John Feldt ERPA CPC QPA

You may be interested to read this: http://benefitslink.com/boards/index.php?s...st&p=161125

Okay, I think that may work. Thanks!

No, they did not have a signed 8905. Unfortunately, it looks like the JS100 was in place at the time they restated for GUST - it was not an amendment occurring after, so I don't think section 19.03 applies. Or do you think it is vague enough that perhaps it could be applicable? An employer who makes certain amendments to its M&P plan is entitled to remain in the six-year remedial amendment cycle only for the current remedial amendment cycle. This temporary eligibility for the six-year cycle applies if the employer amends an approved M&P plan, including its adoption agreement, to incorporate a type of plan not allowed in the M&P program.

We came a cross a GUST prototype DB plan (small plan, 5 people) where the normal form is a Joint and 100% survivor annuity (life only if not married). In order to do that, the document provider did not complete the Normal Form section of the adoption agreement, since Joint and Survivor was not an option there, but they wrote an extra appendix and added it to the end of the adoption agreement to define the normal form as Joint and 100%. I think this puts the plan in the 5-year cycle. Their EIN ends in 2. They are considering plan termination. Should they restate and submit to VCP since they are a late restater, or are they considered a 'prior adopter' and still eligible for the 6-year restatement cycle? We thought about amending the normal form to Life only and add a fully subsidized J&100, but the other optional forms are affected too. What do you recommend?

Read below, where "form" means the written language. The escape from the document requirement is in Treas. Reg. §1.403(b)-3(b)(3)(iii), and it only lets you out if you are not using retirement income accounts. §1.403(b)-3 Exclusion for contributions to purchase section 403(b) contracts... (b)(3) Plan in form and operation. (i) A contract does not satisfy paragraph (a) of this section unless it is maintained pursuant to a plan. ... "(iii) This paragraph (b)(3) applies to contributions to an annuity contract by a church only if the annuity is part of a retirement income account, as defined in §1.403(b)-9." Does that help?

Are you saying that the 5% allocation in the DC plan for year #1 of the DC plan is sufficient to satisfy Treasury Reg 1.416-1 M-4? The past service in the DB plan includes one year before year #1 of the DC plan. If so, that's the answer I wanted to hear, of course.

An Employer adopts 2 new plans. One is a 401(k) profit sharing plan and the other is a DB plan. Suppose the DB formula provides 0.50% of pay as an accrual (for the non-key EEs of course). In order to use the 50% cushion in the first year, the DB plan includes one year of past service. The plan documents are written in a coordinated fashion such that the top heavy minimum of 5% of pay is provided as an allocation in the DC plan for anyone who is in both plans. Under Treasury Reg 1.416-1 M-4, a year of service for top heavy minimum accrual purposes is to be credited in a manner that is consistent with the plan's definition of service for benefit accruals under the regular plan formula. How is that rule satisified? Must the DB plan provide a 2% minimum accrual for the past service portion of the plan?

If the sponsor is truly a church, then they are exempt from the nondiscrimination rules. They can cover anyone they choose, as long as the document is drafted properly to keep them exempt from these rules. If the church sets up a 403(b) plan, and they only allow investments in mutual funds and/or annuities, then they are also exempt from the written plan requirement.

Tom, I just read this today, sorry to dig up an old post. With your last statement, were you saying that if an employee in an ERISA 403(b) plan becomes eligible to defer, but then after some years, their schedule changes so their work hours can no longer be expected to be 20 hours per week (and they then actually work under 1000 hours in the year), that they can now be excluded from deferral eligibility? If we look at (b)(4)(ii)(E) it has an 'and' in the middle, so both have to be true. (1) says the employee starts out with a schedule that expects under 1000 hours. (2) says for EACH plan year thereafter, the employee works under 1000 hours. Not just for some years, but all of them. So, to exclude someone for deferrals purposes after they become eligible in an earlier year, what section are you applying to justify the exclusion? I am stuck in a maze of twisty little passages - please help! edit: typo

Unless your document has a requirement in it, the procedure and the timing for how often deferrals may be changed is normally administrative (meaning it does not have to be in the document).

Would the MP plan be required to add gateway language? I know the gateway amount itself is satisfied, I want to make sure the form of the plan is also handled. Since the MP plan requires 1,000 hours, I think the gateway language needs to be added?

We found a prospect with a money purchase plan (10% of pay). They want to add a DB plan, provide large HCE benefits and small NHCE benefits in the DB by cross-testing the DB with the money purchase plan to pass 401(a)(4). We've only used volume submitter cross-tested Profit Sharing plans with gateway language for this thus far. Is it allowable to use a money purchase plan for this? If so, is extra plan language needed to allow it (such as gateway language)?

Thanks John!

