John Feldt ERPA CPC QPA

Your deadline is not 01/31/2009 for a new plan adopted late in 2008. This is definitely the more confusing part of the 5-year cycle. Go ahead and submit the plan now. Maybe another poster can explain Rev Proc 2007-44 better (or correct me if I am wrong). Look at examples 7, 8 and 9 in section 15, as the end of the 401(b) remedial amendment period matters with new plans. The way I read it is that end of the initial cycle for your new plan is really 01/31/2014 (I could be wrong). I think you will still have reliance for the plan's first year even if you submitted by 01/31/2014, but I would submit now anyway.

If your DB plan is an individually designed plan, and you want IRS reliance on the plan's language (meaning you want a D letter), then your restatement is (or was) required based on the last digit of the sponsor EIN, with several exceptions. Take a look at Rev. Proc. 2007-44 for those details. EINs ending in 1 or 6 generally had a deadline of 01/31/2007, 2 and 7 had until 01/31/2008, and so on. If you don't want a D letter, you do not need to restate. However, that excludes you from some of the things allowed under EPCRS (I think), and you are breaver than me to not want IRS D letter reliance. If your DB plan uses a pre-approved document, such as a prototype, then the EGTRRA restatement window will open sometime around February 1, 2010. To compare, the DC window was to open around 01/31/2008 and the IRS actually opened it on March 31, 2008. http://www.irs.gov/retirement/article/0,,id=146977,00.html If your firm is a document sponsor for a DB prototype, you should be listed here: http://www.irs.gov/pub/irs-tege/egtrra_listdb.pdf

After trying to add benefits for all of the eligible employees by removing the last day and 1000 hour requirements, the last step starts removing the plan's eligibility requirements. However, aren't the lowest requirements are required for determining the total EE counts in the test? If so, that starts bringing in more NHCEs into the denominator (from the big plan) and they are not helping. I no longer squeak by. In fact the sqeaking does not occur. I should have noticed this before the earlier posts. Back to square one. I agree Laura, that the ABT then becomes an option. If the ABT fails, then no solution is available?

Maybe someday, long from now, when these are available in a prototype - then the 5-person plan market would benefit from these.

Actually, if the plan gave a QNEC to all NHCEs in the small plan, regardless of eligibility, then they would just squeak by - they require age 21 and a year (keep in mind that some of those ineligible employees were only there for a week or two during that short plan year). If that would work, I assume the plan would not have to be amended (since that would be a -11(g) type of amendment). So does the last step in the plans 410(b) failsafe language cover this: "If, after application of the correction procedure above, the coverage requirements are still not satisfied, the Employer may apply the same procedure to an otherwise excludable class of Employees until the ratio percentage test is passed." Assume the plan allows a QNEC. Certainly the window was the right time to make the change, but it doesn't appear that they received any advice from their service provider. We can only hope that this becomes an opportunity for a change to be made regarding their service provider...

Actually, let me clarify: we gave a match to all of the NHCEs who had met the age and service requirements and had elected to defer, regardless of whether or not they had 1000 hours or last day (the plan's allocation requirements). There wasn't a named group excluded or anything like that, if that was your question.

Yep. The math says the small plan doesn't have enough people to make it pass. Avg. Benefits is out. We also said ugh. The problem was avoidable 2 years ago when they first became a controlled group, but their bundled provider (asset gathering is first, anything else is a lower priority) did not make the plan years the same until it was too late. The bundled provider is asking us, saying something like 'help us, somebody, please help'.

What would you suggest?

If 404 does not apply (gov. sponsor or nonprofit), in 1.415©-1, you find: Date of employer contributions ... If ... contributions are made by an employer exempt from Federal income tax (including a governmental employer), the contributions must be made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends... The safe harbor contribution deadline is twelve months after the plan year end, but if made after the above date, the contribution would be an annual addition for year in which contribution occurred instead of the year for which it was made. To me, that's October 15 for a calendar year.

Two 401(k) plans, two employers in a controlled group. Neither plan is safe harbor. The Big plan has deferrals and an annual discretionary match option. Calendar year plan. No match intended for 2008. The Small plan has deferrals and a discretionary match. Plan year was 9/30, until 9/30/2008, when they had a short year ending 12/31/2008. They contributed a discretionary match for the 12/31/2008 year. Small plan did not have enough NHCEs in the short plan year for the match portion of their plan to pass coverage, the ratio test result is about 45%. They have a NS PT that applies 410(b) failsafe language, but even after exhausting all of the listed steps, the plan does not have enough NHCEs to pass coverage for the match. Big plan has a discretionary match option. They could decide to provide a match for 2008. Could the two plans be aggregated for coverage purposes for the match? One plan year is short, the other is 12 months, but they both end 12/31/2008.

Isn't that tag line reserved for another user? I think if the company is not-for-profit (or a government), then the deposit would be due on the 15th of the 10th month after the end of the plan year, regardless of whether they file any return at all or do an extension.

Plan to file all of them (if you want D letter reliance) by 01/31/2010. See Rev. Proc 2007-44 section 10.02 - they are in cycle D. A simple guide would be nice. Maybe will get a post on that.

