Below Ground

I guess...

May be taking over Plan that uses Individual Aggregate Funding Method, which has a credit balance of $750,000. Looks like 404 Normal Cost was ignored in past as contributions were simply put in as long as they did not exceed the FFL (resulting in the noted credit balance). By looking at past Schedule Bs, there appears to be about $1,000,000 in contribution that would be nondeductible. With this in mind, ... 1) Should prior valuations be redone? If so, must original actuarial assumptions be used? (It appears that a lower interest rate could eliminate the nondeductible contributions.) 2) Should past be "ignored" with future valuations simply reflecting the massive credit balance? 3) Should this Plan be reported to any agency? Thoughts on this problem will be greatly appreciated.

Sounds like a nonqualified plan.

Thanks.

Does anyone know where a small defined benefit plan can get an IAS 90 service? I understand this is like a FASB, but has an international scope. Unfortunately, I don't know anything more about it so any help would be appreciated.

The websites are right. Catchup is not considered under any limit, and deferrals are not part of the Net Schedule C Division. And yes, Catchups do allow you to exceed 100% of pay. This is possible as a person could defer 100% of pay and get an employer contribution. Since you must have pay to defer, the 100% limit does impact, but when talking about a total allocation potential. Say person age 53 makes $20,000. Defers $15,000 as 75% of pay, gets employer of $5,000 which is 25% of pay, and also does $5,000 Catchup deferral. Total of contributions is $25,000. Allocation is 125% of pay! This is why one life 401(k) Plans make sense. Of course, one must be able to afford to do this. With your Schedule C example you need to add back the deferrals to the Schedule C Income. Then you don't show a deduction of more than 100% of Schedule C Income. Strange but true!

Agreed 100%!

Sorry. Thought I answered the question. The OP said 2 firms that are "not in any way related". OP also said he gets paid as a director for one firm (an employee), and has a law practice (owner). That lead me to believe that you have two separate unrelated employers which person works for which could sponsor plans; hence, my statement that the $44K is an employer limit. Regardless, I can see why my answer might not be a clear answer, so sorry.

IRC 415 is an employer limit. Be careful, as IRC 402(g) Limit for deferrals is for the individual person.

No. Person did not terminate service under the Plan since there is no "break in service" with respect to all employers that adopt the plan. From the plan's perspective there has been no service termination. To better understand this consider that the person's date of hire and date of entry for plan purposes is the emploment date and entry date from service with Employer #1. This carries over to participation related to employment with Employer #2. Also consider that while the person no longer has service with Employer #1, the person still is credited under the Plan with service earned from working for both Employer #1 and Employer #2. These provisons are normally found in the section of the plan document that allows for unrelated employers to adopt the plan for their employees. Hope this helps.

Understood. The specific plan is a 3 life shop that has an old owner and 2 young lower paid workers. Despite notices and the enrollment seminar provided, NCE choose not to defer. Using SHM and a stacked discretionary match, the owner gets a material benefit under this plan as found. The question becomes can a DBP be used to further maximize the retirement program's value (as a whole). Past deduction limits caused a combination of plans to not work. Now we can consider using a DBP or your suggested NCP. In effect, we can now offer more choices to clients.

Thank you. Always nice to get a confirmation on a position. Thanks!

As I read the PPA I believe that the combined plan deduction limit is now the defined benefit plan's funding requirement plus 6% to a defined contribution plan. If I am reading this right a firm could fully deduct contributions to both a DBP that has a funding requirement of 40% (I just picked this value for example) of compensation and a 401(k) Safe Harbor Matching Plan that uses a Match of 100% of the 1st 4% deferred. In fact, if I am right, the employer could put in another 2% (assuming 4% is all used up under the SHM) and deduct that contribution too. Regardless of other potential problems, is this right?

Zoran2, so that there is no confusion... If you mean having both contributions be under your employer's 401(k) plan then the $11K / $4K Application is used. (Assuming you are not over age 50). If you mean $15K under the 401(k) and $4,000 under a separate Roth IRA, then as Bird posted, you can do it. (Subject to limits Bird noted.) I just wanted to make the distinction between Bird's post and mine. They are not in conflict. We just read your post differently. I suppose that since your post is under IRAs, Bird correctly interpreted your question. I assumed that you were talking about Roth 401(k), not Roth IRA. Regardless, if you are talking about a Roth 401(k) Contribution, you should first go to your plan administrator. Hope this helps.

The limit sounds like the 402(g) Limit, not a plan limit. Assuming you are not age 50 or more, the "11K / 4K Application" is used. Beyond that, I don't think you can do what you are saying. If contributing under the 401(k) Plan, the account must also be under the Plan's trust. That would not be an account you can open on your own. I think you should first look to see if your employer's plan even offers Roth. Then, check with the plan admistrator on how to file the appropriate elections under the Plan. I am tying to go easy on you Zoran2, but you really need to find out what is available under the Plan before you decide to go off and do something on your own. That could get you into deep trouble. Good luck.

