Madison71

Thank you both! Very helpful

Plan sponsor considering terminating an underfunded DB Plan subject to PBGC. Owners are interested in waiving part of their benefits so they can file standard termination. The issue is that each of the 4 owners owns less than 50% even through attribution. What about providing an option to one of the owners. For example, say one 25% owner has the option to purchase an additional X shares where if purchased would give that owner an additional 30% share for a total of 55%. Is the "right" to buy the shares (without restriction) enough to deem majority ownership? Would that "majority" owner then be able to waive part of their benefit? Thank you!!

Thank you!

Thank you. I'm not sure the exact number of employees at this point - probably around 50 over 3 years. There is no correction program to go under? They asked that I correct being as conservative as possible - I don't want to have an issue down the road.

Company sponsors large group health plan. Company pays 50% and employee pays 50%. For several years, some employees were paying 50% of the premiums based on family coverage (when only enrolled as single coverage) and some were paying 50% of the premiums based on single coverage (and were enrolled in family coverage). Is there a correction program for this? VFCP perhaps?

Plan is top heavy and only made contributions to those that were actually deferring. This occurred over a 10 year timeframe. Plan is being corrected under VCP. Couple questions: 1. Top-heavy vesting is a 6 year graded. A number of employees that would be due a contribution terminated and are 0% vested in this money. Does a contribution still have to be made for these employees and then forfeit the entire amount? 2. The employees due a contribution were ones who never deferred. Plan is participant directed. In calculating lost earnings over the past 10 years, can we use the DOL lost earnings calculator? We have historical gains/losses of all the funds over the past 10 years, but if we use the fund with the highest earnings each year, the contribution is significantly more than the DOL earnings calculator. Can we successfully use an average return of all the funds for each year? Thank you!

Matching contributions are contributed per pay. The match is based on percentage of compensation earned throughout the entire year (50% up to 6%). A true-up is made each year. Changing my fact pattern a bit - if Participant elected to defer 10% per year and Participant's compensation totaled 100,000 for the plan year ($50,000 is bonus) at the end of the year, Participant would have deferred $5,000 b/c bonuses are excluded from deferrals. The company matched only $1,500 during the year. This would be correct if based on $50,000 in comp., but compensation does not exclude bonuses for the match. Would an additional matching contribution of $1,000 be made at year-end?

I think I get it now. So, in my previous example of 100k comp. including 50k in bonuses, if the participant elects to defer say 12%, then the deferral would be $6,000 based on 50k - match would be based on 100k so $3,000 match. Is this correct? Sorry.

I meant to say if bonuses were excluded from match then violation....

Yes, but if deferrals did not exclude bonuses then he would have deferred $6,000 (6% of 100,000) so the match would have been $3,000 (50% of 6%). I guess what is confusing is that bonuses are not excluded from the definition of compensation for matching purposes. If bonuses weren't excluded from match then it would be discriminatory under 414(s) based on how the bonuses are paid. If participants cannot defer on bonuses, what benefit is there that bonuses are not excluded from the definition of compensation for matching purposes? Sorry for such a basic question - I just don't get it.

Employer has a 3% safe harbor with an additional matching component matching 50% of 6%. Matching contributions are per pay. Plan document excludes bonuses from the definition of compensation for deferrals only. Suppose Employee defers 6% of salary and earns $100,000 during the plan year with $50,000 in bonuses. Employee defers $3,000 for the plan year - 6% of $50,000 in compensation. Safe harbor contribution is $3,000 based on 3% of $100,000 since cannot exclude bonuses. Payroll department only matched 50% of $3,000. Isn't that match supposed to be $3,000 instead of $1,500 since it does not exclude bonuses? Thank you!

Thanks everyone for weighing in! I greatly appreciate it.

...I guess I need to add the question - is this permissible?

Plan missed top heavy contribution for several participants over several years. Sponsor will correct under VCP, but wants to use forfeitures to correct (the missed contribution plus earnings). Plan document permits forfeitures to be used to reduce employer contribution. Thanks in advance!

A top-hat plan was set-up several years ago. The plan appears in form to be drafted in compliance with 409A and only for a select group of management or highly compensated employees. Notification was filed with the DOL on this plan. In operation, there are some participants who are management, but there are other participants in the plan whose ($50,000) is barely above the average of all employees. The employer said he selects the employees he wants to include not on whether or not the are management or a highly paid employee, but on whether or not they might leave. The employees elect whether or not the want to participate in the plan prior to the beginning of the year in which the contribution is made. I know there would be negative tax consequences to ineligible participants, but was 409A also violated for these participants, and if so, on what basis? Thank you so much for any guidance you can provide.

