John Feldt ERPA CPC QPA

A client (about a hundred employees) wants to allow participants to defer into the plan earlier. This affects no HCEs and does not affect any testing (the employer contributions do not need 401(a)(4) testing due to the design). The plan is not even close to top heavy. However, the plan is a calendar year safe harbor plan. Currently the eligibility for deferrals and matching are the same (one year, age 21, semi-annual entry). Starting September 1, they want to allow recent hires to defer after 6 months, age 21 with monthly entry dates for deferrals with no changes to the eligibility requirements for safe harbor contributions. They currently foresee no HCEs ever being in this early group, so the "Otherwise Excludable" rule makes that group okay (as far as I can tell). I know the IRS received comments regarding the types of changes (amendments) that should be alright to do mid-year for a safe harbor plan. Any problems with doing the above? Any grapevine comments from the IRS about allowable mid-year SH plan amendments?

W-4P?

PPA indicates amendments are not required until the end of the 2009 plan year, or the last day of 2011 for a government plan. The IRS hasn't issued guidance related to 457(b) plans since the time they released the final 457(b) regulations. Without any additional guidance, I'd recommend at least the 2009/2011 deadlines.

The Pension Protection Act of 2006 (and other changes in law). Some of these provisions are optional, some are not. 1. Any 457(b): Change in definition of unforeseeable emergency, deferring from post-termination pay, QDRO 2. Gov 457(b): Direct rollover to Roth, 402(f) notice timing changes to 180 days, direct rollover for non-spouse beneficiary, health and long-term care distributions, hurricane relief.

Interesting. So are you saying that an Employer who wants to add automatic enrollment, does not need State law preemption, but does not want safe harbor (QACA), and does not want to apply automatic enrollment to all participants (just to new ones, thus non-uniform), is not able to do just that (have automatic enrollment in the old fashioned sense, ACA)?

EACA requires uniformity. Making it apply to only new participants would not be uniform. ACA does not require uniformity, but then you do not have the June 30th ADP/ACP test refund deadline (March 15 instead) and you do not have a 90 day refund option (I think).

They must receive the gateway if they are getting any employer allocation. By 40% in the DB plan, if you mean the HCE rate is 40%, then of course 7.5% is correct. Under 1.401(a)(4)-9(b)(2)(v)(D)(1), depending on the age of your HCE, their compensation, and the benefit accrual, it is possible to have a gateway that is less than 7.50%.

I am more troubled by the "age change operation".

Yes, if your plan document allows and it is clearly written to handle it in that fashion.

If the DB plan is subject to PBGC and you're looking at a plan year starting on or after 1-1-2008, then there is no limit. Otherwise, you can ignore the first 6% of pay contribution of employer money to the DC (you can also ignore deferrals). That should get you another 16% of pay contribution to still be within 404(a)(7).

Or the 415 limit.

Also, if you are not going to the IRS, be sure to have the applicable HEART Act language adopted too - it was passed June 17, 2008 and it looks to me like some of that applies now to all qualified plans.

I think efforts must be taken to amend the plan for all required law changes before the date of plan termination. After the plan is submitted to the IRS, the IRS reviewer can require additional amendments as they see fit in order to bring the plan language to meet their requirements. If the plan is not submitted to the IRS, there is no further amending possible after the date of plan termination. I think any amendments taken (other than those dictated by the IRS reviewer of the Form 5310) would negate the plan termination date itself, thus reopening the plan. I could be wrong, but that's my take anyway.

I suppose I implied that by the title and by placing the initial question in the DB plan message board.

From the Fiduciary Answer Book, it looks like the insurance company is the fiduciary to that plan asset. Perhaps that is related to their decision to no longer offer that type of investment anymore. Thanks for the info!

This one is a very old plan. They were investing the plan money in a "deposit account" contract with the insurance company. Last fall the insurance company stated that they were no longer going to offer that type of investment product. The insurance company also provided the plan its GUST plan document, which contains no trust provisions and yes, they cited ERISA Section 403(b)(1) when asked. The company's attorney said that the Employer cannot be the trustee because state law prohibits a corporation from acting as trustee of a trust.

More than the GUST restatement fee.

We are taking over a DB plan and they claim that they have no trustees (it's true their plan document has no trust provisions). This is not a 412(i) plan. They are a normal for-profit C-Corp. All of their plan assets are invested with an insurance company. They state that because of this, they are not required to have trustees. They say then that they don't want to name a trustee because of the fiduciary liability that would then be placed upon that individual. Is it possible for a qualified defined benefit plan to not have a trust and thus not have trustees? Don't they already have fiduciary liability anyway, even if they appear to not have a named trustee?

Not a requirement, but if matching contributions are contributed on a payroll-by-payroll basis, then it's easier to use a match forfeiture to offset a match made in the following year, rather than in the same year the forfeiture occurs. Whereas, if the same plan provides a nonelective contribution (contributed annually after the year end), then a forfeiture used to offset the nonelective for the same year in which the forfeiture occurs does not have the same logistic problem that the match would. Note: if you use PPD, they will fix the problem in their next release (a software glitch does not allow the forfeiture to be split like that).

So a participant who is having amounts withheld for the 125 plan should have those stopped for 6 months too? (question assumes safe harbor hardship)

Church 403(b) plans are not subject to the universal availability requirement.

Thus, a suggestion should appear now to have both a fixed match and a discretionary match. Limit the discretionary match to deferrals not exceeding 6% of pay and limit the discretionary match overall to 4% of pay (but have no allocation conditions). Then back into the fixed match formula based on the compensation of the HCE, limiting the fixed match to be based on deferrals that are not over 6% of pay, but the overall fixed match is not limited like the discretionary match (also no allocation conditions). You can apply a vesting schedule on the fixed an discretionary match (the SH match is already 100% vested). This means those deferring zero will get zero employer dollars with no top heavy contribution required either (as long as you took care of the plan language for the forfeitures properly too).

okay, so then we are back to merely "potential trubble"

Does this mean if the IRS reviews a case where an HCE (age 60 to 65, owner or not) gets 1% of pay allocation, and the other owner (age 50 - 55) gets 13.26% of pay allocation, and the nonhighly group gets 5% each, and it passes 401(a)(4) that IRS could refer the above case to some other gov agency regarding an ADEA violation?

Our cafeteria charges $1.00 for each 20 oz. bottle of pop. -Sorry, I couldn't resist!