John Feldt ERPA CPC QPA

I enjoyed the arguments about the lookback year for compensation for determining who's an HCE in the next year, I thought it provided lot's of laughs! Started by non-tax pro on March 23, 2006 and had 8 pages and ended in July. http://benefitslink.com/boards/index.php?s...l=lookback+year

Such a simple question... We recommend that you sign the form; it is only helpful to do so. Unless you are eligible for the 6-year cycle, your plan document must be restated for EGTRRA by the deadline imposed by the 5-year cycle deadline. The 5-year cycle deadlines are as follows: Sponsor's EIN ends in 1 or 6, cycle A, restatement deadline = 01/31/2007 Sponsor's EIN ends in 2 or 7, cycle A, restatement deadline = 01/31/2008 Sponsor's EIN ends in 3 or 8, cycle A, restatement deadline = 01/31/2009 Sponsor's EIN ends in 4 or 9, cycle A, restatement deadline = 01/31/2010 Sponsor's EIN ends in 5 or 0, cycle A, restatement deadline = 01/31/2011 You would then have to restate every 5 years, unless you become eligible for the 6-year cycle The 6 year cycle: 1. The Form 8905 means you intend to adopt a "pre-approved" (a prototype or a volume submitter plan) plan when you restate your plan document for EGTRRA. By signing this form, your plan would be on the 6-year restatement cycle. Your next plan document restatement (for EGTRRA) would likely by required in 2009 or 2010, maybe as late as 2011 (the IRS will announce that final deadline when they are good and ready). You will then be required to restate your document every 6 years as long as your plan continues as a pre-approved plan. 2. If your plan document is already on a pre-approved plan and that plan document was adopted (signed) before February 17, 2005 (with an effective date that is before 2-17-2005), then you are considered a "prior adopter" and you are not required to sign the Form 8905. However, for convenience, the Form 8905 makes it easy for you to prove to the IRS (if they ever ask) that you are entitled to the extended plan document restatement deadline. It is only one page long. If you are ever asked to prove that you are a "prior adopted" without the Form 8905, you would probably have to submit your entire plan document. 3. If your EIN ends in a 1 or 6 and you are not on a pre-approved plan now, you could restate to a pre-approved plan by January 31, 2007 and be considered a "new adopter". This would also entitle you to the extended restatement deadline, unless your plan was originally adopted (signed) after February 16, 2005 as mentioned earlier. Similarly for 2 or 7 with a 01/31/2008 deadline and so on. If your EIN ends in a 5 or a zero, you really don't need to sign the Form 8905 for purposes of extending your deadline, but only as a matter of convenience (mentioned earlier). The six year cycle allows pre-approved plan sponsors to restate their document in 2009/2010/2011 (the IRS will announce the deadline) and the next restatement deadline will be sometime in 2015/2016/2017. Of course, certain plan features will not allow your plan to be on the 6-year cycle, such as ESOP provisions as one example. So if you have one of those features (or add them) you are no longer on the 6 year cycle and thus the Form 8905 is meaningless. Also, if you are a cash balance plan, a non-electing church plan, a multiemployer union plan, a 412(i) plan, or a Target Benefit plan, then you are in the 5-year cycle.

This client adopted a new cash balance plan 1-1-2003. Their EIN ends in 6. Is January 31, 2007 the deadline for signing an EGTRRA restated document (I presume yes). Is the Deadline for submitting the EGTRRA restated document for a determination letter also January 31, 2007 (I presume yes). What is the retroactive effective date supposed to be for this restatement?

Is Sungard aware? What section is it in?

Yikes! Sorry mjb, that was posted for levity sake only, my apologies to you. (obviously a benefits board like this needs no disclosure)

According to the IRS, yes - including extensions to the tax return - as long as a deferral election is in place by the end of the year. BUT, if the plan is subject to ERISA, then according to the DOL, the deposit must be made as soon as the amount can be reasonably segregated from the assets. For example (I'll use a partnership), the DOL feels that a Partner's deferral election should be done by the end of January (if it's a calendar year tax year). In the preamble to 29 CFR Part 2510 they stated that in their view, the partners' deferrals become plan assets at the earliest date they can be segregated from general assets after those amounts would have otherwise been distributed to the partner. It seems possible that a partner's or sole proprietor's deferrals could be deposited at the same time the tax return is filed, but I've seen no official statement from the DOL for that. NOTICE: Any tax advice expressed in this communication is not intended to be used, and cannot be used, for the purpose of avoiding penalties imposed on the taxpayer by any government taxing authority or agency. If any such tax advice is made available to any person or party other than the party to whom the advice was originally directed, then such advice is to be considered as being delivered to support the promotion or marketing of the transaction or matter discussed or referenced. Each taxpayer should seek specific tax advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Yes, it is correct. The top paid 25 HCEs of all time (must be HCE).

