AndyH

Which conference, ASPA 10/2001? If so, time is up.

That's right. Each person must go into one and only one component plan.

You may be thinking of the 401(a)(4) regulation which deems a grant of past service not in excess of five to be non-discriminatory. It is 1.401 (a)(4)-5(a)(e). I think this is only for a DB plan, at least that is what the examples imply, and and it doesn't necessarily mean that a grant of more than 5 is discriminatory. That just becomes something you need to justify. But I'm not aware of anything limiting service in the situation you've described.

I agree that if you have to general test on a contributions basis, normal testing will fail because of the disparity situation you've described. I think that within one "plan" you either impute disparity or you don't. First, wouldn't the allocation you've described satisfy the safe harbor requirements? It's not clear to me exactly what the allocations are. Second, you could separate the group into component plans. I think you could then inpute on some groups but not others. But each subplan must satisfy 410(B), so one couldn't be all HCEs and the other all NHCEs. I don't know if component plan testing would work in the case you've described, but it's an option to consider.

Couple of comments on this: 1. Yes, I agree about the limited use of the FDL in particular as it pertains to the test, but it's the people who don't know what they're doing that worry me; I wonder if this is now the majority? IRS auditors have been telling us that cross tested plans are now a major focus of their time. I supect there is a reason. 2. Isn't the submission fee waived for a new plan under certain circumstances? Then what is the justification for not submitting? 3. Admittedly there have been changes, but under the self correction programs a current FDL was a requirement for certain programs. Is this now ever true?

I agree with some of that. Again, it depends upon what the document and trust agreement say. The document must contain authority for an involuntary distribution with money withheld. And of course US mail can confirm receipt. It's called certified mail. Also, a sponsor cannot willy nilly discharge distribution responsibility to a TPA without breaching fiduciary responsibility! That is the Trustee's role. Seems to me that the document and fiduciary rules are being taken a little lightly here.

Absolutely not. They also need to be given the direct rollover or cash option. These provisions would be available after the normal distribution procedures, including notices, have been followed.

Belgarath, I certainly hope that's not true. I see enough problems with takeover plans. I don't want to start seeing problem ones that never got an FDL!

Outstanding conclusion! If there's ever a Benefits Board Hall of Fame, I'll nominate that one! Calling Dave Baker ......

I don't know of anything permitting rounding of this. I think it is top heavy. I would insist in writing that the client obtain a legal opinion on the matter as a condition of continuing to provide services. Anything else is indefensible because the decision is just plain wrong and you know (or should know) it. If you're a member of a professional society (e.g. ASPA), it is probably also an ethical violation to ignore a faulty decision of this type which denies participants benefits they are entitled to.

First, I question whether the recordkeeper has the authority to do what it does under the terms of the plan document. What exactly does the document say about cashouts? It would seem that prudence would at least require a certified letter.

One of you came up with a great line a while back about a 412(i) plan being two retirement plans-one for the client and one for the agent. I thought that was outstanding; and it fits here.

Alison, all of these comments are valid, but your original question left some ambiguity as to what "the TPA" was saying. If he's saying that more needs to be put in my 9/15, then it should be put it regardless of whether it is deductible this year or next. So, you need to find out exactly whether the client "can" or "must" put in more by 9/15. It sounds to me that the TPA may have given out a wrong number before, and is trying to CYA with the suggestion about an amended tax return. As discussed here, there's nothing wrong with putting a deposit in after the tax return due date; that just affects the timing of the deduction. The more important thing is to meet minimum funding requirements which for a calendar year is 9/15.

All of these comments are valid, but I still think that the generally accepted answer to the original question is no, the IRS views this as a cutback.

I don't agree. Somebody who has worked 501 hours as of the amendment date and then goes part time and doesn't make 1,000 hours would have experienced a cutback in the eyes of the IRS. This is because the person has accrued the right to a portion of any contribution made, and based upon the allocation formula then in effect. You could only do it before anybody worked 500 hours in my opinion. See TAM 8735001

No. Why would you think that you could do that?

Yes, re-reading those sections now I agree. It would seem that I would need an amendment. And the amendment would be a formula with Wear-away under 401(a)(4)-13©(3)(4)(ii) to achieve my objective of not affecting anyone's benefit. Now this is beginning to make some sense. Thank you both for your help.

I still don't have a conclusive answer to this matter. Anyone else care to express an opinion?

I agree completely. (I was just using the KISS method).

Initial reaction is "What does the plan say?". Does the plan permit this? If not, you are failing to follow the terms of the plan which is a disqualifying operational defect. Doesn't mean you can't fix it, but it is disqualifying at least unless/until fixed. Sure there are other issues such as discrimination, creation of a cash or deferred arrangement, but I think that failure to follow the terms of the plan is the clearest violation.

Good idea. Thank you.

So, then, what is the source of the "urban legend" that we were all taught?

I've always had the same understanding as that expressed by Katherine about having to commit to a contribution by year end. Nobody ever followed this literally, but it was a common understanding. I've never understood why and would welcome any elaboration on it. What changed it? What required it before, if anything? I remember an IRS auditor on a profit sharing plan that my company administered years ago questioned a Board Resolution which was dated "As of" the end or plan year. He said that it needed to be dated unconditionally by the end of the plan year. I've never understood why. And, with respect to benefit statements being issued prior to funding, that was a very common occurrence with pooled profit sharing plans in the pre-daily valuation days.

Pax, I understand your point, but this is problematic for a few reasons (1) the point you raised, which sometimes results in revoked terminations, (2) the EFAST system's limits on what you can attach or write on the form, and (3) the system's ability to store and recall this for future reference (would a "Final" note on a 2000 Schedule B attachment be recalled in the processing of a 2002 5500 filing?). I have in the past has such rejection notices, and hoped that this system "bug" would have been fixed. Kim, there is a chance that a 2002 final filing would be accepted without a Schedule B but there is nothing to allow the system to recognize a correct 2001 filing without a Schedule B. Thanks for the comments.

Note: This question was also posted in the DB section. A DB plan terminates effective 12/31/2000 but does not distribute all assets until 3/2002. Because the plan terminated in 2000, Schedule B is not required for 2001 or 2002 5500 filings, but it was required for 2000. Will EFAST automatically issue a rejection notice if Schedule B is omitted? How does the system know whether it was correctly or incorrectly omitted? The only questions about termination appear to be (1) whether the plan teminated in the current or prior year and if so what was the amount of the reversion; (2) and whether at the end of the year the plan still exists for PBGC purposes. Am I missing something or is a rejection notice automatic in the year after a DB plan terminates?