? - etc. but no matter what they look like, those are all IDPs. Even with those you need someone who really knows how the language should work in order to avoid a problem and you'll probably need to run the language by the plan's actuary. Of course, you could always find and contact a law firm for a document, just make sure they are familiar with drafting such documents.

A father and his adult son (over age 21) each own 50% (profits and voting) of a small company with a score of employees. The son owns 100% of another company with a handful of employees. The son has no children or grandchildren. The companies don't do business together, but the son works and is paid wages from both companies (mostly from the company he owns 100% of). The attribution rules generally say: If the parent or the adult child owns more than 50% then the smaller stock ownership is attrributed to the other. So, if one of them owned more than 50%, then it would be a controlled group. But an exact 50/50 split is not - is that correct?

If you want an in-service distribution option for disability in a government-sponsored 457(b) plan, perhaps the plan can allow for an unforseeable emergency withdrawal: "Sudden and unexpected illness of participant, spouse, dependent, or beneficiary" Otherwise, in-service distribution options are very limited. Distributions from a 457(b) plan are only allowed for: severance from employment attainment of age 70.5 a one-time de-minimis exception unforseeable emergency plan termination A government 457(b) plan can allow for loans, but that's probably not what you're looking for either.

Suppose it's a DB plan and the individual takes an in-service of the entire vested benefit in 2015. Is the RMD equal to the 2013 + 2014 RMD amounts based on the annuity method calculation plus the 2015 RMD based on the individual account balance RMD calculation (since it's all paid as a lump sum)?

Suppose you have a brand new qualfiied plan effective 1-1-2011 (DB or DC, doesn't matter). The plan requires only 500 hours of service in the plan year to accrue a benefit (or to get an allocation). But the plan requires 1000 hours to get a year for vesting. Years before 1-1-2011 are excluded for vesting. Assume no other employer plan terminates within 5 years of 1-1-2011. Suppose the 25% owner/HCE is now part-time, and has just turned 70 years old. The plan has a 3-year cliff vesting schedule. Normal retirement is the later of 65 or the 5th anniversary of plan entry. Everyone employed as of 1-1-2011 is eligible 1-1-2011. The NHCEs are all full time, but the HCE/owner wants to work these hours: 2011: 1500 hours 2012: 1100 hours 2013: 900 hours 2014: 950 hours 2015: 1100 hours This allows the owner to accrue benefits (or get allocations) for all 5 years, but is not 100% vested at 3 years, but is 100% vested in their 5th year instead (that's NRD anyway). Would the IRS think such a plan was intentionally designed to avoid the RMD rules for 2013 and 2014? To make it more worthwhile to consider, suppose it is a DB and the PVAB is $600,000 at the end of 2013 and goes up by about $200,000 in 2014. Could the IRS cause trouble for the plan sponsor and the HCE/owner? If so, what would they use for their basis? Would you submit such a design for a D letter, and would that even protect them? Just theorizing/musing . . .

Assume the participant is 100% vested, a 5+% owner, age 70.5, and is still employed by the employer/plan sponsor Assume the plan allows for a lump sum payment Assume plan allows for an in-service distribution of your entire benefit if you are at least 65 and are 100% vested A couple of questions: 1) If the participant takes a full lump sum (in-service distribution) by the end of their first RMD year, even though they are going to accrue more next year, can that RMD be calculated using the individual account plan method? 2) If the Plan has an optional form of payment such as a monthly installment not to exceed 20 years (or if less, the participant's life expectancy), increased by a fixed annual COLA of 4.99%, could the RMD from the plan be calculated on that type of annuity, or would additional plan language be needed to make the RMD be based on that optional form, or would the participant have to elect that form of payment for the RMD to be calculated under that form? Please comment! edit: typos

