Doghouse

OK I am raising this subject again. Standardized prototype had pro-rata allocation method for 2012. 11(g) amendment done in 2013 for 2012. The desired final allocation leaves one of the two owners out of the allocation altogether. I've heard arguments that the way 11(g) is written (i.e. no actual failure required to have a corrective amendment), it opens for the door for this type of scenario, but I am just not comfortable relative to the cutback issue. Nonetheless, i am experiencing pressure to participate in this design. What would you do?

You would think, but I don't see anything to that effect.

Each member of a group of related (controlled group and affiliated service group) employers sponsored its own SIMPLE-IRA. In the aggregate, they were ineligible for the SIMPLE-IRA due to headcount. This has gone on for several years and into 2013. It looks like the EPCRS correction is to 'fess up and stop. If that's all there is to it, would the employer still be able to set up a 401(k) plan for 2013? Would the amounts already contributed to the SIMPLE just be ignored? Seems too good to be true

An employer has a DB plan and a DC plan (pooled). He wants to terminate the DB plan, but it has some illiquid assets, and the employer is asking whether he could exchange it for some liquid assets in the DC plan. It feels like a PT. Is it? There may also be some exclusive benefit issues. Dog

Have a similar situation. Employer is terminating frozen money purchase plan and a handful of participants with balances over $5,000 have failed to return election forms. The employer also has an ongoing 401(k) plan. The money purchase plan contains the following language: Plan Termination. In the event of the termination or partial termination of the Plan by the Employer, the Account balance of each affected Participant will be nonforfeitable. Notwithstanding the consent provisions of Section 10.6©, upon Plan termination, if the Plan does not offer an annuity option (purchased from a commercial provider) and the Employer or any entity within the same controlled group as the Employer does not maintain other defined contribution plans (other than an employee stock ownership plan as defined in Code section 4975(e)(7)), the Participant’s Account balance will, without the Participant’s consent, be distributed to the Participant. However, if any entity within the same controlled group as the Employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code section 4975(e)(7)), then the Participant’s Account balance will be transferred, without his or her consent, to the other plan if the Participant does not consent to an immediate distribution. Obviously we would have to preserve the joint and survivor and annuity options on this transfer. Any thoughts? It seems like it's not just an option, but actually mandated. Dog

The broker for one of the plans we administer wants to designate a model (e.g. 41% Fund A, 11% Fund B, etc) rather than a single fund as the QDIA. I don't see anything to prohibit that, so long as the requisite information can be compiled and provided to participants in the notice. I think the broker would have to be the one compiling the information. Does anyone have any experience with this type of QDIA arrangement? Dog

My understanding is that you can request the IRS to rule on affiliated service group determination status, just not on the effects on qualification associated with such a ruling. The instructions for Form 5300 contain some specifics about such a request. Good luck getting anything back in time to help though!

If the employer's contribution for a tax year exceeds the maximum deductible amount, is there anything that precludes the actuary still reflecting the entire contribution on the Schedule SB? These are contributions made after the end of the plan year but before the minimum funding deadline. I'm just wondering if the actuarial certification actually speaks at all to the maximum deductible amount. Dog

Why do you have to limit it to this one money type? What happens to contributions for other money types if there is no investment designation? On the plans I've had like this, the prevailing wage money is really the only kind that ends up coming in without investment direction, so having that same QDIA for everything works just fine.

I am not having difficulties. Dog

Sadly, where non-qualifying assets are involved, and the bond is in lieu of an audit, the DOL is not very forgiving. I had a very similar situation to OP. We took over a plan where the previous TPA had been filing a 5500EZ, even though there were other participants, albeit with no account balances. They weren't truly eligible to file an EZ, so it was when they switched over to a 5500 that it all hit the fan. The DOL did not agree that there were no other participants for this purpose (well, we thought we would try that - no downside). The determination was that they weren't exempt from the audit requirement for that particular year and they had to go back and get one. Because of the amount of assets and the nature of those assets, it was no small (and certainly no inexpensive) undertaking. On another note, the DOL took the position that whether the plan was "frozen" or not, unless the plan language specifically precluded the entrance of new participants, they would continue to enter when eligible.

A little bird told me that the Relius system can be used for this purpose. You might check with their actuary as to the details.

