actuarysmith

Group A would be for Docs. Group B would be for all other employees. Allocating groups A&B accross pay would work. Integrating the contribution would work. In a year where the doctor wanted the maximum contribution with minimal outlay, allocate 5% of pay to group B and maximum amount allowable to group A (might be as high as 40% of pay or so, depeding upon the age and income level of the doc(s))l. I read MWeddell's comments, but I still feel strongly that you do not need to get your document so complicated and convoluted when this approach will clearly work.

You are getting too carried away. Simply create a cross tested / new-comparability profit sharing plan. Define groups A,B, and/or C, etc. You can always allocate groups A,B,C,etc. accross pay, or in an integrated fashion. You do not have resort to cross-testing even though your document allows it. In a year in which the employer wants to weight the allocation based upon age and pay, you are already set up for that by virtue of having defined you allocation groups. You will just have to be able to run the appropriate non-discrim testing results and make sure you can pass. Remember that you can include the 3% non-elective safe harbor contributions as part of this testing.

Earthy, your comment on top-heavy being moot may not be quite right........... Just because Key's will not be getting a match under a frozen simple does not mean that there would be no top-heavy minimum. A key employee is deemed to benefit even if they contribute out of salary deferrals, regardless of whether there is a match or not. Since some of the Key's will presumably have contributed (i.e. benefitted) , the employer would be required to provided the top-heavy minimums if the plan were in fact top heavy. In other words, your comment about the match and Key employees is irrelevant.

Tom's answer is clearly correct. The code and regs are clear that if you sponsor a Simple plan, you cannot sponsor any other qualifed plan and retain the tax favored treatment of the Simple Plan. See IRC 401(k)(11)© AndyH is probably also correct. However, at the risk of stating (or asking) the obvious, what would be the point of sponsoring a Simple plan if it did not receive tax favorable treatment?

It appears that my previous post was on the right track. I know of no reason why you could not cross test a combination 412(i) DB and a DC plan. It is done with "traditional" DB plans and DC plans all the time. Even though 415(e) has been repealed, the IRC 404 limits (25% of eligible payroll, or normal cost under the DB if greater) still applies. If the DB contribution is high enough, it will use up the entire deduction limit. Since 412(i) plans are typically based upon more conservative interest rates, the required funding can be higher than the average non-412(i) plan making this more of an issue. One other consideration, since starting in 2002, 401(k) deferrals do not count towards the 404 limits, why not consider adding a 401(k) plan with a 412(i) DB plan. I would love to hear what others think on this subject. My impression is that there are not a lot of folks doing 412(i) plans out there. (TPA's I mean). P.S. Npalaveda - I realize that you are an avid chess player. You have not figured out who I am yet. (I used to coach the Heritage Elementary Team).

I know, an actuary who hates to assume - now there's the definition of irony! I am trying to better understand the question being tossed out for discussion. Are you contemplating a scenario where a single employer would sponsor both a DB plan , and a DC plan (for younger participants only), offsetting the DB plan by benefits accruing under the DC, and then cross-testing the result to show it is non-discriminatory? I suppose that this would work, but I can think of a few messy situations that might occur....... One of the few advantages of a 412(i) over a traditional DB is that the funding can be smoothed out considerably by funding with insurance or annuities. If the DB benefit is now offset by the DC plan, and there are sudden investment gains or losses in the DC accounts, the funding patterns could become somewhat erratic. Anyway, before I get carried away with too much discussion, can you tell me if I am clued in to the actual topic?

I was not trying to equate earning an advanced degree with speaking another language in terms of effort or dedication required. I was simply trying to point out that if ANY characteristic possessed by an employee (that is not illegal, immoral, discriminatory, etc. etc.) makes an employee able to provide better service, or operate more efficiently - then there should be not qualms about being able to compesate them more. P.S. I have advanced degrees, including several different actuarial credentials. I know a little something about the effort required. I also know people who have studied foreign languages. I can assure you that it can take years to become proficient in another language. I don't see such an incredibly large difference between the two as you seem to think.................