Yes. Combine the two together. So, ignoring the catchup: If the 401(k) is $6,000, the SIMPLE can't exceed $10,500 (overall 402(g) max $16,500) If the 401(k) is $1,000, the SIMPLE can't exceed $11,500 (SIMPLE max $11,500) If the 401(k) is $16,500, the SIMPLE max is zero If the SIMPLE is $6,000, the 401(k) can't exceed $10,500 (overall 402(g) max $16,500) If the SIMPLE is $1,000, the 401(k) can't exceed $15,500 (overall 402(g) max $16,500) If the SIMPLE is $11,500, the 401(k) can't exceed $5,000 (overall 402(g) max $16,500)

Let's assume that when the plan added an early retirement date, it also defined the early retirement benefit as an benefit payable without reduction at early retirement. Let's also assume that this amendment was done timely to comply with the Final Normal Retirement Age regulations (now my soap box: you remember - the phased retirement regulations that were proposed by the IRS, then almost 100% deleted and replaced with something completely different after the comment period ended, and then released as Final Normal Retirement Regulations with no option for folks to comment, thanks). All better now. Your current prototype probably allows for an unreduced early retirement benefit, right? If so, and the plan provides the unreduced benefit payable at early retirement, the actuary can choose an assumption regarding the age that employees will retire equal to the early retirement age (if they think that's reasonable) - thus funding would not be affected. If your EGTRRA prototype does not allow an unreduced early retirement benefit, perhaps look for another prototype document to use?

A 403(b) plan showed under 100 participants on its 2009 Form 5500-SF, but should have showed 145 eligible participants (the employer did not report everyone to their recordkeeper). For the 2009 Form 5500: a) Should they wait to file an amended 2009 Form 5500 when the 2009 accountant's opinion is ready? or b) Should they file an amended full 5500 now with an attachment stating that the audit is being prepared and will be provided when it is complete (and explaining what happened)? or c) Wait for the audit to get done and file under DFVC and pay the $1,500 fee to possibly avoid penalties that a complete return was not filed timely for 2009? For the 2010 Form 5500: a) Should they file on October 17, 2011 using the full participant count but with a short attachment explaining what happened and explaining the audit will be sent as soon as it's available? or b) not file the 5500 until the audit is ready and perhaps file using DFVC (if cheaper than the regular late filing penalty)? Any recommendations?

The 401(k) plan document allows the timing for making deferral elections changes to be set by the employer under an administrative policy (outside the plan document). The employer (a few hundred employees) would like to design a salary deferral procedure that has employees elect their deferral percent or amount from each paycheck (but such deferral election does not apply to any wages paid as a bonus). For bonuses, the employer wants to apply something like a negative election, stating that the employee can only elect to defer from each bonus by making a special deferral election before each bonus is paid. Thus, an employee cannot make a standing election to say "please defer 3% from all future bonuses", instead they need to fill out an election each time. They intend to announce the bonus amounts well ahead of their paydate to allow such special deferral elections to be made. Although it seems like a lot of extra work for HR/payroll to plug these special elections in for each bonus, could this procedure be acceptable for a deferral policy?

If the employer just doesn't want the hassle of handling employee deferral withholding elections and doesn't mind not having the catchup, a profit sharing only design may be satisfactory (it just depends on their goals and objectives). Sometimes simpler still wins the day, even if it is less efficient with the contribution dollars.

If the two plans combined pass coverage at the 70% ratio, then the reasonable classification test does not apply. As Andy suggests, submit the plan for a full scope D letter which includes 401(a)(26) - maybe even amend the plan first and include the amendment in the request. Explain to the client what's going on. Perhaps the plan could be amended to truly cover enough NHCEs to get over 401(a)(26), or amended to put in a small flat dollar benefit for all NHCEs but large enough to get a few NHCEs over 401(a)(26). Then offset that if you think it's worth the time and the risk. You probably already know that some IRS agents will not easily provide a D letter for DB plans with offsets.

Of course, that's so obvious now. Thanks!

But if the plan was not safe harbor, it could have a 2-year eligibility wait for matching (with 100% immediate vesting), right?

