Trekker

May QNEC's be included in determining if 60% of account balances are for the benefit of key employees? Facts: Determination Date is 12/31 (last day of plan year). As of the 12/31/07 determination date, the plan is determined to be top heavy. However, on 6/15/08, QNEC's are made to correct ADP failure for 2007. The addition of the QNEC's results in 57% of account balances for the benefit of key employees. Question-1: Is the Plan top heavy for 2008 (based on the determination date of 12/31/07)? Question-2: If the answer to Q-1 is no, does it make a difference if the QNEC's were made within 2-1/2 months of the 2007 year end? Thanks for any thoughts on this.

Thanks, everyone, for your insights.

Our client is a business Corporation whose employees are anesthesiologists and CRNA's. A not-for-profit hospital owns 79% of the stock of this Corporation. The remaining 21% is owned by an unrelated person who is neither a licensed anesthesiologist nor a CRNA. The employees of the Corporation (the anesthesiologists and CRNA's) provide anesthesiology services to patients of the hospital. QUESTION: Are the hospital and the Corporation part of an Affiliated Service Group? Any insights are appreciated!

GBurns - you are right. It is not the employee's fault. We had also thought of Jpod's suggestion and will probably go with something very much like that. Thanks for your responses!

Participant took a loan from the plan. Repayments were by payroll withholding. Loan was paid off as scheduled in August of 2007. Now we find out that withholding continued bi-weekly for several months to the tune of $10,000, which was deposited into plan each pay period. Aside from the obvious question of why the participant did not notice that amounts were being withheld each pay period, what should be done about it now? Any thoughts will be appreciated.

Would it be different if there was not an HCE in the same group with the Non-HCE? Is that how a zero allocation passes the 401(a)(4) test...because there is an HCE in the group? Thanks.

I am where Young Curmudgeon was on his first Jan 23 post. I thought all NHCEs who satisfy the accrual requirements had to get as a minimum the lesser of 1/3 or 5% in order for cross-testing to even be considered. This NHCE has satisfied the 1000 hour/last day rule, but gets nothing. I understand the part about participants not being entitled to a gateway contribution if they do not get a top-heavy minimum or non-elective safe harbor or forfeitures, but I thought that applied only to participants who did not satisfy the 1000 hour/last day rule. This is what we call the "catch-all" group. If the catch-all group did, for example, get forfeitures, then they would be considered benefiting and would get the gateway. I'm not an attorney or TPA, but nevertheless wanted to throw my two cents in.

GOOD NEWS - I just received a message from the IRS helpline that this will NOT be required due to the overwhelming outcry. There is to be some sort of announcement forthcoming.

Rev Proc 2008-6, Section 6.05, states that all changes made to the most recently approved version of the plan must be redlined or highlighted. Failure to do so will result in the return of the application. This is effective for Cycle C plans that file a 5300. It will be hard enough doing this when our firm has maintained the document over the years, but redlining all changes to a takeover plan will be extremely burdensome. Are there any rumblings out there that this might be reversed? How are others handling this? And I wonder why my hair has turned gray since I've been in the pension area.

Many provisions in the pre-approved plans are already obsolete due to PPA, such as some gap period income, corrections for excess annual additions, etc. And, of course, no pre-approved plans contain provisions for non-spouse beneficiary rollovers and other PPA additions. Has the IRS issued any guidance about how to get PPA provisions added to plans adopted by clients using volume submitter or other pre-approved document? Thanks.

Actually, it is an ESOP. Participant is fully-vested. Not sure if Employer contribution would cover expected decrease in account balance, but that is a good thought we will pursue.

The Qualified Election Period defined in IRC 401(a)(28) is six years. May a plan extend that period, for example, to 10 years? This would only be for Qualified Participants. Is it discriminatory to offer diversification outside the window period only to individuals who have attained "qualified participant" status?

Eight years later, I am asking a similar question: Client (S-corp if that matters) maintains an ESOP and a separate 401(k). May the 3% non-elective safe harbor contribution be made to the ESOP in stock, or must it be made in cash? Thanks for any cites.