Is the annual amount typically determined as a % of the plan's assets or is it somehow based on life expectancy? The amount that is considered under constructive receipt will be determined under the terms of the 457(b) plan language. For example, suppose the document states something like "unless the participant makes an irrevocable written election to delay their distribution within 6 months following the date they separate from service with the Employer, the benefit is fully payable as a lump sum amount upon expiration of such 6-month period" - this example would have the entire amount taxable after six months following separation (unless the participant otherwise elects to delay). One other question: like QRP's, are annual contributions to a NP 457(b) subject to employment tax (FICA)? If the employer is subject to FICA on the wages paid to employees, then yes, any amount contributed/paid into the 457(b) plan is also subject to FICA at the time 'contributed' to the plan (regardless of whether it was an employee salary deferral election or a straight employer contribution).

1. Are these plans exempt from Sec.409(A)? Yes. 2. Must the plan document specify what constitutes 'Substantial Risk of Forfeiture' once the EE separates from service, or do the assets simply sit in the account awaiting a request for distribution from the former EE? Mostly no, I think, if I understand the question. After the employee terminates, in a governmental 457(b) plan, the assets sit in a trust waiting for a distribution event (like age 70.5) or for a signed set of distribution forms. A 457(b) sponsored by a tax-exempt entity is much different - the assets are employer assets, not in a trust, and the plan defines when "constructive receipt" occurs and what the employee must do, and when, in order to delay that constructive receipt. 3. Are account balances subject to Minimum Required Distributions at 70.5? Yes. 4. If so, can these MRD's be delayed while the EE or contractor continues to work for the ER? Yes. 5. May the plan allow for 'unforeseen' hardship in-service withdrawals? Yes, sort of. It's referred to as "unforeseeable emergency", so the reasons are not the same as hardship. It includes sudden and unexpected illness of participant, spouse, or dependent, & now under PPA: beneficiary; loss of property due to casualty; other similar extraordinary / unforeseeable emergency outside participant’s control - that might include eviction / foreclosure, likely includes funeral expenses, but I think it would not include home purchase or tuition. 6. If so, would there be a 10% premature withdrawal penalty if the EE is <59.5? No. 457(b) distributions are not subject to the 10% penalty. If a non-457(b) amount was rolled into a gov 457(b), and that amount was from a plan where the 10% penalty would normally apply, then when that rollover later gets paid out of the 457(b), then it will still be subject to the 10% penalty rules (a rollover into the 457(b) cannot get you out of the 10% penalty rule). 7. May the plan allow for loans? Yes and No. A govermental 457(b) plan may, but a tax-exempt sponsored 457(b) plan cannot.

Did the doctor own more than 50% of his practice? If he was a 50% owner or less, then the 415 limits are not aggregated. He is considered a 100% owner of his 403(b) for 415 limit purposes.

For example, the SunGard PPD documents require the EGTRRA restatement date to go back as far as 1-1-2002. However, the SunGard Corbel documents have the retroactive effective dates already hard-coded regardless of your 'restatement' date overall, so those documents can have a restatement effective date that is a 'current' date.

You have a prototype that avoids ERISA, or do you have them apply those rules to their plan anyway? We are submitting a Native American tribal government 401(k) plan next month for a D letter - cycle C.

Aw. If you could bill some pre-2014 restatement fee quarterly or annually, ahead of the next six year restatement cycle, perhaps you could justify more staff during the entire 6-year period due to the increased revenue... That might help to level out the revenue and the costs? During the off cycle they'll do DB restatements, SPD updates required every 5 years under ERISA 104(b), and then prepare for the next restatement cycle. Of course, the time machine would be grreat!

Okay, I'm just pointing out that an amendment to freeze the DB plan does not really stop TH accruals if the terms of the plan(s) still require them to be provided due to the two plan (DB/DC) language issue, so please follow the terms of the plan and be careful to amend the DC plan too when you need to. Two, too, to, as well.

If the DB is part of a two plan combination and the plans state that the top heavy minimum is provided in the DB plan, then you probably still have a problem until something is done to change the language regarding which plan provides a TH minimum.

If you do have such a machine, of course please share with the rest of us. I'd like some extra time to restate about 850 DC plans by 4/30/2010, and it would be nice to have a little extra time to finish up about a dozen remaining 403(b) documents by 12/31/2008.

Or if later, within a reasonable time period after the Form 5310 application receives its favorable determination letter (which may take a year or more just to get that letter sometimes) - assuming the 5310 application was filed within a year of the plan termination date.

The date of plan termination is generally the last date you need to look at for law changes that need to be considered for amendments to the plan (although a rare exception could apply). I would not be concerned about trying to add language to a plan for law changes that occur AFTER the date of plan termination, even if the law has a retroactive effect. Just my opinion.

Yes, sorry Mike, the previous post should have read: The 402(g) excess is not ignored for runnning ADP testing, but it should be considered when the refunds are determined due to the failed ADP. Agree? If so, then (assuming this is the only HCE) a full deferral into Stone was okay and a full refund from Glass is okay.