Can a safe harbor match plan with an ACP-free additional discretionary match apply a 1-year of service eligibility requirement for the regular safe harbor match and apply a 2-years of service eligibility requirment for the ACP-free additional discretionary match?

By using a volume submitter, you'll get IRS advisory letters for your document instead of IRS opinion letters. You'll be a volume submitter practitioner instead of prototype sponsor. The reliance is basically the same however. You'll probably want to sign up as both a prototype sponsor and as a volume submitter practitioner anyway. If you are accustomed to using a standardized prototype now, the volume submitter document will not be able to give you reliance on the operational coverage and nondiscrimination. You will need to list each participating employer and have each one sign up (adopt the plan) if you do not use a standardized prototype document. If you cross-test, the volume submitter will not be restictive like the prototype document regarding the number of allocation rate groups. LRM #94 only applies to the prototype. I don't think you can exclude certain types of compensation under the prototype if the allocation is integrated, but you can in a volume submitter document (needs to pass testing). Under GUST, the volume submitter practitioner could not adopt an amendment on behalf of all employers, but now under EGTRRA the volume submitter document can be written to give the document practitioner such authority (be careful when choosing a provider if you are wanting this feature). This was an important feauture from a my perspective. Volume submitter documents can have minor modifications for an employer, and unlike a prototype these can be submitted under form 5307. The IRS gets to determine what "minor" means. Side comment: the IRS may someday remove the 5307 option however - I could be guessing wrong here. If filing a 5307 for a minor modifier, the volume submitter practitioner must be on the form 2848 - so if are going to be a minor modifier, you might need an ERPA, EA, CPA, attorney, etc. on staff (although I think you could use a Form 5300 instead and that requirement goes away, but the IRS user fee is higher). If you are a TPA, based on your type of client base, you might strategically decide to put everyone on the volume submitter document just to keep the data handling easier for the restatements, the amendments, and to keep it consistent for your administrators. A government plan sponsor can also have reliance if they are on a volume submitter document. I think such a document would need to be a specific government provision written document, or perhaps could be written in such a manner to clarify which provisions do and do not apply for a govenrment sponsor.

And remember, you can't amend a non-safe harbor 401(k) plan mid-year to add the 3% safe harbor nonelective unless you followed the "maybe" notice requirements by providing the notice within a reasonable period before the beginning of that plan year.

Wow, the plan document does not define who is eligible? And/or after that it doesn't define who gets the accruals? If it doesn't do that, then yeah, that's a problem. How did the valuations get done in the prior years?

Can the DB plan pass 410(b) when it is combined with the DC plan? If so, 401(b) passes. Can the DB plan pass 401(a)(4) when it is combined with the DC plan? If so, 401(a)(4) passes. If the DB plan also passes 401(a)(26) by covering at least the 40%, what amendment is needed?

Only affected participants become 100% vested. It is unlikely that a terminee from 2006 was part of the affected group or affected by this partial termination. Employees who left voluntarily in 2010 might or might not be considered as 100% vested, depending on the circumstances. Anyone who stayed around, of course, they would not be 100% vested. (perhaps that is ironic?) edited: typo

That's okay $5,500 of the $16,500 is catchup. You have a problem if that is the only participant in the plan though. If it's the only person in the plan, then the deduction limit of 25% of pay limits the $38,000 to a lower amount like $25,000 depending on whether or not the "compensation" figure is net earned income for a sole proprietor or if it's W-2 wages from a corporation (such as a P.C.).

As long as the plan (or combined plans if aggregated for coverage) provides a penny of benefits to enough NHCEs so the 70% ratio test passes for 410(b) purposes, then naming people should not be an issue, since it appears to only matter in the coverage test. Under the nondiscrimination test, 401(a)(4), naming names for benefit accruals or having individual allocation classes is not in and of itself going to be a problem, but giving enough someones a zero could be an issue.

