John Feldt ERPA CPC QPA

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

Yep. The PS piece should designed to cover that, with an explanation to the client that the 3% will be a basic minimum PS in 2007. So, if designed properly, TH is easily handled as well. Especially if they have already been thinking about the 3% SH contribution, then the 3% TH contribution sounds doable (especially with vesting) - just different alphabet letters, right?

"higher if you've been using weaker funding assumptions than the anticipated PPA rates/mortality table." The vast majority of our small plans (under 50 lives) will see their minimum funding requirements go down. I suppose that was not the intent of Congress? or, of the economists who wrote these rules for them? Our somewhat larger small plans (over 100 lives) are looking at what amount it will take to reach the funding target of 92%. "can't use the new accrual for HCEs in the max funding (if plan unfrozen in late 08), and if the 150% of the UCL at beginning of year (12/31/07) isn't large enough to produce a higher max contribution than the minimum funding." Yes, if the formula is increased, I think you could be stuck near the 412 minimum if you only have small benefits for your NHCEs.

Thank you Carol and George!

Yes, in this case would be age 61. Both (1) and (2) must be met: (1) Five-year taxable period must have ended (2) A qualifying event must have occurred (death, disability, reached age 59.5). The five year clock begins with the January 1 of the first calendar year that a Roth contribution is made. If the first contribution goes in October 1, 2006 when the participant had his 56th birthday, then: 2006 = year 1 (age 56) 2007 = year 2 (age 57) 2008 = year 3 (age 58) 2009 = year 4 (age 59) 2010 = year 5 (age 60) Any withdrawal before 12/31/2010 would be too early. The five-year clock ends 12/31/2010. A withdrawal on January 1, 2011 has met the five year rule (even though that is technically only 4.25 years after the first contribution was made).

Can the compensation of the associates be used to determine the combined deductible limit of 25% + 6% of compensation? I have not taken the time to look at the regulations, so FWIW, I agree with Blinky and mming. Does 404(a)(7) apply to the deferral only plan? Look at 404(a)(7)(C )(i) below. I would think their compensation is not included under the 404(a)(7) calculations for purposes of determining the percentage limit. But with 2 DC plans in play, I am not 100% in this response. IRC 404(a)(7)(A) IN GENERAL. --If amounts are deductible ... in connection with 1 or more defined contribution plans and 1 or more defined benefit plans ... the total amount deductible in a taxable year under such plans shall not exceed the greater of -- 404(a)(7)(A)(i) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, or 404(a)(7)(A)(ii) the amount of contributions made to or under the defined benefit plans to the extent such contributions do not exceed the amount of employer contributions necessary to satisfy the minimum funding standard provided by section 412 with respect to any such defined benefit plans for the plan year which ends with or within such taxable year (or for any prior plan year). ... IRC 404(a)(7)(C ) PARAGRAPH NOT TO APPLY IN CERTAIN CASES. -- 404(a)(7)(C )(i) BENEFICIARY TEST. --This paragraph shall not have the effect of reducing the amount otherwise deductible under paragraphs (1), (2), and (3), if no employee is a beneficiary under more than 1 trust or under a trust... 404(a)(7)(C )(ii) ELECTIVE DEFERRALS. --If, in connection with 1 or more defined contribution plans and 1 or more defined benefit plans, no amounts (other than elective deferrals (as defined in section 402(g)(3))) are contributed to any of the defined contribution plans for the taxable year, then subparagraph (A) shall not apply with respect to any of such defined contribution plans and defined benefit plans. 404(a)(7)(C )(iii) LIMITATION. --In the case of employer contributions to 1 or more defined contribution plans, this paragraph shall only apply to the extent that such contributions exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans. For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions to the extent attributable to employer contributions to such plans in such preceding taxable years. 404(a)(7)(C )(iv) GUARANTEED PLANS. --In applying this paragraph, any single-employer plan covered under section 4021 of the Employee Retirement Income Security Act of 1974 shall not be taken into account.

I've seen a PBGC audit sting people before with regard to the changes from pre-GATT to GATT rates. This looks similar to me, thus the question. I think Mike's guess is as good as any until we see some other official guidance. We'll adopt as needed for terminating plans as Andy sugggested. Thanks for the comments!