John Feldt ERPA CPC QPA

We have a client that has a small amount of excess (over the 415 limit) in their 3 person DB plan - about $30,000 extra (all employees are at the 415 limit). They are a corporation - for profit (not a tax-exempt employer). They are still a functioning company and will have enough wages to support the allocation in the QRP. So, if they transfer 100% of the excess assets to a qualified replacement plan, according to 2003-85 it looks like they pay no excise tax, since no reversion occurred (and also avoid income taxes of course). Is this how you would read this? Is Revenue Ruling 2003-85 still the most current guidance for this?

Nice posting wsp!

Also, the place where the funds are invested may want a trust ID number for the plan's assets.

You may want to use one for reporting distributions, having a trust ID identify the trust of plan as the payor of the distibution, for forms 1099-R and 1098.

The new expectation is that the Final 403(b) regulations will be coming out this summer (2007).

I haven't looked up anything regarding #1, I assume you are talking about vesting service. I don't recall that would be a problem, unless one of the plans terminates with 5 years of the startup of the other or something like that (don't hold me to this answer, it is Friday the 13th). For #2, the dividend payments on the stock won't count as annual additions. Also, if this is a leveraged ESOP, then a portion of the allocation is payment toward principal and some is payment of interest on the loan, so only a portion of that entire allocation counts as an annual addition. I have not looked at the ESOP sections in the recent final 415 regs, though, so take the above response with caution.

I have heard that it has become a political issue. Certain companies are upset that their GICs or their money market, or [you name the fund type here], was not on the DOL's initial guidance and those companies/industries are placing a lot of pressure on the DOL to add their investment vehicles to the final guidance. The DOL probably does not want to add some of those because they do not feel that they are appropriate for long-term retirement investing. A standstill appears to be the result so far.

That's all good. Be sure to look out for any deferring employees who quit right after that one goofed up paycheck is paid, and thus they do not have enough pay in the next payroll to cover the double deferrals.

That means the 2007 Form 5500-EZ has a $250,000 threshold for requiring the Form to be filed. The 2006 Form 5500-EZ still has a $100,000 threshold.

Also on the board today: http://benefitslink.com/boards/index.php?s...c=34145&hl=

Thanks Tom, that is somewhat along the vein of what I was curious about.

Yes, the ebar possibility is what has caused the question. If no one on this board has been doing anything like this, that's fine. Perhaps a 50-year old owner with 5 years and a 51 year old NHCE (just hired) would be a better example, using age 50 and 5 years as the NRA. The owner gets tested using age 50, the employee gets tested projecting to age 56. Anyway, just wondering if others have gone there.

Yes, very lengthy, 397 pages in this pdf file, the actual regulations start on page 186. http://www.treas.gov/press/releases/reports/td9321.pdf Also this came out as well (very short): http://www.irs.gov/pub/irs-drop/n-07-34.pdf

Suppose a business owner (age 29) has 4 years of service by 12/31/2007 and starts a new DC plan (in this year, 2007). No other qualified plan. Suppose one employee (age 28) has just been hired (March 2007). Assume we do not go with 2 YOS for entry, so this ee would enter sometime in 2008. I would like to run the cross-testing for 2008 using a testing age equal to the normal retirment age, and I would like to use a normal retirement age equal to the later of age 30 or 5 years of service. What do you think? Issues?

Ok, after reading through some of 1.401(a)(4), I can see that. Now, suppose the plan covering the HCE contributed 20% of pay for 2005, and the plan covering the NHCEs contributed only 0.00% of pay for 2005. In this case, the 2005 contribution was actually deposited in 2006, so perhaps that amount can be recharacterized as a 2006 allocation/contribution (plus the 2005 tax return gets amended to show no deduction). Assuming they have not made any other contributions in 2006 (so the 415 limits are not exceeded), do you see any pitfalls with doing this, or do you see a better solution?

Here's an interesting prospect: Employer has 2 Profit Sharing Plans (no deferral provisions): Plan 1: Covers only the 1 HCE of the Employer, the document is a vol sub cross-tested doc Plan 2: Covers all NHCEs (7 or 8 ees), the doc is a NS prototype, allocation is uniform pct of pay To pass 410 coverage, plan 1 must be aggregated with plan 2 in order to pass (obviously). Then, for plan 1 to pass 401(a)(4) nondiscrimination, the prior TPA ran a cross-tested 401(a)(4) test including the HCE and all NHCEs. The contribution that is then decided upon for Plan 2 is at least equal to either 5% of pay or 1/3 of the pct given to the HCE in plan 1. 1. Doesn't plan 2 need to have gateway language somewhere in order to be in compliance (in form) so the plan can actually support its position that it really gave a "gateway"? or 2. Is the gateway language somehow not needed in plan 2's doc?

