John Feldt ERPA CPC QPA

I must be missing something regarding the date on which the new PPA rates and mortality apply for lump sum payouts. Do these apply in determining the amount payable to a Participant having an annuity starting date on or after January 1, 2008, regardless of the plan year? I expected this to be tied to the plan year, but I didn't see the plan year tie-in. So, for example, could (or should) an October 1 plan year begin utilizing the new PPA interest rate and mortality January 1, 2008?

Also, how was the plan ever a true qualified plan if it's only use was to accept a rollover contribution, with no employer contributions ever being made and no employee deferrals ever being made? Don't you think the IRS would question the legitimacy of such a plan? Also, there's no tax basis on the distribution (the "sale"), so the entire distribution is taxed as 1099-R income, not as capital gains. I hope they thought about that when they started down this trail.

I'm not sure that we are supposed to disclose fees on this site. However, if you charged $100 per hour ten years ago, then the questions are: 1) Do those employees who do the work get paid more today than they did 10 years ago? 2) Has the efficiency increased enough each year to keep that hourly rate as it stands? After reviewing this, then, as Obi-Wan said to Luke "You must do what you feel is right, of course".

A Roth IRA has no RMD. A Roth 403(b) does have RMDs. "Does the employee determine the RMD for each of these types of accounts separately?" No. The total balance in your plan is considered. Can the employee choose to take the RMDs from either the Roth or the Traditional account? Yes. or, does the employee need to take RMDs from each type? You can choose to take it out all from Roth, all from pre-tax, or some of each, depending on how your 403(b) plan document is written. If some of the Roth is withdrawn, and the "basis" still needs to be tracked, then a pro-rata calc is done since it's a 403(b) plan. (In an IRA, the Roth principal would be considered the first amounts withdrawn). You can get out of some of the RMD requirements from your 403(b): Roll over the Roth 403(b) portion of your account to a Roth IRA, and that Roth IRA will not require RMDs! Be sure to take any needed RMD first. Be aware that the 5-year Roth clock in the IRA does not get to adopt the 5-year Roth clock from your Roth 403(b) rollover. So, if you already have a Roth IRA, then your Roth 403(b) rollover gets to use that existing Roth IRA's 5-year clock. If it's a new IRA, then the five-year clock starts anew, so be sure to wait 5 years before taking withdrawals. Of course the traditional 403(b) portion is still subject to RMD. Hmmm. This all sounds so familiar...

"Would the sponsor have the ability to change the allocation rate for their profit sharing allocation each payroll period?" I think a plan document could be written to provide for that. But keep reading. Let's look at nondiscrimination. If the rate of profit sharing changes just one time during the plan year, then you may easily end up with a nonuniform allocation when you consider the whole plan year. Remember, the discrim testing is for the entire plan year, not for each allocation period within the year. What about terminees or those who Thus, someone must test the resulting allocation (be sure to charge extra for that). Hopefully, your document will also have some provisions to help you pass in some fashion that won't be too expensive to your client (like a big QNEC). Maybe the average benefits test will be good to you, or the client will be happy to pay you for each test until they finally pass (Ed Burrows would say to keep testing until you pass or the client runs out of money to pay for more testing). We took over a plan near the end of last year where they told us they had a uniform allocation formula: pay to total pay (that's what their document said too). They did not allow participant investment direction and they did quarterly valuations. When doing the 2006 valuation, we saw that they had made nonelective profit sharing contributions each quarter. The allocations were not even close to uniform for the year (which is what the document required). They then told us that they decided each quarter what amount to contribute and allocate for that quarter! Boy, we hadn't expected that! The HCEs earned most of their pay during the first quarter of 2006, so they decided that the allocation for the first quarter would be 15% of pay, then the next quarter was less (5%) and so on, until nearly nothing was allocated in the last quarter. "Well that's how we've always done it!" Oh, so that must mean it's alright... Well, it sure makes for a fun story, if you're a plan geek.

Do the final 409A regulations require any changes that apply to 457(b) plans?

Thanks, man. They will be so advised.

Your post is the first I've heard. I hope it's not true. Who is the source of your comment, perhaps they can elaborate?

Will do.

Thanks Jay21 and AndyH. Yeah, we're not touching these. I'll look through the advertisers and hopefully they list a cell phone number so I can reach their van.

"For example, is a participant that is older than 59 1/2 subject to the 20% withholding requirement? Or is that still considered an 'eligible rollover distribution.' " This describes an amount that is still an eligible rollover distribution, unless an RMD is required. If the amount paid is not eligible for a rollover, then the normal withholding applies instead of the 20% mandatory. The following cannot be rolled over: 1. Payments Spread over Long Periods. A payment cannot be rolled over if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for: a period measured by the participant's life expectancy, or a period measured by the participant's lifetime and their beneficiary’s lifetime (life expectancies), or a period of 10 years or more. 2. Required Minimum Distributions (RMDs). 3. Unforeseeable Emergency Distributions. A distribution on account of an unforeseeable emergency cannot be rolled over. 4. Distributions of Excess Contributions. A distribution that is made because a legal limit was exceeded cannot be rolled over. 5. Loans Treated as Distributions. The amount of a plan loan that becomes a taxable deemed distribution because of a default cannot be rolled over. However, a loan offset amount is eligible for rollover. If the normal withholding rules apply, then the participant may elect to not have any withholding applied (for that portion of the payment that cannot be rolled over). If the participant makes no withholding election, then an amount will be withheld (I think the Federal percent is 10%). State and local tax withholding rules vary by State and by locality.

