AndyH

This post may belong in the 5500 section but I thought I'd try here first. I have a calendar plan with a termination date of 12/31/2000 which paid out the final assets 3/2002. I'm doing a 5500 filing for 2001. As I understand it, no Schedule B is required for 2001 since the plan terminated effective 12/31/2000. Yet, I see no question on any of the 5500 filings that would lead a reviewer, scanner, or computer to determine that the Schedule B was correctly omitted. There's one box on Form 5500 that lets you indicate if the plan still exists at EOY for PBGC purposes. There's another question somewhere about whether a termination has occurred in this or a prior year, and if so, whether a reversion occurred. It looks like a rejection notice will be automatic. Am I missing anything?

Merlin, you had to know that was coming! I opine on this July 4th eve that the cost of including 76 year old Dad @ 1% of pay (or even .5%) is worth avoiding the cost/risk/hassle of dealing with the independent contractor issues (or paying the fees associated with minimizing the risk). p.s. this thread was started 2.5 years ago, so now Dad's 78 or 79-his cost is even less!

pookah, can you tell us what level of benefits the IRS was questioning as potentially not meaningful?

Well, I guess that was my question. If I complete an amendment which accomplishes nothing, have I put it back as a safe harbor, or does that simply mean I can ignore pre-fresh start numbers in the general test, i.e. if using accrued to date method, use accrued to date starting at fresh start date. Or, does it mean that I don't have to do the general test at all? Example. Plan provides benefit of 1.5% x av comp x YOS. Plan amended in 2000 to provide 1.5% x av comp x YOS, PLUS a benefit, if any, from Appendix A, which lists one person and $5,000 per month (hypothetical amount). Only person affected by Appendix A semi-retires in 2001. Plan general tested in 2001 and passes. If I amend plan in 2002 to provide for formula of C+D, where C is the accrued benefit as of 12/31/2001 (maybe indexed for comp changes), and D is 1.5% x (YOS 1/1/2002)+ x Av Comp, I seem to have created a fresh start date of 12/31/2001, and affected nobody's benefit. Have I avoided future general tests?

Thanks for the comments, Merlin. Passing the test isn't the problem; I don't think the client benefits from doing the test on an ongoing basis, since the one affected person will not experience an increase in his accrued benefit in the future. He will have no further average comp or service increase. And it's a large plan so it's a lot of work. Thank goodness for the three year testing cycle. But, I'm still hoping there must be some way to put this back into safe harbor testing status.

I have a DB plan which used to be a safe harbor until an amendment was added affecting one (HCE) person only. It was an addition to his accrued benefit, simply $x per month was added to his accrued benefit. This QSERP feature was designed to pass the general test. In fact we did the general test and it passed. The affected person is at NRA and will still be employed on a part time basis while collecting his pension. My question is: Is there any way to avoid the general test in the future? Is this a candidate for the "Fresh Start" rules in 401(a)(4)? Is anybody out there fluent in these rules? I think there are three possibilities: 1. The plan is forever subject to the general test. 2. The plan is subject to the general test only until the person affected by the non-safe harbor provision is excludable from testing. 3. Item #2 is true, but only if the plan is amended to an (a) plus (B) formula, with (B) being a safe harbor. Then, the fresh start rules seem to be available, although this makes little sense to me. Or, and I guess this is #4, the plan is amended to (a) + (B) and it doesn't matter whether the person in question is included or excluded from testing. Any help would be appreciated.

Late to this discussion, but Richard's point is right on. As soon as a couple of people terminate, you'll probably need to go to Average Benefits, and then you'll fail.

An increasingly popular phrase on these boards is relevent here, "What does the plan say?". There are a number of possible approaches, which all depend upon what the plan says.

Yes, it is reprinted in Panel Publishers "Current Topics for the Retirement Plan Consultant" Fifth edition, section 4D page 553. It's noted as a reprint from Journal of Pension Benefits, Panel Publishers, Summer 1998.

Tom, I just found the outline that your notes must have come from. And it does say that Testing service is "Service which represents the period in which the deemed allocation is earned and in which the employee benefitted under the plan." But again there's ambiguity because it does not define "benefitted". I'm not sure that it necessarily is the 410(B) definition. I wonder about years of just investment earnings.

And another question .... Would this offset prohibition as described not make the CODA provision of a 401(k) plan illegal? I guess I'm questioning where the line is drawn.

Thanks for the clarification. A followup question if I may: Does this mean that a prevailing wage plan cannot be permissively aggregated for general testing a staff plan under 401(a)(4) and/or 410(B) if the test would fail if not for the aggregation? Isn't this an offset in a sense? In theory, flunking the test might require an expansion of benefits or contributions to other employees, including prevailing wage employees.

