John Feldt ERPA CPC QPA

In case anyone is curious, the rules changed for plan years after 2000 as described in the previous posts, such that plans that do not grant any past-service (thus having no benefit liability on the plan's effective date) will have a PBGC participant count of zero for the first year. This would also affect more than just the first year of the plan. A new participant entering on the first day of a future plan year, assuming they have no benefit liability (e.g. plan credits accruals based on participation), would also be excluded from the PBGC participant count for that year. edit: typo

But MRDs for DB plans were not suspended.

b7 and b9 do not differ in that regard. If the sponsor is truly a church, then a lot of things do not apply. One of the many things to note is found in Notice 2001-46, article I: "I. PURPOSE This notice provides relief from the application of the nondiscrimination requirements of the Internal Revenue Code for certain church and governmental plans. In particular, this notice extends the effective date of regulations under §§401(a)(4), 401(a)(5), 401(l), and 414(s) of the Internal Revenue Code for nonelecting church plans until further notice, but in no case earlier than the first plan year beginning on or after January 1, 2003." I have not seen "further notice" in this regard from the IRS yet.

The same contribution limits apply. The other difference is the document. A church plan sponsor that only provides mutual funds and annuities as investment options [b(7)] is not required to executed a written plan. If they offer investments under b(9), (retirement income accounts), then they must execute a written plan that conforms with the final 403(b) regulations.

No, not required. I read Derrin Watson's comments (SunGard) on this topic too. Basically, Derrin states that a plan that terminates and submits the 5310 to the IRS should just adopt any interim required amendments that are needed and send it to the IRS for their review - they'll tell you if any other language is needed or if any changes are required. However, if a decision is made to NOT submit a 5310 to the IRS, then an EGTRRA restatement (under a pre-approved EGTRRA document) provides you with a D letter for all of the interim amendments up through the Final 401(k) regulations (that's quite a few amendments). Thus the IRS can't pick those apart, they have reliance from the document's letter. They can really only question the language for anything not already covered by the EGTRRA document's letter, like the 415 amendment, the HEART Act amendment, and the WRERA amendment. added upon edit: (or any discretionary employer amendment).

Okay. We'll see how the IRS responds.

Are you an employee of the company? If so, ask the people who provide the administration services to your plan.

So, if an employer allows employees to enter the plan immediately on date of hire, would you seriously say that they must complete an election on their hire date in order to allow a full deferral from their first paycheck (which might be actually paid a few weeks later)? Any election made after their hire date would not be early enough to satisfy the IRS? I know it differs from the original post, but I think the same principle applies. added on edit: Look at 1.401(k)-1(a)©(1).

If you are asking about an IRS required amendment, for HEART or otherwise, then only if you submit a Form 5310 will the remedial amendment period continue until the IRS review is over. Otherwise, your RAP ended on the plan termination date.

"Getting paid if quitting is as important as getting paid by demanding." If an employee enters a plan January 1, 2009, gets paid monthly at the end of the month, they sign their first salary deferral election on January 27, 2009 (the payroll cutoff date for January 31st), then does the IRS agent argue that they can only defer on 5 days worth of pay for January? They could have been paid on the 26th if they had quit on the 25th. How do you see this? edited to add: ok - I see KJohnson's reply

I'll see if I can find more information about the nature of the compensation and if it could have been demanded at an earlier time without having to quit to get paid.

Some participants who were eligible to defer into a 401(k) plan made no salary deferral elections until late in the plan year - mid-to-late December. At that time they elected to defer from their end of year bonus/commission (a large percentage of their pay for the year). The IRS auditor stated something like this "Deferral elections must be made prior to the time the employee earned the compensation. Employees A, B and C earned all but a few days worth of their bonus/commission compensation prior to the date the election to defer was signed. Deferring wages to the end of the year does not mean that you had not already earned the compensation. Thus it appears that Employees A, B, and C are not entitled to a deferral or match for the year. The deferrals, matching, and earnings need to be distributed. This will be subject to a closing agreement program..." Any suggestions? I am especially curious as to just what code or reg the IRS auditor may be using to back up their assertion - I assume they must back up their comments with something official, right?

Thanks. Mike, how do your clients generally approach this? If your client's tax year-end is June 30, 2009, and if you set up a brand new plan now with an April 1, 2009 effective date (first PYE 3/31/2010), and you provide a beginning of year valuation so they know their full contribution requirement now - do you have a majority of those clients that will take the deduction of the entire amount on their June 30, 2009 return? Or are they a minority, where the majority prorates?