This does not seem to me to be a discrimination issue (i.e. some class being denied something based upon race, gender, creed, religion, etc.). Why shouldn't an employer be able to pay a "premium" to employees that have education, training, or a skill that allows them to provide a higher level of service to their clients? Isn't that basically the same thing as paying someone more because they hold a CPA, EA, CEBS, or MBA designation? In this case, the employee has additional education and/or training in a specific language. That skill is considered desireable in attracting and retaining clients for the firm. As to how much to pay - pay enough to attract the number of personnel you require to get the job done while retaining a reasonable profit margin (i.e. supply and demand 101)

Yes.

Sorry, couldn't resist the Tina Turner reference.................... I would imagine that the more appropriate measure of workload would be combination of the total number of plans (not participants) and associated revenues generated. In theory, revenues should approximate the difficulty of the total client block handled. I realize that this is rather simplistic and not always indicitive. However, it should be a useful approximation. In our firm, our more experienced administrators handle 50-80 plans - which normally equates to around $100,000. These are just general averages. P.S. we focus mainly on small to medium sized plans ( 5 - 250 participants).

In terms of health and welfare brokers - this may be considered a good investment of our time (as TPA). While a health broker is not likely to know much about retirement plans, they probably have a good business sense and can "read" a prospect. In addition, if you are talking about going through the existing client list of a health and welfare broker, this would very likely be fruitful. That broker already has credibility with the prospect/ client and this factor would more than make up for the fact that they don't know much about retirment plans. Again, the hard ones are the rookies, the "cold call' cowboys, mass mailing marketers, or sometimes even the stockbrokers. Usually, these people do not understand how to weed out a good prospect. In addition, they are usually desperate to sell something, and they have a lot of time on their hands because they don't have too many clients yet. They don't mind wasting alot of our time because they don't have much to loose. I don't want to appear too cynical. There are some good people out there just starting out that can turn out to be big producers later on. The trick is to develop an intuitive sense about whether your kissing a future prince, or just a toad.....................

I am not sure I understand your recent post at all............. With that said, you appear to be referring to my comment about "developing the model"........ What I meant, is that many banks, insurance companies, and mutual fund families have figured out that using independent, local TPA's is a better way to go after small to medium sized plans that doing the admin themselves. As far as how do we (our firm) decide who is worth the time- There are no hard and fast rules here. But there are several factors to consider- 1. How much business experience does this broker have? 2. How did they find the prospect? (phone call, mass mailing, friend, association, etc.) 3. What is their committment to the retirment plan area? (have they had any training in this area?) 4. What is the major focus of their practice? When I get a call from someone who "has never done a 401(k) before" and find out they were cold calling, and that they have only been a broker for 6 months and that they have a done deal - I would tend to minimize the time I spent with this person............... P.S. the above story, while humerous, has actually occured more than once.

All good comments above.

Unfortunately, there is no statutory maximum number of days for an asset transfer to occur. As a TPA, I have seen countless administrative/ fund provider changes. I can tell you first hand that every one is different and many things can pop up in the process that cause unforseen delays. Have you asked your HR department why the delays have occurred? Without hearing their answer it is difficult to speculate. Sometimes unusual assets the plan is holding need to be liquidated. This may take extra time. Possibly the sponsor got part way through the process only to learn of potential surrender charges that they were not aware of. Possibly a number of participants have not completed new enrollment forms. Possibly there are some corrective processing items that needed to be addressed by one of the financial institutions prior to the liquidation of the assets. Possibly your employers payroll depost records did not match the records of the financial institution. The problem with answering your question is that the problem could be with 1) the old financial institution, 2) the new financial institution, 3) your employer, 4) the payroll provider 5) some employees of your employer or 6) the Third Party Administrator. (Or more likely, some combination of the above). Please let us know what your firms position is on the delays and we can help give you more specific advice. As a last resort, you could always contact the Department of Labor - they would probably make an inquiry to your employer immediately. This would get attention fast. Finally, are you sure you have lost money? It is standard operating procedure with many TPA's to liquidate the transfer funds and hold them in a money market account until all the accounting detail is finished in order to reallocate the funds. During this "waiting" period, the funds are actually out of the market earning a very low, yet conservative rate of return. Had the market been going up like gang busters you would be complaining about the opposite problem......

