John Feldt ERPA CPC QPA

ADP/ACP tested plan. Allocations in the plan use full year pay, it does not exclude pay prior to entry. Testing comp says to use any definition that satisfied 414(s) and it's regulations. Does 414(s) allow exclusion of pay prior to date of entry (could we test using comp excluding pay before the entry date)?

Is it permissible for plan to require 1000 hours for HCEs to accrue a benefit during a plan year, but less than 1,000 hours for the NHCEs? We're looking at a prospect with high turnover, and 401(a)(26) could easily become an issue. A lower hours requirement would help, but they want to keep the large portion of the plan costs (the HCE accruals) at 1000 hours in case a formula change or a plan freeze is necessary.

Yes, a DB/DC gateway is needed as described in Treas. Reg. §1.401(a)(4)-9(b)(2)(v)(D).

Spot on. Thanks Querk!

DB plan covers 3 HCEs DC plan covers these same 3 HCEs plus 3 NHCEs. No other employees. 401(a)(26) passes (3/6 > 40%) 410(b) passes - combined plan coverage passed the ABPT. Assuming the ebars are over 35% for the HCEs, is the 7.5% DB/DC gateway allocation required for the NHCEs even though they are only in the DC plan?

Suppose the following: Participant is age 72 on 1-1-2012 and has over 10 years of service Participant has a consecutive 3-year comp history with each year over $500,000 New plan is established 1-1-2012 (has never had a DB plan) 415(b)(1)(B): 100% x 3-yr avg comp = $245,000 Assume: $195,000 limit x AE increase factor = $350,000 (for this example) What is his maximum accrued benefit for 2012 for 415 purposes? Is it 1) the lesser of: 415(b)(1)(A) $350,000 x 1/10 with the result limited to $245,000 or 415(b)(1)(B) $245,000 x 10/10 Or, is it 2) the lesser of 415(b)(1)(A) $245,000 x 1/10 or 415(b)(1)(B) $245,000 x 10/10 Or something else altogether? edited for typo

No they did not, I am guessing that was probably because of the bankruptcy.

For a client who went into bankruptcy (which involved closing their doors, not a restructuring bankruptcy), the bankruptcy trustee suggested that the participants' safe harbor contirbutions be funded by forfeiting a portion of the owners' accounts (the owners agreed to this as well). They filed a 5310 with a copy of the court order that suggested the SH be funded as such. The IRS replied in less than 3 months and approved the method. If your client is not bankrupt, it seems less favorable that the IRS would allow this, but you can certainly try. You will certainly need IRS approval.

Revenue Procedure 2008-50, section 4.09: Availability of correction of § 457 plans. Submissions relating to § 457(b) eligible governmental plans will be accepted by the Service on a provisional basis outside of EPCRS through standards that are similar to EPCRS. So, if you are a non-government entity, any EPCRS filing is futile. Since VCP is not available for the nonprofits' 457(b) plans, if you find an error like this, do you recommend that the refund be made right away anyway, plus earnings? Then document your files and change the procedures so this error can be prevented in the future? If you are audited later, could you explain that no correction option existed under EPCRS, so the plan sponsor did all they could to reasonably correct the error? Then hope the IRS shows mercy under audit cap because of your efforts to have already corrected the issue? I assume that if no correction is made, they will show little mercy when negotiating under audit cap. What do you think?

Yep, sorry - mostly exempt from ERISA - specific to the OP they are exempt from the bond requirements of ERISA.

No. They are exempt from ERISA.

A plan sponsor is making a significant change to their business operations. Because of this, they want to change their plan's vesting schedule prospectively, to apply only to new hires starting on the frist day of their next plan year. The current vesting schedule is 100% immediate. 10 participants (2 HCEs), 5 year old plan. They want to change to 6-year graded. This would only affect new entrants. They are not planning to hire anyone that would become an HCE. Under 1.401(a)(4)-1(b)(4), the timing of amendments must not have the effect of discriminating significantly in favor of HCEs. My thought is that this change does not discriminate significantly in favor of the HCEs - agree / disagree? Or is this fall into 1.401(a)(4)-1(b)(3) instead?

