Doghouse

That's because I made a typo - it's 2 in the DB and 3 in the DC.

Company has DB Plan and DC Plan, general tested in aggregate. DB plan covers only 2 owners. DC plan covers 4 NHCE staff. DB plan has 2 year wait/100% and DC plan has 1 year wait/6 yr graded vesting. I think we may have a benefits, rights & features concern with respect to eligibility and/or vesting. Does anyone agree with me? On eligibility, vesting, or both? Dog

We administer a DB plan that is terminating due to sale of the company and retirement of the sole prop owner. The plan has been frozen for the last several years - however when it was active it had a pretty robust formula, and a Joint and 100% Survivor normal form. There are only five individuals with accrued benefits. It's PBGC covered. There is a former participant who, in the middle of the plan termination, just reached normal retirement age, and has selected the annuity form of payment over the lump sum. Now here is what gets a little strange and disturbing. Under the terms of the plan, his $4,000 monthly benefit equates to a $561,000 lump sum (he's at 415(b) limit, so what's kicking in is 5.5% and life only form). However, when the sponsor goes to shop the immediate annuity, no insurer out there is going to assume 5.5%, and they have to price it based on the 100% J&S. Because of these two factors, the premium is MUCH higher than the $561,000 lump sum - like around $900,000. Of course the plan is underfunded to begin with, and the owner was going to waive benefits in order to go through a standard termination with the PBGC. But with this additional outlay to buy the annuity, the owner's benefit will be completely wiped out, and then some. It's like the "perfect storm" of plan terminations. Short of rescinding the plan termination, does anyone have any "outside-the-box" thoughts?

Thanks all - I will do just what you have suggested and tell them that it would be aggressive to grant the loan as a principal residence loan, and that if they want to take the more aggressive position they should consult with an ERISA attorney first. I doubt they will take on that expense, considering that the borrower is just one of the office staff and the amount of the loan is only $10,000 - instead they will likely just deny it.

This seems to be coming up a lot with the current credit debacle. A loan is being requested for the acquisition of a principal residence (term > 5 years). This principal residence will in fact be the participant's primary residence, but the ownership will be in someone else's name (a sibling in my current instance). Do you think it still qualifies as a principal residence loan? Is there a requirement that the borrower is intended to hold title to the property? The sales contract to be submitted as supporting documentation will not mention the participant at all.

I believe that TD 9507, published in the Federal Register on 12/7/2010, finalized those regulations.

We (TPA) have a client with a DB plan that has been around for 2 years. While originally, the only employees/participants were the two shareholders and their spouses, things suddenly took off and they found themselves with a couple hundred employees. While it was active, the plan provided benefits at the 415 limit level. The plan was frozen before any of these new employees satisfied the eligibility requirements (which would have been 1/1/10). My problem is that for 2009, the client made the maximum deductible DB contribution, which included a signfiicant cushion amount. So now, this frozen plan, which will likely never be resuscitated, is signficantly overfunded. If the client reallocates these excess assets to plan participants pursuant to some future plan termination, the 415 limits will have grown enough (through additional years of participation) to accommodate it, but will that allocation constitute an accrual in that future year, that would have to be subjected to 401(a)(26), 410(b), and 401(a)(4)? If so, considering the other employees, I don't see how it can possibly pass muster. Am I wrong?

I suggested that but the partnership is being dissolved and absorbed into the buyer effective 6/30/10 and the client is insistent upon having everything distributed by 7/31.

Hello all, I have a client who is a partnership with 3 partners. Each of these partners receives both K-1 and W-2 income. No comment on the appropriateness of that - it shouldn't be possible but it happens all the time. In any event, both the 401(k) plan and the partnership are on a calendar tax year. All three partners made deferrals from their W-2 income. Now the plan is terminating effective 6/30/10. For the purpose of ADP testing, would you say the testing compensation is zero (because earned income is deemed to be paid on the last day of the tax year, which hasn't been reached) or the W-2 compensation through the date of plan termination? Obviously the client would like to to avoid refunding all their deferrals for the year due to 415 issues. Any help is much appreciated! Dog

ABC Corporation has 401(k) Plan A and has now started a new 401(k) Plan B. Both plans have a six year graded vesting schedule. Plan A does not exclude YOS prior to the plan's effective date (1/1/06) but Plan B does (actually the effective date of the plan or a predecessor plan). The effective date of Plan B is 1/1/09. I don't think there is any question that Plan A is a predecessor of Plan B. Currently Plan A is in the process of merging into Plan B. If anyone can weigh in on the following issues, it would be much appreciated. Does everyone agree that the change in vesting schedule rules apply here? If 1 is yes, would you treat the vesting protection as applying only to amounts already accrued in Plan A, or to future accruals as well? I know the IRS takes the position that the protection applies to future as well as to past accruals, but I get the impression that this isn't necessarily the position embraced in the field. Nor does the IRS position specifically address plan mergers. If 1 is yes, do you agree that the three YOS to determine who could make a vesting schedule election applies to all YOS, not just those subsequent to the effective date of either Plan A or Plan B? Thank you for any and all replies! P.S. I believe Plan B was created to get around the pro-rata safe harbor allocation rules for nonelective contributions in Plan A. It did not just "happen" to exist. Dog

