CharlesLeggette

XYZ is an RIA. They manage money. They have 4 different partnerships which hold client funds and buy stocks and bonds...no unrelated business taxable income.The partnerships are each over $150mm, so they are big. They have adopted a PSP and a CB...they have only 4 employees so they will be contributing about $350k to the 2 plans. Can they invest their pension assets in one or more of the limited partnerships.

Well, I assume that all your newcomp clients have a board mtg, decide on the PS contribution and proceed accordingly --- so if an individual HCE wants something different he must petition the Board for such a change. The Board then acts upon it.... I'm sorry, but I am not seeing this degree of strict adherence in the actuarial or TPA communities....I certainly have not seen any requirement in PSP's that things are locked down for 3 years as the atty suggests...

Yes all 40 on the board. OK, so the Board says the contribution for every owner allocation group is $53,000, but each year the Owner can request a reduction in that amount and the board votes to permit it. Seems like that would cure the problem. But I am still disturbed that his claim that any choice by the Doc would constitute a CODA.....if you apply this logic to a self employed taxpayer where net schedule C income can be diverted to a Deferral or a PS contribution [or a Cash Balance contribution], it seems to reflect a double standard.

I had a client meeting today – 40 owner docs , 300 non-highly comp employees…they wanted to adopt a New comp 401(k) plan and allow employees to make deferrals but they themselves would make only catchup and profit sharing contributions at the end of the year, no match. They have had an integrated Plan and will contribute around 8% of pay to nHCEs under the NewComp Plan. Passes all testing. Each employee is in his own rate group. In the meeting the docs asked if they could vary their contributions from year to year. I said , of course, as long as they pass a(4) testing. Well the atty went ballistic saying absolutely not --- that they had to agree to a certain amount for 3 years and the board made the contribution decisions and the individual docs[all of whom are on the Board] and the docs could make no decision about amounts….he said the suggested arrangement was a CODA. He finally agreed that the board could set the contribution at $53,000 for all owners and if an owner could not make the contribution, he would contact the benefit committee and request a reduction for a particular year, but he still said they must stick to that for 3 years. Well, SBJPA repealed IRC401(a)(26) for DC Plans and every prototype today has ability for "every employee in their own Rate Group". Each Doc could have their own standalone PSP in which they would make contribution decisions. So what's the difference. I reminded him that the board WAS the docs. He was adamant re the CODA and said the contributions must not change more than every 3 years and the individual docs could have NO say in the amount of the contributions [which I find ridiculous]. Does anyone know of any documentation, perhaps a Grey Book Q&A, or anything that speaks to this issue. I have dozens of New Comp plans and the docs/owners make annual decisions about their contributions….never has an atty raised a question about it. I’d appreciate some insight here.

New company...2 owners are younger than 13 other ees and make around $100k each....less than FICA limit.... So under permitted disparity, this falls into category where all ees make less than the FICA $118,500. It sounds like the allocation rate for the hcees can be 2x the nhcees and they would pass if permitted disparity was invoked...but I cannot get my arms around exactly what the regs are saying....can someone clarify the procedure.

This Plan will be set up in December and then in January be merged into the main line plan so it will exist for only 1 year.

It’s my understanding[which may be well out dated], that 401(l) contributions cannot be considered in the 401(a)(4) general test, so basically they're useless for Cross Testing purposes. BTW there are document issues…but please disregard them as this is a custom Plan…. Any thoughts?

Yes, but apparently the notice must still be issued. Here's the FTW doc section. Notice Requirements. See section 101(j) of ERISA for rules requiring the plan administrator of a single employer defined benefit pension plan to provide a written notice to Participants and Beneficiaries within 30 days after certain specified dates if the Plan has become subject to a limitation described in Subsections (b)(1), ©, or (d). b(1),© are the lump sum provisions.

I had a TPA call and said he has 2 plans that had made their MRC by 9/15 but they were overlooked for their 9/30 certification letter.They were both 1/1/2014 new plans with 12/31/2014 EOY vals.Both are small CB plans and are fully funded. I personally have never had this problem and want to proceed cautiously -- but I assume they are deemed < 60% and must issue a ee notice freezing everything until 12/31/2015... Seems awfully harsh. Is there any relief for this?

The entire 100K is rolled...he's not 70 1/2 yet.

How does he justify taking all of the assets out at the end of the year? Is he over NRA? What is the distributable event? Yes he is > 65.Plan has an In Svc distrib provision. Is this a cash balance or a traditional db? Can you give some idea of the benefit formulas. Traditional DB --100%of pay. Can you provide more specifics around the entry age, attained age, and retirement age of the participant. Had the Plan since 2012...doing the 2014 EOY val.

This plan is part of a group of plans I’ve been asked to take over from a life actuary who is also an EA. The one employee/owner has ample income to take care of 415(b)(1)(b)…he’s doing this to escape state SE and Federal SE taxes. He’s a corporation. He’s still actively employed. Prior actuary certified it for 2012, 2013. EOY val. For starters, The AFTAP flunks—less than 60% because the plan has no assets at EOY, so benefit restrictions kick in. I know of no waiver for a 1 person plan for the 436 benefit restrictions….maybe there is one… The pension formula doesn’t match up with the $100k in and $100k out…. I guess you could design a DB formula that would have an annual accrual the cash lump sum of which equals $100k and have him take in in-service distribution for $100k, but I haven’t investigated how that will affect the AFTAP. Has anyone ever done this before and does anyone see any possible solution to this – forgetting for a moment the seeming sham nature of it and prior years’ AFTAP certs that were wrong. Thoughts would be appreciated,

Interesting so, we could have a 5% nHce NEC + new-comp in division 1 -- or am I mis-understanding you??

