John Feldt ERPA CPC QPA

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)...

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).