chc93

It is our understanding that your 401k plan will need an audit. Form 5500 Line 5 instructions below define a "participant" for this purpose as someone who is *eligible* to elect salary deferrals. ***************** For pension benefit plans, “participant” for this line means any individual who is included in one of the categories below: 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. This does not include (a) nonvested former employees who have incurred the break in service period specified in the plan or (b) former employees who have received a “cash-out” distribution or deemed distribution of their entire nonforfeitable accrued benefit. *****************

My husband, who is not very computer-savvy, uses ftwilliam for his Form 5500, 1099-R and other compliance/reporting work in his small TPA/pension consulting business, and he has nothing but praise for its ease of use. But he absolutely raves about the customer support. If he has a problem or question, the assistance is fast, very clear, and friendly. We use the ftwilliam 5500, 1099, and plan document software (no admin software). And I totally agree with the bolded statements above. Their technical support has been (and I hope continues to be) excellent. Very quick and direct responses to technical support emails (usually within an hour). Kinda amazing, really. Almost seems like they don't have very many clients, with the speed with which they respond.

Regarding 436 restrictions... if the AFTAP is under 80%, 436 restrictions are still applicable, but on plan termination, accelerated payments (full lump sums) can be paid. But, I thought I heard or read somewhere that for a plan termination under a 436 restriction, the 436 exception for plan termination requires that all distributions be paid at the same time. Otherwise, I don't see any problem paying some or all NHCE's after the PBGC 60-day period. If not all NHCE's are paid before the IRS DL, I think I would not pay any HCE's until all NHCE's are paid.

Also, for the ABPT for coverage, you'll need a reasonable classification. Naming names is not a reasonable classification. I believe specific job classifications that are specific to the company can be a reasonable classification, and the plan document must specify those job classifications that are eligible and those that are excluded.

I don't recall this issue for a DB/DC combo. But I'm sure I recall, years ago from ASPPA conferences, that for a stand-alone 401k PS plan, as long as a participant is eligible to defer, his comp gets counted for the 25% deduction limit whether he defers or not, and whether he gets a PS contribution or not. But for a stand-alone PS plan, his comp only gets counted if he is eligible to receive a PS contribution (such as 1000 hours and/or last day).

That was my question also. Check out the thread in this link which is discussing this exact issue, especially Mike Preston's posts. http://benefitslink.com/boards/index.php?showtopic=50781

This is our understanding. We've done this on a couple of plan terminations, and didn't have any problems. The commitment was signed before the EA-S was signed. Sort of a "mandatory" receivable contribution, that can be counted as plan assets, I guess. Also, we used the PBGC model that you attached. And we didn't give a notice to participants about this.

I've looked at this recently. Law firm with 3 lawyers (HCE's), one older lawyer that only worked on one case during the year, only went into the office a few months, no compensation. After researching, concluded that this lawyer would not be in any test (410b, 401a4). See the following thread... http://benefitslink.com/boards/index.php?s...=28587&st=0 Go down to AndyH post #13. This quote by Jim Holland that "No compensation. Not an employee. Not in the test. ANY test" was also echoed elsewhere. Also, other links in this thread might be helpful.

I understand this point, but generally there will not be a plan provision that governs this, so I really don't see how a failure occurs. Also, my problem is that 1.401(a)(4)-11(g) is titled "Corrective Amendments". Now, assume that your example plan fails this year, and all employees are eligible and benefiting (no new hires, no terms/retirees). Then, the only way to pass is to reduce the owner or increase the rank and file. And since the contributions are discretionary, no "corrective amendment" is needed. To me, this is the same situation as the original post... change the discretionary contributions, then no failure. Also, if the intent is 5% to the rank and file, and the owner doesn't want to change that, then he's gotta take the hit. In situations that this occurred for us, we've seen both options selected by different plans... just depends on the owner, I guess.

Tom, again, thank you very much.

