John Feldt ERPA CPC QPA

I'd think there may be an actuary who could lend you a spreadsheet, maybe even allowing you to vary the interest rates and the retirement ages. I'd attach mine if I could figure out how to attach it in here, but I'm not sure you'd want that since I am not an actuary. Really, I hoped my comments had scared away anyone from actually trying to calculate the APRs ...

Yes, you can.

If the EGTRRA letter comes out today (assuming the letter does not indicate a later effective date that you cannot begin earlier than), then any new client you get now could go straight into that IRS-approved EGTRRA document (assuming you have an EGTRRA document ready for your use today). If you don't have an EGTRRA document system ready yet, then they should be on a GUST document or an individually drafted document for now, until your EGTRRA document system is ready. Then, you will have to restate them to comply with EGTRRA. The IRS letter will probably tell you what your restatement deadline is. If they do not fit into the 6-year cycle, then you'll have to take a look at IRS Notice 2007-44 and Rev Proc 2005-66. "do all new clients / amended plans have to get put onto the EGTRRA document?" All qualified plans, yes. By the deadline the IRS prescribes.

I thought relief was granted to 12/31/2005, or if later, the tax filing deadline for the employer's tax return filing deadline (with extension, if any) for the fiscal year of the employer that contained March 28, 2005. And that the plan was allowed to comply operationally until the amendment was adopted, assuming the adoption of the amendment conformed with what was done operationally. Regardless, if the amendment reduced the threshold to $1,000, then based on your facts, it looks like the $1,000 or below on cashouts that were not forced out are an operational error. Everett got there first!

Well, FWIW, we have mostly micro-small plans (under 30 ees). We have been pondering much the same question. We hoped that the guidance (issued December 28th) would provide the silver bullet, including a fixed rate, but the bullet was a blank. Generally, we'd like to explain the funding of the plan to the client using a 'recommended contribution' style in 2008, something in-between the low minimum funding amount but not as high as the maximum amount (cushion) - like an individual aggregate method. We will show both min and max, but add an explanation of the consequences of going to either extreme. We would like the minimum contribution to still be somewhat flexible, and not require the current cash balance credit to be equal to the normal cost every year. Also, unless the HCEs are accruing one-tenth of the dollar limit when the plan is started, we like to recommend overfunding the plan slightly. That leads us to our current conclusion: We think a lower cash balance crediting rate (lower than the funding rate) will work best from a funding standpoint. So we are still using the 30-year treasury rate for the crediting rate. We think the 30-year rate will stay less than the 3rd segment rate pretty much all the time. On the flip side, we have seen data where a higher interest crediting rate can help the plan design from a testing standpoint, 401(a)(4). So we will probably not always be setting up plans with the GATT rate as the crediting rate. I'm no actuary, so I'd appreciate any truly qualified comments on this as well.

Assume the business is not an S Corp, but say it's a partnership and the spouse is a partner, not a W-2 employee. Now I think your client's TPA is on better footing (perhaps the TPA was misinformed about the entity type and the spouse's 'employee' status). Sure.

"if the normal retirement age is 65, I can use the Annual Percentage Rate (APR) of 95.43 for every participant, regardless of their age?" No, the factor is 95.38. You use that for participants whose testing age is 65, but anyone who is older you need to use another factor, for example, if their retirement age is 72, then I would use a factor of 79.23 (UP84 8.5%) "What about the Actuarial Factor is .035155. Would you know how this is calculated?" Can you give us an example of how that factor is being used with your data, what it is used to derive?

