John Feldt ERPA CPC QPA

Look at §1.403(b)-3(b)(3)(iii). Churches are exempt from the written plan requirement under the Final Regulations as long as they do not have retirement income accounts.

Watch out for the HCE matching rate. You can't have an HCE eligible for a greater matching rate than NHCEs would be eligible for. §1.401(m)-3(d)(4) Limitation on rate of match. --A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation. An employee is taken into account for purposes of this paragraph (d)(4) if the employee is an eligible employee under the cash or deferred arrangement with respect to which the contributions required by paragraph (b) or © of this section are being made for a plan year. A plan will not fail to satisfy this paragraph (d)(4) merely because the plan provides that matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that matching contributions with respect to any elective deferrals or employee contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter. (5) HCEs participating in multiple plans. --The rules of section 401(m)(2)(B) and §1.401(m)-2(a)(3)(ii) apply for purposes of determining the rate of matching contributions under paragraph (d)(4) of this section. However, a plan will not fail to satisfy the safe harbor matching contribution requirements of this section merely because an HCE participates during the plan year in more than one plan that provides for matching contributions, provided that -- (i) The HCE is not simultaneously an eligible employee under two plans that provide for matching contributions maintained by an employer for a plan year; and (ii) The period used to determine compensation for purposes of determining matching contributions under each such plan is limited to periods when the HCE participated in the plan.

And, if that is true, a further result could be that their restatement deadline is different (5-year cycle instead of 6-year cycle).

Thanks Mike. Any thoughts on this: For an underfunded non-PBGC plan, are you indicating that perhaps the accrued benefit itself should be ignored completely and a fully uniform formula be used for all benefit accrual years (is that your more conservative approach to smooth over any prior years where the formula was amended)? It would appear to avoid problems with 1.401(a)(4)-5(b)(2).

From the PBGC website: Sec. 4041.2 Definitions. ... Majority owner means, with respect to a contributing sponsor of a single-employer plan, an individual who owns, directly or indirectly, 50 percent or more (taking into account the constructive ownership rules of section 414(b) and © of the Code) of-- (1) An unincorporated trade or business; (2) The capital interest or the profits interest in a partnership; or (3) Either the voting stock of a corporation or the value of all of the stock of a corporation. After reviewing the above, I recommend a reading of section B (entitled 'Schedule EAS') of the PBGC Standard Termination filing instructions, where it says "Special Rule for Majority Owners" I'd be happy with 10% instead of 50%, but the PBGC hasn't given our clients any favors like that so far. How did you do the termination filing, standard termination (sufficient) or distress or otherwise? If you did a standard filing, there must be some agreement to make the plan sufficient for the filing to be valid, I think.

Right, we have always used the non-integrated portion of the accrued benefit to allocate excess assets. For an underfunded non-PBGC plan, are you indicating that perhaps the accrued benefit itself should be ignored completely and a fully uniform formula be used for all benefit accrual years (is that your more conservative approach to smooth over any prior years where the formula was amended)? It would appear to avoid problems with 1.401(a)(4)-5(b)(2).

So an underfunded non-PBGC plan could, upon termination, cut back everyone's accrued benefits (down to the extent funded), as long as the cutback "allocation" is done in some non-discriminatory fashion. Would the resolution to terminate need to spell that method out? Could it just allocate assets proportionally using plan termination lump sum PVABs, or could that be a problem too?

Generally, it's majority owners (50% or more ownership).

In January 2008, at the Los Angeles Benefits Conference, it was noted that while there may be ways to legally accomplish such a design, the arrangements are also showing up on the IRS radar as possible abusive tax avoidance schemes. The IRS has not officially declared them to be abusive tax avoidance transactions at this time, however. http://benefitslink.com/boards/index.php?s...24&hl=ERSOP They should get competent counsel to do the transaction right. The plan should probably have some employer contributions in order to really be considered a plan and not just a conduit for rollovers. The end-game distribution aspects should be considered before the plan is set up: ordinary income tax instead of capital gains tax (the basis was zero). That's just a start.

If the non-profit wants to provide benefits primarily to upper management and HCEs, then a 457(b) plan could work. If they file a letter with the DOL when the plan is established, notifying the DOL of the existence of the plan, then no 5500 filing would be required (unless the laws/rules get changed). Be careful - a 457(b) plan document for a non-profit company should have much different provisions than what you would see in a document for a 457(b) of a government employer. I can't speak as to the 457(f) side of your question.

