John Feldt ERPA CPC QPA

Yes. Just curious, was the plan's normal retirement age under 62, and if so was the plan amended before the termination date to increase the NRA to age 62?

I did not find much guidance on the pre-ERISA coverage rules, maybe another poster can help with that. As for the prototype, a nonelecting church plan document has no reliance unless it submits the plan to the IRS, thus the plan is individually drafted in that sense. However, the word "prototype" does not necessarily mean "a document with an IRS opinion letter". Some practitioners have created "prototype" documents for church plan use or for government plan use. Those "protoypes" try to make it convenient to select which provisions of the plan will apply or not apply, but none of those prototypes carry the reliance of the familiar IRS-approved prototypes that we see for many 401(k), profit sharing, and defined benefit plans.

You could ask the Treasury Secretary for an exception . . .

Are you using accrued-to-date testing? Are you using the same testing age in 09 that you used in 08?

Also called component plans. If a gateway is needed for one component plan's cross-testing, then the gateway applies to the entire plan (not just that component) - I think. Works nicely if each person is in their own class so you aren't hurt too much by a few demographic changes each year, just be sure to get 70% for each component and make sure you've been careful about exactly who can and cannot be excluded in your nonexcludable employee count. Imputing disparity in one group and cross-testing the other is fairly common for component plans (IMO).

Could you also argue that in a state where community property law exists, then the each spouse directly owns 50% of whatever the other spouse owns, thus an owner without attribution... - careful with those class definitions!

A plan sponsor (nonprofit) has one NHCE in their DB plan (subject to PBGC). They provide notice that the person has retired and asks for distribution paperwork. Plan allows full lump sum, plan has enough assets to pay out. Participant, age 60.5 near the end of last year, did not actually retire, but sponsor paid the lump sum ($200,000) anyway. The plan sponsor thought in-service was still allowed. The plan had allowed in-service until a few months ago, last fall, when an amendment to comply with the unusual (IMO) IRS definition of the word "deference" under the final NRA regs changed the NRA to 62 and removed the in-service option pre-62. At about the same time the participant was paid out, the plan adopted an amendment to terminate the plan and provided the proper plan term notices to the participant. The date of Plan Termination established was about 2 weeks after the participant was paid out. They are still employed now. 1. Plan paid when no distributable event occurred 2. Plan paid before the 60-day PBGC review period What do you think would be a reasonable fix that the IRS and PBGC would accept?

Thanks. Another plan in the same situation except the plan is small (under 100 participants) and less than 5 years old. Now I think the amendment should be okay?

Right, the ACOPA example is different in that the prior year AFTAP was not under 60%. Since the prior year was under 60%, we now either violate 436 or 401(a)(4) no matter what we do and the plan is disqualified. I agree that a VCP application may be the only safe way out of this. That ACOPA board sounds right up my alley, is access limited only to ACOPA members/actuaries?

A calendar year plan sponsor failed to provide data until after October 1, 2009 so the AFTAP is presumed under 60%, so all restrictions apply. The sponsor only has one plan, the DB plan. As far as I know, no amendments to increase benefits are allowed even if a contribution is made. When the actual data was provided, shortly after October 1, the AFTAP was found to be over 80% (and the sponsor is not in bankruptcy). However, an amendment is needed under 1.401(a)(4)-11(g) in order to pass testing for the year. Is a retroactive corrective amendment under 1.401(a)(4)-11(g) allowed? If not, (because of the restrictions caused by the AFTAP being presumed under 60%), can the plan be corrected for the failed nondiscrimination test?

Only if they terminated employment.

Even if they don't cover the same group, I would answer Yes.

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?