John Feldt ERPA CPC QPA

A 401(k)/PS plan just received an $8,000 check from a mutual fund company for their 401k plan as part of the SEC settlement with the mutual fund company to reimburse mutual fund holders for excessive trading costs, etc. for the period 2000 to 2003. Since the date that is being used to determine the $8,000 figure is what the mutual fund company shows as recorded on September 30, 2003, who gets the money and how is it to be allocated? Do we need to go back to September 30, 2003? Could it just go into the current plan to allocate to current participants or to offset current plan expenses? Many of the participants back in 2003 have retired or terminated. Do you think the IRS/DOL would accept a reasonable cost/benefit analysis to determine if it's really worthwhile to try to allocate an $8,000 check on balances that are almost 6 years old and to participants who are no longer in the plan?

Look further in Section 12 where it talks about the next 5-year cycle. I think it tells us that a cycle A plan's next RAP ends 01/31/2012 (see 12.02, the last column, and look at 12.03). Also look at section 5.03(1) which says: ".03 This section 5.03 extends the remedial amendment period for the disqualifying provisions described below as follows: (1) The remedial amendment period for any disqualifying provision described in § 1.401(b)-1(b)(1) that would otherwise apply under § 1.401(b)-1 is extended to the end of the applicable remedial amendment cycle described in section 6.01 that includes the date on which the remedial amendment period would otherwise end if the disqualifying provision was a provision of, or absence of a provision from, a new plan and the plan was intended, in good faith, to be qualified." and then read 1.03(1) which says: "(1) The EGTRRA remedial amendment period for individually designed plans extends to the end of the initial applicable five-year remedial amendment cycle as provided in the chart found in section 12.01. Therefore, plan sponsors may avoid unnecessarily filing two determination letter applications by waiting to file their EGTRRA determination letter applications until the twelve-month period preceding the end of the plan’s initial applicable five-year remedial amendment cycle." When you looked at section 7, you saw "The EGTRRA remedial amendment period is extended to the end of the initial five-year and six-year remedial amendment cycles, respectively." Well, the six-year cycle does not apply to an IDP plan, so this section is saying that the EGTRRA RAP is extended to the end of the initial 5-year remedial amendment cycle for the IDP plans. Section 9 tells you that the end of your remedial amendment cycle is determined by using the deadlines for a cycle A plan. Thus, the cycle A deadline for a new plan now, is 01/31/2012. At least that's how I see it anyway. It's as clear as mud, of course.

Okay, then you can forget January 31, 2013. Assuming you want a D letter, you could submit the original document now since 01/31/2012 (the next cycle A submission deadline) is more than 2 years away, and this filing would be considered on-cycle. You'll still have to restate and submit again before 01/31/2012, however (assuming you want another D letter to cover the next 5 years). Alternatively, you could do no submission now, but wait until the late 2011, restate into a document that has the cycle A LRMs at that time, and submit the original doc, amendments, and the 2011 document all by 01/31/2012, and I think you would still be okay for your RAP to make any changes upon IRS review, even back to the original effective date. I could be wrong there, but that's how I think 2007-44 reads. Now, if you don't want a D letter, then you never have to restate (and you're much more brave then me), but you will have to amend for each law/reg change on a timely basis.

I see no prohibition against that. Will the ADP/ACP test hurt them much? - They should consider that as a possible cost too. Doing this won't likely help their employee relationship, if that is a concern for them. Be sure the top heavy test gets extra scrutiny during review. Your extra time to do this should justify extra billing.

Is the DB plan considered to be an individually drafted plan (IDP), or a prototype / volume submitter? (Section 18 pertains to pre-approved plans (prototypes and volume submitters) - that's the 6-year cycle).

