John Feldt ERPA CPC QPA

How do you determine each client's rebate? Based on average annual assets? Based on monthly or quarterly average assets (or daily?) Or is it based on a ratio of hard-dollar client fees paid vs actual time-spent by your staff (so the most profitable/easy clients get the most rebate and are kept the most happy)? What if the asset provider, in addition to a basis points type payment, also pays a one-time special bonus based on several criteria linked to your firm's new business added during the year, with one criteria linked to your overall book of business. Would you rebate that amount just against the new clients' bills (the new clients being the main reason for the bonus), or instead would you rebate that in a similar fashion as inquired about above? I think some have found simplicity in just charging the slightly lower fees to begin with (taking some risk in case if they don't meet the requirements), and disclosing the potential fee arrangements, and thus not jumping through too many hoops to determine how to offset the fees in a fair manner.

What would the penalty be if an updated SPD was required (due to amendments during the last 5 years since the last SPD was written), but an updated SPD wasn't done/distributed timely? Is it $110 per day per participant?

Check the plan's Final 401(k)/401(m) amendment to see what it requires you to do.

Merged, thus forcing the funds into the 401(k) plan? I don't think so, for exactly the reason you have found, but we'll see what other commentators say. The 457(b) plan can be terminated and distribution election forms can be provided which offer the usual options plus an option to roll over to the 401(k) plan (if the 401(k) accepts rollover contributions). I see that's not what you want though. But wait, what if an employee wants to use the money before age 59 1/2? 457(b) plans do not have a 10% early withdrawal penalty, but as soon as that money leaves the 457(b) plan, it loses that nice feature. Is there some reason they don't want the 457(b) plan anymore? Is it, perhaps, to lower the 401(k) asset fees by bringing the 401(k) asset level up to the next fee breakpoint? If so, see if the provider can bundle both plans' asset amounts together when determining the asset level for the fee breakpoint (assuming both plans' assets are with one asset gatherer).

Do all of the HCEs have enough ownership to be required to be an HCE? If not, maybe you want to adopt a top-paid group election and limit your HCEs to a smaller number - that may help your test for the next time around. As for last year, point number 4 by Tom Poje is truly the correct step for determining who gets money back, fair or unfair as it might seem.

Would it be possible to consider the amendment as a -11(g) amendment? I see no failure, but from other discussions I'm not sure the plan must fail to be eligible to adopt a -11(g) amendment.

If you mean 457(b), then section 4.10 of Revenue Procedure 2006-27, states "Availability of correction of § 457 plans. Submissions relating to § 457(b) eligible governmental plans will be accepted by the Service on a provisional basis outside of EPCRS through standards that are similar to EPCRS.” So what does that mean? I would submit VCP. If you have a tax-exempt nongovernmental 457(b) sponsor, then I don't see an option under EPCRS.

A little hijacking here: Suppose the deferral contribution was for a person who is not even an employee of the Employer. For example, a non Controlled Group, non Affiliated Service Group, with company #2 owned 50% by the same shareholder as company #1, with 50% owned by an unrelated individual, where the companies don't do any business together. Only Company #1 has a 401(k) plan but both companies use the same payroll provider, and that payroll provider allowed an employee of company #2 to defer into the plan of company #1. Now would you put this under contributions received 2(a)(3) "Others" ?

Mike, you're suggesting using current compensation for the current year's accrual - right? Just a word of experience regarding builders that we have set up DB plans for in the past. Make sure when the plan is actually established that they truly have cash available to fund the first year contribution at least, not theoretical cash. They have strong tendencies to tie up almost all available cash into their next project or projects. When that first funding deadline comes around, they think some of their properties will have sold by then (problem #1). Or, if some properties did sell, they will have already tied that cash up again in another new project because that's how they've always operated (problem #2). And, even if some properties did sell and they did fund their plan, then they want to use the plan's cash to fund the startup of another building project (problem #3). Resisting the lure of getting into a new project right now with that available cash is very difficult to overcome for some builders.

Yep, that was it. We had a plan where the owner-father wanted no more contributions, but the kids did - and thus the ADEA issue. The plan had been using age within its class definitions, up until that point. Thanks!

Yes, all SH contributions are 100% vested (under the pre 2008 SH plans). In 2008, the new QACA SH plans will allow 2-year cliff vesting on the SH contributions to these new automatic enrollment SH plans. Of course, you can still use the current SH plans if you want, which many will.

First, just to clarify, if you are relying on the Safe Harbor provisions to get the free pass on the ADP and ACP test, the plan needs to do more than just give a 3% NEC, the plan must adopt the Safe Harbor provisions and provide a SHNEC. You probably got that already. Also, if you have a classification that uses age somehow in its definition, I'm a little uneasy. At a conference or seminar a while back (I cannot remember when), this was viewed as violating something. Maybe another commentator can tell me I'm wrong, or they can shed more light on this.

2 and 3 are a Controlled Group. The affiliated service group rules will require you to look further. You could have an A-Org group, B-Org group, or possibly a management group. I recommend that you begin with reading the proposed Treasury Regulations 1.414(m)-1 through 1.414(m)-4 to familiarize yourself with what things you will need to look into. Also look at IRC 414(o).

Through the course of the years, we've seen quite a few prospects where they are surprised that their SEP document (which they think covers only the company that employs only the owner) also requires that they cover the employees of that second company (which is owned by the same owner). We've also heard claims from experts who state that they've found a foolproof way around those controlled group/affiliated service group rules. When it sounds too good to be true, before the client forges ahead, be sure to recommend a competent ERISA counsel to look into it.

Thanks Belgarath, that agrees with our conclusions from late yesterday.

Hmmm. Well, with the packet of annual notices required now for 404©, safe harbor, default investments, automatic enrollment, etc., maybe throwing in a new SPD every year might not seem too expensive for the client to ask us TPA folks to provide, perhaps. If anyone cares to add their input, I am curious: 1. Yes or No: Do any of your clients want you to provide a new SPD every year? 2. How many, what percent? My response: 1. No 2. 0, 0% Lastly, do you think we should be educating them to steer them toward such a conclusion?

If one of the 3 matches is safe harbor and the others are as described, you would be safe harbor, so no ADP/ACP. If you're not covering everyone, you have to test for coverage; such as doing a carve-out, as Belgarath mentioned.

"I am able to effectively get the owners up to $45,000 in contribution each, correct?" I didn't check the math, but the approach appears to be correct, yes. "is there a reason that I couldn't go up to 194.4%?" I find no reason that the fixed match could not go up as you show in your formula, as long as it ignores deferrals above 6%. The 85.19% was probably designed to max out owners whose pay was at the maximum 401(a)(17) comp limit. edited for typo

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)