John Feldt ERPA CPC QPA

I was also surprised by the comment, but that's what he was saying. http://benefitslink.com/boards/index.php?s...st&p=161125 A quote from Mr. Finnegan "in fact they are very clear that if you have a definition of pay that will consistently yield a lower inclusion percentage for NHCes, it likely fails, regardless of the differential."

If HCEs will not normally be receiving any commissions, then this could be a problem regardless of the size of the percentage. I recall Tom Finnegan (I think it was him) mentioning that if a plan excludes some type of compensation which on average is only a small percent of pay (maybe only 1 or 2 percent) BUT if only NHCEs ever receive that type of pay, the IRS would likely say it is discriminatory by its definition. I think the argument is that the IRS would say that a "de minimis exception" was meant as that: an exception, not as a standard for the plan. For example, suppose a plan exclude bonuses for allocation purposes, which was making the HCEs compensation average normally about 5% lower than total pay, and a year comes along where cash flow slows so no HCEs get bonuses, but a few NHCEs still received bonuses. In that case, assuming the average percentage is small, then the exception applies, but no bright line exists to say whether or not 3%, 5%, or otherwise is considered to be "de minimis". That's probably not the situation you have, but may be worth considering.

For 2010, yes. The debate continues regarding 2011 valuations, but I think most enrolled actuaries are leaning toward the "not automatic" after 2010.

A true match must be based upon employee deferrals according to some type of formula structure that ties the two together. Anything else is an employer nonelective contribution. Employer nonelective contributions cannot be tested under an ACP test, even if they have been called a "match". What is allocated to participants who only have 1 year of service? edit:typo

Thanks Andy, very much appreciated.

I am not an actuary, so I am unable to research the ACOPA cabana message board, but I'd bet there are some comparable discussions in there, perhaps revolving more around the change from asset averaging to market value (nowadays anyway), but the general applicablility of these Revenue Procedures would certainly be discussed in that forum. Perhaps an insider could enlighten this board as well.

You're saying that Revenue Procedure 2000-40 section 3.13 is still applicable as an automatic approval, that announcment 2010-3 does not change that section of Revenue Procedure 2000-40.

Suppose a DB plan is 3 years old now and has used end of year valuations each year. A new actuary is assigned and wants to change the 2011 valuation date to BOY, 1-1-2011. Is this allowable without seeking IRS approval, or do you have to file and pay the $4,000 user fee to get the change approved starting in 2011?

A cash balance plan provides a credit which is tested to find out if it's meaningful under 401(a)(26). I don't see a measurement date for this tied to anything specific in the plan document. Must the date for determining its "meaningfulness" be the 1st day of the plan year or can the last day of the plan year be used instead?

See http://www.irs.gov/pub/irs-tege/simple_fixit_guide.pdf Starts on page 12 and mentions the $250 filing fee. If the SIMPLE is so "simple" that only one overlapping year exists and suppose that year has only a few hundred dollars of contributions in that overlapping year, you may consider whether or not it makes any cost-benefit sense to actually pay the $250 for the filing. It may be more cost-effective in that case to just remove the small ineligible contributions from the IRAs, including earnings on those ineligible amounts, report on Form 1099-R, and pay the excise tax on those ineligible contributions on Form 5330.

In order to be offered a lump sum, the participant must waive an annuity form of payment (QJSA) that would commence sometime during the 180 days after a notice is given regarding their benefit election. Thus, if a lump sum benefit is an option, an annuity MUST also be an option. Otherwise, you cannot obtain the appropriate waiver of the QJSA needed to allow the lump sum in the first place. IMO.

Perhaps they can convert half of their eligible account in 2011 and convert the rest in 2012. Market gains would be the only issue, but it would spread the taxation.

That's funny. I am verifying with their actuary regarding the calculation of the prior lump sums to see if they indeed contained the value of the early retirement subsidy. Did you create a user named "Mr. T" just you you could say "jibber jabber"? You really should add "I pity the fool."

If the OP could clarify the intent, we could get a better picture. Do you mean "first employed", or do you mean "received wages" after 1-1-2001? Anyone with 1 hour of service with the employer on 1-1-2001 (or later) has a full lump sum option. The deferred vested participants pre 1-1-2001 only have annuity options, or if under $5000 PV, a cashout option. But to answer the original question, ERISA disclosure rules are the issue here. Was the relative value disclosure rule ignored, either on purpose or from ignorance? Ignorance - they unbundled too much - one provider does the document, another does the Sch B and actuarial valuation, another does the 5500, and another does the distribution forms and the investments (a trust company).

(1) If a terminating participant was eligible for for early retirement, did the lump sum include the e.r. subsidy? Yes (2) If so, how many of these were eligible to elect lump sum payment? about 50%, the other half had termed before 2001 Anyone active 1-1-2001 has an option for their entire AB to be paid as a lump sum.

