AndyH

The 133 1/3 prohibition is on backloading, not frontloading. Any year's accrual may not exceed the prior year's accrual by more than 133 1/3%.

It is my understanding that a prior service cost base is set up only if prior service is affected by the change, in which case you would have an increase in the ABO. If no change in ABO, no change in PSC.

I think you got two very good responses. Is it/should it be considered in a small employer setting? I think so. Is it legal? See mbozek's comments. I've always wondered what that blurb in most documents that says "The plan does not affect employment" was intended to cover.

Well, I just checked our boilerplate volume submitter language, which probably comes from the LRMs and it does clearly say service.

David, thanks for adding that comment about the code versus the regs. Before I read your comment, I just was going to quote an old Billy Preston song "Nothin from nothin means nothin...." in an attempt to make the point about the irrelevance of "salary". Regarding 415 though, I thought the requirement was hi 3 while a participant, which I guess is the code language. How do others interpret this in practice?

The provision that you are describing is a very common provision in DB plans that is often referred to as a "cashout/buyback" provision. I'm going to test my memory now and see if anybody can confirm that it was GCM 39310 that caused such a provision to become fairly standard. And GCM stands for General Counsel Memorandum. You could probably find this on an internet search, but maybe somebody could confirm that my memory is ok before you go off on a wild goose chase! p.s. Yes, it was the subject of GCM 39310. I tried to find a link to it but could not.

Then expect an IRS audit.

Agreed. Thanks for your help.

Mike, just a followup to your comments. How in a DB general test can you only use 2 or 3 years. Wouldn't the measurement period be limited to only the current year, the current year and all prior years, and the current year and all prior and future years? It seems to me that these are your options unless you use a fresh start, in which case usually a plan amendment is required to "separate" the old from the new. . Am I mistaken about the measurement period options? Perhaps you were referring to comp averaging?

Yes, you can certainly unfreeze a plan, and I don't see a problem granting one year of past service credit. You could always set up a new one and do that, so I don't see anything on the surface that creates a problem. The discriminatory timing of amendments is the only thing that comes to mind as a potential problem, but that seems possible to overcome unless you have a particularly unusual fact pattern.

Thanks for the comments, Mike. Hope you had a good vacation. The situation I am faced with is extremely difficult and I'm about out of time. There are multiple formulas involved, mutliple early retirement provisions, different groups, etc. It is a spinnoff and new controlled group, and the period I'm dealing with is after the expiration of the disposition/grace period coverage rules. Due to the complexities and because it is a takeover, I also am faced with limited data. And none of it is easy to recreate because there are combinations of offsets, minimums, excess formulas, etc. I could go back and recalculate lots of stuff, but I'm not sure that it would put me into a better spot. The one thing I know is that the accrued benefits I have are good and I've figured out the derivation of each. So to avoid muddying the picture I'm trying to keep my questions simple. I already had to bring in employees of a related company to get to the NON safe harbor coverage 20%. So that is where I start, with a ratio percentage of 20%, now I'm testing under (a)(4) retroactively under 11-(g)(iv)(b) (year is 2002 and GUST FDL is pending). Of course all controlled group members that have plans that could be aggregated have different plan year ends, so I cannot permissively aggregate anything. I can't component test because I can't split my 20% and have each portion pass coverage. I think I could pass if I could add a flat dollar add-on or a flat dollar minimum, combined with some other stuff, such as changing an early retirement provision. But I don't want to go retro with a fix (it would be too expensive). In reading through the fresh start stuff, it looks like I may have some argument for fixing 2002 and not looking back even with the accrued to date method, but with all the cross references it's tough reading. NCT=Nondiscriminatory Classification Test p.s. I've heard speakers remark that in general testing it seems strange that the goal is the LESSER of the plan's ratio percent or the midpoint and question HOW the plan's R/P could ever be lower. Well, I found the quiz answer: When the plan's R/P is below the safe harbor %, (i.e. at the unsafe harbor), meaning that you are relying on facts and circumstances to pass 410(b). I got the circumstances.

