My 2 cents

For situations involving timely filed Forms 5558, that would relate to plan years beginning between February 2, 2015 and April 1, 2015, if I did the math right (covering filings due, with extension, on either 12/15/15 or 1/15/16). Without an extension, it would only be plan years beginning between May 2, 2015 and June 1, 2015 (covering only filings due, without extension, on 12/31/15). That is, the down time encompasses two possible filing deadlines for plans with extensions but only one for plans without extensions. Still, shutting down entirely for more than 5 weeks does seem a bit much, especially if there are filings that must be made using the FIRE system with due dates during that period.

My understanding: Perhaps one of the HCEs is a commissioned salesman. If not an owner and not an executive officer, compensation of $500,000 per year does not make the salesman a key employee and so the salesman must receive a top-heavy minimum. Top-heavy minimums can be limited to non-keys but cannot be limited to non-HCEs. I believe that that's a matter of law, not plan design. So how can you exclude from the top-heavy minimum people who are HCEs but not key employees? Satisfaction of 416 and satisfaction of 401/410 are two separate things.

Was the blog post from the person coerced into signing a non-disclosure/non-disparagement agreement? Is that the person being sued? Disavowing the agreement as coerced (it seems to this non-lawyer) ought to be the first step for that person if they are now cast as a defendant. That and to seek legal fees from the former employer.

Shouldn't someone suggest that the participant seek shelter from a potentially dangerous and abusive spouse? In no jurisdiction does the spouse have the authority to control whether or not a plan participant makes ongoing contributions to a 401(k) plan, let alone attempt to compel the participant to agree to a power of attorney giving the spouse any control over the participant's account. There is no indication in the opening post to indicate that the participant has any reason to want there to be a power of attorney. Sounds to me as though some sort of restraining order is needed.

Would it make any sense for the former employee to go into court, prior to any apparent violation of the non-disclosure/non-disparagement agreement, and seek to have it nullified as having been coerced?

For what it's worth, I think the IRS would be hard pressed to assert that an individual has retired (and would therefore be subject to RMDs) if he were still in a bona fide employee-employer relationship with the plan sponsor, even with reduced hours (unless "greatly reduced his work schedule" means he only comes in to the office for an hour or so on people's birthdays, looking to mooch some cake).

Sounds as though [dare I say it?] one of them is wrong. Are you sure the SF and the SB are for the same plan? Hasn't anyone noticed before that they don't match? Does the person who prepares the SF ever talk with the enrolled actuary? Assuming that the enrolled actuary is not hallucinating the tv, why isn't the tv being reported on the SF? Or is it the active who is not being reported on the SF?

Assuming that I am reading this right, wouldn't it be the case that the owner would be personally liable not only for the excise taxes but to restore every cent of the loan that is not repaid if and when the sponsor goes under? Using pension plan assets to meet payroll sounds like one of the very worst things that you could do. If it has come to that, it is probably time to close up shop. Much better than draining everyone's retirement account first!

For what it's worth, it is my understanding that you cannot exclude someone from a top-heavy accrual or contribution just because they are not employed as of the last day of the plan year (or any other date for that matter), just as you cannot exclude someone who is not otherwise participating because they refuse to make mandatory employee contributions. This should be stated in the plan's provisions concerning what happens if the plan is top-heavy. I think that the top-heavy accrual or contribution can be made contingent on the completion of 1,000 hours of service in the plan year if that is how the plan determines service. Except for non-participation due to failure to make mandatory contributions or the now-obsolete failure to attain a given level of earnings, top-heavy accruals or contributions are only provided to plan participants.

Do you mean "Would their having stopped offering that insurance to new employees require a plan amendment?" If buying insurance was provided for under the plan, the answer to that question would probably be "yes". I would guess that the reason that they stopped offering it to new employees ought to be documented in some form. Board minutes, amendment, whatever it would have taken to formally stop offering it. It would have been at that point that the BRF would have had to have been non-discriminatory. If they just stopped offering it, though, not sure that maintaining it for some but not others would qualify for grandfathered treatment.

I may be wrong, but I think that R. Butler was speculating that after the DOL goes after small-practice accountants they will next go after small-practice TPAs. I don't think that the DOL has a plan to try to push plan sponsors over to larger-practice TPA firms, but I don't have any direct knowledge to the contrary either. The DOL targeting smaller accounting firms (based presumably on the assumption that the knowledge and diligence there will be less than one is going to find at larger accounting firms) does sound somewhat elitist (for want of a better word). Let us hope that they find the small firm practices up to DOL standards (and that if the DOL were to apply similar scrutiny to the work product of the larger firms, they would not be disappointed).

I go on the assumption that payments to active employees for such things as minimum distributions or plan termination distributions are exactly the sorts of amounts that the rules were drafted to require adding back in.

The DOL has become concerned (as I understand it) that plan sponsors are not exercising sufficient diligence in making sure they engage suitably competent auditors. It would not do for the auditors to overlook material errors or prohibited transactions!

So if the person works 1,000 hours in 2015 and separates from service in March 2016, how do you make sure that they get a full year's allocation? How well would it work if the period during which the service is earned and the period during which the allocation is made don't coincide?

