John Feldt ERPA CPC QPA

We recently proposed this for a prospect to save them the audit fee. The increased cost for having 2 plans was minimal compared to the increased cost for having to do an audit. The prospect has about half of the employees in a 'home office' and everyone else works at varying other locations. All other features of the plan would be the same.

You may want to look at Derrin Watson's book "Who's the Employer". Chapters 2 and 3 talk about self-employed individuals and common law employees, including how and why it matters for plan purposes. Chapter 4 covers uncommon employees.

Yes. It's probably in section 5.1(b)(2), the second-to-last sentence, and it probably says something like "a participant will be credited with a pro-rata interest credit up to the date distributions commence" or something like that.

1.403(b)-6©: Distributions from custodial accounts that are not attributable to section 403(b) elective deferrals. --Except as provided in §1.403(b)-4(f) (relating to correction of excess deferrals) or §1.403(b)-10(a) (relating to plan termination), distributions from a custodial account, as defined in §1.403(b)-8(d)(2), may not be paid to a participant before the participant has a severance from employment, dies, becomes disabled (within the meaning of section 72(m)(7)), or attains age 591/2. Any amounts transferred out of a custodial account to an annuity contract or retirement income account, including earnings thereon, continue to be subject to this paragraph ©. This paragraph © does not apply to distributions that are attributable to section 403(b) elective deferrals.

See Treasury Regulation §§1.403(b)-8(d)(2)(ii) and/or 1.403(b)-6©.

1. Not have the current doc language? The system language for plans established last year (and later) now gives a pro-rata interest credit to the date of payment. That does not mean your language is not current, it might mean the IRS has required that in some of the plans that submitted D letter applications. 2. Ignore the doc and credit interest to the distribution date? If that document has a favorable determination letter, then ignoring the document loses your reliance on that D letter and you end up operating against the terms of the plan. The document likely allows for the Plan Administrator to interpret provisions of the plan, so anything that needs to be interpreted should be handled by the Plan Administrator. Since they have no idea what this is about, your assistance would be needed. 3. Apply the document and apply interest only to the preceding 12/31. You will need to adopt an amendment for any recent laws or regulations or other guidance through August 1, such as Notice 2010-15. A suggestion could be made that when this final amendment is drafted, perhaps the amendment could include provisions to clearly handle this situation. 4. Credit interest to the pay data because this is a plan termination and different rules apply (and that is kind of what is right anyways)? Same as number 3 above. As always, please practice safe docs and wear a D Letter (file Form 5310).

When completing the 5310, we have put the prototype D letter date in the "most recent D letter" question and supplied a copy of that letter. But we've not done that for any Vol Sub plans. Our experience was that a GUST prototype was sometimes considered as having a D letter, but not a GUST volume submitter. If the sponsor was on a GUST prototype, the reviewer rarely asked for the TRA'86 document (and subsequent amendments). It seems to depend on the reviewer and/or office. If the sponsor used a GUST Vol Sub, the reviewer almost always asks for a copy of the TRA86 document (and amendments through GUST). Several years ago we decided to always include the pre-GUST document anyway (for Vol Sub plans) as long as it was easily available, so we rarely get requests for the older documents. We've not (yet) had a Form 5310 reviewer ask for a document older than TRA86.

They don't expect to have enough deductions to itemize. Thanks for the info!

A friend of ours turns 70.5 next year. They want to know if they will be able to make a direct payment from their IRA to a religious charity. Was that rule extended? If so, was it only temporary? How does it work or benefit the IRA holder?

If they failed to adopt a restated/amended written 403(b) plan that covers the Final 403(b) regulations, before you submit under VCP, is the new written plan, as signed now, adopted with a retroactive effective date of 1-1-2009 or do you adopt the restated plan with a prospective date or 1-1-2010 date instead?

Look at 1.401(a)(4)-8(b)(1)(vi)(A) and (B) - note the difference where in (B), the 5% allocation, it refers to 415 compensation.

