Peanut Butter Man

I think you might be putting too much weight on a flawed IRS interpretation of a law which the IRS has even publicly announced is flawed. In the Pension Protection Act, Congress said rollovers to nonspouse beneficiaries are permitted. IRS interprets that law as stating that rollovers to nonspouse beneficiares are optional, and releases Notice 2007-7. Congress comes back, smacks the IRS in the head, and says that the Pension Protection Act did not say that rollovers to nonspouse beneficiaries are optional. IRS announces that they concede the point, and that rollovers to nonspouse beneficiaries are required, not optional. At the Cincinnati Benefits Conference last summer, the IRS was already conceding that rollovers to nonspouse beneficiaries are not optional, and this was months before the announcement on their website.

I saw IRS speakers at two ASPPA conferences this year say that the IRS is treating rollovers to nonspouse beneficiaries as mandatory, not optional. They said it was Congressional intent that rollovers to nonspouse beneficiares are mandatory, not optional.

The new Final 403(b) Regs contain Treas. Reg. 1.403(b)-6(d)(2), which states: "(2) Hardship rules. A hardship distribution under this paragraph (d) has the same meaning as a distribution on account of hardship under §1.401(k)-1(d)(3) and is subject to the rules and restrictions set forth in §1.401(k)-1(d)(3) (including limiting the amount of a distribution in the case of hardship to the amount necessary to satisfy the hardship). In addition, a hardship distribution is limited to the aggregate dollar amount of the participant’s section 403(b) elective deferrals under the contract (and may not include any income thereon), reduced by the aggregate dollar amount of the distributions previously made to the participant from the contract." Treas. Reg. 1.401(k)-1(d)(3)(iii)(B)(4) states that a distribution is deemed to be on account of an immediate and heavy financial need of the employee if the need is for payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence. The house is the employee's principal residence, so that part of the test is met. Question is whether the payment will prevent the eviction of the employee, or prevent the foreclosure on the mortgage of that residence.

If the plan does not have an opinion/advisory letter issued to it by the IRS, then it is an individually designed plan. If the plan sponsor intends to submit the plan for an opinion/advisory letter, the plan is still considered individidually designed by the IRS until the IRS issues the opinion/advisory letters. For defined benefit plans, this will not happen until 2010. If you adopt a prototype or volume submitter plan before the opinion/advisory letter is issued, the IRS considers the plan individually designed. If the plan was adopted before January 31, 2007, which was the deadline for restating a Cycle A plan for EGTRRA and submitting it to the IRS for a determination letter, then the plan might be late. Did you sign Form 8905 to move the plan from the 5-year remedial amendment cycle for individually designed plans to the 6-year cycle for prototypes and volume submitter plans, stating that once the plan is approved by the IRS and the IRS issues the EGTRRA defined benefit opinion/advisory letters, you will re-adopt the plan using the pre-approved plan. If you are adopting an amendment by the end of 2007 which will make the plan individually designed, then I don't believe that signing Form 8905 before January 31, 2007, will move you to the 6-year cycle for prototypes and volume submitters.

Have an IRS auditor requiring Form 56 to be signed as part of an audit of a small husband and wife defined benefit plan. I've never had an IRS auditor require Form 56 to be signed before. Auditor is threatening that audit will be closed unagreed if plan sponsor does not sign Form 56. Is this normal?

Before you try to terminate the plan, you should probably give the IRS employee plans customer service a call to see what they recommend. One of the government speakers at the Cincinnati Benefits Conference this year said they were looking at these types of plans (not the Rainmaker plan specificially) as a tax avoidance transaction.

Section 902 of PPA added new Internal Revenue Code section 414(w), which defined an Eligible Automatic Contribution Arrangement as an arrangement under an applicable employer plan - A. under which a participant may elect to have the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash; B. under which the participant is treated as having elected to have the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage); C. under which, in the absence of an investment election by the participant, contributions described in subparagraph (B) are invested in accordance with regulations prescribed by the Secretary of Labor under section 404©(5) of the Employee Retirement Income Security Act of 1974, and D. which meets the requirements of paragraph (4). Paragraph 4 is the notice requirement, and the timing requirement for distributing the notice. I don't think the term "automatic contribution arrangement" has been specifically defined by the Code or the Regs. I think it is a more generic term meaning any automatic contribution arrangement which is not a qualified automatic contribution arrangement (QACA).

You should have someone review the plan who actually writes 412i plans AND has walked their 412i plan through the determination letter process with the IRS. This type of experience is needed before reviewing someone else's plan to see if there are any issues. It is one thing to read someone else's plan and it is an entirely different thing to read someone else's plan after surviving a few rounds with the IRS over a 412i plan.

The changes to Circular 230 include an exam and an application to become an ERPA. To renew, there is a continuing education requirement. No details from the IRS yet on who is conducting the exam or how to register to take the exam. I am sure more information on that will follow from the IRS on their website for Tax Professionals, because that is where they post information about the exams to become Enrolled Agents and Enrolled Actuaries.

Take a look at Rev. Proc. 2006-27 for how to correct this through the IRS' VCP program.

