LarryDavid

Thanks David I appreciate the response. It's nice to get confirmation that this type of situation has occurred before.

We have a new client that recently purchased annuities for all of its participants (small plan with under 20 participants, all either retired or term vested at time of purchase). This leaves the plan with zero participants and about $500K in assets that will be used to pay the remaining administrative expenses (final valuation, government forms filing, audit fees, etc.), with whatever is left over after that being reverted to the employer (with applicable taxes due on the reversion at that time). The client now wants to officially terminate the plan. Obviously this approach is opposite of what we usually see (i.e., usually we formally terminate the plan first, then move on to the purchase towards the end of the process). Has anyone ever dealt with a plan termination after all participants have already left the plan? Does this change the typical IRS and PBGC filing timeline/requirements?

Thanks Effen. I suppose if the plan were more than 100% funded then you're right, the MRC and PBGC VRP would both likely be $0 regardless of the methodology used. If the plan were less than 100% funded, however, we'd have to think more about the 'correct' liability to use. Though in either case I like your argument that a PBGC premium should not apply for a plan that is fully guaranteed under a GAC.

For anyone that has experience with annuity buy-ins, how have you calculated the Funding Target liability for the purchased group? I believe for accounting purposes the liability is set equal to the fair value of the GAC, but is that also true for the FT? Or are we required to use the PPA-defined segment rates?

Okay I think this makes sense and actually provides us with a better path forward than I thought was available. If I understand you correctly, in trying to determine if the SLOBs are QSLOBs we don't yet look at the individual plans but instead look at the coverage of each Line of Business. Said another way, we would do a ratio percentage test based on nonexcludable employees of Company A and Company B, while disregarding which of the specific plans the employees of Company A benefit under. If that is correct than I think we're good.

I have a client (Company A) that sponsors a 401(k) and a DB plan. A couple of years ago they acquired another company (Company B) that sponsors a 401(k) plan. The transition period funder 410(b)(6) has now expired and they may have a testing issue unless they can obtain QSLOB status. In testing for QSLOB status, both companies meet the 50 employee requirement and the administrative scrutiny requirements under 414(r). Next up is the Gateway test under 1.414(r)-8 which is causing a potential problem. I believe that each of the 3 plans has to satisfy 410(b)(5)(B) on an employer-wide basis, and can do so by each having a coverage ratio greater than the unsafe harbor percentage. While each of the 401(k) plans satisfy this requirement, the DB plan unfortunately does not. Based on this, does that mean Company A fails to be a QSLOB based on the DB plan's coverage failure? Or can Company A's 401(k) plan at least be tested on a QSLOB basis since that plan does meet the coverage requirements and the sponsor satisfies all of the other QSLOB requirements. In that case at least we'd be good for the 401(k) plan and the DB plan could then explore other options (hard freeze or open up to new entrants). A colleague suggested that Company A as a whole could be tested on an employer-wide basis, not each individual plan. The argument being that it's the QSLOB itself that needs to be tested, not the plans of the QSLOB. But that did not sound correct to me. Any suggestions are welcome.

I have a multiemployer 401(k) plan that is comprised of 20 employers, with all participants collectively bargained (i.e., there are no non-union employees in the plan), and all part of the same CBA. When performing the ADP testing for this plan, would I test each employer on its own or am I required to test the entire population as one employer? The regs indicate that I must test the entire plan as one employer, but I could have sworn that testing for multiemployer plans was always done on an employer by employer basis. (Meaning for this plan, if 19 of the 20 employers had no HCEs I could ignore those groups and just test the 1 employer that has an HCE). Perhaps what I always thought was the case has simply always been wrong. Any help is appreciated!

A client has asked me if they can make their PPA credit balance elections via email. Meaning the email itself would contain the election language, and the signature would be their email stationery text at the bottom (e.g., "Name, Title, Address, etc.".) Would this satisfy the regulations, or would an actual scanned signature in a Word document be required?

Thanks all! Your responses have helped me determine that, at a minimum, both approaches are technically allowed and it is therefore a matter of how the plan document defined the optional form. I will do a little more digging with the client to see if I can get a hold of the original plan document and/or the original paperwork used to calculate the conversion factors. Thanks again, much appreciated.

I have a plan that used to offer this form of payment, and the participant died after receiving 15 years of payments. Let's say he was receiving $100 per month, I was under the impression that the surviving spouse would receive the full $100 per month for the next 5 years, and then the amount would be reduced to $50 per month after 20 years of payments have been made. A colleague is telling me, however, that the reduction happens immediately upon death, and that the 20-year guarantee only guarantees that a minimum of 20 years of payments will be made pursuant to the terms of the JNS, not that the participant-portion of the annuity is guaranteed for 20 years. Anyone have any experience with this form of benefit? I cannot find anything in the regs that provides clarification. I also do not have a copy of the old plan document that describes the form of payment (the form no longer is offered under the current plan). Thanks, LD

