John Feldt ERPA CPC QPA

Perhaps the industry of the plan sponsor in general wasn't performing badly (financially) - I would hope they take into account more factors than just noticing the contributions took a dive - they'd have large caseload that meets just that criteria.

Now just add in the actuarial adjustments to equalize all of the annuity streams (including the value of the pop-up amounts) for the benefit commencing before age 62, so that at age 62 when social security starts, you have an equalized payment. Then add a nonqualified benefit on top of that for benefits in excess of the 415 limit (but then offset that for any benefits accrued when they worked for you outside the U.S. for any pensions earned under retirement plans or benefits similar to social security provided in those countries) and track all of the participant's and surivor's amounts in your automated website that the participants can log in to look over. I know I missed something else here too, maybe it's the FICA tax on the NQ benefit, hmmm, oh well. Yeaehaw, gulp.

Perhaps my understanding is flawed: 1. If the plan satisfies all of the PPA 'applicable defined benefit plan' or 'lump sum based benefit formula' plan requirements, then the plan avoids the issue of age discrimination due to the interest rate, and the lump sum payable is equal to the balance of the account (meaning it is not subject to 417(e)(3)). Of course, if the plan is top heavy and unless the TH mins are provided in the DC plan, the top heavy minimums are required to be determined when benefits are paid, and those TH minimum benefits are subject to 417(e)(3), presumably. 2. If the plan does not do what is listed out under PPA for a lump sum based plan, then 417(e)(3) does apply, so the whipsaw calculations are needed, and the plan is considered to be age discriminatory. The way I read it is that a cash balance plan automatically violates the age discrimination rules if any of these are true: 1) the plan provides an interest crediting rate that is higher than the market interest rate, 2) the plan does not preserve capital (allows an overall negative interest credit to the account), 3) the plan does not follow interest rules upon plan termination, or 4) the plan violates any conversion restrictions. Currently, one section of regulations that came out due to PPA states that a lump sum based plan may provide for an interest rate that cannot exceed a market rate, and that such rate may be a fixed interest rate for crediting to the account. The guidance provided that the market rates allowed can be indexed rates as described under Notice 96-8 are okay and that the corporate bond rate and the 3rd segment rate (and any lower rate) is okay. Then, as for the fixed rate, the IRS literally marked that section of the regulation as "reserved" and they asked for comments regarding the fixed rate, and presumably they are in the process of writing such regulations at this time.

I think it's okay unless the 5% exceeds the market rate. So yes, but maybe no. We are expecting guidance from the IRS soon regarding a fixed rate. The current guidance provided by the regulations is "reserved" - so not much to go on there.

When the cash-flow of a plan sponsor changes, how does that make this egregious? To re-frame: Under the Final 401(k) Regulations, in T.R. 1.401(k)-3(h) “... a safe harbor matching contribution must be made within 12 months of the end of the plan year.” Under the 415 Regulations, T.R. 1.415-6(b)(7)(ii) “… employer contributions shall not be deemed credited to a participant's account for a particular limitation year, unless the contributions are actually made to the plan no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends.” Under Internal Revenue Code Section 404(a): “Contributions … shall be deductible…in the taxable year when paid…” and “a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).” Understood: Section 404 allows that contributions made during the 2010 year can be deducted on the 2010 tax return (in general: to the extent the contributions were not deducted with the 2009 tax return and did not exceed other limits that prevent the deduction). No 2009 deduction would be allowed for the safe harbor contribution if it is made after the 2009 tax return filing deadline (plus extensions, if applicable). If the 2009 safe harbor contribution is made by December 31, 2010, the plan meets the Safe Harbor contributions requirements under 1.401(k)-3. Thus, a contribution for 2009 made as late as December 31, 2010 does not violate the safe harbor rules. Later than December 31, 2010 would be a defect that jeopardizes the plan’s qualified status. Since the contribution is made more than 30 days after the tax return filing deadline, the contribution counts as against the 2010 IRC 415 limit, not the 2009 IRC 415 limit. This creates an issue because the contribution is then not deemed to have been credited to the participant’s account for the 2009 year under IRC 415. Participants that have terminated in 2009 or have terminated in 2010 without sufficient compensation to support the allocation of the required contribution are the focus here. The IRS and the plan document provide that a plan sponsor may correct plan issues and even significant errors by means of self-correction. Under section 6.02(4)(b) of Revenue Procedure 2008-50, a plan will consider that “a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which corrective allocation relates.” This applies to insignificant failures and significant failures (if corrected within the 2-year timeframe). Does this justify the Safe Harbor contribution deadline in the regulations, without which, the regulatory deadline has little actual meaning (except maybe for a non-profit entity?). If the December 31, 2010 deadline in this example, under 1.401(k)-3, is met but causes a disqualification problem, why didn’t the regulations provide a deadline identical to the 404 deadline or the 415 annual additions deadline? Am I way off base to think this is alright?