...sorry I posted under DB/Cash Balance and not 401(k)

Sorry to bring up a 5 year old post, but does this predecessor plan rule apply to the establishment of a new profit sharing plan as well? Lets say client has a 401(k) plan with discretionary profit sharing component. They want to make an employer contribution to several NHCEs only because they are concerned they are going to leave, but want to handcuff them in a way by setting up a vesting schedule. The NHCEs have been with the company well over 6 years. The current 401(k)/PS plan will not be terminated in the next 5 years....its been around forever. No issues with establishing a new profit sharing plan for just these NHCEs...exclude all other employees and make an employer contribution to it - knowing they have to stay within deductibility limits and combine for 415, etc. Thank you!

Looking at possible affiliated service group. My question is just on the "whether certain services were historically performed is based on whether such services were typical for employees in that service field." A partnership that also owns a 20% interest in a company provides accounting, payroll and other administrative services to another company that provides day care service. The partnerships entire business is providing services to 4 different companies where there is not a controlled group amongs the partnership and any one of the companies or each other (nowhere close to 50%). This "services historically performed" is tripping me up. A day care provides childcare services...that is its service field, but the back office many times does payroll, accounting, etc. Is that considered a "service historically performed?

They are being treated as an S-Corp. Sorry about not adding that. So, not a professional corp - no FSO for A-Org. What about B-Org? Any thoughts?

A management LLC provides management and administrative services to 4 LLCs. The LLCs provide day care services. The management LLC provides services such as hiring, firing, payroll, etc. to each of the 4 LLCs The ownership percentages of any one person is nowhere near 50% in any of the companies and there are at least 8 other owners (non-family members) with ownership percentages varying between 10-20%. It has already been determined that there is not a controlled group between the management LLC and any of the 4 LLCs and there is not a controlled group amongst the 4 LLCs. In looking at the affiliated service group rules, I believe this is not an A-Org because there is no FSO (professional corporation). I also believe there is not a management affiliated service group because there is no common ownership between the 4 LLCs and the management services are split about 25% per company. The question is on a B-Organization. Would this be considered a B-Organization? A signficant portion of the management LLC (over 10%) is services to each of the 4 LLCs, and the management services are typically performed by companies in this industry. And, I believe an FSO is not required to be a professional corporation for a B-Org. Am I missing something? Do you think this could be a B-Org? Thank you so much. By the way, I'm told the ERISA attorney has told the client that there is no ASG under any of the three. When I inquired about B-Org, I was shot down.

It is basic delivery trucks. They are not in construction or one of the other industries which have some defenses to this.

Have a client who has clearly met the 70% withdrawal over th 3 year period. Calculation looks correct - amount owed is over 200,000 so no deminimus exception. My question is this is a very small business....they had 7 employed and now down to 3, but not insolvent or looking to file bankruptcy. Is there special method of calculating which would allow a small business that qualifies to pay less than the full amount? Thank you for your time.

We handle the TPA work on a DB non-electing church plan. Plan is terminating. The termination provisions permit the plan administrator to distribute assets in the normal or optional forms under the plan. The administrator has elected to pay out benefits in a lump sum to all. Is this ok - without sign-off by participant and spouse? Also, plan is paying out disability benefits in a monthly annuity - the document states that once the plan has terminated that the disability benefits stop. Is this ok? I know this is a non-electing church plan so the ERISA rules do not apply, but there is QJSA language in the plan document.

Thanks Sieve. According to employer, they are clearly in the construction industry...they only work on construction sites and there is no one that doesn't. I have made it clear on that point that we have to make sure to get the construction exemption.

Thanks Bill - the purchaser is covered under another plan and not the plan in question and does not want to sign on to the plan. The buyer would purchase the assets (tools, buildings, etc.). The seller would then go and work for the buyer as an employee...not share in the profits. The sellers main motivation in selling is that he has been offered a fair price and thinks its a good time to step down. They will earn a nice salary without the burden of ownership. Another question I have is how to determine the withdrawal liability amount - they use they presumptive method. Employer is thinking about reducing contracts over the next 5 years down to a level that doesn't throw him into partial termination (more than incidental benefit), but will significantly reduce the contribution amount. He thinks by doing this over 5 years that he can bring that liabilty down to near $0. I don't see how a 2 million liability can be reduced down to near $0 over 5 years. If other employers withdraw from the plan and are not subject to liability, isn't that amount reallocated to the remaining employers...plus he has to be concerned about plan investments. He said it is all based on his level of contributions. Thanks for your help!