John Feldt ERPA CPC QPA

Attend a Sungard plan design conference. Then, if you're DB savvy, attend a Larry Deutsch symposium.

Under 403(b)(1)© full vesting is required, but don't stop there. Any amount that is not vested is therefore not subject to 403(b) and are thus subject to code section 83. Then, once the funds become vested, they become subject to 403(b) if separate accounting is done, the account complied with all of the 403(b) rules, if the employee hasn't made a code section 83(b) tax election, and if the plan hasn't terminated.

If a participant makes a deferral election and has the right to direct the investment but does not choose an investment, then the trustee/fiduciary has the money placed into a default fund. In order for that trustee/fiduciary to have 404©(5) protection regarding that default fund, the fund must be a QDIA and the QDIA notice is required.

Do you offer the 401(k) participants investment direction?

The (former) client stated that they decided they didn't want that plan and certainly didn't execute it. edited:typo

We have a former client with under 10 employees (some HCE, some NHCE), who a adopted a DB plan in December 2004. I've seen the original signed documents. They left us in March 2005, or thereabout. They now have come to us like a prospect and they want to know if we'll help them set up a new DB plan, claiming they never adopted one in the past. I can think of no possible way, ethically, that we can ignore the prior plan and agree to take this on this as a client. Comments?

I agree, but for me it's regarding the Midwest, and only 19 years. In the past few hundred small plan combos, I've only seen that a couple times.

I believe so. They would argue that the fiduciary was not prudent in their selection of the investment. I think the difficulty would be to determine the amount that the participant is now able to "recover" if they were to win the suit.

We did our calendar year Safe Harbor plans by 12/31/2007. The rest we plan to do by December 31, 2008.

Bird is correct - did they make a written election to defer by December 31 (such as 10% of my net income, or the lesser of my net income or $15,500)? If no deferral election was made, then I agree that it is too late to do so now for 2007.

Yes, of course! Thanks for that! I had not interpreted the old regs (1980 etc) that way. I now agree, that these final regs will only change the 80% with 50% when it is parent-sub, not brother-sister. -Thanks!

Yes, as long as both the 80% common and 50% identical tests for ownership are met (using 5 or fewer owners).

You will enjoy the book and find it fascinating. If you're a Harry Potter reader, "Who's the Employer" is far beyond Potter (well, uh, it is to geeks like me anyway).