That's where we were, looking at the Safe Harbor contribution deadline square in the face, and we saw December 31, 2010. Hmmm, was it a trick, a ploy, something the regulation writers did to lull us into thinking that the contribution can really be made as late as they say? No Johnny, the IRS just doesn't behave that way... (sorry, my wife is watching an old movie now). If no one terminated, and the 2009 SH contribution is made on 12/31/2010, then they've met the contribution deadline. In that case, they should be able to deduct the amount on their 2010 return, the 2009 SH status is not jeopardized since they met the contribution deadline, and as long as each participant has enough wages in 2010 to cover at least the safe harbor amount, we have no 415 violation - right?

Suppose a corporate plan sponsor contributes their required 2009 Safe Harbor contribution on December 31, 2010 (due to cash flow reasons). The plan document requires the contribution and the notice was issued timely. They have lots of room under their eligible compensation for doubling up their 2010 and 2009 contributions since they are only planning on contibuting the SH amounts. By doing this, they will miss the deduction deadline for their 2009 tax return. I assume this would be deductible on their 2010 return? If so, I don't see the section under 404 that quite gets me there - any ideas? Also, if a participant quit in 2009 and the deduction for that person occurs with the 2010 return, that's not a 415 issue, right?

Ditto. I'll be happy when the last few offset plans we have are gone, or when the IRS provides really usable guidance to clears things up for these plans - I wonder which will be first...

Since you're submitting for a D letter you should be able to submit good language later when the IRS reviews the plan language, that's what we intend to do. I'm really not sure what else can be done at this time if the plan year end was December 31st.

Yes. The 2 limits do not offset each other, and yes, an independent contractor can participate if the document has language to allow that.

Okay, that's as described in 1.401(a)(4)-4(b)(1). So, suppose a DC plan has no hours or last day requirement for receiving an allocation, but the DB plan does have a 1000 hour requirement for receiving a benefit accrual (so the DB plan can be amended in the first few months of the year to reduce benefits if necessary), does that mean that the headcount of employees receiving the accrual in the DB plan must also pass the 70% test? I'm just trying to understand exactly why it has been recommended that the accrual conditions be mirrored. I've heard them even recommend that the 2 plans leave out all accrual/allocation requirements - no hours for the DB and no hours or last day in the DC. If the 70% test (described in the above paragraph) is the main reason, I'd rather keep the 1000 hours in at least for the DB plan. Am I missing something else?

I have heard several DB/DC combo speakers make comments that both DB and DC plans, if combined for nondiscrimination testing, should avoid benefits, rights, and features (BRF) testing by making sure the plans have the same/similar BRF provisions. From an grey book Q&A, a 3-year cliff and a 6-year graded schedule are considered comparable and thus not subject to BRF testing. I think BRF would include in-service distribution timing options? Suppose the DC plan has age 59.5 for an in-service option for all acoounts, but the DB has age 62. That appears to be a BRF, but how/what gets tested there? What about an accrual requirement - suppose the DB requires 1000 hours for accrual, but the DC plan has no accrual requirement - is that a BRF that must be tested, and if so, how/what gets tested there, doesn't the 401(a)(4) test itself do exactly that?

IDP Cash Balance, single employer (not a controlled group either) plan was established in 2007, the effective date was 01/01/2007, signed 12/31/2007. Calendar year plan, calendar year corporate sponsor. The Empoyer EIN ends in 9. I thought that put them into cycle D. We submitted for a D letter in January 2008 because the end of cycle D was over 2 years away. The IRS Determination letter recently arrived (favorable) and it says that the letter expires 01/31/2013. January 31, 2013 is cycle B, not D. Did the IRS goof and simply give a new plan 5 years for their first D letter? Another employer (exact same scenario as above in every detail other than their plan name and name of the sponsor) - they got their D letter in Nov. 2008 and that letter says it expires January 31, 2010 (which we expected). Do we trust the 2013 date, or restate for cycle D and submit on cycle now?