Tom, in the 2010 ASPPA Conference question, it appeared to me that the 5% contribution to all others was a discretionary contribution. As such, if given 6% instead, the plan passes nondiscrimination. So, unless the 5% was written into the plan document, I'm not sure how an amendment to bring in an otherwise ineligible participant is justified by 11-g, since the plan can pass nondiscrimination without bringing in another participant and without an amendment to change from 5% to 6%. Thoughts?

We recently had a similar situation. If the plan document has specific language for fail-safe (the order of bringing in participants to pass coverage), then we thought you have to stop as soon as you pass coverage, and cannot bring in as many as you want. I think the plan document is what prevents adding back the retiree and term... gotta follow the terms of the plan. In addition, we're not even sure an 11-g amendment to bring in your terminated participant (in this case) to get a better cross-test result can be done... since there's no failure that needs to trigger an 11-g amendment.

One other thought, since the filing was on EFAST. Did the letter state that they never filed, or was filed after the filing deadline.

I don't use Relius Web Client, but have a couple of thoughts. 1. As part of the "Filing_Received" status, there should be an "Acknowledgement ID", a very long series of numbers. As far as I know, if you have this "AckID", that's all you need to "prove" the filing was done. 2. You might try www.efast.dol.gov, and search for the Form 5500 filing to see if it's there.

In the last couple of days, we've started to have clients call us telling us that they got a late 2010 Form 5500 filing notice. We filed the Form 5558 with the IRS befor the 7-month deadline. It appears that for these clients that have called, they don't recall receiving the IRS acknowledgement letter that the 5558 was received by the IRS. So the next step I guess is a certified mail receipt. Other than that, I'm not sure what else can be done. As far as we know, these IRS acknowledgement letters may not have been consistently sent to plan sponsors. For us, either the client calls and asks what to do with the notice, or sends us a copy of the notice, or never tells us they got the notice, or may not have even gotten the notice. We haven't tracked this. So it appears that if the IRS acknowledgement letter was not sent/received, and filing was after the 7-month deadline, a late filing notice will be coming. In the most recent example, an April 30, 2011 plan year end 2010 Form 5500 was filed on February 15, 2012 (on the extended deadline) and the client got the IRS late filing notice the same day in the mail. So far, this is all for the 2010 Form 5500. Has anyone else heard about this? The IRS has GOT to get their act together...

I think the IRS would like us to believe (and may have actually said it in conferences) that 1000 hours and last day are not a "reasonable classification". However, I think everyone uses the 1000 hours and last day as a "reasonable classification" and therefore uses the ABPT for coverage. I don't think anyone actually follows this IRS "belief". I don't think I've heard of this being challenged by the IRS either.

Tom... thank you very much.

Tom... many thanks again. I think I've got it. In my case, I do not want to aggregate A and B for nondiscrimination, but since I had to use the ABT for coverage, I was concerned that that forced me into aggregating A and B for nondiscrimination. So, it looks like I can use ABT for coverage for Plan A, but test Plan A for nondiscrimination without aggregating with Plan B. That's the result I wanted. But your quote by Doug above seems to contradict my understanding. Maybe I'm still confused.

Tom... thank you again. I'm still not fully grasping all of this. Can you please comment on the following. Both plans are calendar year. No fail-safe coverage in plans. Plan A - 401k SH/PS Plan - directors,staff with associates getting zero --10 HCE, 25 NHCE --1 year eligibility, dual entry Plan B - 401k Plan - only staff and associates --0 HCE, 37 NHCE --immediate eligibility, immediate entry Plan B passes ratio coverage. Plan A fails ratio coverage. Plan A passes ABT for coverage when aggregating Plans A and B (reasonable classification, nondiscriminatory classification, ABPT). Now, when I do the cross-testing for nondiscrimination for Plan A, is my NHCE's 25 (ignoring Plan B) or am I forced to use 37 (since I aggregated Plans A and B for ABT for coverage). But I also think that if I'm forced to use 37 NHCE's when cross-testing Plan A, I can also disaggregate the otherwise excludable employees (less than 1 year of service), in which case I'm back to using 25 NHCE's for Plan A cross-testing? Do I have this right?