It's okay to have an offset, although I would not define the DB benefit as the actuarial value fo the PS, I would only define the offset as such. An offset arrangement can satisffy 401(a)(26) based on the amount prior to the offset, see §1.401(a)(26)-5(a)(2). Employees who benefit under a plan §1.401(a)(26)(a) Employees benefiting under a plan ... (2) Sequential or concurrent benefit offset arrangements (i) In general. --An employee is treated as accruing a benefit under a plan that includes an offset or reduction of benefits that satisfies either paragraph (a)(2)(ii) or (a)(2)(iii) of this section if either the employee accrues a benefit under the plan for the year, or the employee would have accrued a benefit if the offset or reduction portion of the benefit formula were disregarded. In addition, an employee is treated as accruing a meaningful benefit for purposes of prior benefit structure testing under §1.401(a)(26)-3 if the employee would have accrued a meaningful benefit if the offset or reduction portion of the benefit formula were disregarded. However, I would recommend obtaining a full scope D letter right from the start if setting up a DB plan using an offset. Edit: Aw, the Sieve beat me to it.

Effen - yes we had been debating the option to just leave the benefit as it stands. Since increasing the benefit by 0.09% is sucha small cost, we may just put the -11(g) amendment in place to benefit that employee now - why bother with the potential pain of an audit later (our meager cost-benefit analysis thinking). Has anyone had to convince an IRS auditor that the benefit accrual does not need to be 0.50% of average pay in order to be "meaningful"? I'd like to know how that worked out.

SunGard Relius had a short comment on this: http://www.relius.net/News/TechnicalUpdates.aspx?ID=433 2. If an employer eliminates a match (fixed or discretionary) in a traditional 401(k) plan must it provide a notice to the participants? No. The regulations only require safe harbor 401(k) plans to provide a notice to employees upon reducing or eliminating a match formula during the plan year. Nevertheless, the employer may want to provide a notice to alert the employees to the change so they can modify their deferral elections if they wish. Of course, the amendment will need to be reflected in a summary of material modifications (SMM). However, the SMM is not due until 210 days after the close of the plan year in which the employer makes the amendment.

Thank you!

6 nonexcludables for the plan year: calendar year 2008. Two have large benefit accruals exceeding 0.50% of pay. The other employees whose accruals also would have exceeded 0.50% of pay? Well, they all quit before their 1,000 hours for calendar year 2008. One NHCE has an accrual of 0.41% of pay. Can the plan be amended to increase an accrual for the NHCE (or all) under -11(g), or is 401(a)(26) outside the scope of a -11(g) amendment? edit:typo

I used the 6 digit number from AIRE on Form 23-EP and just received my official certificate and enrollment card today. So I don't think using the AIRE number will cause any trouble or significant delays.

Thus, you'll need to do what your document says for this year (the document either excludes them from the SH, includes them, or only includes/excludes specific HCEs). You can amend the next year (if necessary) effective on the first of next plan year - that amendment must be executed before that plan year starts and the SH notice should reflact those changes.

BG5150 - You are the OP.

I posted this in the ESOP section, but perhaps the question leans more toward cross-testing? http://benefitslink.com/boards/index.php?s...st&p=181920 An calendar year ESOP plan has 2 valuations per year, June 30 and December 31. The allocation condition is that you must be actively employed on the last day of the valuation period. An employee who is active on June 30 gets a June 30 allocation, but if they quit December 15, they do not get an additional allocation for the 6-month period ending December 31. The plan uses a definition of compensation that passes 414(s). The plan uses a pro-rata allocation method for each 6-month allocation period based on compensation paid during that 6-month period. Assume all 3 are true: some employees get no allocations for the June 30 period because they left before June 30, and some other employees get allocations only for their compensation paid through June 30th because they left before the end of the plan year but after June 30, and some other employees get allocations based on full year pay because they were active on December 31. Based on the assumptions listed, does this plan design require 401(a)(4) testing?

An calendar year ESOP plan has 2 valuations per year, June 30 and December 31. The allocation condition is that you must be actively employed on the last day of the valuation period. An employee who is active on June 30 gets a June 30 allocation, but if they quit December 15, they do not get an additional allocation for the 6-month period ending December 31. The plan uses a definition of compensation that passes 414(s). The plan uses a pro-rata allocation method for each 6-month allocation period based on compensation paid during that 6-month period. Assume all 3 are true: some employees get no allocations for the June 30 period because they left before June 30, and some other employees get allocations only for their compensation paid through June 30th because they left before the end of the plan year but after June 30, and some other employees get allocations based on full year pay because they were active on December 31. Based on the assumptions listed, does this plan design require 401(a)(4) testing?

