zimbo

At the ASPPA meeting, Jim Holland indicated that for 2009 it would probably be a reasonable interpretation to treat the "short funding" year created by a plan termination similar to a short plan year (as was done in pre-PPA minimum funding rules). That would allow pro rata reduction for shortfall amortization. In 2010, it is more problematic because the final regs which are effective in 2010 don't address it. Jim thought the IRS might address the issue in some sort of ruling. Left that very vague.

Now if only this shorter version was actually more comprehensible!!! Happy reading....

At the end of the Final regs, there is some mention of the publication date being October 15, 2009. I would wait until that day or after, and then GOOGLE for the Federal Register. Then check it out every day beginning October 15th. When you are in the daily Federal Register, scroll down to the IRS heading and you should find these regs. Whether it is on the 15th or some later date we cannot know for sure. In the Federal Register publication, the regs are in 3 column format and this will shave hundreds of pages off these regs. Of course, the print is small and arguably harder to read. But I prefer the fewer pages. Pick your poison I guess.

In the IRS proposed regs, 1.430(d)-1, it indicates that amendments adopted on or before the valuation date and effective during the plan year are considered in terms of minimum funding. Your amendment was adopted PRIOR to the val date even though the increase becomes effective AFTER the valuation date. Based upon that, I would say that your Funding Target and Target Normal Cost would use the benefits in effect during the plan year in which the valuation date falls. So, effectively, you would use the $11 per YOS benefit formula for purposes of determining minimum funding for that year.

This is not legitimate. There is no 1000 hour accrual requirement for making deferrals in a K plan, once an employee becomes a participant. In other words, once the initial eligiblity requirement is met, the participant remains in the K plan eligible to make deferrals as long as employed no matter whether their hours of service are reduced.

It could refer to a plan that is terminating and, but for the sale, would cash in the policy. Or, a plan that is eliminating life insurance as a benefit under the terms of the plan. Or, most commonly, a participant is terminating and, but for the sale, the policy would be discontinued.

I believe you could set your annuity starting date to be as late as the RBD of 3/31/2010. If the calculated benefit amounts as of the ASD are payable monthly, then a single monthly payment beginning before 4/1/2010 would be OK. If the amounts are payable annually, then the annual amount is due by that date. The benefit should be calculated as of the annuity starting date. The key is the annuity starting date and the payment intervals (monthly, annually etc...) but you do not need "make up" benefits going back to the participant's 70.5 birthday.

Unfortunately you are correct. You basically count ALL the employees of the employer to determine eligibility for the premium cap. In your case, the plan is NOT eligible.

But as I see it, the problem is that the 1099-R they receive in early 2010 shows as taxable in 2008 the lesser of (1) the actual corrective distribution with the gains or losses built in, or (2) the amount of the excess deferral. When there are losses, the amount on the 1099-R will be LESS than the excess deferral. How then could the IRS possibly check to see that the actual excess deferral in its entirety was taken as income in 2008. They could not possibly know this by looking at the 1099-R. It seems very illogical. What seems more logical is that the 1099-R would show the excess deferral (then the loss would be taken in the following year in the "usual" manner). But I concede that the IRS 1099-R instructions seem to support what you say.

It seems clear that when an excess deferral resulting from a 402g violation (deferral in excess of $15,500 for example) had investment losses, the participant must report the gross excess in the year deferred (2008) while the loss is taken on their personal tax return in 2009. However, how is the 1099-R done? In reading the IRS instructions, it appears that the amount reported on the 1099-R, taxable in 2008, is the actual distribution which has been reduced by the losses. If so, how and where does the participant report the the full excess deferral in 2008? Any thoughts would be appreciated?

Actually you reduce the assets ONLY by pre funding balances. You do NOT reduce the assets by carryover balances.

I have a 401K plan that does NOT include bonuses or commissions in the comp definition for purposes of deferrals or employer matches (The match is capped at 6% of comp using the comp definition above). There are no Profit Sharing contributions. When I ran the ADP/ACP Tests using a "safe harbor" definition of total comp under 1.414(s), the ADP failed (the ACP Passed) and the employer agreed to contribute QNECs calculated based on total comp at a level that would make the test pass. In this instance, is it also necessary to run a separate non discrimination test under 1.414(s)-1(d) or does the passing of the ADP/ACP tests using Total Comp. render the 414s test unnecessary?

So I now conclude that it is probably more cost effective and just downright easier to include the HCE in the QNEC and suffer a slightly larger ADP test failure than carving him out of the QNEC. The results are still far better treating all of the TH minimums as QNECS than treating none of the TH minimums as QNECS. Thanks for the insight.

So are you saying that even though one of the plans is a 401a4 safe harbor Target Benefit Plan and the other is a 401K Plan, I would be subject to the Gateway? I'm having trouble figuring out why. Is it because the 401K plan (ignoring the Target Plan since I do not aggregate these for coverage testing) ends up with an employer contribution, net of QNECs, of ONLY the 3% TH minimum and only for a single HCE? Of course, I am forced into that situation by 416, but maybe it really is a trap. So, if you believe that is the case, then I guess I would have to include the HCE non-key's 3% TH minimum as a QNEC to avoid that?

Does anyone think we still have the OPTION of including Gap Period earnings in our refunds? With the losses in most accounts in 2008 reducing the amount of the refunds, applying Gap Period losses would further reduce the taxable refund amounts.

