John Feldt ERPA CPC QPA

Whenever we propose the triple-stack match, we show them what we believe is a reasonable scenario, then we also show them the worst case scenario (from an employer contribution standpoint). You should make sure the SH match is within the SH parameters, the fixed match is based on deferrals that do not exceed 6%, and that the discretionary match is with the 6%/4% limitations. It also helps to explain to the employer that even in a business downturn, their own deferrals will be the biggest part of the plan cost, and thus controllable (by the owners deferring less or by not deferring). Have you tried using a smoothly increasing rates design (one that avoids the 5% gateway)? If not, review Bill Karbon's article in the ASPPA journal from last year (summer?). The owner in Bill's example should show 19 years of service, not 9; the minimum starting rate is 1% to allow the top heavy minimum to act as a minimum instead of an additional contribution, and a couple of the rates in one chart need correcting. But overall, the article does a good job explaining the design. The biggest downfall for this design is that these are fixed contributions, not discretionary.

Under ERISA Section 104(b)(1): "The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, every fifth year after the plan becomes subject to this part an updated summary plan description described in section 102 which integrates all plan amendments made within such five-year period, except that in a case where no amendments have been made to a plan during such five-year period this sentence shall not apply." With all of the amendments required since GUST, such as 401(a)(9), 401(a)(31(B), Final 401(k)/401(m) regs, I think it looks like a fully revised SPD should be given out now. If that's correct and the plan was restated for GUST in 2002 (and the SPD was provided in 2002), assuming the plan year is calendar year, would you interpret that to mean a revised SPD must be provided by 12/31/2007? Or some other date? Please comment. On edit, I've added: Would anyone like to see this can be changed to align with the 6-year restatement cycle to be 6 or 7 years instead of 5?

In Revenue Ruling 89-87, in the second paragraph of the analysis section: "Whether a distribution is made as soon as administratively feasible is to be determined under all the facts and circumstances of the given case but, generally, a distribution which is not completed within one year following the date of plan termination specified by the employer will be presumed not to have been made as soon as administratively feasible."

Perhaps. Or, that way they can set up an exam (audit) program to look at the compliance (or lack thereof).

15 days

Oh yeah, well we . . . (okay, just kidding on the one upmanship) We've seen some plans where the owner of the TPA firm lists their own name as one of the Trustees in the plan document and they sign the Schedule P as the trustee! Eye popping and head shaking!

It looks okay, be sure to look at: the 415 limit and the 404 deduction limit and 410 coverage, such as: she is not an HCE (or if she is, they employ no NHCEs that could be eligible, etc)

Hmmm. Here's some of Treasury Regulation 1.457-2(b): (1) Annual deferral(s) means, with respect to a taxable year, the amount of compensation deferred under an eligible plan, whether by salary reduction or by nonelective employer contribution. The amount of compensation deferred under an eligible plan is taken into account as an annual deferral in the taxable year of the participant in which deferred, or, if later, the year in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture. (2) If the amount of compensation deferred under the plan during a taxable year is not subject to a substantial risk of forfeiture, the amount taken into account as an annual deferral is not adjusted to reflect gain or loss allocable to the compensation deferred. If, however, the amount of compensation deferred under the plan during the taxable year is subject to a substantial risk of forfeiture, the amount of compensation deferred that is taken into account as an annual deferral in the taxable year in which the substantial risk of forfeiture lapses must be adjusted to reflect gain or loss allocable to the compensation deferred until the substantial risk of forfeiture lapses. I really really really don't want to disagree with you mjb, but please confirm that "Vesting is required for amounts deferred under an eligible plan". Sorry, but under the regulation quoted, I fail to see the prohibition that you mention. Nor have I been successful in finding that prohibition anywhere else. Please help.