That was too short an answer for me. So here goes: Terminating a plan is an important decision to make. During the life of a qualified plan, the plan has enjoyed the benefits of tax-free earnings and tax-deductible contributions. These have been allowed by complying with the qualification requirements imposed by the Internal Revenue Code. Thus, in order to keep the IRS happy, the plan has been required to maintain compliance both in operation and in form. That means two things: the plan must operate in accordance with the terms of its written plan document and under any requirements under the law and guidance, and the plan must have a written document which is qualified (meaning its language meets IRS approval). Of course, the above two items are only at risk if the plan is examined by the IRS. Item number 2 can have its risk eliminated by having the IRS approve the plan’s language. If the plan gets such approval and has also operated by that plan language, then the whole plan’s risk is virtually eliminated. That approval would be in the form of a favorable IRS Determination letter. So, how do plan documents get that favorable letter? Under a prototype, the IRS provides a determination letter (or a letter of reliance for a volume submitter) which approves the document's language. The last time the IRS provided prototype document approval was generally in 2002 for the GUST prototype documents. Plan language changes have been required by law since that time, such as amendments for: EGTRRA (generaly due in 2002) Minimum Distributions, or Post-EGTRRA (generally due in 2003) Mandatory Distributions (generally due with the company 2005 tax return deadline) Final 401(k)/401(m) Regulations (generally due with the company 2006 tax return deadline) PPA 2006 (generally due in 2009) Final 415 Regulations (generally due in 2007 / 2008) Final Roth Regulations (generally due in 2007 / 2008) And so on… Most of the above amendments are not IRS-approved model amendments (meaning the IRS did not issue model language). Therefore, the only sure method to guarantee that it meets the IRS's qualification requirements upon plan termination is to submit a favorable determination letter request using IRS Form 5310. If you elect not to request an IRS review of the plan’s language, you may need to agree to hold your document provider harmless from any errors or deficiencies that could have been corrected if the plan were to request and obtain a determination letter when the plan terminated. When the IRS reviews the Form 5310, the normal result is a favorable determination letter (an IRS stamp of approval for the plan’s language). Sometimes during the review they indicate where language changes are necessary, and this can vary by plan type and by IRS region. These required changes are allowed after the plan termination date only because the plan submitted under Form 5310. Plans terminating right now should have already have done the amendments for the first 4 amendments listed above (EGTRRA through the Final 401(k)/401(m) Regulations). That language is under good faith compliance for now and will all be wrapped into the next prototype (or volume submitter) plan document, thereby giving full approval by the IRS at that time. However, if the plan terminates now, before the EGTRRA document restatement, then that language has no IRS approval. The only way to get approval is to file a Form 5310. Also, virtually no plans have been amended yet for PPA 2006. What’s even worse, a lot of guidance for this law will not be issued until later in 2008 or 2009, so writing a perfectly compliant amendment now is fairly improbable. But a plan that terminates now MUST be amended to add that language as well (depending on the plan year and the actual plan termination date). Again, the only way to get an approval stamp on any of that language is to file a Form 5310. Any plan that terminates without filing a Form 5310 will be considered open game if they get audited. When the guidance gets issued in 2008 and 2009, will the IRS auditors look for language that complied with that guidance (even though the plan terminated in 2007 or 2008)? If the plan obtained a favorable determination letter via form 5310, then the IRS cannot audit such language at all. So, a client that does not submit a form 5310 to the IRS upon termination risks plan disqualification, meaning that none of the money would be rollover eligible and would be taxable immediately upon the distribution when the plan terminated (well, it could be worse, they could disallow some of the deductions taken too). With the knowledge from the above explanation, why would a terminating plan not submit a Form 5310? Okay, suppose the client refused to sign amendments timely or had some other clear violations that they refuse to fix. These things would stick out like red flags in the Form 5310 application. If that is the case, then it’s advisable to steer clear of the Form 5310 filing, assuming the client has first been advised of the risk they are taking by not fixing their plan problems and the risk they are taking by not filing a Form 5310. Another reason may be cost, but really, that cost is a small price to pay for protection against the mafia IRS. I hope you find this helpful. If you read the whole thing, my apologies for the verbosity! If you have any questions or need further information, please let us know. Edited to say that I agree with Andy the Actuary.

No plan is required to file a Form 5310 if they do not want to obtain any Final "blessing" from the IRS regarding their plan.

Belgarath, Regarding your other hand, I agree to not take your word that. In Code Section 415(h) it says, For purposes of applying subsections (b) and (c ) of section 414 to this section, the phrase 'more than 50 percent' shall be substituted for the phrase 'at least 80 percent' each place it appears in section 1563(a)(1). You have noticed that Section 1563(a)(1) is the definition of a parent-subsidiary controlled group. You have noticed also that a brother-sister controlled group is defined in 1563(a)(2), thus your reasoning appears to be sound to think that the 'more than 50 percent' rule won't apply. However, the way I read the Final 415 regs, they apply the 'more than 50%' rule to brother-sister controlled groups also: 1.415(a)-1(f)(1): Affiliated employers. --Pursuant to section 414(b) and §1.414(b)-1, all employees of all corporations that are members of a controlled group of corporations (within the meaning of section 1563(a), as modified by section 1563(f)(5), and determined without regard to section 1563(a)(4) and (e)(3)(C )) are treated as employed by a single employer for purposes of section 415. Similarly, pursuant to section 414(c ) and regulations promulgated under section 414(c ), all employees of trades or businesses that are under common control are treated as employed by a single employer. Thus, any defined benefit plan or defined contribution plan maintained by any member of a controlled group of corporations (within the meaning of section 414(b)) or by any trade or business (whether or not incorporated) that is part of a group of trades or businesses that are under common control (within the meaning of section 414(c )) is deemed maintained by all such members or such trades or businesses. Pursuant to section 415(h), for purposes of section 415, sections 414(b) and 414(c ) are applied by using the phrase "more than 50 percent" instead of the phrase "at least 80 percent" each place the latter phrase appears in section 1563(a)(1) and in the regulations under section 414(c ) (except for purposes of determining whether two or more organizations are a brother-sister group of trades or businesses under common control under the rules in §1.414(c )-2(c )). After traversing the above paragraphical maze of twisty passages, would you continue to state that for 415 purposes, the 50% for 80% rule only applies to the parent-sub?