I get a factor of 95.38 for a testing age of 65, not for age 55. This number comes from an actuarial mortality table. To explain in laymen's terms as much as I can, it sort of goes like this (warning: I am not an actuary): If you want to pay someone $1 per month for the rest of their life, starting at age 65, and they are currently age 65 now, then: the question is: how much cash should you have on hand right now if you could invest that cash at 8.50% (and assume that person is just one of many people in a large group whose deaths would each occur statisically equal to the probabilities of death as shown in the UP84 mortality table). The answer is $95.38 (thus, the 95.38 factor). The $95.38 cash on hand now (at age 65) would give you approximately the amount needed to pay them up until their life expectancy date. Again, I've only stated this just to help you with understanding the issue in general - the life expectancy age is not really the exact answer, but hopefully it helps you to understand it better. The UP84 table shows the probabilty of death each year, then at age 110 is shows 100% probability. So, to get that age 65 factor (it's an age 65 present value factor) you adjust the $12 per year benefit to account for the monthly timing of these payments, and then discount that to today's date by 8.5% for each year as well as discounting it by the probbaility of death in each year. Thus, the annual payment at age 66 is adjusted and discounted by 8.5% to the current year (age 65) and that amount is also adjusted by the probability that the participant may not live until age 66. Similarly, the annual payment at age 67 is adjusted and discounted for 2 years by 8.5% to the current year (age 65) and that amount is also adjusted by the probability that the participant may not live until age 67. This continues for each age, until age 110, where thereafter those payments have no present value because the table assumes a zero percent chance of survival past 110. Here are some of the "probabilities" of death (qx's) for the UP84 table: Age qx 50 0.005616 51 0.006196 52 0.006853 53 0.007543 54 0.008278 55 0.009033 56 0.009875 57 0.010814 58 0.011863 59 0.012952 60 0.014162 61 0.015509 62 0.017010 63 0.018685 64 0.020517 65 0.022562 66 0.024847 67 0.027232 68 0.029634 69 0.032073 70 0.034743 71 0.037667 72 0.040871 73 0.044504 74 0.048504 75 0.052913 76 0.057775 77 0.063142 78 0.068628 79 0.074648 80 0.081256 81 0.088518 82 0.096218 83 0.104310 84 0.112816 85 0.122079 86 0.132174 87 0.143179 88 0.155147 89 0.168208 90 0.182461 91 0.198030 92 0.215035 93 0.232983 94 0.252545 95 0.273878 96 0.297152 97 0.322553 98 0.349505 99 0.378865 100 0.410875 101 0.445768 102 0.483830 103 0.524301 104 0.568365 105 0.616382 106 0.668696 107 0.725745 108 0.786495 109 0.852659 110 0.924666 111 1.000000

No, not after the start of the plan year. But, after the 30 day notice has been given can work - if they are getting the new notice within a reasonable period of time before the beginning of the year, then that is okay. Be sure that the plan is amended before the beginning of the plan year to reflect that change however.

If the plan only has a Basic Safe Harbor match, then: EE 1 match = $6,720 EE 2 match = $5,680 EE 3 match = $0 If the plan is also ACP safe harbor, then that's it, otherwise you'll need to test ACP. If you have other contributions (profit sharing, nonelective) The deferrals are not counted against the 404 deduction limit. That leaves you with the 25% of eligible compensation for a deduction under 404. That is 25% x $347,000 = $86,750 overall. Your allocation formula will dictate how much of the contribution will go to each participant. Assuming no one is over age 50 (if either of the deferring employees are, then the results below can change due to catchup). The max ER allocation to #1 is $29,500, reduced by any match The max ER allocation to #2 is $29,500, reduced by any match The max ER allocation to #3 is $37,000 Of course you couldn't deduct a contribution that exceeds $86,750, so not all 3 employees can max out based solely on employer contributions. If you have forfeitures that are allocated, then your total allocation could exceed $86,750, but can't be more than $96,000.

Okay. First of all, Tom (TLGeer) is correct, an entity could have both a 403(b) and 401(k) and the 415 limit is not aggregated between the two. "if a 403b has an employer contribution element, it is covered under ERISA." Not if the employer is a church, assuming they do not volunteer to be covered by ERISA, and not if the employer is a government. For testing issues is there an ADP test? Nope. I think the "universal availability" requirement is the trade-off for that. If the plan is subject to ERISA and has match, then ACP testing is needed unless the plan satisifies the Safe Harbor requirements, giving either a Safe Harbor match, or a Safe Harbor nonelective. If you do ACP testing in a 403(b) plan, you cannot recharacterize deferrals like you could in a 401(k) plan. How about ABT? If the employer contributions do not use some deemed approved passing formula structure, like a uniform allocation, an integrated allocation, or otherwise, then 401(a)(4) testing would be required (ERISA plans only, so not for gov plans or church nonERISA plans). I think the 5500 advantage goes away in 2009 - when the new regs appear to indicate a much more extensive version of the 5500 will be required for ERISA 403(b) plans and an independent accountant's opinion (audit requirement) would start (if over the 100/120 participant count).