I'm a bit rusty on the separate Plans issue... company has 365 nHces and 38 Hces division 1 has 208 nHces and 30 Hces division 2 has 157 nHces and 8 Hces division 1 = 208/365 / 30/38 = 72.18% division 2 = 157/365 / 8/38 = 204.32% so looks like they pass RPT -- can each company have a completely different 401k Plan [with no non-elective]...e.g., division 1 have a 100% 1st 6% SH and division 2 have non-SH 100% first 3% my recall says yes...but if they add NEC, then ABT must be passed... The headcounts are after 1 yr/age 21 application -- I assume that's OK. I'd appreciate any thoughts...

I think Jim Holland may have opined on this at the ASPA 1999 Q & A Session --- A 401(k) Plan complies with the nondiscrimination rules for one or more years by using a safe harbor matching formula. Prior to beginning of next year, it elects to not use the safe harbor rules. The employer adopts a discretionary matching formula and informs participants accordingly. May the employer use a graded vesting schedule with respect to matching contributions made after the change to a non-safe harbor plan (giving credit for all prior service) or must the participants who were covered by the safe harbor formula continue to be fully vested in future discretionary contributions? The mutual fund company states the employees who were in the Safe Harbor Plan must all now be fully vested in the new discretionary matching accounts…..their record keeping system keeps all these in different source buckets, so there's no co-mingle issue. what????? Is this correct???? I either want to laugh or cry.

Thanks Bill, as soon as I find out what the "hit" is from DOL OCA ...I'll reach out...

OK, here's the approach I plan to use: 1 – if they filed 5500’s and they incorrectly put the BOY and EOY Participant counts at 40+- and there was no indication that the count should have been 250+-, then no error would have been raised by the EFAST filing system even though a 5500-SF[small Plan] should have been filed. 2 – I was advised to call the Office of the Chief Accountant of the DOL and anonymously discuss the situation. I was advised that they have the only authority to do any kind of waiver or permit any kind of settlement in such a case as this. 3 – Amended 5500’s would need to be filed with the correct head counts and an audit attached under the standard procedure. This is subject to negotiation with the Chief Accountant’s office. I am told they are quite reasonable. There is some remote possibility that they would only require “bookend” audits. It is also possible that they will consider one or some of the filing years as beyond the statute of limitations and therefore no filing needed. 4 – Amended 5500’s shouldn’t be too hard to file using EFAST as the only thing that would change would be the headcounts and the box[es] checked regarding the audit and the plan size. 5 – EFAST amended returns are easy as to file one you just check the page one box that says “Amended Return”. 6 - There is some question regarding whether this should be a DFVC filing.My view is that we can skate on that for the moment. These are corrected filings and since we're going over 100 lives, part of the correction is the audit. Any comments?

Yes, Tom, darn good question. I just emailed them and asked if they had filed 5500-SFs or 5500's -- but you must remember they have been using 40 instead of 260 as the part count so no bells and whistles would have gone off.

Received a call from CFO of a client with 300 employees, 260 eligible,40 deferring...CFO filed 5500's 2009-2014 -- thought that plan did not need an audit. Hired a new CPA who asked about copies of audits. Nada! Frankly, I've never had anything but late audits...with no meaningful consequences. 4 questions: Is this similar to a DFVC event [since I was always told that the DOL considers a failure to attach the audit as a non-filing]? Can they get just one massive audit that covers all years and just refile the 2014 5500 + 2009-2014 audit attached, as an amended 2014 return, with DFVC and amended return boxes checked? -- or-- Must they refile every separate 5500 and have separate audits, year by year? Does the CFO need to commit hari-kari, kamikaze or "It's a Good Life" type action??? Thanks in advance.

Client has a safe harbor KPlan…does not permit rollovers[i took over without a document restatement]. They are terminating their CB plan in a month or two and want to roll CB distributions to KPlan…100% of ees [a small number] want to do this. The Safe Harbor notice of course doesn’t mention a Rollover Employee account. Is a rollover a “Contribution” subject to the notice, in which case we cannot amend the KPlan to allow rollovers or is there wiggle room here…is there any way to classify the incoming $$ as a trustee to trustee transfer? It seems reasonable that a Plan could add Rollovers. That is not an Employer Contribution. Thanks in advance. --

I just took it over, but it is the first year of the Plan.

Single employee Plan. Owner is age 49, NRD is age 62, end-of-year val.....so Target Normal cost is about $125,000. 78% of his pay however is $159,900. So $159,900 is the IRC 430 amount. Does IRC 430 required contribution amount trump TNCost calculation and would it be deductible??

A couple of questions and observations 1. If married, and a legitimate action, pay spouse a salary/NSC income and begin accruing benefit under a Cash Balance Plan formula.make the nBr 100% of pay.See comments below re old DB benefit. 2. If he/she has continuing income, freeze the DB benefit and add a 100% of pay cash balance benefit for both and ride the 415 B and 401a17 limits until the plan is on a even keel.See below. 3. MUST DO: Amend the Plan immediately to provide in-service distributions and immediately roll the PV of the Accr benefit to an IRA. This will discontinue any asset race competing with the liability race.Each year in which a participant or spouse receives a Cash Balance Credit to their hypothetical account, have them take an in-service distribution. Usually it will take 3 to 7 years to chew it up...then go home.

I've dwelled in big Plan world...now filing a 7 life CB plan 5500...It doesn't appear that a schedule R is required, but am unsure about Schedule SB attachments for actuarial assumptions and summary of Plan Provisions....anyone confirm Yes or No????

Thanks John...that really clarified it.I appreciate your patience. Damn, you should write a book.