Dave Baker

414(n)(3) says the requirements of 414(n) apply for purposes of Code section 408(k) (the SEP Code section) ... and I think it's been amended to cover the SIMPLE IRA section also ... so that's the snag. 408(k), in particular, requires a SEP-IRA to be established for each "employee" who has met the age and service requirements. 408(k)(2). A person who is a leased employee per 414(n) would be such an "employee."

Re Larry's question about the plan document ... would this be a situation described in the 401(a)(4) regs where the plan can fix a minimum coverage problem by expressly amending the plan to broaden the coverage (rather than just depending on some fail-safe language in the plan)? (I seem to remember 10-1/2 months as the deadline.) If so, I'd think the remedial amendment could not only expressly waive the last-day requirement but could carve out a class (non-HCEs, what the hey) and say that persons in that class for a particular plan year get only 4.578% (being the minimum percentage allowed after running some cross-testing software to find the magic minimum for that particular plan year).

Wouldn't the forfeitures be reallocated to the same people and in the same amounts whether or not the forfeitures retain their money purchase character? If so, is the question whether you have to apply the annuity rules and in-service distribution restrictions to those forfeitures?

The nice thing about cross-tested plan documents is that drafting has become much simpler due to the IRS' clarification in a field memorandum issued in March. It looks like a profit-sharing plan document works nicely, with just a little tweaking in the allocation provisions. The field memorandum is online at http://www.benefitslink.com/reish/articles/fieldmemo.html. Looks like we get to define two or more classes, then the employer gets absolute discretion how much to fund for each class each year, as long as that amount is specified in writing to the trustee for a particular year.

If the plan year hasn't ended, I think you're OK -- heck, I think Code section 412©(8) even allows pension plans to be amended to increase benefits as late as 2-1/2 months after the end of the plan year for which the increase becomes effective. One angle, though: would repeal of the family aggregation rules mean that any other employees would receive a lesser benefit than they would have received had the family aggregation rule applied? In a profit-sharing plan that might be an issue, but I wouldn't think it would affect a pension plan.

For a pension plan? I don't know of any exceptions to the SPD or SAR rules.

If the DB plan is amended and restated to be a DC plan, then maybe one could avoid giving participants the right to take a distribution from the plan (which probably occurs upon "termination" pursuant to the provisions in the DB document) ... then the assets could be moved to the profit sharing plan in a plan merger, followed by a separate accounting thereafter for assets that came from the DB plan. That way you'd have the annuity rules apply only to part of a participant's profit sharing account. Maybe such a subaccount is more trouble than it's worth, though.

What Model Plan?

Lisa -- have any info and tips you can share here?

I've wondered how the "hardship" provision works in a 403(B) annuity program under which loans are available only in cases of hardship. Does any insurance company or mutual fund make that determination, or is it left to the employer (as plan administrator) to make that call?

Kewl -- I like LCARUSI's idea. The IRS recently officially blessed the use of a new comp plan in which the employer makes contributions on a discretionary basis to each of two classes of employees, as long as the employer specifies in writing to the trustee how much is being contributed to each class. So if the plan is amended to add a "cross-tested" class consisting of all employees but under which the employer's contribution is spread under some cross-tested formula, then the employer ought to be able to specify to the trustee that $0 is to be allocated to the "profit sharing" class and all of the year's contribution is to be allocated to the "cross tested" class. Maybe the IRS would argue that the employer basically is discontinuing contributions for the profit sharing class, such that full vesting is required under the Code section that talks about complete discontinuance of employer contributions.

Larry, could you clarify the facts ... I'm not sure I understand. You mean the stock of Company A is bought by Company B, such that now they're in a parent-subsidiary group, and A is wondering if it can keep its old plan and its trust fund intact but just not fund it any further, and then get on the Company B plan going forward?

Here 'tis: http://www.benefitslink.com/articles/termlanguage.shtml (click)

I'd want to be very sure there wasn't a way to show that 410(B) can be met ... remember the ratio test isn't a straight "70% of all non-HCEs in the controlled group" but is something more like "the non-HCE covered percentage has to be 70% of the percentage of HCEs in the controlled group who are benefiting."

What's everybody think about the possibility that 415(e) isn't going to go away after all, despite its scheduled repeal? (1999, or is it 2000?) I'm supposing that with the budget surplus we won't see anybody step forward and try to get in the way of the effective date of the repeal.

I hear people say that a pension consultant just can't make a go of it without taking commissions or other fees from investment providers. What's the skinny on this? Are any fee-for-service providers thriving, especially in the small-plan market?

Yup, that's the clear position of the IRS ... in a DC plan the only way to truly forfeit the non-vested part is to distribute the vested part, or for the participant to have incurred five consecutive one-year breaks in service. I've had employers try to make involuntary cash-outs just prior to the termination date, but the IRS generally balks and makes the plan provide full vesting as of the beginning of the final plan year or makes the employer prove it didn't have termination in mind when the cash-outs occurred.

By default, do you mean treating the loans as a taxable distribution? The 1995 proposed regulations on plan loans are on BenefitsLink at http://www.benefitslink.com/taxregs/72p.shtml (click) -- here's da bad news for the participant who's a year overdue, from the "preamble" to those regs: quote: If the repayment terms of a loan are not satisfied after the loan has been made due to a failure to make a scheduled loan repayment, the proposed regulations provide for the balance then due under the loan to be deemed to be distributed. The proposed regulations permit a grace period, to the extent the grace period does not extend beyond the end of the calendar quarter next following the calendar quarter in which the repayment was scheduled to be made. The participant who's only 2 months behind needs to move quickly! [This message has been edited by Dave Baker (edited 08-26-98).] [This message has been edited by Dave Baker (edited 08-26-98).]

It's not due to your 501©(3) status; it's a regulation interpreting ERISA's definition of "plan." The federal law only regulates an employee benefit "plan." When the annuities are purchased entirely from salary reductions by employees, such a program usually does not constitute a "plan." It is possible for an employer to land in the "plan" soup even when the only contributions come from employees' paychecks, though -- the regulation has five or so criteria (in addition to the criterion that the only source of funds is employee paychecks). I can get the reg cite if you'd like.

They're out of Chicago ... I can't remember either.

PBGC Executive Director David Strauss testified about SMART plans on March 11 to the House Ways and Means Committee's Subcommittee on Oversight of Pension Issues; other witnesses had some stuff to say, too. (Found it using the Search page on BenefitsLink. The Search page is wicked-kewl, if I do say so myself.) BenefitsLink also has , taken from the "Green Book" issued February 2. [This message has been edited by Dave Baker (edited 08-19-98).]

Sounds like your plan might have been amended to use the "GATT" interest rates, authorized in a piece of legislation called the General Agreement on Tariff and Trade. It's one of the few times the government has expressly allowed benefits to be cut back, by changing the interest assumptions ("discount rate") to be used in converting a promised stream of monthly payments at retirement age to a single-sum equivalent in present value. Have you been told anything to that effect?