AndyH

Thanks for the comments, Mike. Yes, I agree; all is not ok. Here's a little of the weirdness. First, I need to correct myself on the plan year. Plan year ends 10/31. Participants eligible by 11/1/2002, for example, receive a statement of account which includes "10/31/2002 balance", plus "11/1/2002 contribution". The 11/1/2002 contribution is based upon pay for prior PYE 10/31. But client (and document) say that the "11/1/2002 contribution" is for 11/1/2002-10/31/2003 and is due by 7/15/2004. Is this ok? Doesn't sit right with me. This has been going on for more than 10 years and the annual contribution approaches $500,000. And, yes, the client has an attorney involved who shares the same concerns.

Takeover calendar year target benefit plan has a 1/1 valuation date. It seems to arguable violate everything from 412 to 404 and 415, but prior (international) firm maintains everything is ok. Everything from benefit statements to plan documentation is cleverly worded to make due dates ambiguous. Very strange. Anybody run across one of these or is this the only such creature?

The term "rate group" is defined in 1.401(a)(4)-3©(1) "For purposes of this paragraph ©(1), a rate group exists under a plan for each HCE and consists of the HCE and all other employees (both HCEs and NHCEs) who have a normal accrual rate greater than or equal to the HCE's normal accrual rate, and also have a most valuable accrual rate greater than or equal to the HCE's most valuable accrual rate". Seems to me that if the 0% HCE is not excludable for purposes of the general test, you've got 3. p.s. It is also defined in 1.401(a)(4)-2©(1) as existing for each HCE and consists of each HCE and all other employees in the plan who have an allocation rate greater or equal to that of the HCE.

But if the plan is to be terminated upon the attainment of the retirement age of the owner, the second and third tiers are irrelevant if accruals are based upon participation, correct? But that might not be true if past service were granted.

Interesting. All our Pre-Gust volume submitter xtested plans had failsafe language in them, but the IRS required that it be removed.

Lynn, is this an approved GUST document? I've run across many that you describe, but they were attempts at prototypes before the IRS disallowed xtested prototypes. The IRS made us remove all failsafe language from our xtested docs. And I thought others had to do the same. What is the status of the one you are referencing? Could this be pre-GUST and therefore a moot point?

I don't mean to ignore fosfur's question (I don't know the answer), but I started the past service discussion, which we all seem to agree on. But I was trying to understand Mike's formula and how it might be advantageous to a client. I didn't see any way except if past service were being granted. Mike, care to elaborate?

This is Code Section 6057(e): "(e) Individual statement to participant Each plan administrator required to file a registration statement under subsection (a) shall, before the expiration of the time prescribed for the filing of such registration statement, also furnish to each participant described in subsection (a)(2)© an individual statement setting forth the information with respect to such participant required to be contained in such registration statement. Such statement shall also include a notice to the participant of any benefits which are forfeitable if the participant dies before a certain date." Clearly this is the SSA due date of the following 5500 filing date. The subsection (a) referenced takes the form of Schedule SSA. Note, however, that you have the separate obligation to provide a statement of the participant's accrued benefit following a written request, under some other section of ERISA that escapes me at the moment. As I recall you have 30 days but can request an extension of another 60 days. So it would seem that you have until the next year's 5500 due date unless the participant sends a written request, then you have 30 days (subject to extension).

Sounds to me that you would definitely need a 204(h) notice, and that you would need to grandfather the accrued benefits. Otherwise, how would you not be violating 411(d)(6)?.

Right. That's the kind of setup you need. You must not need to aggregate for 401(a)(4) or 410(b) I would think. Could be tricky.

Blinky, that is useful to know, but we should remind anyone reading this that the field directive stated that "...the plan must require that the employer notify the trustee, in writing, of the amount of contributions for each group." So, my point is that even if the IRS does not currently require plans to have this language, most do, so their terms must be followed to avoid an operational defect. I don't think Wickersham would say that you can ignore such an existing provision in an existing document.

If you are excluding a group of people by class, why are they receiving top heavy or gateway contributions?