Ipod is correct. You can create a multiple employer plan; provided that you don't have a controlled group or affiliate service group. (In that case, you would have a single employer plan for those firms.) A multiemployer plan is for union employees. Form 5310 should not be needed, but as Ipod stated you should look at the instructions as they do provide a fairly clear answer for the merger of 2 or more DC Plans. What you are doing is typical done to reduce document costs and get "economies of scale" for asset concerns. Yes, testing and etc must be addressed separately, but their is only one 5500 Filing. Usually, cost for compliance work will be less since the vendor is getting several "client units" that can be serviced "together". Of course, that depends upon how you set it up. Having done this many times I can tell you that a major concerns is "portability of benefits". If a person goes to work for another adopter, you must grant full transfer of credits for entry, vesting, etc... Good luck.

Just so that I understand, we should spin-off the Union Employees into a new plan. Then merge and consolidate that new plan into the existing multiemployer union plan? Makes sense, but does sound convoluted. Wouldn't we have trouble with the "permanancy issue" of basic qualification for the "temporary" union plan? After all, that plan would not be in existence for very long. I suppose that we could spin-off the remaining non-union employees into a new plan and then merge and consolidate the original plan into the existing union plan. Then it would be the new plan that would continue on. One issue that could be a problem by bypassing elections under the transfer approach would be potential adverse investment results from the transactions. I think that these transactions would create some costs for member accounts. Anyway, thanks for your reply. It helped shed some light on the situation by giving a sensible option.

401(k) Plan does not permit participation of Union Employees, which was not an issue since there was no union. Recently, a large percentage of the workforce goes union. It is understood that going forward Union Employees do not accrue additional contribution under the Plan as an excluded class, but do continue to be credited with vesting service. Furthermore, it is understood that we can't simply pay these people out as unionizing is not a distributable events. The Plan does, however, permit transfer of benefits to another qualified plan provided that person is "fully informed" and elects for the transfer. This would be desirable as 1) the Union Employees want to transfer their benefits to their union plan, and 2) the employer would like to allow them to do so. Does anyone have any thoughts on this situation, or processing of "plan benefit transfers"?

Looking at the text of a Good Faith Amendment we get for plans using a specific document service, I noted that it appears that In-Service Distributions are no longer permitted to a participant who has reached Normal Retirement under the Plan. Am I reading this right? Sorry that this question is not directly related to the original post, but it does fall under the topic.

Thanks. I thought that was the case, but figured I ask. Looks like the filing fee is about $2,500 and the penalties are big money too! I don't know why they didn't restate but it looks like they are going to pay big money for that "oversight". Again, thanks.

Review of new client's plan documentation shows that they did not restate document for GUST or any subsequent legislation. Any thoughts on actions that should be taken?

I was pretty certain that a statements showing source positions would be required. I just did a search of the pension answer book series (all pension related books) and found nothing on this. Basically it seems that the required annual statement content must include total and vested benefit. Looks like you would do that without a source specific division. Also, operationally it looks like you have no issues, under the current design (hardship, etc...). Even so, I think a source specific account would be prudent. I have a gut feeling that somewhere down the road you will find it is needed. The first thing that comes to mind is a change to design, like adding Hardship or some other issue that needed source accounting. Having done this type of "valuation accounting" for many years and on many plans, I can tell you that it is not that hard to do. How you address the time weighting is really the only area that special care is needed (beyond what is normally done). You may wish to check out how earnings are allocated under the Plan. Hope this helps and Good luck!

Quote: "Same employer as above wants to include a related employer (does not rise to controlled group or affiliated service group) creating a multiple employer plan. Their intent is NOT to have the part of the plan for this other employer be safe harbor. Since each employer in a multiple employer plan is basically considered maintaining a separate plan for testing purposes, can a multiple employer plan operate as safe harbor for one employer and not safe harbor for the other?" Yes you can do this. You just need to make sure that plan document language allows for this flexibility. For example, it is fine if document says "if employer adopts provisions and provides notice safe harbor will apply", while a plan that simply says "safe harbor match will be... " will probably not allow this. Of course I paraphase language, but that's the idea.

Thank you Locust for providing clarity where I apparently could not. Your posts have been constructive and helpful. It is nice to see that there are people on this bulletin board who truly wish to help others by sharing expertise and experience. Again, thanks!

Wow! Never thought there would be this many people that have trouble understanding concerns of small businesses! When you are "chief cook and bottle washer" and some one says you need to do extra work for a program you maintain primarily for the few employees you have, I guess you have no reason to complain. Yes I know, many plans are primarily for the owners, but not in this case. This really is a case where several small firms have joined together to allow for a better quality program for their employees. I guess that this type of situation is very unique, otherwise it would not be so hard to understand why adding more processing time might be a concern. Okay, lets give this a try. Writing out checks for employees and reconciling records... 30 minutes. Processing remittances to members accounts under the trust... 30 minutes. Not having to do this extra 30 minute job another 3 times per month (1 1/2 extra hours)... Priceless! Anyway, I thank posters for the constructive responses provided. The suggestion of Locust with the holding account would reduce remittance processing time since you are then only writing a single check for the total of the deferrals of that period. The time consuming processing to individual accounts would then be reduced to a minimum, and reduce confusion for the multiple pay periods. Afterall, you would then just be writing out a total check. Oh, it is a multiple employer plan. A multi-employer plan does have a certain level of exemption from this standard. Similiar operational issues, yet not the same for considerations under the rules. In fact, it is those common operational concerns that are use to justify the exemption. (check it out!) Of course, if that is recognized, we can't thoughfully consider all the underlying reasons for why a small firm might want to reduce the work associated with having a plan. Interesting, is it not? Hope I helped clear that up.