I'd be curious to know exactly what the plan says. Aren't we either forfeiting it or not forfeiting it? How do we forfeit something and later pay it?

Assume a DB plan is being tested using the accrued to date method and a simple example of 30 NHCES with a Normal Accrual Rate of 1.1% who must be elevated to 1.3% to pass. Assume the desired fix is to grant an increase in the accrued benefit of say $100. This would work if only the current year were being considered. But since I am testing on all past years, this gets divided among all years in the testing period and substantially diluted, right? Or is there some way around that? The alternative might be to test using the annual method, in which case clearly I have only one year to fix. But there are data issues which make using the annnual method undesirable. Is there any way around this need to fix all years in the testing period if the accrued to date method is used? The usual tricks such as component testing are not available and banding, imputing, etc. have all been exhausted. I have limited options because my group is a small percentage of the total nonexcludables (controlled group situation with different plan year ends that cannot be permissively aggregated). I would pass average benefits easily but cannot get by the NCT. I think I'm stuck but am grasping for straws.

It seems to me that you cannot do what you suggest, that if the test fails, you have a couple of choices: 1. Change the contributions that were intended to be made, or 2. Do a corrective amendment under 1.401 (a)(4)11-(g). In the case of the latter, you need to give something extra, not take something away. So you might be ok if you use that approach. So it seems to me that you could tell the client that if he pre-funds then he'll have limited himself to needing a corrective amendment. But, forgetting about testing for a moment, prefunding by itself can cause some problems or concerns not the least of which is whether or not it is consistent with the plan document, plus what problems you might have if the prefunding becomes discriminatory. One or more IRS people raised this issue in the General Session of the recent ASPA national conference. p.s. and I think the cite is 411(d)(6)

... and I thought it was Freddy Krueger's sister.

lgolden, in the future it would be more courteous if you provided more facts if you are looking for help. You still have not provided sufficient facts to allow an answer to your question.

The situation you are describing is very problematic and is not prudent. If an HCE can elect to receive a contribution or not, that is not much different than a cash or deferred arrangement calling into relevance the rules under Section 401(k) to start with, and only covering only HCEs which is another no no. So you've got all kinds of issues like ADP testing, benefits, rights and features, 410(b), etc. Can you do it? Yes, sure, but you would be in violation (arguably) of many rules. p.s. Blinky, that was pretty amazing. Almost a three way tie. And I'm willing to bet that Tom's taken typing classes within the last two years. Not as many typos and much quicker! Must be all that publishing.

Something appears to be very wrong with your situation, possibly including the answers you are being given. I suggest that you obtain an independent second opinion or consult with an ERISA attorney on the issues surrounding this participant as well as the application of the EGTRRA changes.

True, but the facts of this particular situation are not clear. The timing of the date of participation and freeze are not clear. The language in the freeze resolution and the timing and language of an EGTRRA amendment are relevant. Then of course the language in the document governing whether regular and top heavy benefits are based upon service or participation are relevant. So the answer is, it depends. Much more detail is needed to answer the question.

YES. It would be great if we could prevent kids and spouses of owners from being HCEs on the basis of comp, but , hey, we did get EGTRRA.

Thank you.

Thanks for the comments but in the interim somebody told me that the proposed regs would allow for this and that it was in Sal Tripodi's outline, which on page 4 says that a short year safe harbor would be ok if both the preceding and subsequent plan years were 12 month safe harbors. This seems sensible to me.

Tom or anyone else, Has anything changed on this? Do you still think that a change in plan year in a safe harbor k plan invalidates the safe harbor status for that year, i.e. makes it subject to ADP/ACP testing?

Where is the paragraph you are quoting coming from? If it is from 414(s) then I think you've answered your own question. What is the "applicable provision" referring to? Your cited language certainly does not appear in 401(a)(4), as far as I can tell. And what does the document have to do with the definition of compensation for testing purposes?

Then you must really hate doing the MVAR calculation for the general test, particularly with a plan that pays lump sums.