I am in a role of shareholder, consultant, salesman, and administrator. We have a fairly large block of plans (1,400) and we all wear many hats. We get alot of calls from agents, brokers, planners, etc. to accompany them on sales calls. I usually try and "screen" them before agreeing to anything. If I had $1.00 for every time I picked up the phone and was told there was a "done deal" waiting for us"..................... Anyway, I usually mention to them that there are a few of us, and hundreds of them (referrals sources that are prospecting). Simple math forces us to conclude that you have to have some rules to operate by. 1. We normally ask referral sources to go to the initial fact finding meeting alone. They are not to try and sell anything - just ask alot of questions. (you may have to coach them). 2. We normally will not attend ANY prospect meeting outside of a one hour driving radius for ANY reason, Period. Attending this type of meeting would cost you at least 1/2 of a full day. Unless you charge for the meeting, you probably will not recover enough cases/ revenue over time to pay for the lost production in other areas. 3. We ask the referral source to give the prospect a very general idea of our fee structure on the initial fact finding visit. We provide the referral source with ranges to communicate. We mention that this will be fine tuned when we provide a formal proposal. (This will save you from driving an hour to see a prospect, only to find out they did not realize that there were admin fees to pay or that their perception is that they are too high. I am not kidding, this has happened.) 4. After the agent/broker has had the initial fact finding visit and communicated our fee schedule, we generally provide a formal proposal. (Sometimes we need a few additional pieces of information). 5. Depending upon the geographic location of prospect, type of plan, potential fees generated, etc. We will offer to attend the final sales meeting. Our goal is to get an appointment with the real decision maker. Don't waste time with anyone else! (In the small to medium size client arena, this normally includes the owner(s)). 6. If the prospect is not very good, we ask the agent to get a prelim sale on the formal proposal without us. If the prospect still appears to be very interested, then we will go out to meet the client, hopefully to close the sale. Please keep in mind that these steps occur in an ideal world. We try and operate by these guidelines as best we can. In reality, we still get called in to ackward situations where we have to go out on the first call (political reasons, big name prospect, major producing broker, etc.). If you are just starting out, you may have to go on a few more rookie agent/ broker meetings earlier in the process. Then as your block of business builds, and you get several referral sources properly trained, you will find yourself selling more plans with less effort. Something to look forward to.................

I get asked this question by brokers all the time - "why should we use your services instead of the bundled approach?". There are so many reasons it is not funny. Here are just a few- 1. We are local. We can meet with them and the client and explain the ins and outs of the plan admin process face to face. We can meet with any of the company advisors considered appropriate. There are no time zone delays if they choose to call us. 2. We can greatly increase most brokers close rate on new business. Most brokers don't know siccum about the admin side of a plan; testing, 5500's, asset transfers, loans, payroll, etc. etc, They usually try and fake their way through those questions and it shows. When prospecting for takeover plans, most sponsors want assurance that someone knows what they are doing. 3. We can fill out the adoption agreement and take full advantage of the IRS rules and regulations. Most bundled providers tend to use cookie cutter approaches and treat all plan sponsors the same. We don't - we can customize a plan to a unique sponsor. We can also offer cross-tested / new comparability plans. Most bundled providers do not offer these services. 4. We can provide a flexible document that does not tie them to any particular investment. Many insurance company, brokerage firms, and Mutual fund houses, have documents that specify particular investments (such as propreitary funds). This does not give the client the full flexibility that we can offer. 5. We can handle most of the day to day questions for the broker. With the bundled approach, the broker is usually in the role of primary contact. We can free the broker up from this time consuming function , and allow them to go make another sale. 6. Our level of service, staff experience, low staff turnover, turnaround time, call back time, report formats, etc. etc. etc. are all superior to most bundled programs. As proof that we are not alone in feeling this way, it has been interesting to watch so many insurance companies, mutual fund houses, and banks, actively seek out local third party Admin firms to "partner" with them on a local basis. Just look at American Funds, Nationwide, Manulife, Kemper Scudder, MFS, Franklin Templeton, Amercian Skandia, Aetna/ING, etc. etc. If this model did not work well, they would not waste the time trying to develop it. Sorry for the long post, as you can see - I am not at all passionate about the subject......