Suppose a company's tax year ends June 30th. On April 30, 2009, they establish a new DB plan. The plan year ends April 30. The effective date of the plan is July 1, 2008 (a 10-month initial plan year). Thus, we have a valuation on July 1, 2008 and another on May 1, 2009. Both of these plan year beginnings are within the company tax year that ends June 30, 2009. Assume no DC plan. They make full contributions for the July 1, 2008 short plan year and the May 1, 2009 plan year before their tax return is filed for their tax year ending June 30, 2009. Under 404, can they deduct both of these contribution on their June 30, 2009 tax return?

We were just been informed that a client is actually a PEO. They have been for several years (since 2003). Their plan is not in a document that supports a PEO plan (multiple employer plan). Can this be corrected via EPCRS?

A company makes contributions to their profit sharing plan until 2006. They do NOT have a 401k, there are no deferrals, it is profit sharing only. The last year they made a substantial contribution was for 2005. In 2006, 2007, and 2008, they make no contribution to their profit sharing plan. They have forfeitures each year. The plan uses forfeitures to reduce employer contributions. The employer contributes nothing so the forfeitures are therefore allocated each year. So far, $300,000 of forfeitures have been allocated since 12/31/2005. I looked at 411(d)(3) and 1.411(d)-2(d) and IRS Announcement 94-101. 1. Suppose they actually had profits in 2006, 2007, and 2008, but they just did not make a contribution. What must happen now to the amounts that were forfeited in 2006, 2007, and 2008? Would they have to be restored to the plan if they terminate the plan in 2009? 2. Suppose they did NOT have any profits in one or more of the years 2006, 2007, and 2008. Now what happens to the amounts that were forfeited in 2006, 2007, and 2008? Would they have to be restored to the plan if they terminate the plan in 2009? 3. Now suppose they are a non-profit organization. Now what happens to the amounts that were forfeited in 2006, 2007, and 2008? Would they have to be restored to the plan if they terminate the plan in 2009?

I thought it said by April 30. Nothing so far here.

The IRS will likely give you an option to either utilize audit-cap or to have the plan lose is tax-qualified status. Under audit-cap, they would have you submit the currently signed and dated (current date) amendment for a sanction of at least $2,500 if the plan has 20 or less participants (see section 14.04 of Rev. Proc 2008-50 for the fee chart). However, please note that the actual fee quoted above is the fee that applies if the missing amendment was discovered when you submitted to the IRS for a D letter. But, since you say this is for an IRS audit, not under a determination letter request, then I think you would be lucky to get by with a mere $2,500 sanction. If you had submitted for a D letter, then the actual fee might be on sale for only $1,000. But if the sale is over, I think the normal sanction is $2,500 (20 or less ppts). If you don't like audit cap, you could go the route of having have the plan lose is tax-qualified status - no need to explain the cost of doing that.

No. No.

Crystal clear.

Does the IRS need a legal basis for their actions? (e.g. Paul Shultz memo re: 0.5% accrual for 401a26)

I would not think this possible either. You cannot avoid the schedule B requirement by retroactively adopting a plan terminaton date. Have they submitted their plan termination amendments for IRS review (via Form 5310)? If yes, did the IRS say anything about that?

Two ways I know of: 1) When the plan document is submitted to the IRS for a D letter, a statement is attached indicating the plan is electing under 410(d) to be covered under ERISA. Keep the statement with the plan document. 2) When the plan first elects to be subject to ERISA, a statement is attached to its first 5500 (it's the first, because no 5500 was required until the election under 410(d) was made). This statement tells the government that they can expect a Form 5500 each year. Why do this? Well, in order to be eligible for reliance on a determination letter or advisory opinion letter associated with a prototype or volume submitter. The document is therefore probably cheaper. A nonelecting church plan that wants any reliance must submit their plan to the IRS - even if they tried using a prototype or vol sub for their document. Did that make up for the extra annual work needed to file a Form 5500? You tell me.

Good point, usually the 50 count is met, but you're right - you must watch for that. Interestingly, 401(a)(26) still applies to DC plans according to the regs (I think), but not according to the statute (the Code). So we can ignore the regulations in this case.

That should work. Also, consider an employer who is just setting up their first plan (say they have 125 eligibles, 150 total EEs). They can save $5,000 or more in plan costs by having two plans instead of one (it seems un-intuitive at first). They just needed a way to easily identify who is in which plan, then pass coverage and nondiscrimimation. It's also important to pick groups that don't have much change from one plan to the other. The extra start-up cost to have two documents is easily covered by the annual cost savings.