These are good questions. I think I just found the/an answer. I have IRS Publication "Employee Benefits Plans Explanation No. 5C Coverage and Nondiscrimination Requirements: General Tests and Average Benefits Tests". It appears to be an internal guide to reviewing such test by IRS personnel. Page 9 "Normal Accrual rate-divide the increase in the accrued benefit (within the meaning of 411(a)(7)(A)(i) during the "measurement period" by the employee's "testing service" during the measurement period. (These terms are defined below.)" Page 11 reads in part: "Testing Service, for purposes of determining accrual rates, generally means the employee's years of service as defined for purposes of the plan's benefit formula. Alternatively, testing service can be service determined for all employees in a reasonable manner. An example of a reasonable alternative definition of testing service is the number of years the employee has benefited under the plan." It goes on to read, " Whatever definition of testing service the employer uses ......., that definition must credite employees with testing service for any year in which the employee benefits under the plan ....." In another section, it references an acceptable alternative testing service definition as in Part VI of Worksheet 5 or Part VII of Worksheet 5A which I don't have. Maybe somebody can find those on the IRS' web site. The above section seems to refer to both (a)(4) (1) (DB testing) and (a)(4)-2©(2) which is DC general testing. I must caviat this, however, that further along in a section on cross tested plans the following statement is made: "An equivalent accrual rate is determined as follows. ........Next the employer must determine the increase in the employee's account balance during the measurement period and divide this by the number of years in which the employee benefited under the plan during the measurement period......." So, that seems more restrictive, but I'd put more stock in the first section which basically allows any reasonable method of determining testing service.

I don't know if that is right or not. I have in front of me an article which is part of ASPA's C-4 exam required reading. The article, in part, says, within the context of other employer plans, and employees who have both prevailing wage and non-prevailing wage income: "One common method of effectively limiting the amount that Davis-Bacon employees receive as contributions to the non-prevailing-wage plan is to draft that plan document so that contributions made to the Davis-Bacon plan offset contributions made to the office staff plan". The article is entitled "Pension Plan Compliance: Davis-Bacon and Other Prevailing-Wage Plans". The author is J. Michael Pruett. The article says nothing about any prohibited offsets. Does this not conflict with the last statement?

Yes, if the document permits such an offset, it is acceptable, but you might have non-uniform allocations resulting in the requirement that the plan be general tested under 401(a)(4). If you have no HCEs, it's a non-issue, and that may also be true if no HCE receives a higher total allocation (as a percent of pay) than any NHCE.

They could amend the plan to prospectively make service for the "withdrawing" company to be non-covered service, so there would be no further benefit increases, although service for vesting would continue to accrue. Then you have 410(B), and, possibly more importantly, 401(a)(26) issues, however.

I can't say with authority, and I know of nothing in print on this issue, but since there have been no responses I thought I'd express the opinion that it would be the group currently required to be included only, which is what you were leaning toward.

No. The allocations given to each group can be completely discretionary if the plan is set up properly. The document must define how each group is determined and must state that the employer has the right to separately determine the contribution to each group. The allocations must still pass the general test, however. You haven't given any information that would indicate whether passing is likely, other than with the high contribution levels it would be more likely to pass.

Don't misunderstand; I think these are a very bad idea, but I can see people sucessfully selling db plans that are exempt from the problems of 417(e), restricted payments, and pbgc variable premiums, as they seem to be. So, if these things are true, I can see why there is interest.

Well, to interject for a moment, now what was the consensus: Are there or are there not two average benefits percentage tests if we separately test excludables, and if there's one, who is in it? Isn't that what Fred was asking, or have I gotten totally confused?

I'd call it discussed rather than addressed. Our legal people are looking at me cross eyed when I showed them that thread. The memo seems to be contagious among IRS agents. Does anyone know if it is online?

I'm inclined to do the same, but I have a concern about 411(d)(6) and excessive employer discretion if the plan does not have a last day requirement and the groups are not specifically defined. For example, if a group is "senior management", or "executive management" or the like (which I don't like but have inherited in many plans), I think there is excessive employer discretion if the determination date is the last day of the year. Even if there are groups such as officers this creates employer discretion if the authority is nominal. Does this become a 411(d)(6) issue? Maybe my concerns are unwarranted? If the plan has a last day employment condition, I wouldn't have the same concerns.

ok, thanks. Speed reading did me in I guess. Thanks for the clarification. From the number of readers of this post, I would have guessed something radical was discovered.

Mike, just to make sure I understand your point on the RAP, assume: Calendar year plan Had PBGC rates as lump sum basis Not amended for GATT or GUST until 12/2001 Are you saying that under current guidance that an amendment in 2001 to replace PBGC with GATT is invalid, that we are locked into PBGC rates permanently, or at least based upon benefits accrued through the amendment date? If so there will be mass non-compliance.

I'd like to know how others handle changes to allocation groups. For example, if an allocation group includes all officers, and someone becomes an officer mid-year, would the person be in the officer group for all of the year, none of the year, or would an apportionment be made? Our (volume submitter) documents don't explicitly say. Does Corbel's specify a determination date? How do others handle mid year changes?