Thanks very much. I agree that the temporary relief allows the plan to delay the effective date of this regulation to the first day of the first plan year starting after June 30, 2008. I will attempt to argue first that the regulation's effective date (under Notice 2007-69) is after the plan termination date and therefore does not affect the plan. If that fails, then we'll just do the amendment with a 1-1-2009 effective date.

A Form 5310 was filed for a DB plan with a plan termination date of Feb 29, 2008. Normal retirement Age is 58 (or 5 years if later). Plan Year end 12/31. The IRS reviewer asks: "Please demonstrate that the plan's definition of normal retirement age satisfies Regulation 1.401(a)-1(b)(2). Or, alternatively, amend the plan's definition of normal retirement age." We understand that under 1.401(a)-1(b)(2), the Normal retirement age must not be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry. But, (iii) states that in the case of a normal retirement age that is not earlier than age 55 and is earlier than age 62, whether the age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry is based on all of the relevant facts and circumstances. Does anyone have insight regarding what the IRS will consider in this "relevant facts and circumstances". The employer is a PC that does dermatology work. Alternatively, if we amend the plan now to have the NRA become 62 with an unreduced ERB at age 58, would that cause the IRS to invalidate any prior actuarial valuations that calculated the plan's contributions? Not sure what to do with this one - any comments appreciated.

Maybe the OP is just 401k-ing around... can we actually post that kind of language here?

"One partner decided to defer" Is the person truly a partner, as in a partnership or LLP? If so, then do we know what percentage of earned income that partner has at the time of the deferral, or do we find out at the end of the year when earned income is calculated? The question is perhaps: what is the "pay period" for a partner?

Thanks you. I knew the Treasury would not have let that happen.

Would the 10% penalty only apply to the earnings? 1. Roll from plan to Roth IRA at age 50. 2. Pay income tax, no the 10% penalty. 3. Distribute from Roth IRA to self at age 51. 4. Pay 10% penalty on the earnings only?

No it does not. But has this issue ever been in court in your state? It's still the employee's money, regardless of where it went. So I don't think any state enforcement branch would care to spend any time on the issue of auto-enroll, regardless of their stated law (I could be wrong though).

I'll check, but I think electronic filing authority was provided to the CPA to file the return. edited to add: yes, the CPA firm filed electronically without confirming if the accrued contributions had been made yet.

Thanks. I was under the impression that 404(a)(6) would not even allow an allocation for 2008. Are you saying that it simply does not allow a deduction for 2008? As for point #4, the client is happy with us. We have informed them each year that they need to file a corporate extension if they intend to make the contribution after the March 15 deadline (we are not a CPA firm, we don't prepare corporate tax returns).

An S-corp employer (calendar tax year) has a 401(k) plan (calendar year) that allows for a discretionary match. For 2008, they intend to make a matching contribution, funding it sometime this spring/summer. Their speedy tax return prep firm got everything done before March 15, 2009 and filed the corporation's tax return on time without filing an extension (the client has never had their returns completed by the March 15 deadline for any of the prior 10 years. The tax return included a deduction for the 2008 match ($80,000) to 50 employees, which has not yet been contributed. Under 404(a)(6), 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). I think it is too late to contribute a discretionary match now for 2008 since the extension was not filed? Could they contribute and allocate for 2008 and then file under EPCRS to get the match allocated for 2008? Even if filing under EPCRS, no deduction for 2008 would be allowed anyway, or could EPCRS also allow that? No 415 limit issues and no 404 limitation issue would occur even if 2008 and 2009 both get deducted in the same year. To the client, this is mainly an employee relations issue, since the employees were verbally told that they can expect a match for 2008 based on their deferrals (the plan is clearly written as a discretionary employer amount).