Yes, the limit is the main key. Employee elected deferrals and employer provided contributions are all combined together and usually called "annual deferrals". Basically, the total "annual deferral" cannot exceed $15,500 (but there's also a special catch-up provision during the last 3 years prior to normal retirement age). Since you're talking about a non-profit plan sponsor, not a government, then there is not a $5,000 catch-up. The "annual deferral" includes only vested amounts. Any amount that is not vested in the year contributed will not count against the limit that year. Any amounts that become vested later will count against the limit in place for the year that the vesting occurred. 457(b) plans never (okay, perhaps almost never) include a vesting schedule. Also, regardless of whether it's an employer contribution or an employee elected deferral, in a 457(b) the entire amount is considered like an employee elective deferral for purposes of FICA and FUTA. And, of course, its plan document would be written as a 457(b) eligible plan.

Assuming they do the plan document work too, you should verify that the required interim amendments have been done timely, including sending any SMMs. Check the GUST document signature dates to make sure they were adopted timely. Your counsel hopefully has advised you to have the seller sign a non-compete.

All additions under a 457(b) plan would be considered as an "annual deferral", even if no election is made by the participant. If the goal is to contribute $15,500 or less (2007 limit), then a 457(b) plan would suffice as QDROphile noted. If the goal is to put more away than $15,500 then someone else needs to comment about the 457(f) and 409A issues.

I have seen language something like "survivorship protection reduction factors" in large DB plans. The concept started when REA required DB plans to begin providing at least a minimum benefit to surviving spouse's of deceased participants. Back in those days (early 1980's), many DB plans provided only retirement benefits, not death benefits. If the participant died, then the plan paid nothing - they would argue that life insurance is what pays death benefits, not retirement plans. In this kind of plan design, the actuary discounted benefits at retirement by the expected disability, turnover, etc. and expected mortality, but did not add back a death benefit into the normal cost (since there was no death benefit payable). When the law required minimum spousal benefits, plans like this wanted to keep their plan contribution costs the same, so the law allowed them to offset participants' accrued benefits by the small amount of death cost to cover this survivorship protection death benefit. In one of the plans I worked with, the accrued benefit was only reduced for the years in which the participant was over age 35 and was married. The plan had specific factors that applied to different age bands during which the participant was married. Perhaps this might explain the 5% reduction, perhaps not.

This does look like an ERSOP, which is a qualified plan that is purchasing the employer securities. Also folks, please check with your tax person too. You will have basis in the company if you buy it without using your IRA or your qualified plan's assets. Later, if and when you sell, you have capital gains/(losses) and pay taxes as a capital gain/(or loss). However, if you use your IRA or your qualified plan and you sell (or want to retire), now any money paid out is considered a distribution and it is taxed as ordinary income - no basis. I'm pretty sure that should be at least one of the important factors in the decision making process.

Generally, the portion of the lump sum being paid to the spouse which eligible for rollover is also subject to the mandatory 20% withholding. The part that matters is who is being paid.

You had time to set things up with that provider, you have hardware and software maintenance agreements and training to use their system - this all adds up to time costs and hard charges. Their payment is to cover this. Your fee is for ongoing administration regardless of the asset provider/system they use. Disclose these arrangements: yes. Charge appropriate fees: yes. Make a profit so you can stay in business: required.

Perhaps that was almost a thread hijacking? It's good info even if it is. Currently, under PPA 2006, I think plans may adopt the non-spousal beneficiary rollover provisions, it is not required yet the way I read it.

Yep. (thus the word "Generally"). Thanks for the upgraded info mjb! This does not change the requirement regarding statements, nor taxesquire's point to check with state law.

The 402(g) limit applies to the individual and it aggregates (combines) the 403(b) and 401(k) plans' deferrals together for this deferral limit. Thus, the 401(k) deferral plus the 403(b) deferral for 2007 (both combined) cannot exceed $15,500 for 2007 (ignoring the various catchup issues for sake of illustration). If the employee (not catch-up eligible) defers $15,500 into one of the plans, can you please provide a numerical example of this, just for fun (to show the $45,000 x 2 overall)?

