John Feldt ERPA CPC QPA

Yep, you got that right!

Jay, Something I read many months ago had made me believe that we couldn't be that aggressive until the technical corrections bill gets passed, but I can no longer find that reference. Perhaps it was a verbal comment from a conference.

Okay, let's post the cite: 404(o)(3)(A) IN GENERAL. The cushion amount for any plan year is the sum of (i) 50 percent of the funding target for the plan year, and (ii) the amount by which the funding target for the plan year would increase if the plan were to take into account (I) increases in compensation which are expected to occur in succeeding plan years, or (II) if the plan does not base benefits for service to date on compensation, increases in benefits which are expected to occur in succeeding plan years (determined on the basis of the average annual increase in benefits over the 6 immediately preceding plan years). 404(o)(3)(B) LIMITATIONS. (i) IN GENERAL. In making the computation under subparagraph (A)(ii), the plan's actuary shall assume that the limitations under subsection (l) and section 415(b) shall apply. (ii) EXPECTED INCREASES. --In the case of a plan year during which a plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, the plan's actuary may, notwithstanding subsection (l), take into account increases in the limitations which are expected to occur in succeeding plan years. subsection (l) is 404(l), the compensation limitation. Okay, so an accrual of 1/10 of the DB 415 dollar limit in year one could provide a first year party due to the contribution to be made, but only wake up with a hangover in year #2, right? Drive safe though (we don't want any death benefit problems). Thanks Andy and Jay - when looking this through, I would agree and although it seems rare it is certainly possible for the right client (one who is okay with the hangover and the death benefit issue).

As long as there was not a DB plan in place for at least 2 years prior, then a new plan is not considered an amendment. If the HCEs are accruing near the 415 limit, you are not able to go with a 50% cushion beyond their 415 limits (at least that's my opinion).

Depends on whether or not that person is an HCE or NHCE. If they are HCE, then including them is great! If NHCE, then bummer. Very conservative approach would include as a zero if NHCE and exclude from the test if HCE.

Find another broker who will find an annuity company that will do that type of annuity (expect a high cost and prepare the client who pays you also, for that cost)?

Although I don't like tracking SMMs, sometimes the client wants to point out to the employees exactly what is being changed. Handing out an entire SPD would somewhat bury the changes with all of the rest of the plan. Of course, other clients waht to de-emphasize any changes, so a full SPD is exactly what they want.

How about exceeding the 415 limit? profit sharing of 46,000 and a deferral of $5,000.

All of our DB plans were BOY vals to begin with and we switch to BOY for any EOYs that we take over. OY!

Just fyi, you are probably aware that the interest crediting rate changes upon plan termination of a cash balance plan under the PPA rules. I believe it switches to some average rate from the previous years and stays fixed until everyone is paid.

Good answers. Obviously, it is very important to understand these nuances before embarking upon the design of the plan. If a consultant (or sales person) brings in a safe harbor 401(k) design that excludes something like bonuses, commissions, or overtime, they may not completely realize the possibility of the failure and its impact. Before the document is drafted, a discussion should occur regarding the possibility of a future failure of the 414(s) test. Plus, if the plan is also cross-tested and needa the 5% for gateway, then those exclusions cannot be used for determining that 5% gateway anyway. Way.

Thanks ERISAnut, I especially like the plan termination scenario thinking. The reason I think this may be an operational error is because the plan language dictates the amount that the employer will contribute. It does not say it will be "at least" this amount. It states the contribution for the plan year will be equal to ... etc. Are you indicating that a contribution of about twice the amount required by the terms of the plan would not be an operational error - would it be any problem/error at all (assuming no 404 or 415 problem)? GBurns: I think that was exactly what happened, then they changed thei mind on where they wanted the money to go, since they wanted to adopt a 401(k) plan.