How does one eligible for an in-plan Roth rollover in a qualifed plan become ineligible for an in-plan Roth rollover in a later year? Yes there are other risks other than market gain risk, of course market loss would be a benefit (from a taxation standpoint). Yes, other risks exist: rules could change (why ever do Roth then?), the particpant could die, unrecoverable calamity could strike the asset holder, the government could be overthrown. The participant will have to base their decision on the best information available.

"the IRS doesn't like if you name participants directly in their own group" What have they cited when they've reviewed plans with this - are they concerned about coverage, 410(b), or over testing of benefits, 401(a)(4) - or both?

I'd say the SPD was due within 210 days after the end of the plan year in which the change was adopted, unless all of your plans consist of only owner-only plans, government plans, non-ERISA 403(b) plans, non-ERISA church plans, etc. (since these non-ERISA plans aren't subject to these same SPD rules). ERISA Section 104. (b) Publication of Summary plan description and annual report to participants and beneficiaries of plan.—Publication of the summary plan descriptions and annual reports shall be made to participants and beneficiaries of the particular plan as follows: (1) The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, a copy of the summary, plan description, and all modifications and changes referred to in section 102(a)— (A) within 90 days after he becomes a participant, or (in the case of a beneficiary) within 90 days after he first receives benefits, or (B) if later, within 120 days after the plan becomes subject to this part. The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, every fifth year after the plan becomes subject to this part an updated summary plan description described in section 102 which integrates all plan amendments made within such five-year period, except that in a case where no amendments have been made to a plan during such five-year period this sentence shall not apply. Notwithstanding the foregoing, the administrator shall furnish to each participant, and to each beneficiary receiving benefits under the plan, the summary plan description described in section 102 every tenth year after the plan becomes subject to this part. If there is a modification or change described in section 102(a) (other than a material reduction in covered services or benefits provided in the case of a group health plan (as defined in section 733(a)(1)), a summary description of such modification or change shall be furnished not later than 210 days after the end of the plan year in which the change is adopted to each participant, and to each beneficiary who is receiving benefits under the plan. If there is a modification or change described in section 102(a) that is a material reduction in covered services or benefits provided under a group health plan (as defined in section 733(a)(1)), a summary description of such modification or change shall be furnished to participants and beneficiaries not later than 60 days after the date of the adoption of the modification or change. In the alternative, the plan sponsors may provide such description at regular intervals of not more than 90 days. The Secretary shall issue regulation within 180 days after the date of enactment of the Health Insurance Portability and Accountability Act of 1996, providing alternative mechanisms to delivery by mail through which group health plans (as so defined) may notify participants and beneficiaries of material reductions in covered services or benefits. (2) The administrator shall make copies of the latest updated summary plan description and the latest annual report and the bargaining agreement, trust agreement, contract, or other instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the principal office of the administrator and in such other places as may be necessary to make available all pertinent information to all participants (including such places as the Secretary may prescribe by regulations). (3) Within 210 days after the close of the fiscal year of the plan, the administrator (other than an administrator of a defined benefit plan to which the requirements of section 101(f) applies) shall furnish to each participant, and to each beneficiary receiving benefits under the plan, a copy of the statements and schedules, for such fiscal year, described in subparagraphs (A) and (B) of section 103(b)(3) and such other material (including the percentage determined under section 103(d)(11)) as is necessary to fairly summarize the latest annual report. (4) The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. The administrator may make a reasonable charge to cover the cost of furnishing such complete copies. The Secretary may by regulation prescribe the maximum amount which will constitute a reasonable charge under the preceding sentence. (5) Identification and basic plan information and actuarial information included in the annual report for any plan year shall be filed with the Secretary in an electronic format which accommodates display on the Internet, in accordance with regulations which shall be prescribed by the Secretary. The Secretary shall provide for display of such information included in the annual report, within 90 days after the date of the filing of the annual report, on an Internet website maintained by the Secretary and other appropriate media. Such information shall also be displayed on any Intranet website maintained by the plan sponsor (or by the plan administrator on behalf of the plan sponsor) for the purpose of communicating with employees and not the public, in accordance with regulations which shall be prescribed by the Secretary.