Kim, you are correct. Yes, Janet, perhaps my point was not effectively made. There are 2 types of New SH plans starting 1-1-2008, the QACAs (polly wanna QACA?): 1) the 3% nonelective QACA - not a match - yes you get the 2-year cliff vesting for the SH nonelective contribution, and you must satisfy the automatic enrollment rules 2) the QACA match: 100% on 1% plus 50% on the next 5% - yes you get 2-year cliff vesting for the SH match and you must satisfy the automatic enrollment rules

Yes, I think you can provide a maybe notice to inform participants that safe harbor provisions might be adopted for 2008, even if it's the QACA safe harbor plan. You'll have to have the auto-enroll feature in place at the beginning of the year though I would guess. This just my opinion, I did not spend any time looking this up at this time. This would only work with the 3% nonelective SH.

"... is there any problem w/ giving the notice to all elig ee's (those who are elig to participate whether or not defaulted) to avoid spending time determining who actually has to receive it." I can find no prohibition from doing exactly that.

Suppose 9 NHCEs are old enough and have 1 year of service so they all enter on January 1, 2008 when the plan is established. Suppose the husband and wife (owners) are the only 2 HCEs. Suppose the plan requires last day and 1000 hours. Suppose one NHCE quits in February (under 500 hoursin 2008). Suppose in May, when summer starts, 3 of more NHCEs leave, each with about 650 hours. On July 1, suppose 2 more NHCEs enter the plan. Lastly, suppose 1 more NHCE leaves before December 31, 2008 and they only worked 900 hours. We have: 9 -1 (under 500 hrs - so excludable from the coverage test) -3 (650 hours) +2 new -1 (900 hours) = 6 benefiting (or benefitting?) The plan has 100% of the eligible HCEs covered, but of the non-excludable NHCEs, only 6 of the 10 will benefit. If this looks like a reasonably possible scenario for you plan, then when the plan is established, you may want to consider what is the most appropriate way for that to be resolved, so possible language can be included in the plan (or not in the plan, depending on the solution).

If you believe that you are giving the required notice within a reasonable period of time before the beginning of the plan year, and if the IRS ever audits the issue and they also agree that timing of the notice included a reasonable period of time before the beginning of the year, then you are okay. Obviously, the deemed "okay" timing is 30 days - the IRS cannot question the timing of a notice given 30 days before the beginning of the plan year. So, is giving the notice today reasonable (27 days instead of 30)? Maybe. When is the first payroll in 2008 and what is its cutoff date for salary deferral changes? I would think that those are relevant factors. But no guarantee now that December 2nd has passed. This can be found at 1.401(k)-3(d) as shown: 1.401(k)-3(d) Notice requirement (1) General rule. --The notice requirement of this paragraph (d) is satisfied for a plan year if each eligible employee is given notice of the employee's rights and obligations under the plan and the notice satisfies the content requirement of paragraph (d)(2) of this section and the timing requirement of paragraph (d)(3) of this section. The notice must be in writing or in such other form as may be approved by the Commissioner. See §1.401(a)-21 of this chapter for rules permitting the use of electronic media to provide applicable notices to recipients with respect to retirement plans... (3) Timing requirement (i) General rule. --The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relevant facts and circumstances. (ii) Deemed satisfaction of timing requirement. --The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established plan that provides for elective contributions, or would apply in the case of the first plan year in which an employee becomes eligible under an existing plan that provides for elective contributions. I hope this helps!

According to the rules, they could just wait until July 28 to give out the SMM. However, from an Employer-Employee relationship standpoint, wouldn't you rather communicate this right away?

I agree with JanetM. They would have to do that notice annually then. I don't see a problem with that. All it does is give them 404(c )(5) protection for those who were defaulted. If they know what their default fund has been, how much time would it take to see which participants still have any money in that investment? Of course some may have chosen that investment too, but I see no problem with giving a QDIA notice to everyone in the fund, as long as the wording in the notice is good. Assuming the default fund is truly a QDIA and rest of 404(c ) is satisfied, then you have fiduciary protection against investment return complaints related to the default fund; but you are only protected from participants who were defaulted into that fund as long as they were given the QDIA notice. Thus, their desire to get one out to everyone who might have been defaulted. On the flip-side, if they don't give each of those defaulted participants the QDIA notice, the fiduciary does not have 404(c )(5) protection. Instead, the normal ERISA prudency rules apply. Don't they feel comfortable that their default fund has been prudent enough? Does the cost of giving out this QDIA notice outweigh the risk associated to a participant complaint about the investment return? Also, IMHO, I think the cost of gaining this additional fiduciary protection should probably not be charged to the participant's accounts (the plan assets), since the plan assets are for the benefit of the participants and beneficiaries. I don't see exactly how those funds could be used to provide protection to the plan fiduciaries.

