John Feldt ERPA CPC QPA

Okay, for dummies like me: 404(o) DEDUCTION LIMIT FOR SINGLE-EMPLOYER PLANS. ... 404(o)(5) SPECIAL RULE FOR TERMINATING PLANS. --In the case of a plan which, subject to section 4041 of the Employee Retirement Income Security Act of 1974, terminates during the plan year, the amount determined under paragraph (2) shall in no event be less than the amount required to make the plan sufficient for benefit liabilities (within the meaning of section 4041(d) of such Act). 1. Does this mean a plan subject to the PBGC gets an immediate deduction of the amount that is contributed to make the plan sufficient? (not required to deducted over 10 years) 2. If the plan is not subject to the PBGC, then the normal required contribution under 412 (or 430) applies up until the last plan year (the one with a plan term date), and any additional contribution made can only be deducted as fast as 10 years? I've been thinking that 1 is Yes and 2 is Yes... When I read Mike's comment that made me think the plan loses any immediate full deduction options for its last plan year for any amount that is above the 412 minimum...

A profit sharing 401(k) plan has an option for participants to defer under 401(k) - based on all taxable W-2 wages. The plan also has a CODA option, which allows participants to take some or all of the company "profit sharing" as cash instead. I must have been working on DB plans and the why's and what's of a CODA plan slipped by me. What is the advantage of having a true CODA vs normal 401(k) deferrals - or are they considered to be the same thing? Are there any differences, like FICA taxation, what amounts count for testing, etc?

The plan pays a flat $375 fee in their submission under EPCRS. In the original version of Revenue Procedure 2006-27 it stated "for each year of the failure", but in the final published (and official) version, that clause was removed. Go to page 51 of the pdf file: http://www.irs.gov/pub/irs-drop/rp-06-27.pdf You'll see that the last sentence of 12.03 no longer has the clause "for each year of the failure". Hope that helps!

That's very good advice. The plan discloses in it's SPD that expenses for QDRO reviews will be charged directly to the affected participant's account.

It's an actual divorce. I don't think it's a problem either, but since we had never come across exactly this scenario over the last few hundred QDROs that we've seen, well, asking extra experts is best. A local ERISA attorney agrees that this is probably not an issue as long as both parties have agreed to the terms of the order anyhow...

The 100% owner of a corporation (50 employees) is also the Plan Administrator and the only Trustee of the plan. They are also the only officer of the company. A DRO is served regarding this owner's benefits in the 401(k) plan (account is about $60,000). The QDRO procedure would have the Plan Administrator review the order to determine if it is qualified. The Plan administrator is the Employer. Thus, the detemination of the qualified status of the order would be done by the participant to whom the order concerns. Any problems with that? or guidance you may want to provide? -Thanks!

I agree with FAPInJax. The questions you pose: if you believe these groupings work in a DC plan, then the same rules apply for the DB plan in that regard. Instead of allocation groups, think of them as benefit accrual rate groups. So, for example, if you are comfortable using shoe size to determine allocation groups in a DC plan, then by all means, use the same criteria to create differing benefit accrual rate groups in the DB plan!

We plan to submit one later this year. On all others we've use one of the "safe harbor" Notice 98-6 indexed rates so far. Perhaps I'm not sure what is meant by "I am unaware of any present guidance on how allocations or allocation groups are allowed to be designed in a CB plan other than by using a vanilla approach". Nearly all of our cash balance plans have separate benefit accrual rate groups (which match up with the DC plan rate groups) and the plan is tested under 401(a)(4) with the DC. I don't think that's too unusual either, is it? We've use the Corbel language, but heck, it's individually designed, so we change the items that are needed to be changed within the body of the document. Of course we'll always submit for a D-letter on these individually drafted plans.

I luv ya man!

okay, I admit it!

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.