1.401(a)(4)-9(b)(2)(v)(D)(1) to (3)

After a discussion with a prospect, we find that their defined benefit plan was frozen since August of 2003. The plan offers a subsidized early retirement option (2% per year reduction from age 65 to age 55). The plan offers a handful of annuity options, but only the participants employed January 1, 2001 or later are eligible for the lump sum option. They have not been providing relative value disclosures when they provide distribution options for participants. The plan sponsor is a for-profit corporation. Are there exemptions or exceptions that could apply here to the relative value disclosure rules? If this plan has been violating this requirement, what could be the remedy for this?

Sometimes having the failsafe language ends up being more expensive (in benefit accrual costs) than the cost of an amendment to make the plan pass as allowed under 1.401(a)(4)-11(g). However, the document can't have both, it's either an automatic accrual under the failsafe language, of it's a crafted accrual under the terms of an amendment under -11(g). When drafting the amendment, if you only need the NHCE accruals for the prior year, make sure that the terms of the amendment are clear on that, especially the eligible employee definition and the accrual formula definition.

Generally, a safe harbor plan year must be at least 3 months long, unless the business itself was just created and the plan was established as soon as possible after the business started. If no NHCEs would be statutorily eligible by the end of the year, you don't have an issue with ADP. If the husband/wife have higher pay, you may be able to benefit from the first year rule allowed for ADP testing which, using the prior year method, states that the NHCEs are considered to have a prior year deferral average of 3%, thus allowing your HCEs to average 5%. Thus, if one spouse makes a lot in wages, have them defer the most deferral (perhaps the maximum), then if any room is left, have the other defer so the average HCE deferral is 5% of pay. Also, there's a few other design items that could be looked at if the owners are over age 50.

http://www.irs.gov/pub/irs-pdf/f8554ep.pdf If you go to www.pay.gov, you can register, fill out the form online and pay the $30 online to renew. The online form and online payment was the part that was delayed (I think). The manual form (at the link above) looks like it has been available since March. If you look at how the credits are pro-rated for your first year when you get your ERPA designation, it looks to me that the cycles are calendar years. For EINs ending in 4, 5, or 6, you have until June 30, 2011 to fill out and submit the 8554-EP for the calendar years 2010 and 2009. For the Form 8554-EP, I could not tell which year is considered year 1, year 2, or year 3 from the form or its instructions. If you have an opinion on that, let me know. Since I became an ERPA in 2009, an my 3-year cycle requires a filing now by this June 30, I assumed 2009 was year 2 and 2010 was year 3, but that's just a guess.

I thought the law/regs could allow the plan administrator to establish a uniform policy that dictated the frequency of deferral changes, including how often changes and revocations could be made, as long as these changes where available at least once per year. I did not look this up just now, that's just a vague recollection. You should definitely check the plan document.

Correct. For the DC plan, to test the contributions as benefits, the rules require that you convert these DC contributions to a uniform testing age (or you convert the balances if testing accrued-to-date) by using an interest rate not less than 7.5% and not greater than 8.5%. For example, if you have a contribution in a DC plan today with a 35 year-old and you are testing at age 65, then you project that contribution's future value by accumulating it with interest for 30 years at 8.5%, then you convert it to an annuity also at 8.5%. However, for the cash balance plan, the benefit is already defined by the terms of the plan document. So in this same example, the hypothetical contribution "credit" must be accumulated with interest for 30 years at the plan's defined crediting rate, which might be 5%, then converted to an annuity using the plan's actuarial equivalence definition (which might be 5.5%). Of these two projections, which benefit will be bigger? The benefit that was accumulated for 30 years at 8.5%, of course. Many times, a combination plan design places the large benefits for the targeted HCEs in the DB plan (e.g. a cash balance plan), and if necessary, limits the contributions to the HCEs in the DC plan. There's a lot of other issues/reasons that are involved here, such as 404(a)(7) limits, etc. And there are some things to ponder (such as a DB limit is a one-time accrual vs. a DC limit can be maxed out every year, so it may be a waste for an HCE to use (accrue) their DB 415 limits at a young age and not get to use up their DC limits each year at those young ages). Hope this helps.

Do you have to do separate accounting for the participant to determine the account balance used in each TH test? Yes. How is this handled? Each employer is considered as having their own plan for top heavy determination purposes. You run 3 top heavy tests, one for each employer. The allocations made using compensation from company X is allocated to the "plan" for company X, the allocations made using compensation from company Y is allocated to the "plan" for company Y, etc. You have all of the account balances and prior distributions for company X to use for its top heavy determination, Y for its determination, etc. If any employee happens to work for both X and Y, you can ignore the contributions made to company Y when doing the top heavy calculation for company X. Likewise, you can ignore the contributions made to company X when doing the top heavy calculation for company Y.

Assuming the 70% ratio test failed, did also test by running an average benefits percentage test for coverage?

If a deferral election was on file for the owner and the amounts did not get sent timely, then the DOL will consider it as a PT (late deferral deposit). Did the owner truly have a deferral election in place for the deferral amounts that were believed to have been late?