Maybe I am not following what is being asked here. I think that, for top heavy testing (not for coverage or non-discrimination testing, but for 416 testing) defined benefit plans must be tested using present value of accrued benefits and defined contribution plans must be tested using account balances. Permitted disparity does not come into play. Now if you are asking about non-discrimination or coverage testing, to the extent that the extra top-heavy accruals or contributions are not sufficient to enable the non-discrimination or coverage tests to be passed, the fact that the plan is top heavy doesn't really matter. Am I missing the point?

Not that I would necessarily know, but I would not think that the nanny, who provides personal services to the doctor's family and is not a corporation and is not intended to be a profitable enterprise, would be considered to be a member of the doctor's controlled group. Accordingly, I would not think that the nanny has to be taken into account for non-discrimination or coverage compliance. Would it even be permissible for the doctor to offer a 401(k) plan to the nanny? What about the 6th corporate entity (the one that has not adopted the 401(k) plan)? Would that be a problem? But I do hope that the doctor is properly paying for worker's comp and unemployment and OASDI taxes on the wages paid to the nanny!

Does it matter, for purposes of the question at hand, that the participant is wealthy? As to whether it is allowed, you need to check on both what the plan says and what the custodian/trustee is able to handle.

Step one: Plan terminates after non-owner participant reaches age 70 1/2 while in employment with the sponsor. Step two: Participant elects a lump sum payment, rolled over to an IRA. As an ongoing non-owner employee, judging from the comments above, it is not necessary to hold an RMD back from the rollover. Step three: Let us, for simplicity's sake, presume that the participant leaves the company in a year after the year of the rollover. Having already turned 70 1/2, the now former participant is required to take RMDs from the IRA without regard to ongoing employment status. If the rollover took place today, I don't think that a distribution would have to take place until either 12/31/16 or 4/1/17 (since the IRA had no balance as of 12/31/14). Not sure which date under the circumstances.

That would probably not match what the plan says to do. According to an earlier post, "The plan document states to reduce the benefit determined based on total service and pay by the actuarial equivalent of the lump sum payment received." I think best practice would say that the amount of accrued benefit that was cashed out back then should be treated as the actuarial equivalent of the lump sum payment received for offsetting purposes. If possible, one should calculate the current accrued benefit using total (pre- and post- termination) service, dig out of the archives the information for the prior lump sum to see how much accrued benefit was cashed out, and then provide the current accrued benefit minus what the accrued benefit had been that was paid out earlier. If necessary, one could convert the 2000 lump sum to a deferred benefit based on what the 417(e) equivalence basis was back in 2000. Any other approach might cause anomalous results.

Absent an explicit election to the contrary, paying more than the minimum required contribution does not lead to the creation of a credit balance. What incentive is there to make such an election? In past years, larger than minimum contributions were most often made to improve the AFTAP, but adding the excess to the prefunding balance would only negate that result. Now that the PBGC premiums are just going to go up up up, making a larger contribution now to save on premiums is not going to be followed in the foreseeable future by making a smaller contribution by using credit balance. Even if a credit balance results from a larger than necessary contribution, fortunately credit balances are never taken into account in calculating PBGC premiums.

1. I haven't seen anything about changes to the per-participant cap on the variable rate premiums. Is that just going to be next year's $500 as indexed after 2016? 2. Reading some of the material in today's BenefitsLink news, it has finally sunk in that PBGC premium increases count as increases in Treasury revenue and are not just there to increase the PBGC's financial soundness. Is an enrolled actuary making a suggestion that a sponsor should consider making larger than necessary employer contributions to a defined benefit plan to lessen the impact of the premium increases now considered "tax advice" subject to Circular 230, to a greater extent than enrolled actuarial communications concerning minimum required contributions, quarterly contributions, etc.?

Does one use the current equivalence basis under 417(e) to determine the lump sum or the lump sum equivalence basis in effect when the lump sum was paid in 2000? It just does not sound right that the lump sum already paid should result in an offset greater than the accrued benefit that was cashed out. How could the current formula legitimately produce an accrued benefit lower than the accrued benefit in 2000?

Are the Social Security Administration's "You may be a winner" letters admissible to buttress an individual's claim for benefits if the sponsor says that their records do not show anything payable to the person who got the letter, along with instructions for finding the exit, leading to litigation? How much of a case would someone have who just had an SSA letter? And if evidence (but not a cashed check) can be found to show that the benefit was already paid, wouldn't that be more than enough to resolve the case? Is the records retention limit for a pension plan essentially infinite? How clearly does the sponsor have to show that something that happened 15-20 years ago actually happened?

I guess I stand corrected, but why would a sponsor want to provide that? If the sponsor can provide that, maybe it could lead to there being an excise tax (since it says for purposes of 401(a)(9) which may be sufficient to make the benefit payments an RMD). It all sounds like the sponsor's fault. If they wanted to provide that, they should have administered the plan accordingly. If the excise tax cannot be waived, the sponsor should have to make the participant whole. The participant is not the one who should have to shed the tears to produce a tear-stained letter for the IRS.

Kind of apples and oranges. According to the original post, the calculated deduction limit was $300,000. Deduction limits are determined under IRC Section 404, and relate to how much money can be put into the plan so there will be enough funds to pay the plan benefits. If one were working with a defined contribution plan, Section 415 limits how much can be contributed in a single year, but this is a defined benefit plan. In a defined benefit plan, Section 415 limits how much can be paid out in a single year as plan benefits.