A non-Profit client with a calendar year Money Purchase Plan contributes $1,000,000 during the first 6 months of the 2007 year to fund most of the 2007 expected contribution. But, then they provide a 204(h) notice and execute an amendment to freeze the plan June 30, 2007. We find out about the $1,000,000 being in the plan just recently. The allocation conditions are 1000 hours only, no last day. So a bunch of people are eligible for allocations, but only about $450,000 worth. That leaves us with a $550,000 problem. They are nonprofit, so I have no 404 problem. This is not a 415 limit issue either. This appears to me that it is an operational error. They want to take the extra money out of the plan and put it into a new 401(k). We have told them that without going through EPCRS, we see no way that could be acceptable under the terms of the plan. Q1. Could they take the money out of the plan somehow and use it in another plan? Q2. Could they adopt a retroactve amendment, retro to 7/1/07 and only effective through 12/31/2007, to adopt a formula that is X% from 7-1-07 to 12-31-2007 and 0% thereafter? Or would the 204(h) notice requirement be violated by not giving it 15 or 45 days before 12/31/2007 (when the newly adopted formula is zero again)? Could one argue that the formula is currently zero, so no 204(h) notice would be needed to adopt a 6-month formula of X% with 0% thereafter (I think I am reaching for straws). Q3. I am really stuck, what would you suggest to this plan sponsor?

I'm curious. I wonder what those folks at the NSA are thinking when they read this thread. I'm sure they are (or will). Or would it be the secret service that reads this?

#1. Lack of reverence to God (commandment #1) I'll stop with just one.

http://www.icmarc.com/xp/rc/plansponsor/re...h457update.html

Okay, so what's the difference between 'legally' separated and just plain separated? What constitutes legal separation? If you are not 'legally' separated, are you acting illegally? I can think of an example, like North Carolina, where I believe you cannot actually divorce until you've had legal separation for 12 months, but is that what this means?

Bird, are you indicating that you've had some successful audit result for times when the IRS audits your terminated plans, even though those plans did not submit a form 5310?

I'll rephrase your scenario, as I imagine the terms of the plan you have described. I've emphasized the terms of the plan that must already exist for the plan to be operating in compliance: Suppose the plan document allows for immediate payment, specifying payout will be made within 60 days of the end of the plan year during which the distribution triggering event occurs. The plan has been paying out during the year, in response to each triggering event. You ask: Can the plan simply stop that practice and begin distributing out during those 60 days following the end of the plan year or would that de facto amend the plan beyond the latitude permitted by IRC § 1.411(d)-4, Q&A-2(b)(2)(ix)? I'd say no, that's not going to work.

§1.411(d)-4, Q&A-2(b)(2)(ix): De minimis change in the timing of an optional form of benefit. A plan may be amended to modify an optional form of benefit by changing the timing of the availability of such optional form if, after the change, the optional form is available at a time that is within two months of the time such optional form was available before the amendment. To the extent the optional form of benefit is available prior to termination of employment, six months may be substituted for two months in the prior sentence. Thus, for example, a plan that makes in-service distributions available to employees once every month may be amended to make such in-service distributions available only once every six months. This exception to section 411(d)(6) relates only to the timing of the availability of the optional form of benefit. Other aspects of an optional form of benefit may not be modified and the value of such optional form may not be reduced merely because of an amendment permitted by this exception.

If you want to track two sets of account balances for each current participant, then you could have the old grandfathered immediate distribution accounts, and then all new money going in could be held until some later date. I've seen that done before. Ugly, but possible.

How about the Pension Protection Act amendments? Also, the HEART act was passed in June 2008. There is a death benefit requirement in there, at a minimum. Was the plan amended for the Final 415 Regulations? The 411 age 62 in-service issue - does it affect the plan? If so, you may need an amendment there too.

Even if it is a nonelecting church plan, you'll still have to pass the pre-ERISA 'participation' rules at a minimum.

Even if you received a written authorization to change the payee, I'm sure the plan does not allow the payee to be changed, except for QDROs, legal name changes, and upon death. The mailing address is a different issue. Procedures for changing an address to mail the check are usually not in the plan document, but are up to the plan administrator. If you want a signed statement from the participant (or from their power of attorney designated to have power over pensiopn payments), then that should work. But that's not going to change the payee's name.

Kevin has it. If you have an employee participating in the plan who is also a beneficiary of a deceased participant (thus they have two benefits in the plan), then we have always counted that as 2 participants for the Form 5500. If an employee dies and leaves their account to 5 beneficiaries, and the beneficiaries' separate benefits or accounts are all in the plan, then we have always counted that as 1 participant, not 5.