John Feldt ERPA CPC QPA

A QACA safe harbor contribution may be subjected to a 2-year cliff vesting schedule. Tom is saying that a QACA is not required to be immediately 100% vested and thus forfeitures of QACA safe harbor contributions could occur.

From my experience with prototypes and submissions to the IRS, I would not be too concerned about it. In the meantime, you sould be able to directly contact the prototype sponsor and ask them for their generic copy of the amendments that they adopted on behalf of plan sponsors using their prototype.

"appears to mean that as long as they are a reasonable view of the law they will be upheld" The regulation interprets the law. Does that mean a clear law can be overridden by a regulation (or by a preamble to a regulation)? Just wondering. The law states, IRC 412(d)(2): Certain retroactive plan amendments. For purposes of this section, any amendment applying to a plan year which 412(d)(2)(A) is adopted after the close of such plan year but no later than 2½ months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year), 412(d)(2)(B) does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and 412(d)(2)© does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances, shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. ...

A restricted top 25 HCE elected a lump sum form of payment at the end of 2008. Suppose the amount due then was $1,000,000. Suppose the unrestricted amount actually paid was $75,000 in 2008, $75,000 in 2009 and $75,000 in 2010. The plan's funded status has improved and the restriction is now lifted. They will now be paid the remaining portion of their elected lump sum benefit. Can the plan pay only $775,000 as the remaining benefit due? The document was not specific about adjusting restricted benefits for interest, but wouldn't there be an interest adjustment required (perhaps due to the definition of 'actuarial equivalence')?

§1.401-1(a)(2) A qualified pension, profit-sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer.... In Rev. Rul. 72-509, it appears to say that a plan is not established until it has been communicated to employees. "A profit-sharing plan does not qualify under section 401(a) of the Code until communicated to the employees even though it was reduced to writing and approved by the employer in a prior year."

Did the PBGC cite the authority for their statement? If so, perhaps the EA can comment on that. It seems to me that the PBGC may prevail here. I think the switch to GATT might have been handled similarly by the PBGC for plan terminations done about 10 years ago.

What's the plan's allocation formula? Is everyone in their own rate group for providing allocations? If they are, then they are entitled to get whatever that rate group would have been allocated, so you have no problem. Well, as long as coverage and 401(a)(4) etc. all pass.

Yes.

Does the VCP application cover that? Perhaps that issue, as a problem, needs to be pointed out in the VCP application? What else could be suggested?

Unless perhaps the spouse is considered a direct owner of 50% of the owner's stock, in a community property state? Then that ownership can be attributed to the child. Some argue the state law attributes it to the spouse first, so it can't be attributed a second time. Others say both spouses are direct owners in a community property state.

I think it was more about "the plan". If the DC plan is 20 years old and a new DB is added and now tested together, years of service as defined in "the plan" means what? 20 for the DC and 1 for the DB? No, you combine both and divide by the number of years. Some agents would argue that you could not use 20 as your divisor when testing the combo accrued-to-date because the DB only had 1 year. Larry's point was that he did not care either way, he just wanted to know (officially) their stance so he could design plans either way, without having to worry about one IRS office disagreeing with another.

Correct. Sorry for throwing this off on a tangent. The discussion at the symposium seemed to agree with you that the regulations do not appear to prevent that, but what the regulations allow and what the IRS thinks should be allowed sometimes do not align (go figure), which I think may have been the reason for the information request.

On a design somewhat similar to this, according my memory of what Larry Deutsch said last month, the IRS declined to reply to some type of an information request (a request that Larry thought the IRS was actually required to provide a response). The request was to determine what can be used in the denominator for the number of years when testing a combo like this using the accrued-to-date method. My notes from Larry' symposium indicate that some firms have done this, applied for full-scope determination letters (showing how it was tested), and that some have received D letters. Larry indicated that the IRS field agents have been told that it is probably okay to do this (I think that means they were told it is okay to divide by a number that does not exceed the number of years in older of the two plan, even though the other plan is not as old). I have not seen a formal IRS response either way on this.