Or until the IRS changes their fee schedule!

$375 interim, for now.

PPA preempted State laws regarding deferral withholding without written participant consent. In order for the plan to benefit from that preemption, the plan would have to adopt EACA (I think). If you don't need that protection, then you could adopt the new safe harbor plan option (QACA) without using the EACA (so you also do not need to have a QDIA). But I don't see any 90 day withdrawal option without being taken into the EACA section. So, I guess I do not see how a plan can adopt the 90 day "oops - I want my money back" withdrawal provision if it does not adopt the EACA provsions. Is there a problem with adopting the EACA provisions? Is it the QDIA notice requirement?

1) Can existing paticipants with completed elections to not defer be enrolled at 3%? If the election you describe was completed by the employee longer than 30 days before the new automatic enrollment begins, then, yes, the plan may bump them up -- as long as proper notices are provided explaining that they will be automatically enrolled unless they make a new contrary election, how to do so, when their contrary elections need to be done, etc. 2) Can existing participants deferring less than 3% be automatically be brought up to 3%? Same answer Anybody else have thoughts on this?

They should stop allowing the deferrals now. I don't know if it's in 2007-26 EPCRS as a self correction or not. Excerpts from the regulations: §1.401(k)-1 Certain cash or deferred arrangements (d) Distribution limitation (3) Rules applicable to hardship distributions (iv) Distribution necessary to satisfy financial need (E) Distribution deemed necessary to satisfy immediate and heavy financial need. --A distribution is deemed necessary to satisfy an immediate and heavy financial need of an employee if each of the following requirements are satisfied -- (1) The employee has obtained all other currently available distributions (including distribution of ESOP dividends under section 404(k), but not hardship distributions) and nontaxable (at the time of the loan) loans, under the plan and all other plans maintained by the employer; and (2) The employee is prohibited, under the terms of the plan or an otherwise legally enforceable agreement, from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution.

Sully, Yes. The only time an amendment would be required earlier (by December 1st actually for a calendar year plan) would be in the case where the plan provided a "maybe" notice for the year, and now they decided that they actually will contribute the 3%. That amendment and the supplemental notice must get done no later than 30 days before the last day of the plan year. I've marked that in bold below. 1.401(k)-3(f) Plan amendments adopting safe harbor nonelective contributions (1) General rule. --Notwithstanding paragraph (e)(1) of this section, a plan that provides for the use of the current year testing method may be amended after the first day of the plan year and no later than 30 days before the last day of the plan year to adopt the safe harbor method of this section, effective as of the first day of the plan year, using nonelective contributions under paragraph (b) of this section, but only if the plan provides the contingent and follow-up notices described in this section. A plan amendment made pursuant to this paragraph (f)(1) for a plan year may provide for the use of the safe harbor method described in this section solely for that plan year and a plan sponsor is not limited in the number of years for which it is permitted to adopt an amendment providing for the safe harbor method of this section using nonelective contributions under paragraph (b) of this section and this paragraph (f). (2) Contingent notice provided. --A plan satisfies the requirement to provide the contingent notice under this paragraph (f)(2) if it provides a notice that would satisfy the requirements of paragraph (d) of this section, except that, in lieu of setting forth the safe harbor contributions used under the plan as set forth in paragraph (d)(2)(ii)(A) of this section, the notice specifies that the plan may be amended during the plan year to include the safe harbor nonelective contribution and that, if the plan is amended, a follow-up notice will be provided. (3) Follow-up notice requirement. --A plan satisfies the requirement to provide a follow-up notice under this paragraph (f)(3) if, no later than 30 days before the last day of the plan year, each eligible employee is given a notice that states that the safe harbor nonelective contributions will be made for the plan year. The notice must be in writing or in such other form as may be prescribed by the Commissioner and is permitted to be combined with a contingent notice provided under paragraph (f)(2) of this section for the next plan year.

A retirement age of 44? Hmmm. That could be ok, but you'll want to look at T.D. 9325, "Distributions From a Pension Plan Upon Attainment of Normal Retirement Age" from May 22, 2007. http://benefitslink.com/taxregs/E7-9643.pdf