1. NO. 2. YES.

Clearly you are right about them relaxing their objections, but the conspiracy theorist in me doesn't accept that as benign. Payback's a bitch; somehow they must have teamed up with Pamela Olsen to write that ourageous Bush administration proposal that would have outlawed just about everything! And oh, yeah, everything but DBs. Sure. First divide, then conquer.

ok, now I feel better that I did not make this up. The following is an excerpt from Sal Tripodi's publication called "Cross Tested Profit Sharing Plans. Summary of 2001 Regulations, Sample plan formulas, SPD language, and commentary" , which we purchased. Granted it is somewhere between 1 and 2 years old, but on the subject of forfeitures it says the following (page 37): "Allocation of forfeitures: The sample language assumes that forfeitures will be allocated pro rata to all participants. The document preparer might modify this rule to provide a different result.......Could the plan simply give the employer the discretion to divide the forfeitures among the designated allocation group? We would be concerned that the IRS could view this as violating the definite allocation formula requirement under Treas. Reg. 1.401-1(b)1. A determination letter requrest would be advisable, so IRS could have the opportunity to object to the language."

Blinky, I think the word "problem" is too strong. The IRS Field Directive (3/13/98) confirming that discretionary allocation groups were ok for ER contributions did not say anything about forfeitures. I just happen to think it is borderline abusive when the employer has the right to direct the reallocation of forfeitures in an arbitrary manner not pursuant to written plan terms. If there is an employer contribution to a discretionary class plan, the forfeiture provision is irrelevant because the ER contribution could be adjusted to achieve the same desired objective. Every takeover discretionary group cross tested document that I have seen allocates forfeitures pro rata, with one exception. And the exception may have been an oversight on the part of the drafter. If I am not mistaken, Corbel's volume submitter does as well. I'm probably in the minority, but I just don't think this is right. Am I the only one?

The question arises about what to do if there are forfeitures but no employer contribution in a particular year for a discretionary class plan. In effect, the employer would direct the forfeiture reallocation at it's discretion. How is this definitely determinable? I believe that most XTested documents allocate forfeitures pro rata for this reason. In addition, what happens if there is no employer contribution and forfeitures are miniscule? You could end up general testing $1 in forfeitures. These are a couple of arguments for having the document call for pro rata allocations. DIB's internal debate may have arisen from questions about the definitely determinable requirement, but if the document has a FDL, it would appear to be ok to do that; if not, I'd have some concern. We have a volume discretionary class document which was written in the manner that DIB describes, and it has an FDL. That is the only reason that my concerns have been muted. But I still don't like this provision.

Nice picture!

Have the conditions necessary to receive a contribution been satisfied by anyone yet? If yes, then the answer is no. If no, the answer is yes. If the plan requires employment on the last day of the plan year, then the IRS takes the position that such condition has not been satisfied.

I don't disagree . My comment was intended to be "tongue in cheek", if that is the right phrase.

Yes, but that "little fly" may some day be your client. Then he'll ask why he got less than he could have, and less than the regular employees.

This is interesting. Does this mean that a plan could have a 0% rate group which includes NHCEs, on the basis that they are not benefitting, therefore are not "employees" under the gateway regulation?

Kirk, the PBGC Form 1 instructions were changed in 2000 to change the participant definition for premium payment purposes to exclude those for whom the plan has no "benefit liabilities". Then under the instructions to Item 13 of Form 1-EZ (among other places) it says "For premium purposes, individuals who are earning or retaining credited service but with respect to whom a plan has no benefit liabilities are not counted as participants. But individuals who are earning or retaining credited service are considered to be participants for purposes of line 7 of the Form 5500, even if the plan has no benefit liabilities with respect to them." I believe that there may have also been a PBGC Technical update on the subject and presumably there was an actual regulation, but in any event I think the instructions are clear that if you do not have an accrued benefit, you are not a participant for PBGC premium purposes but you are for 5500 purposes.

C2C, I agree with your "retaining credited service" comment. It is my understanding that they are absolutely participants for 5500 purposes, but not required to be included in the PBGC count.

Suggest checking the hour of service definition. It need not be counted as hours, but this depends upon the document referencing the correct DOL regulation. A client of ours was involved in litigation on this issue. If hours are specifically excluded for workers comp, that is one clue of the intent. Also, there are two other areas to pursue. Is the Worker's Comp paid from by an insurance company or the employer ("self insured"), and if from the employer is it in fact paid "on a written payroll"? And is it paid "for performance of personal services" or is it instead paid to satisfy the requirement of state workers compensation law? The latter is specifically distinguished in the DOL hour of service regulations.