Thanks, we're on the same page. Seemingly this particular vendor, with whom we only have one or two plans, does not allow any options in this regard. PayPal would be a beautiful thing but I don't see it happening. This vendor would be far too sophisticated for that

We are a TPA. Client has their plan set up so that each participant pays the distribution fee related to his own distribution. So far, so good. The platform allows for that. The issue is that the platform wires the fee amount to our bank, who upon receipt deducts a $15 wire transfer fee. It has been proposed that we gross up the distribution fee charged to the participant by the $15 wire transfer fee. I am less than comfortable with that, since it doesn't directly relate to the processing of the distribution itself - at least in my mind. Any thoughts? It would seem to me that we either eat that fee, or it can be charged to the client or plan, but not to the participant.

Geez, no need to be rude. The plan is not top heavy.

Setting the ADEA issues aside, the reason an employer might find this attractive is in a situation where the ADP test is not passing. Those employees over 50 could still do a catch-up contribution, given the plan-imposed limit - but the employees under 50 woud actually be able to put more into an IRA than into this plan, given the ADP test results.

Assuming the plan language is not an obstacle, is it feasible for the plan to impose a deferral limit which says something like "for HCE's under 50, the limit is 0%"? Is that an age discrimination concern? Dog

We have an internal debate as to whether Announcement 2011-82, eliminating features of the DL program that "are of limited utility to pan sponsors in comparison with the burdens they impose," applies to 5310 submissions upon plan termination, as well as to 5307 submissions. I don't see that 5310's are included in this change, but if they are, I suppose we need to modify our plan termination process. Any opinions? Dog

I'm interested in any further comments you may have. What is being proposed is to allocate a low (like 1%) contribution on a pro-rata basis, then adopt an 11(g) amendment, for which 401(a)(4) failure is not a prerequisite, outlining the details of an additional contribution which would satisfy 401(a)(4) on a cross tested basis, including gateway, on its own. Perhaps this is one of those situations where according to a literal reading of the regulations, you can get there. However, I can't think that this is what Treasury intended when they wrote the regulations, and before the sponsor moves forward, I would like to make sure that they are being advised of risks - if there are any.

A profit sharing plan is on a standardized prototype for 2011. The allocation formula is pro-rata based on compensation. Is it feasible to make the allocation on a cross-tested basis instead of a pro-rata basis, deliberately failing 401(a)(4), and then do an 11(g) corrective amendment to shore it up on a cross tested basis? I understand why some might think this is possible, but it seems to me that there is an issue of not operating the plan in accordance with the terms of the plan document.

Thanks Andy. I was more concerned about this (Pension Answer Book paraphrase) - I guess I still have the same concern about this kind of language, and would rather not see it. I'll express my opinion and move on. Thanks again! Dog

(a)(26) passes, so not a concern. The 1/1/10 thing is not a concern for 2011, but it's hard-wired into the plan so it will continue to apply 2012, 2013 etc. at which point the 410(a) concern arises. Age discrimination isn't the objective. Basically they want to let one newer employee come into the DB plan next year. He has the same job description as some other people who were hired prior to 1/1/10, so this will bring the new guy in and keep the old guys out. They're not the old guys in terms of age though, just in terms of seniority.

I have been given a plan to administer that excludes everyone except: a) the shareholder b) the shareholder's spouse c) the business manager d) any employee hired before 1/1/2010 I am okay with a) through c) - the plan is part of a combo arrangement and that testing will pass. I have some concerns about d) though. I have a bad feeling that it may be looked at as a circumvention of the statutory age and service requirements. In other words, I'm not sure that it's a valid business classification. It could be I'm too conservative. It wouldn't be the first time. Any opinions? Dog

A small DB plan (PBGC covered) terminated 6/30/11. There were assets in excess of the PVABS. We want to amend to increase the 2011 benefit accrual to absorb the excess assets. Is there any problem with this from a timing standpoint (i.e. the amendment increasing benefits will be adopted post termination, but effective retroactive to first day of plan year)? The plan termination will be submitted for a favorable determination letter, and I don't want any surprises on this issue. Thanks! Dog

Plan sponsor wants to terminate overfunded DB plan, transfer excess assets to existing 401(k) profit sharing plan that qualifies as a "qualified replacement plan", thus exempting the sponsor from the 4980 excise tax. There has been recent guidance indicating that 401(k) "safe harbor" contributions cannot be funded by forfeitures, since the contributions leading to the forfeiture account weren't fully vested at the time they were made. I haven't heard much discussion as to whether this same restriction would apply to excess assets transferred from a terminated defined benefit plan. I can see an argument both ways, and have found no official guidance at all. Any unofficial guidance would be appreciated! Dog