Here's a few things to note: Form 5500: A deferral-only 403(b) plan that is not subject to ERISA would not have to file a Form 5500. A 401(k) plan generally must file a Form 5500. Accountant's Opinion: An ERISA 403(b) plan with (generally) over 100 partcipants is not required to obtain an accountant's opinion (auditor's report) to attach to their form 5500. A 401(k) plan (over 100 ppts) would be required to do so. These are kind of expensive and can be time consuming for you. Discrimination Testing: If an HCE is ever in the plan, the 401(k) plan must run some tests, like ADP, coverage 410(b), top heavy, and so on, but a deferral-only 403(b) plan would not have to do these tests. Coverage/Universal Availability: A 401(k) plan can have eligibility requirements such as 1 year of service and age 21 before the employee is eligible; and a 401(k) plan can choose to cover just certain employees as long as coverage passes (you always pass if you only cover NHCEs in a DC plan). Generally, a 403(b) plan must allow immediate deferrals to almost all employees (with some minor exceptions) under the "universal availability" rule - in a 403(b) plan you cannot have provisions that make employees wait for a period of time, like one year, or reach an age, like age 21, before they can defer. Because of these things and depending on your goals, a 401(k) might suit you better than a 403(b), or vice-versa.

Safe Harbor match = No, you cannot do what I call a "maybe" notice. If you want to do a safe harbor match then you must (before the beginning of the plan year) adopt safe harbor match plan provisions and provide the safe harbor match within the required time period (a reasonable period before the beginning of the plan year etc.) 3% Safe Harbor nonelective = Yes, you can give a "maybe" notice, as long as you also (generally): 1. Give a safe harbor notice within the prescribed time before the beginning of the plan year that tells the participants that a safe harbor 3% nonelective might be provided for the upcoing plan year 2. Remove the safe harbor provisions from the plan before the beginning of the plan year, and 3. If later you decide to provide the safe harbor 3%, you give a supplemental notice at least 30 days before the last day of the end of the plan year, and 4. The plan adopts the 3% nonelective provisions before the end of the year to bring in the safe harbor provisions for that year

1995 = 150,000 1994 = 150,000 1993 = 235,840 1992 = 228,860 1991 = 222,220 1990 = 209,200 1989 = 200,000 That's all !

Sal has a cautionary note on page 11.278 of the 2007 ERISA Outline Book: "It should be noted that, when the catch-up regulations were in proposed form, there was an example exactly on point, where a plan set the plan imposed deferral limit at 0%, but also included a catch-up provision. This example was absent from the final regulations issued under IRC Section 414(v). Treasury officials have not discussed their reasoning for removal of this example, or whether it represents a decision by the Treasury that a 0% deferral limit is improper, or that they simply didn't want to promote such a plan design by way of a regulatory example. Clearly, a plan could set $1 as the deferral limit and there would be no question it is acceptable, so setting a $0 limit shouldn't make a difference. Some would argue that with a $0 limit, the plan really doesn't have a 401(k) arrangement. But that argument fails to recognize that, even with a $0 limit, those employees who are catch-up eligible could make elective deferrals, so the 401(k) arrangement is still available, just not to all eligible employees." I'm not personally advocating Sal's position or Mike's (or mjb's), just adding Sal's comments. I hope that's okay to enter in here. Sal has other things to say about this in the book, but you can just get the 2007 EOB if you need.

Check your 457 plan document - see if it actually requires spousal consent (it probably does not). If not, then you should be okay unless the applicable state laws would somehow require spousal consent.

I have seen several providers where they have only given the 402(f) notice, the distribution election form that asks for the participant election and participant consent (and spousal consent). That may actually be the majority of those we've seen. Second place on the list are the providers that provide the Federal W-4P plus the applicable state income tax withholding form for pensions/annuities. Lastly, we have seen quite a few where the W-4P itself is not provided, but a subtitute form with the same options and explanations. The experience when a substitute or an actual W-4P is provided varies, but here's what's been happening: Although 85 - 90% of the forms are filled out alright, other participants attempt to select no withholding, then get upset when 20% is withheld (saying I plan to roll it over in 60 days...) Or, selecting 20% withholding when they elected a direct rollover. Or making some other combination of contradictory choices.

http://benefitslink.com/taxregs/final_403b.pdf