John Feldt ERPA CPC QPA

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).

I have heard actuaries respond differently to the "waiver" issue. 1. Some say that amendments can be taken into account for funding purposes, but a majority owner signing a piece of paper to forego receipt of benefits is not an amendment and thus cannot affect the plan's minimum funding requirement. 2. Another EA stated that the execution of the "forego receipt of benefits" papers have changed the accrued benefits and thus can affect minimum funding, especially if the papers were signed before the plan's valuation date. I would lean heavily into #1 above and stay away from #2. However, the actuary has to sign the B, so if they say a minimum contribution is required, you'll need to address that with the client. If they accept the waiver as affecting the plan's minimum, it's their signature on the B.

Thanks - that means any employer that had less than 100 employees receiving $5,000 or more in compensation in the prior year are a small employer, and can ignore the 105% portion of the 415 calculation. Nice.

And remember that small plans don't use the 3rd calc on 105%. I have an Enrolled Actuary asking for a citation to support that last comment. Where is that found?

Perhaps a good place to start would be to contact the firm that sent you the documents. If they created the documents, they should be able to help you (probably). Also, you should have received a document in 2001 or 2002 for your signature, do you know what happened to that package? Maybe a little background will help here. The assets of these plans are considered "tax-qualified" - because a tax-deduction was allowed for the contributions and the earnings are not taxed within the plan (or still deferred if rolled over to an IRA or other tax-qualified arrangement). When benefits are eventually paid out, only then will the amounts paid be subject to income tax. In order to qualify for these tax deductions and tax-deferred benefits, the plan must be in writing - we call that the plan document. In order for the plan to keep its tax-qualified status, it must (generally) also operate according to its plan document. Ongoing, the goal is to keep the plan's assets from all becoming taxable, to avoid having the plan sponsor lose any of its tax deductions, and to avoid any sanctions or fines (disqualification). Because of this tax-deferred status, our tax code (the laws passed by our elected officials in Congress) and its regulations (the Treasury Department's interpretation of those laws) and all of the other official guidance from Washington, require employers sponsoring these plans to jump through hoops (adopt amendments) almost every year. Then, every 5 or 6 years, you are generally required to completely restate the plan's document again to obtain an official opinion letter saying that the written plan language is still qualified. Technically, if you think you have adopted perfect amendments each year and if you are comfortable with the uncertainty that even one word in your plan document could subject your entire plan to potential disqualification if audited by the IRS, then you would not have to restate, because you are not required to have an IRS opinion letter. Perhaps you are also not required to sky dive with a parachute. Or, perhaps you are not required to measure the thickness of the river's ice before ice skating there. Okay, perhaps comparing potential death to the potential threat of sanctions and taxes is a bit extreme. you get the idea. Now, personally, I prefer to have protection from the mafia IRS by restating the document to gain reliance on their opinion letter (or reliance letter). Let's assume you did adopt/restate your plan in 2002, but only missed the recent April 30, 2010 deadline. The IRS fixit program, EPCRS (Employee Plans Compliance Resolution System), has a sale on now where you can pay half the filing fee if your error is fixed by April 30, 2011. They don't really call it a sale, but it's explained in section 12.03 of Revenue Procedure 2008-50. Since your restatement deadline was April 30, 2010, the Rev Proc indicates that the usual $750 fee is a mere $375 if you fix it within 12 months of its intial deadline (per plan). The cost to prepare and file the application to the IRS will likely cost much more than that for a qualified plan professional to assemble it all for you. You'll have to decide if that cost, when compared to the potential cost of disqualifying the plan, is worth it. Hope that helps!

File based on EIN if you want a D letter and they did not elect to be covered by ERISA.

Correct, and you can ignore salary deferrals.

Great - thanks!

Nice. Is this written such that it only has teeth for profit sharing plans, or do you think it also would apply to a money purchase plan, a target plan, or how about a Defined Benefit plan? Edited to clarify: I mean Rev. Rul. 72-509

Here's 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— (i) In the case of a pension plan, to provide for the livelihood of the employees or their beneficiaries after the retirement of such employees through the payment of benefits determined without regard to profits (see paragraph (b)(1)(i) of this section); (ii) In the case of a profit-sharing plan, to enable employees or their beneficiaries to participate in the profits of the employer's trade or business, or in the profits of an affiliated employer who is entitled to deduct his contributions to the plan under section 404(a)(3)(B), pursuant to a definite formula for allocating the contributions and for distributing the funds accumulated under the plan (see paragraph (b)(1)(ii) of this section); and (iii) In the case of a stock bonus plan, to provide employees or their beneficiaries benefits similar to those of profit-sharing plans, except that such benefits are distributable in stock of the employer, and that the contributions by the employer are not necessarily dependent upon profits. If the employer's contributions are dependent upon profits, the plan may enable employees or their beneficiaries to participate not only in the profits of the employer, but also in the profits of an affiliated employer who is entitled to deduct his contributions to the plan under section 404(a)(3)(B) (see paragraph (b)(1)(iii) of this section). I emphasized the communication to participants, but I do not see the phrase "by year-end" - where is that cite found?

What is the cite that supports this SPD deadline?

Austin, your memory is correct if you are testing for an A-Org ASG. In order to be an A-Org ASG, the First Service Organization (FSO) must be a professional service organization if it is incorporated. However, in the example provided, could the B-Org rules could apply? Is at least 10% of the B-Org is owned by HCEs of the FSO? Of course, that assumes there is a service organization in the first place. Assuming the service provided is not in the list of service fields (health, law, eningeering, architecture, accounting, actuarial science, performing arts, consulting, or insurance), then does an FSO exist? Is a sales organization considered a service organization? Consulting, under Treasury Regulations 1.448-1T-(e)(4)(iv), does not include sales. Capital is not considered as a material income producing factor if the business income is derived primarily from fees or commissions for personal services. So, is sales a personal service? To me this means that retailers and wholesalers are not service organizations.

Right, 8821 allows talk and info exchange, but you need a 2848 to allow representation: "Form 8821 does not authorize your appointee to advocate your position with respect to the federal tax laws; to execute waivers, consents, or closing agreements; or to otherwise represent you before the IRS. If you want to authorize an individual to represent you, use Form 2848, Power of Attorney and Declaration of Representative."

For SunGard, don't you get 50% discounts? (I think you're using their software, right?)