A 401(k)/PS plan is still on a GUST document. They intend to terminate the plan in March 2010, so they have no intention to restate the document. If they restated to an EGTRRA document, they can submit their 5310 after April 30, 2010 and ask for a D letter on the termination - no problem. But, if they do not restate for EGTRRA (they adopt interim amendments only), and they want their Form 5310 accepted, must the 5310 be submitted by April 30, 2010?

Yep, that was it. In the 1.401-1(d)(4), where it says "only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution..." If a new plan is executed now (the execution date would be 12 months after the amounts were paid out of the prior plan), can it have it's effective date be retroactive, or does that make this new plan "exist" retroactively too, for purposes of the application of this regulation?

A client terminated and paid out all participants from their 401(k) plan in mid-December 2008. They now want to start up a PS only plan (no deferrals) with a January 1, 2009 effective date. For vesting purposes in the PS plan, they want to exclude years before this new plan is established. I think there are some problems with this, but haven't found the guidance. I don’t think a new PS plan with a January 1, 2009 effective date can exclude years before the plan starts if just a few days earlier in December 2008 the company had terminated another qualified plan. I also have this feeling that there's something else causing a problem here, but it eludes me (other than December 28 being an eleventh-hour time to finally decide to set up a plan for the year). Thoughts?

I do have Larry's illustrations (they're a bit old now), but it does show the calculation methodology - thanks!

We're working with a cautious client that needs to better understand how the HCE Rate (for getting the 5%, 6%, 7%, or 7.5% gateway) is determined in a DB/DC combo plan. We explained that it is the sum of the DB HCE Rate and the DC HCE rate using the testing assumptions. They understood the DC HCE Rate, no problem. But the DB is a cash balance plan, and, for example, for one HCE the hypothetical credit to the account is just over 24% of pay. Of course, the DB HCE Rate did not come out very close to 24%. This is causing their question. To calculate the HCE Rate, we explained that it is not the credit divided by the pay, but it's a conversion from the hypothetical credit by accumulating it to NRD at the current crediting interest rate, converted to an annuity under actuarial equivalence, with that annuity's present value calculated at the testing rate, divided by pay. Note: usually they just start nodding after the actuary says "conversion from the hypothetical" and then they can't remember what they even asked in the first place. But not this time. We could tell that this client was not convinced. They want to know if the regs or other official guidance can confirm that. I'm looking at 1.401(a)(4)-9(b)(2)(ii) and 1.401(a)(4)-9(b)(2)(v)(E). Is there somewhere else that would spell it out even better?

Milliman is another that does this. Used to be Milliman & Roberts, I think.

Right. If you do not want reliance on an IRS letter to protect your plan language from scrutiny, then you do not need to restate. If you are on a GUST prototype or volume submitter now, then its current IRS opinion letter/reliance letter will expire. When that happens, any word in your document is open for attack, and will be attacked when the IRS audits the plan. Perhaps your hope is that the IRS auditor isn't very picky about anything, and that's a very positive way to look at this. Also, you can put all of your personal assets on green and roll. (or is that 'spin'?) edit: typo

I would agree. There is no requirement that an advanced degree must be obtained to run a typical storage facility and the nature of running a storage facility is not likely intellectual in nature.

Especially look at the plan's 415 amendment. Before that time, the 'first few weeks' rule was operational. Not anymore with the 415 amendment, so Kevin's right, it should be spelled out now in your plan language.

Of course they keep track of the Social Security portion of that tax revenue on pieces of paper (which I think of as non-marketable treasury IOUs). Perhaps they might put these notes in some kind a file cabinet in Virginia somewhere. I suppose one could call that file cabinet the "Social Security Trust Fund" if they wanted to be really reckless. Surely all Americans understand that the government spends all revenue taken in from all sources each year and since that's not enough, they sell treasury bills and treasury bonds so more can be spent than is actually received. Just look at the back pages of your Form 1040 (if you get a paper copy). Okay, I'm obviously kidding about the "All Americans" part.

I think there would be no employee deferrals that can be offered until 12 months after the distributions were all completed. So I think you could have a nonelective only (profit sharing) until then.

The 457(b) "annual deferral" limit (which is vested employer contributions plus employee contributions) has no bearing on the 402(g) limit which affects a 403(b) salary deferral.