Our firm is not involved with 412(i) plans, but we were asked if we knew anyone who could review a 412(i) plan document. If you know of any 412(i) plan document attorneys, please let me know. -Thanks!

Oversight, my bad. - thanks pmacduff, that's right.

For the plan to be Safe Harbor (and if you want to avoid all ADP testing), then all employees who are eligible to defer must receive the safe harbor contribution. If you want to test the statutorily excludables in the "otherwise excludable" (OE) group, then I think you have to do the 21/1 age/service. So I think making employees wait until the first day of the next plan year (to be eligible for the SH nonelective) becomes a problem, and neither group could truly be considered as having Safe Harbor plan. If you change the SH nonelective so it starts no later than the 21/1 cutoffs for eligibility, then you could test the OE groups as follows: One group is the Safe Harbor plan (they are over age 21/1) - they all get Safe Harbor, no ADP test. The other group is under 21/1 and that plan is not Safe Harbor, so test ADP for that group. I think each group above must pass coverage to be able to use the OE grouping like that.

Your plan document probably has a section that explains how amendments are to be done. For example, one document I work with explains that amendments must be done either by restating the entire adoption agreement, or by executing a "page substitution amendment". A page substitution amendment is where certain pages are changed and the execution page has a neat little section where you spell out which pages or sections are amended and their corresponding effective dates. You may want to prepare a resolution for the company to adopt the amendment with. If your plan is a calendar year plan and it is currently a Safe Harbor Match plan, then this amendment must be executed before January 1, 2008 in order to remove the Safe Harbor matching requirements. You'll need to pass ADP and ACP tests, of course. edit: typo

Perhaps something like "Arrgh! As you know, every diabolical scheme I've hatched has been thwarted by Austin Powers."

Wait, wait wait. Hold on. If you're looking at the compensation for 2007 alone, then the answer I have above stands. If you're looking at average compensation for accrual of benefits, then the 415 average compensation can't exceed: ( 210,000 + 220,000 + 225,000 ) / 3 = $218,333.33

Oh, smashing, groovy! Thanks Mr. Powers!

Thanks Tom, that is exactly the focus of my question. I was much more concerned with the ongoing plans and the potential need to amend every one of them before their 2008 plan year. With your comments in mind, I hope to see forthcoming guidance to assure the transition from GATT to PPA rates without scrambling to amend right now. For plans paying lump sums after their 2007 plan years, I assume the PBGC would require the largest lump sum payout under GATT or PPA until an amendment is adopted (if GATT would ever be a higher lump sum).

According to the Form 8717 instructions: "The exemption from the user fee applies to all eligible employers (defined below) who request a determination letter within the first five plan years or, if later, the end of the remedial amendment period that begins within the first five plan years with respect to a plan. Under section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), an application for a defined contribution plan from an eligible employer for a plan that was first effective on or after January 2, 1997, will automatically meet this requirement. An application for a defined benefit plan from an eligible employer for a plan that was first effective on or after January 3, 1996, will automatically meet this requirement. See Notice 2002-1, 2002-1 C.B. 283 as amplified by Notice 2003-49, 2003-2 C.B. 294."

If the true final net earned income (after business expenses, after reduction for DB and DC contributions, after 1/2 SE tax, etc) ends up at $225,000 or above, then your answer is $225,000 for 2007, not 211,500.

And to avoid the potential problem, an amendment to adopt the new 417(e) rates and mortality for the 2008 plan year seems to be solution, before the 2008 plan year begins?

A calendar year Safe Harbor 401(k) plan provides a 3% SH contribution and has a discretionary profit sharing provision. The client wants to keep the eligibility for deferrals the same. The client wants to keep the eligibility for Safe Harbor contributions the same. The client wants to change the eligibility for only the Profit Sharing portion (e.g. lower the 1 year requirement to 6 months). They are having a great year and want more NHCEs to receive some of the year's profits via the plan. I have made the attempt by looking at 1.401(k)-3(e) and its reference to 1.401(k)-1(b). Is this an allowable change in this plan year, or must the provisions become effective no sooner than the beginning of the next plan year? If this is not allowable, which section prohibits this change? What if they want to only change the Entry Dates for only the profit sharing portion, from 2 entry dates per year to 4 entry dates per year, can that be effective during the year? What if they also want to improve the vesting for the profit sharing portion only (move the schedule to 5-year graded from 6-year graded), can that be effective for this year? This does not affect the HCEs, they are already vested. Please tell me an employer can provide a better vesting schedule?

The plan has no deferral provisions now? Then they need to execute an amendment to add deferral options and to adopt safe harbor provisions, and it must be signed no later than November 1st. The safe harbor notice must be provided no later than November 1st (give it when they execute the amendment/restatement).

"My question is should we report them to the IRS." Maybe I'm skimming the post too much and missing something, but doesn't the 5500 do just that - isn't one of the questions going to point out the late deferral deposits? edit: typo