A fair number of deferral-only plans that cover 120+ participants will benefit by being non-ERISA plans since they avoid the expensive accountant's opinion required by the Form 5500. For example, if the opinion (audit) is $9,000 divided by 125 participants, that's a cost of over $70 per person, more if it's charged only to those with balances in the plan.

Other than cash balance plans...

Each participant could be considered as a separate and distinct allocation group. And if all the employees are NHCEs, then it's a buffet for the employer. edited for a typo.

I think they're called a solicitor there, instead of a notary.

Excellent, thanks!

Can a 403(b) plan be established for a non-profit corporation under 501©(3), but only allow employer contributions (nonelectives) - thus allowing no salary deferrals? The employer has no other plan (no 457 etc). Is this a universal availability problem? The reason for the question is because 415 compensation continues 5 years after separation and the director (a NHCE) would like to set up a plan to provide nonelective ER contributions (which would continue after separation), but they are not interested in allowing salary deferrals.

We saw something like this last year, but they did not sign the two plans and had us take a look because they were confused by the documents and because TIAA was really impressing upon them to have a independent consultant review it for them. It was rather puzzling reviewing the contracts/plan documents - the language really did not spell it out as you described, but that is what the employer was thinking it said, but we gave deference to that interpretation, but after reviewing everything they could provide on it, they really only had one 403(b) plan overall.

Perhaps the plan document is written so that it slightly shortens the normal maximum length of time allowed under the elapsed time method for vesting. For example, an employee hired on March 1, 2009 normally does not have a year of vesting under the elapsed time method until they are employed through February 28, 2010. If the plan is written as you suggest, then perhaps it's indicating that they would have a year of service for vesting on Decemebr 31, 2009 (a little earlier)? Also, employment is not necessarily 'being there' on that day. Employment is a relationship between employer and employee. For example, if the plan year ends June 30 and you did not show up for work on June 30, does that mean that you were not employed on the last day of the plan year? Contrast this to the employer ending your employment on June 29th. In each case, you weren't at work on June 30, but your employment relationship is the true question that needs to be answered.

Let's assume a deferral-only plan satisfies all of the requirements to be considered exempt from ERISA. If they decide to allow participant loans for specific purposes, such as medical reasons, can they still be a non-ERISA plan? If so, what should they be careful to do (or not to do) so they are not considered to be "maintaining a plan"?

Q. "To correct the test, can I give each employee the addtional amount needed to get them to 5% of 415 comp? Which would mean each employee would receive a different percentage, it would not be pro-rata?" A. The plan document spells out how amounts are allocated. If the plan document states that each person is a separate rate group, then yes, the employer can allocate disparate amounts to each person in that division. If the plan document indicates that employees in division A are allocated an amount that is prorated by compensation, then you will need to bump up eveyone until the lowest allocation rate for that group is 5% of 415 compensation. Q "and in this group there are highly compensated employees. Since they are HCEs, do they have to receive an additional amount to get to 5% of 415 comp?" A. Same answer as above - if division A has some HCEs, the document will spell out how they are affected.

Uunder the elapsed time method, no minimum hours are required each year to earn a year of service for vesting, they simply must remain employed. If the plan has a 3-year cliff vesting schedule and uses elapsed time vesting, then anyone who stays employed until the 3rd anniversary of their initial employment, regardless of hours worked, has become 100% vested. This assumes no breaks in service occur during that time.

Correct, the bonding is required for ERISA covered plans.

Not really. In your example, Safe Harbor contributions for 2009 must be made by December 31, 2010 - that's required by the safe harbor regulations. However, if you expect to approach the 415 limits (or get within 3% of pay of that limit) for any participant for 2010, then you should make the 2009 contribution by October 15, 2010 (I think).

A) Was the participant's account reduced to pay your fee, or B) was the full account paid and then you tyracked down the participant to get the fee from their funds after distribution? Since A) is likely the case, then your fee should not be reported as paid out to the particpant on the 1099-R (since it was never paid to them).