Being considered an employee is dependent on the relationship with the Employer. If the Employer-Employee relationship has truly ended in 2006, then you are required begin making RMD's by April 1, 2007. Perhaps the employer can keep him "employed" on some sort of "leave" and not sever the relationship with a hard date of termination.

ok, the original question is looking at 1.401(a)(26)-5(a)(2)(iii)(2) which says, - - "The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis." My question is what is uniform and does it mean all employees must benefit under the other plan? Good Example: 2 HCEs and 5 NHCEs. HCE 1 and all NHCEs accrue 2% of pay in Plan 1. In Plan 2, HCE 1 accrues 3.4% of pay and all NHCEs accrue 2% of pay - and all benefits in Plan 2 are offset by the accruals in plan 1 (retirement ages are the same as well as other features in this example). All employees benefit under the other plan and on a uniform basis - so not a problem. Questionable Example: 2 HCEs and 5 NHCEs. HCE 1 and all NHCEs accrue 2% of pay in Plan 1, but HCE 1 has his benefit offset by his accruals in Plan 2. In plan 2 HCE 1 accrues 3.4% of pay and all NHCEs accrue 2% of pay - and the benefits of only the NHCEs are offset by the accruals in plan 1. The employees benefiting in plan 1 are not accruing on a uniform basis- so this is a potential problem, according to how I think this regulation reads.

I'd say it's a Brother-Sister Relationship and that it's a controlled group. Owner A alone meets the 80% common ownership test and also the 50% identical ownership test. Owner B is ignored in the 50% test because they have no common ownership - since they own none of A. "Am I correct that both plans have to be tested as 1 employer for plan testing purposes?" --Based on the information shown, Yes. "If so, would it be true that X could not provide a high allocation to the owner and spouse, while providing for only a 3% safe harbor contribution in the Y Plan?" --Not necessarily. If the plan passes average benefits testing, then it's ok (assumes your documents allow for this). Nondiscrimination does not imply a straight uniform allocation formula is required.

That's correct. This is what will go on the Schedule P as the Trust ID#. Well, that is if the plan ever has to file a schedule P - this schedule will be going away. It will also be used for distribution reporting - I think this number is used for remitting any taxes withheld from the distribution to the revenue agencies.

If the plan termination date (normally established by the resolution to terminate) falls after the end of the plan's 2005 plan year-end, then the Final 401(k)/401(m) regulations amendment is required.

Pension Nerd, Yes, I believe that is correct.

PMC, you are referring to the rules that now apply under the final 401(k) / 401(m) regulations. Please correct me if this is in error, but I think the answer will depend on the language in the final 401(k) / 401(m) regulations amendment itself as adopted by the plan. The plan can choose to maintain the allocation conditions for the non-Safe Harbor match, but by doing so, ACP testing will be required (but no ADP test needed, right?) Not that anyone would want to do that with a Safe Harbor match plan, but I think that it is possible?

To be brief (for me): You essentially have two matching formulas. One is an Enhanced Safe Harbor Match, dollar for dollar on the first 4 percent. This is 100% vested and has no allocation conditions. The second is a matching formula that matches zero percent on the first 4 percent, then 100% on the next 2 percent. This you intend to apply vesting to, and you could apply allocation conditions as well. However, it will be subject to ACP testing. Do you think it will pass? I'm sure additional commentators will have plenty to say about this. As a more seasoned DB person myself, I'm curious to hear what the more seasoned DC folks will say.

Also, I think you will be allowed to word the amendment such that it also only applies to the contributions attributed to plan years starting after the 2006 plan year (and resulting account balances thereof). So far, none of our clients wanted to do that, though. One is still considering.

Of course, if your using a prototype and it somehow requires you to use the same schedule for both, then that may also dictate the direction you take. It is certainly easier for the participants if they only need to know one vesting schedule.

Under 1.401(k)-3(d)(3)(i), --- "The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year ..." "The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relative facts and circumstances." That is your technical deadline for the Safe Harbor Notice - a reasonable period before the plan year beginning. Now, if you want to make sure the IRS does not have any room to question whether or not you gave the notice "within a reasonable period before the beginning of the plan year", then you want to satisfy the next paragrph, 1.401(k)-3(d)(3)(ii), --- "The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of the plan year, the notice is given..." The word "deemed" means the IRS can't throw the timing issue in as questionable. We make sure we meet the 30 days with existing Safe Harbor 401(k) plans. But for new plans and plans that want to become Safe Harbor, we sometimes have to ask the client to make a judgement call regarding what they believe a "reasonable period" would be.