It depends on his ownership percentage of his practice. If he owns more than 50%, he is a majority owner, and the 415 limit is aggregated. If he has a business partner, thus owning only 50% or less of his practice, then the 415 limits are separate. The employee controls his own 403(b), so he's the 100% owner of that piece of the pie, making the control occur when more than 50% ownership exists in another practice.

Thanks Tom, that is extremely valuable info to know.

... he said foolishly...

Hmmmm. If the result you provide is truly correct, then with a contribution of $11,400, then the entire account should now have lost $12,255 and it's overall balance must be about -$855. Is the calculator an HP 128c with Reverse Polish Notation (RPN)? edit: typo!

Ignore the other $11,000 and it's earnings, it's not getting refunded. You're saying that the $400 excess amount, all by itself, has gone down by $430; the earnings/losses on just the $400 excess has turned it into -$30? ??? edit: for a typo

http://www.icmarc.org/xp/rc/about/news/200...330roth457.html I think the Bill still will need to be reconciled in conference committee before it can go up the hill.

It looks they they still apply. I just did a review and it did not appear to have an expiration date. Maybe hat size is better.

Not official code/regs, but under section III: http://library.findlaw.com/1996/Nov/1/127234.html Also, about the 7th or so paragraph down in this artcle: http://www.thefreelibrary.com/401(k)+plans...gain-a019224823 "Unfortunately, after the enactment of the Tax Reform Act of 1986, most associations and other private nonprofit organizations were precluded from offering 401(k) plans to employees. Only tax-exempt organizations that offered these plans before July 2, 1986, could continue to sponsor them. Now that's all changed. After a 10-year battle by ASAE and its partners in the nonprofit community, 401(k) plans are once again available to associations, other private nonprofit organizations, and their employees. Provisions in the Small Business Job Protection Act of 1996, enacted August 20, 1996, allow associations and other nonprofit organizations to offer 401(k) plans beginning generally on or after January 1, 1997."

Do those temporary regs still apply? If so, thanks!

True. You cannot have a 403(b) plan, but a 401(k) plan is good to go. This did change a while back. Before January 1, 1997, you would not have been able to adopt either a 401(k) plan nor a 403(b) plan, but after 1996, the doors were open for you for a 401(k). I think this was in the Small Business Job Protection Act of 1996.

All.

Here's how the IRS might answer: You define the 2 1/2 months by measuring it from the day the participant severs to a date that is 2 1/2 months later. I'm doubting that helped. This is only important for employees that terminate less than 2 1/2 months before the end of the plan year, because the regulations allow you to go to the later of the end of the plan year or 2 1/2 months after severance. I'd argue that a half month is 15 days: Terminates November 20, 2007: 2 1/2 months = February 4, 2008? Terminates December 20, 2007: 2 1/2 months = March 6, 2008? Perhaps if the final 1/2 month is entirely in February during a non-leap year, the IRS might argue that it's only 14 days. Only the oracle knows.

I agree that just having access to it is not enough. I said I would post the cite for the profile, but the Fiduciary Guidance Counsel member found it for us while I was out. The plan must provide the participant with a copy of the most recent prospectus under DOL Reg. §2550.404c-1(b)(2)(i)(B)(1)(viii). However, I believe that a copy of a “profile” would suffice in lieu of a prospectus unless the participant specifically requests the prospectus itself, per DOL Advisory Opinion 2003-11A. Just my opinion. Also, IMHO, just because the court need not defer to it, that does not mean the court can easily ignore it. Maybe someday we'll see if a court case is found that hinges on this item, and where the court decides to ignore DOL Advisory Opinion 2003-11A. edit: typo

The way the code or regulations are written, the adoption of a qualified plan invalidates the simple plan.

Basically, the 401(a)(31)(B) amendment (a.k.a. automatic rollover amendment, or mandatory distributon amendment) was generally required to be adopted at the end of 2005, or the due date of the company tax return including any extension that contained the plan year containing March 28, 2005 (something like that). However, if your plan did not have any language that forced out distributions, then you would not need such an amendment (we had a couple of DB plans that did not pay any small lump sums, for example). If that is not your situation and if the amendment has just now been executed (signed), then it is late, and you can file under EPCRS for a mere IRS fee of $375.