John Feldt ERPA CPC QPA

You must follow the method determined by the excess asset allocation terms described in the plan document or subsequent amendments. If the plan term date has already gone by, then I don't think you can change that language without rescinding the prior termination date. If you are trying to figure how to word the amendment, then refer to the DB answer book, chapter 25, Plan Termination, Surplus Assets: "How is it determined whether the allocation of excess assets is made in a nondiscriminatory manner?" and "How do code provisions and the plan design affect plan terminations?" ...When there are surplus assets on plan termination, reallocation of the surplus can become a creative exercise. There are an infinite number of allocation methods; most of the considerations, for example, deciding who the plan sponsor wants to benefit, that are made in initial plan design must be followed on the reallocation of the surplus assets. The nondiscrimination regulations affect the design considerably...

I'd recommend that you also see that the plan has the language to do this as well. We've seen a few documents that did not have the posting of a bond language.

From first hand experience (gulp), I have seen the IRS reject a retroactive amendment when the deadline to allow such an amendment had already expired (although in several other cases, exactly identical, they accepted the amendment when reviewed). The amendment that was rejected was to correct a typographical error, and the IRS went to sanctions under audit cap when they saw this. We tried to do what we thought was best by making a correction in a cost-efficient manner using ordinary reasoning. If we had not done that amendment, the IRS would have never figured out that something was wrong. Ordinary reasoning does not seem to apply uniformly at the IRS. Lesson learned. You can certainly do what you think is right, but watch out: if a mere typo goes to sanctions, your non-typo amendment could too! Based on my experiences with the IRS, I would not take that risk with what you described. I would recommend EPCRS to the client and get a hold harmless agreement if they decide not to do that.

Kudos to ak2ary for working on that letter. Whoever helped to get ahold of Allen's comments to Grassley - again, great work! http://www.asppa.org/pdf_files/0514_2007-27NoticeFIN.pdf

If the plan just recently became this overfunded, that's great. If it happened many years ago, then discussions with your firm and with your client should have started back then, explaining how DB plans really work. I remember a DB client that became overfunded in the early 1980's and could not contribute ever again. We took over the work in the mid-late 1990's. One option we provided was to terminate the DB plan and establish a QRP (Qualified Replacement Plan), transfer 25% of the excess assets (the amount over the 415 limit) to the QRP and revert the rest to the employer. The reversion amount has a 20% excise tax instead of 50% because 25% of the excess assets were transferred to a QRP. The reversion amount was also subject to corporate income tax. The QRP suggested was a profit sharing plan. The amount transferred to the QRP then had to be allocated over a period not to exceed 7 years, so he needed to have compensation to support the allocations. This approach would get $1.575 million back to your client's corporation, but then they would be paying $315,000 in excise tax plus income taxes on the $1.575M. The other problem would be to allocate the transferred amount of $525,000 - it might not all be allocated within seven years. Look at 4980(d)(2)(C )(ii). If, by reason of any limitation under section 415, any amount credited to a suspense account may not be allocated to a participant before the close of the 7-year period, such amount shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of any such limitation, shall be allocated to the participant as provided in section 415. Any income on any amount credited to a suspense account shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period. If any amount credited to a suspense account is not allocated as of the termination date of the replacement plan, such amount shall be allocated to the accounts of participants as of such date, except that any amount which may not be allocated by reason of any limitation under section 415 shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of such limitation, such portion shall be treated as an employer reversion to which this section applies. I hope you'll hear some ideas from some other folks out there. Such as finding a buyer who would love to buy his company and merge his underfunded plan with your client's overfunded plan.

Yes, for DC plans we are also around the 40% to 50% scenario. Almost half pay it from the participant's DC account, the plan sponsor foots the bill on the other plans. Of course, for all of our DB plans, the plan sponsor pays the cost.

Sorry, I don't think so. Check out this post: http://benefitslink.com/boards/index.php?s...=35028&st=0

Or perhaps an individual is sued (and loses, goes to jail, etc.) and the courts later enter a judgement for the winner. Having the money in a qualified plan still protects thios individual, but if the funds are in an IRA, then State laws apply, even for rollover money from a qualfied plan, unless the individual declares bankruptcy (I think), then they get protection? (mjb, please correct me if that is incorrect).

Church plans are generally not subject to ERISA. They do not have to follow the ERISA participation rules, the vesting requirements, minimum funding requirements, fiduciary obligations. They also do not have the reporting and disclosure requirements of ERISA. See ERISA §4(b)(1). A church plan sponsor can voluntarily decide to make the plan become subject to ERISA by making an affirmative election (and, if it's a DB plan, by notifying the PBGC). There are certain code sections that apply to church plans and government plans, and some of these are under the pre-ERISA rules.

Check out this post: http://benefitslink.com/boards/index.php?a...st&p=147067

What are the terms of the plan for short plan years?

To get both a W-2 and a K-1, perhaps they were not partners for the entire year, then they could get a W-2 for some of the year as an employee and then a K-1 for their share of the company earnings for the rest. Or the company could have changed from an corp (or LLC-Corp) to an LLC-partnership during the year. Other than that, getting both a W-2 (with wages) and a partnership K-1 seems a bit odd.

Good question. Compensation is one of the most commonly messed up factors for retirement plans. That someone in your office may be confusing the K-1 for an S-Corp with the K-1 for a partnership. K-1 income from an S-Corp never counts as earned income for plan purposes. From your statement, the LLC partners receive mostly K-1 income. An LLC is either treated (taxed) like a corporation, a partnership, or sole prop. If yours is taxed as a partnership, then the K-1 might be ok to use. Might be ok? If the person receiving the K-1 is not materially participating in the creation of the income, they are only receiving passive income (like investment income), then they are not working there. Only wages from work (earned income) will be allowable for plan compensation purposes. Even a Sole Prop's schedule SE income could be considered passive income if they are no longer involved in making that business run. W-2 is by default employee wages and thus earned income. 415 comp would include the earned income (non-passive income) of a partner. So, you will have to determine whether or not any of the K-1 amounts are non-passive earned income.