there's not need to fear EGTRRA relief is here after 2001, the MEA is no more and now your calculator will not be sore and if you read this far, please try not to snore.

Was that an Underdog rhyme undertone I read in some other post Tom? Dave - That did it! -Thanks!

One more try... Hey - I think it worked! You can load in your own table in there too if you want, I left one blank.

I've tried to upload a file (263 kb Excel spreadsheet) to provide to Mr. Austin Powers (austin3515), but when doing so, I am provided this message: "Upload failed. Please ask the administrator to ensure the uploads directory is writeable"

Well, FWIW. I'll see if it actually attaches... ... ... ... ... ... ... ... ... ... ... ... ... ... ... Hmmm..... .... ... .... ... ... ... ... Yeah. I'm not sure it will ever complete the upload. I'll try to send it to you directly.

I am adding a comment to my earlier comment: "1. the Federal preemption regarding state withholding laws - that allows you to withhold deferrals from pay without obtaining a written participant election to defer" Just fyi: the plan does not have to have EACA provisions to get Federal pre-emption from any contrary State withholding requirements.

Yes.

A true QDIA, when used as the investment vehicle for participants who have not provided investment direction, gives 404©(5) protection to the plan fiduciary. If the plan wants to have EACA provisions, (Eligible Automatic Contribution Arrangement), I believe they must comply with the QDIA rules, according to how I read the EACA requirements. The EACA provisions provide the plan with: 1. the Federal preemption regarding state withholding laws - that allows you to withhold deferrals from pay without obtaining a written participant election to defer, 2. the option to refund the "oops" deferrals that occur in the first 90 days of the participant's first automatic withholding (the employee reads the paycheck and wants that deferral money back), and 3. the extension of the refund deadline for failed ADP/ACP tests (from March 15 to June 30). Watch out for funds that are not truly QDIAs - such as a target fund that has only equity positions - the DOL commented that those are not QDIAs. Well, that's how I think it works anyway... So If the above is correct, and your plan is relying on EACA provisions, then the QDIA is a requirement. I'll be happy to hear from anyone else to confirm or correct this.

I have received a comment from another practitioner that has caused me to question the use of deferrals in the ebars (when they get counted as part of the ebar). I believe we are doing this correctly, but I'd appreciate any comments. A client has a DB plan and a DC plan. The both cover the same people, passing coverage by themselves. Neither plan provides uniform benefits, and to really lower the NHCE cost, they are tested together for 401(a)(4). The DC plan is a volume submitter plan and has the special gateway language as provided for in 1.401(a)(4)-9(b)(2)(v)(D). For 401(a)(4) testing, my understanding is that first we attempt to pass using the ratio percentage test for each HCE rate group (I believe that the ebars for determining each employee's rate is, at this point, excluding employee deferrals)? If that does not pass, then we proceed to do an average benefits test. Before we can get down to the test where we use the mid-point percentage, we must pass a 70% average benefits test - and that test is where the ebars include all employee deferrals. If this passes (70% or above), then we proceed to test each HCE rate group against the mid-point percentage. So far, do these steps sound correct? When we now test each HCE group against the mid-point percentage, which e-bar is used now: is it (A) the ebar that is calculated without deferrals included? or (B) the ebar as calculated with deferrals included? I had thought it was (A)...