I have a plan that would be safe harbor if not for a different definition of compensation for sales people (their pay is capped at $100K). Can I test as two component plans as follows: 1) Component Plan A is all non-sales people; this plan is safe-harbor and therefore satisfies 401(a)(4) and 410(b). (Can a component plan be considered safe harbor when the main plan is not? I know there are rules against using service as the component since employees could grow into the next service bucket, but for this purpose I'm wondering if it's okay). 2) Component Plan B would have to satisfy 410(b) and 401(a)(4) on its own, which presumably would be no problem since NHCE's will generally receive a benefit on their full pay while the HCEs will not (since their benefit is limited to pensionable pay of $100K). Note that the main plan passes 410(b) and 401(a)(26) on its own. As a side question, if instead of restructuring the plans I instead went the route of proving the main plan's defintion of pay was nondiscriminatory by running the compensation test under 414(s), would I still have to run the general test to satisfy 401(a)(4)? I.e., if the only thing keeping the plan from being safe harbor is the definition of pay, and I prove that pay is nondiscriminatory under 414(s), do I in essence treat the plan as safe harbor for 401(a)(4) purposes?

As kind of an aside to this topic, is there anywhere in the Regs where it formally states that the method used here to prove compensation is nondiscriminatory is allowed (i.e., that instead of doing compensation percentage test under 414(s) you can instead just run the General Test using a 415-definition of compensation)? I've always assumed this was true so I'm not questioning it per se, however I now have a colleague that is asking me to confirm that we can do this by citing something formal in the Code or the Regs, and I am having trouble doing so. Anyone know where it says we can do this?

Appreciate the response Tom. One of our internal compliance guys gave almost the identical response as you did when I posed the question to him, so this is definitely worth further examination. This actually started off as a casual question from a colleague where it was believed there was nothing to worry about, and all I had to go on was her saying "Hey, my document says the contribution is discretionary, so the plan can do whatever it wants, right?" I'm hoping after a more detailed review of the document there is additional language in there that addresses the points you make above. Thanks again.

If a plan document for a DC profit sharing plan defines the annual allocation as simply "discretionary", the employer has the flexibility to provide whatever percentage it wants each year and (I believe) also has the flexibility to provide different amounts to different employee types (i.e. based on age, service, job classification, etc.) as long as the allocation satisfies all NDT rules. Is this correct? My specific example involves a client that wants to provide a serivce-based schedule this year that fits within the confines of the gateway rules for smoothly increasing allocation rates, and was wondering if it had the ability to do so based on the provisions of the plan (which again simply say the amount to be provided is discretionary, with nothing futher regarding different employee types receiving different amounts). Is there any reason to think they can't do the service-based allocation?

Thanks guys. I definitely oversimplified my explanation of the situation, and in doing so probably created some confusion over the exact details of what's going on. I think ERISAtoolkit.com basically explained the situation as it actually happened (although to be honest I am only a side-player in this and was asked solely to do some NDT-related research, so I could be wrong on some of the details of hte actual transaction). The main question that I'm dealing with now is the HCE issue, and whether the transition period would apply to amend the plans so that there is a consistent definition throughout the employer (I'l refrain from using "controlled group" since that probably confuses things). My concern from a testing standpoint is the ADP test. I don't believe the transition rule under 410(b)(6) applies for this test (according to Rev Rul 2004-11), so therefore would it be possible for Plan A and Plan B (the corresponding 401(k) plans for each company) to run their tests with different HCE definitions, especially if the top-20% for one group includes employees from another group (meaning an employee could be an HCE in one test and not the other???). I think I've completely confused myself at this point . Any additional thoughts on this are appreciated.

Thanks to both of you. Company B is still maintaining it's own plans (they have a DB and 401(k)). The employees of Company B are not joining Company A's plan (they only have a 401(k)). So in essence all of the plans will operate business as usual. In this case, do Company B's plans have to be amended to change the HCE definition? (In actuality what we want is for Company A's plan to change it's definition, since that wil be more beneficial for 410(b) and 401(a)(4) testing).

Company A has acquired Company B, and pre-acquisition they use different definitions of HCE (Company A uses standard defintion; Company B uses top-20%). I assume that the definition of HCE must be amended for all of the plans in one of the Companies (doesn't matter which one I don't think) in order to make the definition of HCE consistent amongst all plans in the "new" controlled group (i.e., the group that now includes both Company A and B). Is there any sort of transition period allowed before this amendment is required? (Similar to the transition period for 410(b) testing?) I would guess the amendment has to be done immediately as of the date of the sale, but am not sure. Also this is an asset sale, not a stock sale (not sure if that would change the answer).