One thing is confusing to me. There is no election to reduce balances to avoid restrictions as part of the AFTAP process. Since that is not an employer election but rather a mandatory "burn" I assume that is not subject to the same end of plan year timing requirement?

I have a situation where an employer has a Target Benefit Plan with a class exclusion but where a separate 401K plan covers everyone (no class exclusions). Since the plans together are TH, they must contribute 3% to all non keys in the K who do not get their TH min in the Target (all of the class exclusion people who are not in the Target but ARE in the K). There are no other employer contributions in the K plan. The K also failed the ADP Test. So, I intend to use the 3% TH also as a fully vested QNEC which is permitted. This helps me pass the ADP test. Problem is that 1 of the 5 people getting the TH minimum is an HCE non–key. I really don’t want his TH minimum treated as a QNEC in the ADP Test for obvious reasons . But if I don't treat the HCE's TH minimum as a QNEC would I have a discriminatory situation since the only PS contribution which is NOT a QNEC is for the HCE? Or, is it OK since that PS contribution is a mandatory TH minimum and that would not cause a 401a4 failure?

I will respond to the 3rd point and leave it to greater minds to tackle points 1 and 2: I believe that the 2008 AFTAP assuming you switch to an EOY Val date would be based upon the 12/31/2007 valuation results. In essence this should produce a similar or possibly identical result to the actual 2008 AFTAP that was done based upon the 1/1/2008 results. Possible differences could be with regards to higher compensation and 415 limits for 1/1/08 vs 12/31/07 and this could cause you to have a lower AFTAP. But my reading of past IRS pronouncements seem to indicate that as long as the change in your AFTAP doesn't cross a "Threshold" i.e. 60% or 80%, there will not be any material change in the AFTAP with any adverse consequences. Assuming the IRS issues long awaited EOY VAL AFTAP regs (now that TECH Correction finally passed), assumedly your 2009 AFTAP would be based upon your 12/31/2008 val.

Under Rev Proc 2008-50, a plan that erroneously allowed an otherwise ineligible participant to enter may adopt a retroactive plan amendment. This amendment can alter the eligibility or entry date terms so the employee(s) who entered is made retroactively eligible. This is an approved correction method in Appendix B, Section 2.07 for plans that already have favorable determination letters. However it is less than clear whether such amendment would need to then be submitted to IRS for a determination letter. Section 6.05(2)(b) seems to indicate that a submission is needed by the end of the next "on-cycle" year (whatever than means). The particular plan that I am working on is a Volume Submitter with a FDL. Does anyone know for sure whether an IRS submission is required for such an amendment and, if so, what is the deadline? Thanks.

As long as your plan permits and as long as the targeted QNECs meet the limitations under the 401k final regs, then yes you may provide them only for the non excludable NHCEs. Usually the targeted QNEC is limited to 5% of pay when all is said and done.

See section 8 of IRS Rev Proc 2007-71. Actually I keep reading this section and it doesn't say the magic words that I am looking for..."No Plan Document is required". But it may indeed say enough. It seems to say that contracts issued after 12/31/04 and before 1/1/09 under certain conditions need not be part of a written plan. It then says for contracts with no contributions after 1/1/05, you need not make any effort to collect information that satisfies the 403b regulations. Is it safe to assume that taken in combination, this section of Rev Proc 2007-71 is actually saying that no Plan Document need be adopted for a plan that received no contributions after 1/1/2005? Many thanks.

What about the situation where an employer has a non-ERISA 403b plan that has not received any employee contributions since before 1/1/2005? In fact, the only participants are terminees who left prior to 2005. Is it necessary for that employer to adopt a written plan document for that 403b by 12/31/2009? I cannot find a definitive cite in the regs or in Rev Proc 2007-71 with regards to whether it is necessary in that instance to adopt a written plan.

I believe the new reg trumps all past guidance. Seems like for 2008 we get a free ride on val dates, either BOY or EOY (subject to under 100 participants). After that we are sort of stuck unless IRS grants some sort of relief for 2009 for us to change again. The rumor is that they might consider such relief.

I'm wondering whether in a situation where you have enough FSCOB to burn to get you from below 60% all the way up to 80%, are you required to burn it all the way up to 80%? In other words, I don't believe you can stop at 60% and accept the benefit limits if there is enough FSCOB remaining to take you up to 80%. Of course, you could burn up to 60% and then contribute for the prior year sufficient to get you to 80%.

Let us assume that I have a 2009 quarterly contribution requirement of $200,000 per quarter. Let us also suppose that I have a 2008 remaining FSCOB of $800,000. Let us suppose that on 4/1/2009, the Plan Sponsor elects to use the FSCOB to satisfy the 2009 quarterly requirements. Assume that our 2008 AFTAP was 95%, so on 4/1/2009 it goes to 85% which means no 436 restrictions. Then on 8/1/2009 we complete the 2009 valuation and determine that the AFTAP is 65%. However if we burn $400,000 of the 2008 FSCOB (which is mandatory) then this AFTAP would increase to exactly 80%. But, we have already elected to use the FSCOB to meet the 2009 quarterlies. What are our choices? 1. Too late to burn any FSCOB for AFTAP purposes, since all $800,000 are already "spoken for" due to our FSCOB election? 2. We burn the balance of the FSCOB remaining as of the date of AFTAP certification which would leave no further FSCOB remaining for the final 2 quarterlies of 2009 but would avoid any 436 benefit restrictions because we our AFTAP for 2009 would increase to 80%? 3. Anything else you can think of?