You do not have to restate the plan, but if you wanted to obtain an IRS Determination Letter, the IRS generally requires a restated document (basically putting all of the amendments into a single document based on the applicable cumulative list). Your deadline to restate and submit the application to the IRS for their determination was January 31, 2011 (using the one-time cycle E filing option). The normal filing cycle is C for government plans, which comes up again starting February 1, 2013 with a January 31, 2014 deadline. By filing for a Determination Letter, the IRS reviews the plan language and if anything is found, you generally have the ability to retroactively fix the problem. If you choose not to get a Determination Letter, you generally do not have the ability to fix the plan in a retroactive manner, and the plan's language is open for scrutiny if the IRS examines (audits) the plan. Some would say that is a risk not worth taking advising that a Determination Letter request is a "must", but the advice on this varies widely for governmental plans. Regardless of whether or not you ask for a Determination Letter, you are required to keep the plan up-to-date with amendments required for law changes and any other applicable regulations and/or guidance as it applies to your plan. The deadline for each of those items vary based on the law and/or guidance. For example, I think a government plan is required to adopt provisions to comply with the HEART Act by the end of their 2012 plan year. For another example, if the plan had timely adopted EGTRRA language with an amendment, and that language has no mistakes, then that plan language is compliant even if you did not restate the plan document for EGTRRA. I hope that the above is accurate and that it helps!

Perhaps the problem is that "retiree" is not a job classification, and so a simple change by reduction in hours does not and cannot undo their eligibility for the plan?

Thanks. The plan has a short eligibility requirement now, so I think the contracted people will be alright as excluded during that time, especially since the employer just indicated that they let them enter if they kept them empliyed after 1 year. But, excluding someone who semi-retires, but who has been eligible still concerns me. They change to part-time in order to semi-retire - isn't that an age disrimination issue since it would only affect older employees?

A plan sponsor wants to write the plan to exclude employees that continue to work part-time less than 20 hours per week after retirement. Is this a potential age discrimination violation? They also want to exclude a class of employees who are hired for a contracted defined period of time of less than 1 year. Problems with that?

Sounds like a DB plan perhaps? Did you talk to the EA to see what they say?

The payout options are defined in the plan document, which could include, for example a lump sum or payments over a certain period as elected by the participant, or by a default option if no election is made. Payments to the participant are reported on the W-2. A direct transfer from a non-profit 457(b) to another non-profit 457(b) is possible if both documents have appropriate language.

You can pay the missed premiums, submit the Form 500 (and Form 501) to the PBGC, and explain what happened. They will do a PBGC audit of the plan termination, and then tell you that no additional action is needed (this may be over a year later), unless something else got messed up too.

Suppose that you are designing the plan to accrue the full 415 limit on the first day of the plan. How will the plan satisfy the 133 1/3 accrual rule? $1625 on 1-1-2011 (all past service accrual) $1625 on 12-31-2011 (no accrual during the 2011 plan year) $3250 on 12-31-2012, the 2012 accrual = $1625 which exceeds 133 1/3 of the previous accrual (which was zero) Must a cash balance plan satisfy the 133 1/3 accrual rule? Can the past service accrual be counted as part of the first year's accrual to avoid this problem?

A prospect has a calendar year PS/401(k) plan that has no last day and no hours requirement. The formula is integrated at the TWB. Because of 411 protections, for 2011 we are stuck with the plan as it reads right now, I presume. Or, could the current plan be amended to remove nonelectives, then they adopt a 2nd plan, a profit sharing only plan, that allocates nonelectives in a more favorable fashion for their goals. After 12/31/2011, they merge the 2 plans. Is there a problem with that, or can it be accomplished in a less cumbersome way?

Cite the section of the document that described the ADP test. Probably there's a paragraph that defines the actual deferral ratio as the ratio of deferral to the compensation, with no reference to any 100% being the maximum ratio. If they insist the ratio cannot exceed 1, perhaps ask for the cite that prohibits that from occurring, since the IRS-reviewed plan document does not contain such a limitation?

I don't exactly see that language in this plan's document. It has text stating "The employer's election in its adoption agreement relating to pre-entry compensation is nondiscriminatory." But I see no general statement in this document saying the pre-entry compensation can be operationally elected for 414(s) purposes; and I have not found that option listed in 414(s) or 1.414(s). Since the document allows the election in the adoption agreement, does it stand to reason that it could also be operationally elected for testing purposes?

First, cite the section of the plan document that states that Plan Administrator can operationally determine the Compensation definition for testing purposes provided that the definition chosen must satisfy Internal Revenue Code Section 414(s) and its corresponding regulations. Then, send them IRC 414(s) and the regulation 1.414(s). Edited to add: Have them look at 414(s)(2) in particular.