A governmental employer sponsored plan is not subject to ERISA, and thus they do not have to provide SPDs, SARs, or benefit statements. But, according to §1.401-1(a)(2), the plan must still be somehow communicated to employees in some manner. If you do provide some sort of a plan summary, many of the "rights" that you see in private sector plan SPDs should probably not be listed in the gov plan's summary, assuming they weren't included in the plan document either.

At the Los Angeles Benefits Conference in January 2007, W. Thomas Reeder stated that they will probably be published within the next 6 months. At the Washington Non-Profit Legal and Tax Conference in March, Robert Architect said they should be out by the end of June with an effective date of January 1, 2008. My source is attached, see Page 5: http://www.reish.com/publications/pdf/labcmar07.pdf Also, TAG (tagdata.com) also sent a message regarding Robert Architect's announcement. I think termination provisions will be included, otherwise I know of no provisions now for terminating a 403(b) plan. You could try getting a private letter ruling. Our firm has not had to do that with any of our 403(b)plans yet.

David, That has been our interpretation also. However, we have only had the need to utilize that with a few clients, and it's never been brought up in an IRS examination with any of them.

Listen to Blinky, wait the 60 days. For employees who are actually separated from service, you may distribute their benefits as usual. It is possible to submit the 500 before the date of plan termination (DOPT). Last year we submitted one 60 days before the official date of plan termination (we gave out the notice of intent to terminate and the individual notices of plan benefits, among other things, before the 500 was submitted). Then, since we did not receive a notice of non-compliance from the PBGC, we began distributing after the 60 day period was over (but not before the DOPT).

So if you need an extra year for 415 purposes, instead of freezing the plan, the plan should adopt a really small formula, and then freeze at termination? Cite please.

So they are the usual tax-exempt organization. Consider using the DFVC program. Here's a link for a start: http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html You asked: Q1. "Can they still be responsible for fines if they go through a voluntary correction program for the 5500's?" A1. Not directly because of the DFVC filing, but perhaps indirectly: after filing DFVC the plan could be audited. Who knows what they might find then. Was the plan in compliance operationally all of those prior years? In addition, the document issue should be resolved as well. Perhaps at the same time the DVFC filing is sent, an EPCRS filing can be made to correct the plan document failure. Here's a link to some EPCRS information: http://www.irs.gov/retirement/article/0,,id=96907,00.html Q2. "They were told by the current provider that they do not need to file one." (a 5500) A2. Consider asking that provider to issue a written statement confirming this, ask them to cite their reasons that they think the plan is exempt from filing. If you find that their reasons appear to be in error and this firm really still believes that they are correct, see if they would be willing to accept (in writing) all financial responsibilities for any potential costs to the plan or plan sponsor (including time and expense for corrections) if a failure to file issue ever arises where the government requires that they file. Q3. "Would it be easiest to look for a custodian that holds plan assets in an omnibus account and recordkeeps participant balances seperately?" A3. Probably a good idea. Make sure due diligence is done to avoid paying high fees for low service, etc.

What you have described looks like reversed substantial risk of forfeiture. I assume you are talking about 457(f). If I read this right, his termination (for any reason) currently triggers 100% vesting - thus no risk of forfeiture (and thus taxable now). But, if the termination occurs after a specific future date, it triggers 0% vesting? I don't think termination of employment is allowed anymore under the rules to trigger 100% vesting. I'd like to see others comment. I am not sure when this becomes effective.

Good point Tom. I cannot see the IRS saying an easy "Yes" to this. Does the IRS ever really just say "Yes" without adding strings and caveats?

Are they a government employer? If so, the 5500 should not be required for the 403(b). Are they a church entity? If so, they have certainly not made a voluntary election under 410(d) to subject the plan to ERISA and then the 5500 should not be required for the 403(b). An election under 410(d) would be made as an attachment to the first 5500 filed (which you say they have filed) or alternatively, such an election could be made as a statement attached when the plan files for a D letter for the document (which you say they don't have). Be careful though, they might be church-controlled, which is different than being a church. A church (or a church school) would be considered a church and no 5500 is required. But, generally, any other church controlled entity would still have to file. I am not involved in cafeteria plans. Bummer about the plan document not being there.

How about where the document drafting peoples' boss is an attorney, but the attorney has no real significant document drafting knowledge or retirement plan drafting / design knowledge, and thus the attorney does not review any of the documents?

Yes.

To close this out: We replied to the IRS examiner and explained how 2002-42 applies to the merger of a money purchase plan, not a profit sharing plan, and further provided an example from 1.411(d)-3(a)(3), example 4(i), and included language from the conclusion after 4(ii) to support our position. For the 410(b) issue, we gently encouraged him to rely on the regulations to interpret the meaning of the code, specifically 1.410(b)-2 in this instance. We quoted 1.410(b)-2(a) and pointed out 1.410(b)-2(b)(1), which requires just one of (b)(2) to (b)(7) to be satisfied. We explained that 1.410(b)-2(b)(2) supports our position and we provided him with the definition of "ratio percentage" as found under 1.410(b)-9. The case then went to his supervisor, we received a 'no change' letter from the supervisor stating that they have closed the audit, accepted the returns as filed, and that no action was needed. At least we didn't have to get an ERISA attorney involved. Score! WDIK - correct zimbo - correct