However, just to be clear, you will not need to project the cash balance account at the hypothetical rate, convert to an annuity, and then discount back at the 417(e) rates in order to determine the lump-sum value of the hypothetical account (as long as the PPA conditions are met).

If the cash balance plan meets the requirements of PPA and subsequent guidance to be eligible for 417(e) avoidance, then the cash balance portion of the plan is not subject to 417(e) - no more whipsaw issues there, the lump-sum benefit payable is equal to the hypothetical account. However, if the plan is top heavy and if the top heavy minimum is earned in that plan, then the top heavy minimum benefit is subject to 417(e) and its lump-sum value will gyrate up and down with changes in interest rates like a traditional DB plan. The lump-sum value of the TH minimum is compared to the account balance at the time payout occurs. Also, if a portion of the plan contains a traditional formula, either as an old preserved benefit or as an ongoing formula, and if that benefit is subject to 417, then that portion of the overall plan benefit would need to be calculated using 417(e) rates.

No, they are not considered as counting toward the 415 limit in the 401(a) plan.

So where do folks roll over their Roth 401(k) balances after they leave an employer . . . would it be reasonable to think that it rolls to a Roth IRA? If so, let's re-word it: Maybe it goes something like this: Misleading Headline #1 (10 years from now): Corporate Executives Find Loophole to Withdraw Six-Figures from IRA While Avoiding Taxes. Misleading Headline #2 (15 years from now): Wealthiest Americans Not Paying Taxes on Six-Figure Payouts from IRA Accounts. Misleading Headline #3 (20 years from now): Rich Americans Get Richer by Withdrawing MILLIONS from IRA, Refusing to Pay Taxes. Congressional action expected. No?

and miles to go before I sleep

We've got about 100 or so small plans on Expertplan, and it's worked very well.

Maybe it goes something like this: Misleading Headline #1 (10 years from now): Corporate Executives Find Loophole to Withdraw Six-Figures from 401(k) While Avoiding Taxes. Misleading Headline #2 (15 years from now): Wealthiest Americans Not Paying Taxes on Six-Figure Payouts from 401(k) Plans. Misleading Headline #3 (20 years from now): Rich Americans Get Richer by Withdrawing MILLIONS from 401(k), Refusing to Pay Taxes. Congressional action expected. Maybe the timeline will be longer/shorter than above and the villains will differ. Perhaps the first congressional action will only pertain to those whose Roth balances exceed $150,000. Maybe none of this will ever happen... but history has shown how these things can and do happen.

If you also do administration with a back-office actuary, make sure the actuary understands how that works too. We had one send us back a valuation that provided additional cash balance credits so that the cash balance accrual would cover the value of the top heavy minimum. We had to explain that was not how the document was written.

It appears that 430 (old 412) does not apply to a nonelecting church plan. I think it follows that the benefit restrictions, Code Section 436, would also not apply. Agree? Disagree?

Take a look in the plan document regarding the cash balance formula and the top heavy minimum. It is unlikely that you will find language that indicates that a non-key employee will receive a cash balance credit equal to the greater of 1) the present value of the top heavy minimum or 2) the hypothetical cash balance credit of 8% of pay. If you do find that, please reply back to this board.

Interest to terminees - annual is ok - probably best for the very small plan. But if the plan is truly to attract high level number crunching employees, like say, international investment bankers, or rocket engineers, etc. then don't try annual - go with monthly or at least quarterly there - your call center reps will not know to thank you enough, but they'll feel the pain if the credit is annual. Until PPA, I think the preference was the 30-year treasury. The new funding rules have made some re-think that especially for new plans - trying to get a normal cost that is reasonably close to the hypothetical pay (or service) credits. It sure is/was nice to have the AE match the crediting rate. Then the end of 2008 came along and the drop in the 30-year treasury (from 4.50% in August to 2.87% in December) made passing 401(a)(26) a worry. Perhaps a different rate would retain more stability for 401(a)(26) purposes? Of course a fixed rate would help us there, but how do you know if the fixed rate exceeds market - if the 30-year treasury was 2.87%, was a fixed rate of 5% okay? How about 4%? 3? Sure, every cash balance plan needs to get their D letter (full scope would be best). Yes, a potential problem could occur, but size matters - so is it a tiny little problem, or bigger? In a plan that uses this extreme definition, the owners' cash balance credits are the majority of all liabilities in the plan (90% and up - we've seen 99%). The NHCEs would generally be receiving a flat amount per year, such as a $500 flat amount. Over 10 years (that's a long life for these plans) that $500 per year credit for the NHCE (if they satyed that long) has become maybe $6,500 ? or thereabouts - that's probably not enough to truly worry about the selection of an annuity. There was a time that we have seen an annuity selected - the participant could not obtain spousal consent. $53 per month J&S 50% starting at age 45 - yeehaw. Hopefully the "reserved" section will be written soon and we'll get fixed rate guidance. If the guidance is not too burdensome, then we think a fixed rate is likely the place we oughta be. Hopefully we'll be allowed to switch.

Must be a private school - how do we get into that school anyway? It's true that the cashout rules do not require you to look back at the prior years' payouts to determine if the amount can be cashed out, right? (they used to, but not any more)... Hmmm - seems kinda risky, I don't think I'd do it.

I think Richard Gephart already proposed that a few years back, but it died.