RLR

We were notified this week that the auditor and the field actuary have determined that there was a 415 violation due to the MASDs and they trying to come up with the amount needed for correction to offer a closing agreement. Has anyone else had an audit with similar issues or are aware of guidance issued since I first posted this over a year ago? For reference, this is a 100% of compensation limit where there were multiple annuity starting dates.

It's been a year since I posted this, and there has been no movement on getting this audit closed. The field actuary and his supervisor are supposedly working on this this week.

Mike, I emailed Marty Pippens 3/24/2020 and did not get any response from him. I'm sure he is covered up with all the CARES Act legislation, or my email could have gone to his junk mail. Anyway, any other thoughts or suggestions? The audit is still ongoing and according to the auditor, the field actuary has referred this case and another similar one to counsel for review. Thanks.

Has anyone had an audit where the owner was at the 100% of comp limit and took more than one distribution? Owner took an in-service distribution at NRA 62. He rolled over the LS to an IRA. He continued working and his avg comp increased and he accrued additional benefits. At age 65 he elected 12 monthly payments of his accrued benefit with a retroactive annuity starting date to the beginning of the year to be paid from the trust. He subsequently took the commuted value of the annuity payment in a lump sum. Plan was terminated and excess assets were allocated to him. The method we used to account for the MASDs in illustrating that his 415 limit had not been exceeded was from a presentation by Michael Preston and Kurt Piper at the ACOPA Advanced Actuarial Conference in June, 2014. We consider this a good faith effort to comply with 415 when MASDs are concerned. The IRS actuary is challenging the calculation siting Reg 1.415-(b)-1(b)(iii) that requires the plan to actuarially adjust past and future distributions when determining the annual benefit as of a particular annuity starting date. The audit is ongoing. Since the participant is at the comp limit, we don't think an actuarial adjustment is necessary. So, we were wondering if anyone had been through an IRS audit where someone was at the comp limit and there were MASDs. Any comments or guidance would be appreciated.

We have a 401(k) plan with related participating employers. One participating employer (the owner and his wife) is terminating its participation in the plan. Is this a distributable event? I think it is not as the plan did not terminate, one of the employers just terminated their participation in the plan. If it is not, a distributable event, are those account balances still included in the TH test? Any other TH considerations? I think those employees would be included in the 410(b) test. What if it was a multiple employer plan? I would appreciate any guidance/thoughts.

Thanks to everyone who have taken the time to reply to this topic - it has been very helpful!

I really appreciate all the replies. There are 3 NHCE's who worked 1,000 hours but were not there the last day who will be brought into the plan.

This is a CT plan with each person in their own group. My understanding is that the new accrual that is provided by the amendment has to be tested by itself for 401(a)(4).

Thank you for your reply. There would be a few NHCEs included.

Mike, One of the owners terminated before 12/31/17, but worked 1,000 hours and mistakenly received a PS contribution. That is why the client wants to remove the LD requirement and bring in all terminated employees with 1,000 hours. Is your answer the same? Everyone is in their own class and there would not be a cutback in benefits. The amendment is not needed to pass 410(b) or 401(a)(4). That's why I'm having a hard time understanding this. It seems like it would be a discretionary amendment that would have to be adopted before the end of the year. Does an 11(g) amendment really have this much flexibility?

Client has a calendar year SH NE 401(k) plan. PS allocation conditions are 1,000 hours and last day. The client wants to amend the plan retroactively to 1/1/17 to remove the last day requirement since operationally that is what happened. Can we use an 11(g) amendment to accomplish this? If not, is there any other way to accomplish this?

Thanks for all the help!

Okay. I do appreciate the help. One last clarification - in SoCal's example the amendment was done in 2008, but there was no impact on the FT for 2008 since the plan simply went from a frozen status to unfrozen in the same year. SoCal went on to say that the amendment could be fully recognized on the 2011 val. Is it just this particular fact pattern that resulted in only 2 years of adjustments to the cushion (2009 and 2010)?

Thanks for the replies. I'm aware of the 412(d)(2) issue - just trying to get a grip on the number of years the cushion amount has be be adjusted.

Thank you for the comments. What if in my example the amendment was adopted 3/15/14. Which valuations would be affected for the cushion adjustment? Logically, the 1/1/13 cushion would be adjusted along with the 1/1/14 and 1/1/15 cushion amounts. At 1/1/16, looking back 2 years the adoption date of 3/15/14 would be included so the 1/1/16 cushion would be adjusted? That affects 4 years and that doesn't make sense. I'm not understanding something and would appreciate anyone who can help.