If the doctor adopted the kids, then they are certainly HCEs. Do they live in a community property state? If so, some have argued that the spouse therefeore is a direct 50% owner, and thus the kids are HCEs. Some also argue that community property state laws merely attribute the 50% ownership to the spouse, and another set of attribution to the kids would be double-attribution which is not allowed, and thus they are not HCEs.

Right, I am just replying to Sieve's inquiry about any scrivener requests sent to the IRS, not specifically one that decreases benefits. I see no easy solution for the OP.

Sieve, We submitted a scrivener's error a few years back, but not under VCP, under a Form 5310 application. In a takeover plan we found that the pre-GUST document had intregration described as X% of all pay plus Y% of excess pay. The GUST restatement document was found to have X% of pay up to the integration level plus Y% of pay above the integration level. The GUST restatement used the same X and Y as the prior document. Example: Pre-GUST: 1.75% of all compensation + 0.65% excess pay GUST: 1.75% of pay only up to int. level + 0.65% of excess pay GUST document should have been: 1.75% of pay only up to int. level + 2.40% of excess pay When this was discovered, the client was greatly troubled and decided they really only wanted to have a DC plan, so they asked that we terminate the DB. In the 5310 application we described the issue, included a corrective retroactive amendment, and asked that the IRS let us know if such an amendment truly necessitated a VCP application, and that if it does, that they allow such an application to be submitted under VCP before they provide a D Letter. They required no VCP application and provided a D Letter that approved the amendment.

I think the "replacement page" idea is full of holes, after all he is a sieve. That's precisely the thing that the IRS would be very harsh about since it is a deceptive and illegal practice. A replacement page amendment is okay, but not a replacement page to remove and void a page that was previously adopted by the plan sponsor, especially if it involves a loss of accrued benefits, or some rights or features. I think your only hope is probably VCP, but one court case said that VCP only covers the plan and plan sponsor from an IRS perspective, not from a participant lawsuit perspective. Are any of those excluded HCEs going to sue over this?

That seems like an actuarial assumption, which could be justifiable. If it's a small plan, you'll want to know marital status and the spouse's birth date for the major accruers of benefits. You probably want to have a discussion now about their intent later regarding their benefit at retirement. A very large amount of excess assets that cannot be paid as a lump sum because it exceeds the 415 limit can be part of a fun conversation especially if you had already explained that possibility to them in advance.

Check the document. If it uses elapsed time instead of 1000 hours for eligibility, without a shift in the eligibility computation period, then they do not enter yet as of 1-1-2011.

Can the plans operate as they were until the end of the 410(b)(6)© transition period?

Which plan is being submitted for a D letter? If it's the DB plan, which is frozen, perhaps you could answer 8© as Yes with 8©(1), (2), (3), and (4) all as No, but include an attachment that the DB plan is frozen, so that the combined-plan top heavy minimums do not apply (and perhaps even explain that same issue in the cover letter as well).

Yes, and be sure to read Revenue Ruling 72-509 which spells out when it must be communicated to the employees (by the end of the employer's tax-year in order for the plan to be considered "in existence"). It's an old ruling, but still applies today to qualified plans falling under 401(a).

A client of ours received a request to do a telephone survey with Abt SRBI on behalf of the IRS. Their plan had been audited and closed last year (no issues). I have not heard about any outsourcing of survey work by the IRS to other firms - does this seem legitimate?

Perhaps rejection? Maybe that question will be addressed in the next Bill passed by Congress and signed by the President - hopefully that won't occur until 2013? You should wait around to find out. "Rejection is one thing, but rejection from a fool is cruel...." Morrissey

DB plans have the same deadline.

You have to comply with the terms of the document of course, that's one of the requirements to keep a plan's tax-preferred status. The document requires everyone in Group 1 to receive the same percent of pay as everyone else in group 1. Same for Groups 2 through 8, on a group-by-group basis, so 10.05% of all in Group 1 with 13% to all in Goup 2, etc. works okay. As long as the end result shows that the above is still true after trying to allocate an integrated-type formula, then you are okay. If you had each person in their own class it would be much easier. The participant statement might also need to say something about the integration formula used (I am guessing about that).