Normally, you would include the maximum eligibility requirements in the amendment, so that the plan states that an employee is eligible to participate when they reach age 21 and complete 1 year of service, where a year of service is completing 1,000 hours of service within a 12-month consecutive period, or whatever acceptable definition of year of service you want to use, OR, if earlier, employees are eligible to participate when they complete 501 hours within a 6 month period of service. You will need to specifically state in the plan language what exactly a 6 month period of service means. Does it mean a 6 month consecutive period, or does it mean that a non-consecutive 6-month period of service where a month will only be counted for eligibility purposes when an employee completes a certain number of hours that month. If you are guessing on how to calculate the 6-month period of service, you should make the plan language more specific so that you are no longer guessing.

With Rev. Proc. 2005-66, it makes more sense to me if the requirement is extended to 6 years. 6 years would match the restatement cycle for prototypes and volume submitters. For individually designed plans on the 5-year cycle, they would easily meet this requirement by providing a new SPD every 5 years when the plan is restated. Wonder if the IRS and DOL will coordinate this. Our practice is to provide a new SPD when the plan document is restated. With the 6 year restatement cycle for our prototypes and volume submitters, we are changing this to providing a new SPD when the plan is restated or when the 5-year SPD rule comes into play.

Didn't know ASPPA lobbies the IRS on behalf of certain companies. Thanks Ellen Relius Sungard for the lightbulb moment. I wondered how my membership dollars are being spent.

I think the cart is being put before the horse here. It is too soon to tell whether the IRS will permit this language in the EGTRRA documents. I am curious about something Ellen Sungard Relius said. If the IRS approved this for FT William and Accudraft, why was it approved in only one of Relius' plans? What was different about Relius?

I don't know if FT William has a letter. Their language sounds the same as the Accudraft language we like. I know Accudraft has a letter on their safe harbor language.

Have you made a written request to the auditor's immediate manager which identifies the conflict and requests a different auditor to be assigned?

For a plan with 15 employees, such a change to the vesting schedule looks like it is designed to specifically benefit one participant. Who was hired in 2002 who wants 100% vesting now instead of waiting to when they are 100% vested under the plan's current 6-year graded vesting schedule? If it is an HCE, then the amendment looks as if it is designed to specifically benefit an HCE.

Their document has the best 401k safe harbor language.

I caught the bit about Appendix F on the Pension Protection Act Blog - http://www.qualifiedpensionconsulting.com/ppablog. I had problems following the rest of it. Is the IRS saying that firms which did not file for a defined contribution opinion/advisory letter by January 31, 2006, can now file and pay the higher fee, but only if they have a GUST letter? What about new companies who were not around for GUST? Any help on understanding this Rev. Proc. is greatly appreciated. We signed on as a word-for-word adopter with one company, and now want to either switch to another company, or sponsor our own plan if we can't find a better plan.

What happens if the medical examination finds the participant not to be in good health?

They will not be able to offer a qualified plan, because they cannot sign Form 2848 as one of the 4 favorite food groups for the IRS as they are not attorneys, accountants, enrolled agents or enrolled actuaries. Form 2848 is required by the IRS when filing a lead specimen plan for approval as a prototype or volume submitter document. They will also not be able to file any of their plans for determination letters, again because they cannot sign Form 2848. Determination letter applications for individually designed plans use Form 5300, which requires Form 2848 to be included in the submission package. I like to think the marketplace weeds these document preparers out pretty quickly. I can't imagine using a plan document which has never been approved by the IRS, either as a prototype or volume submitter, or which has not received a determination letter in the past.

You might want to check with the company who provided you with the plan document on whether they think using the blank line for such a special vesting provision will take the plan out of prototype status. As part of their approval process with the IRS for this plan, they would have discussed how that blank line is permitted to be used. Revenue Procedure 2005-16, Section 6.19, states that opinion letters will not be issued for plans which "include blanks or fill-in provisions for the employer to complete unless the provisions have parameters that preclude the employer from completing the provisions in a manner that could violate the qualification requirements." This is the reason the adoption agreement also states that the special vesting provision "must satisfy 411(a), must be definitely determinable, must not descriminate in favor of HCEs and must not violate 401(a)4".

I'm not sure this would work. All participants would either have immediate eligibility, or would have a year of service requirement where a year of service is defined as 1,000 hours. All GUST pre-approved document should have this language because it is part of IRS Code section 410(a)(1). The IRS released a Quality Assurance Bulletin on excluding part-time employees in early 2006. Take a look at that QAB. It is at http://www.irs.gov/pub/irs-tege/qab_021406.pdf. Based on the explanation in the QAB, I think it would be very difficult to design a plan which grants immediately entry to full-time employees but holds part-time employees out until they work 1,000 hours.

A lot of MBA programs offer classes in employee benefits, especially if the school also offers a Masters in Accounting or a certificate in Employee Benefits. You could also work on an ASPPA designation at the same time that you work on a Masters, so you would have both.

The Pension Protection Act requires the plan to be amended by 2009, I believe, but must be operated under the new vesting requirements for contributions made for plan years which begin after December 31, 2006. Some providers have amendments available so you can amend now and not worry about. Whether you amend now or wait until 2009 to amend, you must apply the new vesting requirements effective January 1, 2007.