I am not sure I have an exact site to give you, but it has always been my understanding that you continue to file 5500's until the ending balance on the last filed return is $0. (I don't think that the source of the contribution is relevant - whether it is mistaken or not). Even if it turns out that it is not strictly necessary, I am sure that if you Don't file a final return with a $0 ending balance, you will have to answer an IRS inquiry.

I was trying to keep it simple stup.................. (I mean no offense, I was just reiterating the acronym) If the doctor had no ownership in either company, then it would be impossible to run into the controlled group rules. If the doctor had ownership in one group, no ownership in the other and was an employee with earned income in both, then the doctor could still benefit under both plans. For a more complete discussion of the rules, please refer to the code and regs regarding commonly controlled groupl or businesses. In very simple terms, if the SAME 5 or fewer owners have more than an 80% overlap in ownership between two firms, then they are considered a controlled group. If this is the case, then the groups must be aggregated for certain coverage and testing rules, AND a participant working for both employers could only get a single $30,000 allocation.

If the doctor is an employee and has no ownership interest in either employer, and the two employers are not related in anyway, then the fortunate Doc. can receive a full $30,000 in each plan. If any of the facts are different - the answer may change.

Some of the "golden rules" of non-discrimination (in laymans terms) are that - 1) You cannot discriminate in favor of HCE's over NHCE's 2) You can discriminate in favor of any HCE over any other HCE, and 3) You can discriminate in favor of any NHCE over any other NHCE. You may not be able to do all of this in a standardized prototype document, however. As to whether you can actually use a specific name to define eligiblitiy I will defer to the compliance gurus. I have to admit that it bothers me. I would try to find some other way to identify that specific individual without actually naming them. For example, Office Manager, Director of Planned Giving, Technicians with a pay grade of 14, personnel supervisor, or Sales Managers with at least 14 years of service, etc. etc. Good Luck !

Owners of an S-Corp who receive a W2 from the company are technically called "Shareholder-Employees". Therefore, they are employees for purposes of establishing a plan.

I cannot site chapter and verse, but I recall reading somewhere that if your allocation groups had the effect of placing too many participants in categories where they were the only benefitiing at the level, that the arrangement could be deemed to be a CODA. This would mean that the contribution limit would be $10,500 for 2001, rahter than $35,000 or 25% of pay. (This may not be a problem in a non-profit organization - at their income levels they probably would not want/get a benefit any larger anyway). As far as testing is concerned, without any HCE's you can do whatever you please. (Within the confines of 404 and 415). Caution - If someone appears to be approaching the HCE compensation limit in the future, you may want to have them hold back the actual W2 compensation and neogotiate with the employer to give them a larger benefit under the plan. This way it will prevent them from becoming an HCE and spoiling all your fun.

We charge a flat base fee plus, a per head charge for eligibles with account balances, and a seperate per head charge for eligibles without account balances. This is then all adjusted based upon the relative humidity, moon phase, and the current standings of the Seattle Mariners.......(Just kidding - I don't really see how the moon phase should affect our fees)

It is not "30" years for primary residence. The regs allow 15 years.

We always advise our clients that they should consider vesting all terminated participants paid out within a period of up to 12 months prior to a plan term. This may be overly conservative, but who wants the service to come back later and rule that you should have done it that way to begin with........... Basically we explain that it is probably a facts and circumstances determnation. We explain the potential risks to the client if they choose not to vest these prior terms. We then instruct the client to tell us in writing how they would like us to handle the situation. Also, keep in mind that if you have a decent percentage of prior terminations (i.e. 30% or more) you may trigger a partial plan termination, which could also require accelerated vesting. (This scenario happens frequently when a business experiences a downturn, but tries to "hang on" for awhile before closing the doors.) The bottom line is that YOU DO NOT WANT TO MAKE THIS DECISION YOURSELF! If you do, you become a fiduciary. Explain the pros and cons fully to your client and put the onus on them to direct you as to how to handle the situation.