Well, under the text of the law itself, I don't see that a 5-year cliff plan is required to go to the 3-year cliff. It looks to me like they must do either the 6-yr graded or the 3-yr cliff, see the phrase "clause (ii) or (iii)" as shown in the text below: [PPA] SEC. 904. FASTER VESTING OF EMPLOYER NONELECTIVE CONTRIBUTIONS. [PPA §904] (a) Amendments to the Internal Revenue Code of 1986- (1) IN GENERAL- Paragraph (2) of section 411(a) of the Internal Revenue Code of 1986 (relating to employer contributions) is amended to read as follows: (2) EMPLOYER CONTRIBUTIONS- (B) DEFINED CONTRIBUTION PLANS- (i) IN GENERAL- In the case of a defined contribution plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii). (ii) 3-year VESTING- A plan satisfies the requirements of this clause if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions. (iii) 2 TO 6 YEAR VESTING- A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit derived from employer contributions determined under the following table: .................... -- The nonforfeitable Years of service -- percentage is: ....... 2 ............. -- ..... 20 ....... 3 ............. -- ..... 40 ....... 4 ............. -- ..... 60 ....... 5 ............. -- ..... 80 ... 6 or more .... -- .... 100. Of course, if they move to the 6-year graded schedule then they must deal with those participants who have 3 or more years of vesting now - those participants can elect to stay on the 5-year cliff or to move to the 6-yr graded, unless the employer provides that they are vested under whichever schedule provides the better vesting at each year, then no election would be necessary.

Most of our DC plans were already using a top heavy vesting schedule, but for those few who were not and who were also safe harbor, we had them decide before we sent the safe harbor notice for 2007 and we sent a vesting schedule amendment with their 2007 notice. We did this because, as you know, the Safe Harbor notice for 2007 must state the plan's vesting provisions. The main concern was for those clients who had a 5 year cliff in 2006 - would they want to adopt a 3-year cliff or the 6-year graded. Those that were already using the 7-year graded will just move up to the 6-yr graded. Other than that, our biggest efforts are for design changes to add DB plans or to amend the existing DB plans to increase the DB and leave the DC at 6% - we're usually doing the DC as a safe harbor cross-tested with the owners getting 9% and the employees getting 3% (as long as the testing passes and as long as that keeps them under 6% overall) and that way they get the deferrals deducted and no ADP test is needed.

Apply online: https://sa.www4.irs.gov/sa_vign/newFormSS4.do Instructions, 7th line down talks about getting an ID for a plan https://sa.www4.irs.gov/sa_vign/page?conten...menubarHelp.jsp

Are you saying this is a DB plan? If so, DB plans cannot have a last day rule for accrual purposes. Perhaps someone can give us the cite for that. If this is a DC plan, then you cannot take away any accrual rights that have already been earned for the current plan year, but you can add requirements if no accrual rights have been earned yet. For example, if the plan year ends 12/31/2006 and the plan does not have a last day requirement now but only has a 1 hour of service requirement, then you cannot add a 1000 hour requirement for 2006 nor can you add a last day requirement for 2006. However, if you amend the plan by 12/31/2006, you could add a last day and a 1000 hour requirement for next year, 2007. And yes, the formula that uses smoothly increasing allocation rates does not change the normal requirements that the overall plan satisfy coverage (410) - you do not test each allocation rate group for coverage. Have you read Bill Karbon's article in the September-October 2006 ASPPA Journal?

Put it in the document. Make sure your safe harbor notice is clear in this regard too.

For clients where at least one participant is a "beneficiary" in both plans, we are taking this approach: 1. the minimum required contribution to the DB plan is deductible, plus 2. the employee deferrals in the 401(k) are ignored (i.e. deducted), plus 3. contributions up to the first 6% of eligible compensation for ER contributions in the DC plan (match, nonelective, etc.) are also ignored (thus deductible), plus 4. anything above 6% in the DC is deductible but only up to the point where DB + (the DC% above 6%) is equal to or less than 25% of elig comp For example, if the DB minimum was 18% of pay, and they somehow goofed by contributing 15% of pay to the DC plan, then the DB contibution is deductible, plus 6% of DC is ignored for purposes of 404(a)(7) under PPA 2006 (thus it's deductible), AND of the remaining 9% (DC money) only the 7% portion is deducted, leaving 2% that cannot be deducted. This becomes a 31% deduction plus a 2% nondeductible contribution. 1. 18% minimum DB - deductible 2. x% deferrals DC - ignorable (deducted) 3. 6% ignorable DC - ignored (deductible) 4. 7% considered DC - deductible (DB + DC <= 25%) 5. 2% considered DC - nondeductible - the DB + this DC portion now exceeds 25% In this example, if they had contributed only 13% to the DC, our approach would be to deduct it all, DB and DC. Numbers 3 and 4 might be in question, of course, but that is our approach for today. By "beneficiary" we take the approach that the employee is benefitting (receiving an accrual / receiving an allocation).

I do not know of any means by which a true merger of the plans could occur, one big reason being that the cash balance plan is a defined benefit plan requiring actuarial cost calculations to determine minimum funding. The assets of the 2 plans theoretically could be pooled together if accounted for properly and by using a master trust of some sort that allows the two plans to invest together, but if the 401(k) plan allows the participants to direct their investments, then pooling the 2 plans assets may not work well. If the cash balance plan terminates and if the cash balance plan offers lump sum distributions and if the 401(k) plan accepts rollovers, then the distribution paperwork for the cash balance plan could be designed to make it easy to rollover the money to the 401(k) plan.