Thanks Tom! I figured I could count on you

Quick question that I think (hope?) I know the answer to but just want to confirm: I'm aggregating a Partner DB/DC plan arrangement with a Staff DC-only plan. In the Staff DC plan all participants receive an allocation of 7.5% of pay. This provision was put in to specifically avoid any minimum gateway issues. However, the plan's eligibility is 1st of the month after 1 year of service. Therefore, an employee hired 6/30/2011 would not enter the plan until 7/1/2012, and his allocation would be based on 7.5% of pay earned after DOP (i.e., roughly 3.75% of total year pay). I believe this allocation is okay and would still satisfy the minimum gateway requirements, based on comments I've read in the Coverage and Nondiscrimination Answer Book, specifically the following paragraph: "The definition of compensation set forth in Code Section 415©(3) is to be used for purposes of determining applicable limits on benefit accruals (the 100 percent of average compensation/$160,000 (as indexed) limit) and allocations (the 100 percent of compensation/$40,000 (as indexed) limit). It is important to note, however, that the definition is also used for certain other purposes, including determining key employees, determining top-heavy benefits or allocations, establishing which employees are to be considered HCEs, and the minimum gateway allocation (through date of participation only)." However, I do not see anything in the Code or the Regs that state this. Can someone please confirm if the Staff plan in my example is okay with regards to the minimum allocation gateway?

I have a plan that provides an early retirement reduction at 4.8% per year from age 62 to age 55, with no reduction at any age with 30 years of service. For General Test purposes, should I incorporate future service in determining the most valuable accrual rate for an employee that does not yet have 30 years of service, but would attain 30 years before age 62? For example, I have a participant age 50 with 25 years of service. Should his most valuable accrual rate be based on an age 55 benefit with no reduction (since he would have 30 years of service at this age), or the plan's regular 4.8% per year reduction (since he does not have the required service eligibility for unreduced benefits as of the testing date)?

For the 2011 plan year, I understand that plans will no longer receive automatic approval from the IRS for any changes in assumptions regarding yield curve and asset methodology. Can someone point me in the right direction as far as what is entailed in the request process to the IRS when asking for approval for an asset method change? Is there a specific form that must be filled out? Any help that can be provided is appreciated.

Why? I think you could test them on a contributions basis if that works. You are correct, and that is what we wound up doing.

Thanks Andy. Obviously the impact of these various methods is extremely minimal to the overall testing results. Just trying to cross all my t's, etc.

The rules for imputing disparity for employees with more than 35 years of service are a little confusing to me. It appears that an adjustment is required to the PDF if a participant's service is more than 35 years, but only if such participant benefitted under a DB plan in the measurement period. However I believe it's also true that DC participants (with no DB benefit) are limited by the 35 year rule when tested on a benefits basis. Below is a quick summary of how I think the service adjustments are applied to the PDF under various testing methods. Can someone please confirm if my understanding is correct for each one? For simplicity I am assuming that the "base" PDF for Benefits testing is .0075 (i.e. for purposes of my question on the 35 year stuff, I am temporarily ignoring other adjustments for SSRA, etc.). Also, I am assuming that participants only have a DC plan benefit (no DB benefit). -Benefits Basis, Annual Method: PDF is .0075 if Total Service as of testing date is <= 35; PDF is zero if Total Service as of testing date is > 35 -Benefits Basis, Accrued To Date Method: PDF is .0075 if Total Service as of testing date is <=35; PDF is .0075 x (35/Total Service) if Total Service as of testing date is > 35 -Benefits Basis, Projected Method: PDF is .0075 if Total Service as of NRD is <=35; PDF is .0075 x (35/Total Service at NRD) if Total Service at NRD is > 35 -Contributions Basis, all methods: PDF is .057, regardless of Total Service today or at NRD Are my above interpretations correct?

First, sorry for the contsant posts on gateway's and testing issues. I am having a nightmare of a time with a large controlled group that froze all but one of it's small DB plans (and such small DB plan is mostly HCE's) and I'm just looking for any way I can to save the client from having to make a large contribution to satisfy the gateway (even more annoying is that without the gateway issue, the regular coverage and benefits tests are satisfied rather easily through aggregation). Anyway, my main question/issue for this post is as follows: In order to satisfy the "primarily DB in character" gateway (and thus avoid having to contribute millions meet the minimum allocation gateway) for 2010, I'd have to reflect frozen DB benefits on an Accrued-to-Date basis for a plan that froze it's DB plan on 12/31/2009. Through much research, it appears that the only way I can include the frozen accruals from the DB plan is if the same participants from that plan received a 401(a) allocation in 2010. Currently, the frozen DB group is only getting a match, so I cannot include the DB frozen accrual in my accrued-to-date accrual. However, if this group was to receive a profit sharing allocation, then I would be able to include the total benefit earned (Frozen DB plus new PS) in the accrued to date test. So my question is, can amend the 401(k) plan to provide a very small PS allocation to the frozen DB group (let's say 0.1% of pay for sake of argument) and thus be able to include the DB frozen benefits in my accrued to date accrual, and in turn satisfy the primarily DB in character gateway? Would the way to do this be to amend the plan (prior to 9/15/2011) to say "provide all NCHE's with a 0.25% allocation for the 2010 plan year" or something as simple as that? Any help that can be provided is greatly appreciated.