John Feldt ERPA CPC QPA

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.

But since you are required to be SH for the entire next 12-month plan year, after the short year, you have now committed SH for another 12 more months (albeit maybe as a SH match or as a NEC for NHCEs only). If the Employer can't afford 3% now, it is unlikely that they would want to commit to 12 more months starting from now (instead of just terminating) even with those slight changes to who gets the SH.

DC plans: 1/2/1997 DB plans: 1/3/1996 From the 8717 instructions: Exemption from User Fee The exemption from the user fee applies to all eligible employers (defined below) who request a determination letter within the first five plan years or, if later, the end of the remedial amendment period that begins within the first five plan years with respect to a plan. Undersection 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), an application for a defined contribution plan from an eligible employer for a plan that was first effective on or after January 2, 1997, will automatically meet this requirement. An application for a defined benefit plan from an eligible employer for a plan that was first effective on or after January 3, 1996, will automatically meet this requirement. See Notice 2002-1, 2002-1 C.B. 283 as amplified by Notice 2003-49, 2003-2 C.B. 294.

Qualified plan, calendar year profit sharing plan. Intends to contribute their profit sharing for 12/31/2008 (by April 15, 2009). Intends to make no further contributions. Has not yet signed a resolution to terminate (nor have they adopted all amendments that would be required to update the plan as of a current plan termination date). Let's assume they adopt a resolution to terminate now (say the plan termination date gets set as April 15, 2009) and they also adopt an amendment to update the plan for all of the recent laws/regulations (HEART, WRERA, etc). Also assume the contribution made on April 15, 2009 is the last contribution, it is allocated in 2008 and no contributions are made or allocated in 2009. Can they now adopt a SIMPLE for 2009?

Maybe this is clearer, could a plan define it as the rate of interest on long-term investment grade corporate bonds (as described in Code Section 412(b)(5)(B)(ii)(II), such code section as it existed prior to amendment by the Pension Protection Act of 2006) determined as of the first day of the Plan Year for which the Interest Credit shall be applied? If it's a calendar year plan, would that be the January rate, or December's?

If the allocation is 'each in their own class' then can the plan actually integrate at a $50,000 level though? The plan can impute disparity, but I thought that required the use of the full taxable wage base. If the plan document does not spell out a taxable wage base of $50,000, then I don't know how that integration level can apply. But if it could, without having it written into the plan, then I would like to know how that is done.

If a new calendar year cash balance plan is established with a 1-1-2009 effective date, can the crediting rate for the cash balance accounts (not the funding rate), use a rate in effect at the beginning of the plan year (such as a rate for the month of January), or must the plan have a 1 month (or more) lookback to get the crediting rate (such as December's rate, or August's rate)?

Clearly. Thanks.

Beginning of year valuation method. Calendar year plan. New plan 1-1-2009 (small: 60 employees). Accruals are based on plan years with 1000 hours of service, but excludes any years of service earned before the plan year that includes the participant's date of entry. As of the 1-1-2009 actuarial valuation date, a half-dozen ineligible employees (all with 1000 hours in 2008) have not yet reached their plan entry dates. Since they were hired early in 2008, the entry dates would be in 2009, such as 2-1-09, 3-1-09, etc. The enrolled actuary would like to include that half-dozen group of employees in the 1-1-2009 valulation for plan contribution purposes, making this an ongoing actuarial assumption. Another enrolled actuary has stated that this is not allowable. Comments?

Yep - thanks for confirming. The 401(k) answer book has it wrong in question 18:54 (I have an on-line version). edited to add: However, question 9:18 has it right.

What about an excess deferral and the April 15 deadline. Taxed in which year and what about the gap period earnings?

http://benefitslink.com/boards/index.php?s...st&p=161125

My misunderstanding. De minimus is not defined, but many practitioners believe that 3% or less is de minimus. However, be careful about this. I'll post a link to another thread where that was discussed.

Also, I would not hold your breath waiting for the IRS 403(b) prototype program to open. It is unlikely that any IRS-approved prototype documents will exist before the end of this year (2009). The IRS spent two years reviewing the EGTRRA DC plans that were submitted before issuing final approvals. That's blazing speed on a geologic time scale.