Mike: I think so, however the deadline is now too late for -11g, so it can't be included if contributed now for a 2005 calendar year plan, right? Austin3515 and Dougsbpc: Rev Proc 2006-27 Section 7, 8, and 9, and then Appendix A, section .02

Yes, that is a fine point - thanks!

Right. Benefits accrued under separate employers are not aggregated for 415 purposes. Be careful to understand what it means to be "separate" employers. Generally, if the owner of a business ever earned a DB benefit in a previous business that he also owned, then aggregation would be required to offset the current plan's 415 limit by the previous benefits earned under the old DB plan. When establishing a new DB plan it is important to ask the client if they ever had a prior DB plan or if they owned a business that maintained a DB plan. Then find out the details about how much ownership they had in the old business. In your case, the county was not a business that he owned, so no worries!

Well, thanks everyone for all of the various replies. Mike Preston, if you could expound, that would be great. "... not saying an -11g amendment is precluded" - the double negative here has me hesitating -can you provide a more revealing response? Here's perhaps what we might consider: 1) File an amended Form 5500 for 2005 and revise the 2005 valuation (back out the receivable). Or 2) File a VCP application with the IRS. Ask to allocate a contribution made now for 2005. Or 3) Take a chance and do the contribution and the allocation. Here I would ask the client to sign a hold harmless letter because if audited, the results could be fairly icky (technical pension term). Any comments?

http://benefitslink.com/taxregs/td9319.pdf Looks like the final regs will keep the 401(a)(17) comp limit as an extra limit for 415 as well. This will limit the maximum accrued benefits for older employees so the actuarial increase in the 415(b) limit (post age 65) is also capped at the high 3-year average of the 401(a)(17) comp limit. It allows a grandfathering of accrued benefits earned under plan provisions in place before April 5, 2007. Anyone else looked at this yet? Agree? How do you perceive the grandfather provision working? ak2ary - when do you anticipate being able to present on this topic?

Suppose the employer accrued a discretionary profit sharing contribution for 2005 (showing the contribution on their statements), but failed to make the contribution prior to the tax return deadline and even worse, did not deposit the contribution by 12/31/2006 for the 2005 plan year. Can the employer still deposit and allocate the profit sharing contribution for 2005, even if they cannot deduct it. If yes (however unlikely), should they make up earnings for such a late deposit? My thought is no, a contribution made after the end of the plan year can only be considered as made for the prior year if it is deducted under Section 404(a)(6), or is it is required by the plan document. What do you think?

Yes, what I thought was very interesting (maybe shocked by) was how they did a small discretionary match (which they contributed) in the first year, which was subject to vesting, and then forfeitures were allocated to all eligible participants. The number of people with balances jumped from 70 people (those deferring) to over 150 people with balances, most of them 3 or 4 dollar balances. How many other plans have been designed like this?

RCK: We're driving the 5500 count down by excluding a bunch of people who already have no balance anyway since they've never deferred. We do not expect that action to lower the overall assets of the plan. Our recordkeeping fees are much lower than the asset gatherer was charging. The new platform is designed for assets of this plan's size, unlike the platform of the prior provider. Win-win. Our recordkeeping fees will not be based on plan assets for this client, so balances are not a concern for us admin folks (but the assets will be a concern for the financial advisor/broker so they can get paid adequately for the employee education services that they will provide). In this case, the majority of our admin fees will be based only on the number of participants with balances (instead of being based the number of eligible ppts) - so, much much lower fees overall. ok, end of boring paragraph...

Yes, the desire is to avoid the expensive accountant's opinion in 2008 (they've been paying for the last coupl years and will again for 2007). It's a deferral only plan. The goal of the plan is to allow deferrals for certain rank and file, not for any real benefit to the HCEs. The HCEs barely participate in the plan anyway due to the ADP limitations, the NHCE ADP was under 1%. So, their goal is to provide the option for most of the rank and file to continue to defer, as long as the administration of the plan does not get too costly. They want to be able to say to employment candidates that they do have a 401(k) plan. Why they originally even set this up as they did (this and other oddities) are all issues created by the asset gatherer who originally helped them design their plan (TPA work is a secondary business interest for this asset gatherer and it shows in their lack of design acuity). Those with account balances number well under 100 already, including any HCEs.