I have a cross tested profit sharing plan, one person per class. For 2009, some of the profit sharing contribution will be made in employer securities, and some will be made in cash. The employer wants to individually select the ratio of cash to employer securities comprising each person's contribution allocation. So participant A might get all cash, participant B might get all employer securities, and participant C might get half and half. Obviously the entire contribution for each person will need to satisfy the ctoss-testing requirements, but is there a BRF issue with respect to the allocation between securities and cash? Dog

On some of the plans where we have recently applied online for a trust ID number, we are receiving IRS correspondence requesting the filing of a form 1041 - which obviously doesn't apply on a qualified plan trust. Does anyone know what on the online applicaton is triggering that, and how we might complete it differently to avoid this? Thanks! Dog

My client's defined benefit plan extended an unsecured $150,000 loan to an unrelated person. That debt has become uncollectable, and as the plan is terminating, the client's intent is to write it off. My question - is there any 1099 reporting requirement for a bad debt write-off? Again, this is not a participant loan, just a general note receivable. Thanks! Dog

Do we agree that the funding-based restrictions on lump sums do not apply in the instance of a plan termination, per the final regulations that came out in October? Dog

Well, mbozek, maybe it goes without saying that I want the amount owed AND the copying costs in advance. While I realize I can compare the TPA firm to a CPA firm, I suspect that CPA's are forced to provide more information then they think they should need to. I don't see why we would want to sign up for that voluntarily. What our policy will be is one issue, but in developing that policy I would like to know the framework of what is actually required. I will have it reviewed by counsel as you suggested. Thank you for all your comments!

Thanks, Tom and RLB. Our document (which is a Relius vol sub) says: Furthermore, for nondiscrimination purposes, including the computation of an Employee's actual deferral percentage ("ADP") or actual contribution percentage ("ACP"), the Plan Administrator may limit Compensation taken into account to Compensation received only for the portion of the Plan Year in which the Employee was a Participant and only for the portion of the Plan Year in which the Plan or the 401(k) arrangement was in effect. I'm more or less concluding that the decision made on this issue has little or nothing to do with the 410(b) issue. I was concerned about the situation where, say, an employer institues the 401k provision effective 12/1, after all the NHCEs have terminated employment, and then let the HCE's go at it. But, Tom is right that they would be able to do that with a short plan year as well. Thank you again for setting me straight! Dog

Have an existing calendar year profit sharing plan where a 401(k) provision was added effective 9/1/08. I am pretty clear that for ADP testing purposes, I have the option of using either full year comp, or comp after 9/1, for purposes of the ADP calculation. My question is really a 410(b) one. If I have individuals who terminated before 9/1, can I still count them as benefiting under the 401(k) provision? I would think not. Even though the 401(k) is open to all nonexcludable employees, I would think I may still have a coverage issue here. Any thoughts? I have to think this has been asked before, but as usual, my search comes up dry. I am hoping there are others out there with no life who are working this weekend. Dog

Let's say I'm rewriting the master service agreement and I want to make the terms as favorable to us (the TPA) as possible.

This question seems to come up everywhere I have worked. We are a non-producing TPA firm. Not CPA's. We do have an actuary on staff. When a client terminates our services and moves their plan to another TPA, what is our obligation to provide copies of documents if the client has left owing us money, or if the client refuses to pay for copying costs? By documents, I mean plan documents, prior 5500's and admin reports, etc. Our administrative service agreement has its own issues and really needs to be revised, but I'm wondering what our constraints are outside of the service agreement. Thanks for any input!

This kind of design works better when the associates are HCE's. That fact notwithstanding, perhaps you can make a corrective amendment under §1.401(a)(4)-11(g) to bring in a few associates with a QNEC allocation? Or, you can look at average benefits testing instead of ratio percentage testing.

Blinky, you took my next question right out of my mouth. That's what I was afraid of. The freeze amendment was done after the person had already become eligible, so probably a case of sloppy timing rather than sloppy drafting. Thank you both for your input!

If we have a plan that previously covered only the owner, and then a rank-and-file employee enters the plan, but the plan is frozen before there are any benefit accruals for the plan year, is the plan required to be PBGC-covered? The rank-and-file individual is still employed. There seems to be some indication that if the person did not accrue any benefits, they are not "covered". Any thoughts appreciated!

I have seen different answers to this question - Can an ACA (non-EACA or QACA) be added to an existing 401(k) mid-year? There is not a lot of literature devoted to the straight ACA! Thanks for any responses!