Tom... to continue the question for myself... if you have to use ABPT for 410b coverage (and having to aggregate both plans for this), does Plan 1 and Plan 2 have to also be aggregated when doing the nondiscrimination testing. Put another way... since Plan 1 satisfies 410b coverage using ABPT (with both plans aggregated), can Plan 1 then be tested for nondiscrimination without regard to Plan 2. Or am I missing the "for all purposes" clause. Thanks...

If you have the paper copies, you should be able to mail them to the IRS? The 8955-SSA instructions under "How to File", and under "Where to File".

Whether DB or DC, a participant would be a Code D if he got paid during the form year to be reported. As such, he should have received a distribution election form which the IRS FAQ says can suffice as the Notice/Statement within 180 days and before he got his actual distribution. So even for a DB with 3-year notice cycles and no recent Notice/Statement, he should have received the distribution election form since he did get paid, so shouldn't this meet the requirement for Code D's?

I would think that the Code A's got their Notice/Statement when they were reported as Code A's. So I don't think these same Code A's who will now be reported as Code D's need another Notice/Statement. I thought that the Notice/Statement provided when they were reported as Code A's was the requirement. In fact, if the Code A's doesn't get paid for a few years, I don't think they need a Notice/Statement each year... again, only in the year they were reported as Code A's. Any other thoughts?

So... do we agree that if the plan as a whole passes 410(b) by the 70% coverage ratio, then reasonable classification is not an issue. And therefore, each component plan coverage ratio only has to pass the 70% ratio OR the NDCT safe harbor percentage (which is 50% max). In which case, the original OP example of 66.67% coverage ratio for Component Plan A "passes 410(b)". However, I do understand that component plans are not useful in that particular situation. I only want to confirm the "passes 410(b)" requirement for each of the component plans.

I got this from Jane Osa's session at the ASPPA 2006 annual conference (she provided the same at the ASPPA 2005 summer conference)... ************** Restructuring a plan for Component Plan testing The concept of restructuring a plan into component plans (1.401(a)(4)-9©) for testing is that since benefits could have been provided in two separate plans anyway, each of which would separately satisfy 401(a)(4), you should be able to do the same thing within one plan. No special plan language is required to do this. You cannot use component plan testing for 410(b) – it must be satisfied on a total plan basis before restructuring. You would need to satisfy the ABPT on the plan as a whole in order to use the mid-point percent to pass the rate group testing in a component plan. The total plan must also satisfy the Gateway before restructuring. After satisfying 410(b) and the Gateway on the plan level, you can restructure the plan. Each employee can only benefit under one plan (1.401(a)(4)-9©(2)), and each of the component plans must separately satisfy 410(b) in whatever way it works – be it by satisfying the 70% test or by the ratio percent exceeding the NDCT safe harbor percent! There is no need to satisfy a reasonable classification test at this point. Any criteria may be used to assign an employee to one or the other component plan. Once each component plan separately satisfies 410(b), the component plan separately satisfies 401(a)(4) in any way you want to pass the test – including utilizing a safe harbor! Jane L. Osa & Associates, Inc.___________________________________________ 18 ************** [bolded emphasis is mine] My thoughts after reading this: 1. plan as a whole pass 410(b) by 70% ratio test, then no concerns for reasonable classification 2. plan as a whole pass ABPT so can use mid-point for rate group testing 3. set up component plans in any way desired, as long as each component plan passes 410(b) by 70% ratio OR ratio percent exceeding NDCT safe harbor percent (no reasonable classification required for component) 4. do rate group testing in each component plan So, if #1 passes, each component plan does not have to pass 410(b) by 70%. Am I not reading this correctly?