Our client has a plan that is valued annually. Participant applies for a loan February 2008. The 12/31/07 valuation is not yet complete. Using the 12/31/06 balance, the amount requested would not exceed 50% of the 12/31/06 balance. However, the plan is expected to suffer a loss, so when the 12/31/07 valuation is completed, the amount requested may exceed 50% of the 12/31/07. If the loan is processed today and the 12/31/07 valuation eventually shows a loss to the extent the loan exceeds 50% of the 12/31/07 balance, is this loan out of compliance?

This is five years after the original question, but I have a cite that might help. I have not looked at the cite, but it is a footnote to an article in a 2001 issue of the Tax Management Compensation Planning Journal. The article states that: "If there are required periodic payments, the first of which is due to be made within two months of the date the loan was made, the five-year repayment period will be measured from the due date of that first payment." The cite: Joint Committee on Taxation, General Explanation of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA Blue Book), Sec. IV.D.2.

Thank you both very much. ---Trekker

Are safe-harbor contributions (3% non-elective, basic match and enhanced match) available for in-service withdrawals at age 59-1/2? What about hardship? I should know this but I can not find a cite. The plan document would have to provide for this, but I need a cite that says what can or can not be done. Thanks.

If any of our clients desire age 59-1/2 in-service withdrawals from deferrals or any other account, we spell it out in the plan. This is an option and not a standard provision in our plans.

Thanks, Bob. We will submit with a 5300 this year. When it comes to submissions, it's better to be safe than late!

Client maintains a fairly simple plan that will be restated and submitted under the volume submitter program once the program is open. In the meantime, another employer has adopted the plan. There is a relationship between the two employers but not enough to be a controlled or affiliated service group. But for the multiple-employer situation, the plan would be restated in due course under the volume submitter program with a $300 user fee. Since multiple-employer plans are in Cycle B, must it be restated this year and submitted on a 5300, with a $1000 filing fee? I have 8905 forms signed by each of the two employers and had planned to submit with the volume submitter adopters. But I just remembered that multiple employer plans may not use Form 5307. I think I have come to the unfortunate conclusion that this little plan must go under 5300 in Cycle B. Can anyone convince me otherwise? Thank you.

Do you consider whether the Plan allows more than one loan outstanding at a time? If so, I believe the new loan could start its own 5-year payback. If the plan permits only one loan at a time, I think it would be a refinance, and the term of the replacement loan may not exceed the term of the original loan. I agree that $25,000 is the max permitted for the second loan (or refinance). I'm not a lawyer or TPA, so this is just my humble opinion.

I would like to ask Belgarath a follow up question, if I may. Concerning a participant's distribution or loan, can a plan be drafted to impose a restriction that is not required by the Code or Regs? For example, it seems that a pure profit sharing plan would not be permitted to require spousal consent for a loan. If a participant is entitled to a loan and asks for it, how can a plan impose this restriction? Thanks.

Go back to 1991. Client terminated Defined Benefit Pension Plan; IRS approvals and PBGC certifications were handled appropriately. Client established a Target Benefit Pension Plan and permitted participants to make "voluntary elective transfers" from the DBP to the Target plan. (This was before "direct rollovers" had evolved.) The third party administrator designated the transfer as NON-related rollover and has never included it in the top-heavy testing. The employee had other distribution options besides the voluntary elective transfer, and there is no evidence that the employee first rolled to an IRA and then to the Target plan. Can anyone think of a reason why this would have been designated a Non-related Rollover? Thanks.

Thank you all. I also found Treasury Reg. 1.411(d)-2©, in essence stating that the IRS considers a plan terminated on a particular date if the requirements of ERISA 4041 are satisfied. Additionally, there was a case in 1998 where the IRS disqualified a plan for several years because it did not follow the PBGC requirements. We will stick to the rules!

A fully-funded terminated DBP wants to distribute 90-95% of benefits to participants before the end of the PBGC 60-day review period. The remainder would be distributed after approvals. The plan is in good shape, is following all the rules (except the one I'm asking about), but for financial statement purposes, needs to make distributions sooner rather than later. What are the consequences, penalties, jail terms, etc.?