ERISA1

IRS has granted extensions to file returns in disaster affected areas until October 31 in many areas on the East Coast (see IR-2011-87). Accountants are telling me the relief does not extent the date by which tax payments are due. They are asking whether the contribution deadline under IRC 404(a)(6)** is extended or not. I believe the payment deadline is referenced to the Due Date of the Return - Including Extensions. I don't think the due date for tax deposits should have any impact? What are you telling your clients about the 404(a)(6) deadline for 2010 income tax returns that have been extended to Oct 31, 2011? thx ** Section 404(a)(6) provides in relevant part that, for purposes of section 404(a)(3), "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

I'm struggling to find an outline of the new Estate & Gift tax limits for 2011. Can anyone help? I'll really appreciate it if you can direct me to a website. Thank you very much.

Thanks everyone for your posts to this point. I'm left with two thoughts: 1. Low rates of NHCE deferrals in 2010 won't be a problem because we'd be adopting a new plan right now. We can include a safe harbor feature for 2011 because we only need give reasonable advance notice. On a newly adopted plan, reasonable notice couldn't be any sooner than the date of adoption. 2. No one has provided a citation or account of an actual case in which IRS has challenged adoption of a new k feature with only one payroll remaining. That indicates to me that IRS doesn't have a position they feel they can support in court, and therefore, other practitioners are probably still doing this. I don't mean to 'dis' practioners who play it conservatively. However, I'm inclined to disclose the issue to the client and let her decide. I'm also posting this as a challenge to anyone who might have any written position statement from IRS. Thank you very much.

A prospect wants to adopt a new 2010 calendar year 401(k) plan effective 1/1/2010. Instead of a Safe Harbor, she would use the first year rule under which she can defer 5% of full year comp. Is anyone aware of a specific citation that says it's too late to implement the plan on December 15, 2010; assuming there is at least one paycheck remaining in the year and notice is given to all employees at least one week prior to the last paycheck? Thanks & Merry Christmas.

Your points are well taken. However, consider the following: IRS allows plans to be drafted in a manner that permits the Plan Administrator to limit deferrals by HCEs, in whatever manner it deems fit so as to avoid an ADP/ACP problem. Isn't the IRS, therefore, authorizing exactly the kind manipulation that you are concerned about?

Hi All, It's been a while since anyone has posted to this topic. So, I'm writing to pose a two-pronged question: 1. Has any one heard of any developments regarding plan provisions that limit deferrals to Catch-up? 2. The following approach would avoid the question of whether a participant is 401(k) eligible. Do you know of anything specifically precluding the following: Draft a plan provision that says participants who are age 50 or better are not eligible to make 401(k) deferrals in excess of the ADP limit for the year; however, if they hit that limit, they are eligible to make catch-up contributions. This approach will let 50 year-olds make full catch-up contributions without forcing younger participants to take corrections. And to the extent you cannot determine the exact ADP limit until the end of the, you can always return the excess. I'm sure many will say this approach is too good to be true, and therefore, cannot be used. I'll respect you if that is your religion. However, what I'm wondering is whether you know of a specific quote or citation that would preclude this. thx

I've got a potential client that is fortunate enough to be experiencing rapid growth. There are only a handful of employees with 3 or more years of service. They are covered under an existing SEP. There are another 50 employees who have less than two years of service. The employer would like to provide a 401(k) plan with matching contributions. She understands the k feature must be offered to all employees with at least one Year of Service. The question is this: Can the Employer continue to fund the SEP for those employees who have at least 3 years of service? As you know, if profit sharing were offered in the k plan, the employer could not require more than a two years of service. Can you stretch this to a 3 year wait by funding a SEP instead of Profit Sharing in a 401(k) Plan? There is plenty of guidance saying the two plans must be aggregated for 415 purposes. Does anyone know of an issue under 401(k), 401(a)(4), 410(a) or (b) that would prohibit the employer from funding the SEP (with only a few participants) for another year or two? Thanks very much.

I've got a 401(k) plan that uses the "deemed" (safe harbor) definition of hardship. The regs seem fairly clear in saying the Plan Administrator can rely on the participant's representation that no other resources are available. (There is the matter of participant loan availability - but that's not my question.) My question is this: Can the Plan Administrator rely on the participant's representation that the hardship exists? Or, must the participant present an eviction notice; medical quote; proof of secondary school enrollment; etc.? As I read the Regs, there is no rule allowing Plan Administrators to rely on participant representation that the hardship itself exists. thx

A client tells me they had to issue two (2) W-2s to one of their employes this year. The first W-2 reported wages. The second one reported proceeds from an AFLAC policy. I had no idea that AFLAC proceeds must be reported by an Employer. In any event, the employer wants to know whether AFLAC proceeds must be included in allocation compensation. I've had a super-hard time researching this question on CCH. Does anyone have any insights of this? Thanks.

Do you see any problem in writing an eligibility rule as follows? "Non-Shareholder Physicians are eligible immediately; all others must complete one Year of Service."? The physicians will likely be HCEs within a year or two; but since they can't be HCEs in year one, it seems to be a viable approach. Any disagreements??

I know the original question is old, but the replies seem sound, and I have a question that picks up on everything addressed so far: Background: I (too) have a plan in which forfeitures arose under a circumstance that was not a partial termination (i.e., a large group of employees voluntarily quit to form a competing company). The client's Mackay Hochman document does not appear to say when (if ever) the forfeitures must be reallocated. The plan says that forfeitures can be used to pay plan expenses. The prior TPA had been accumulating forfeitures so as to ensure it could be paid by the plan for a long time to come. The plan is a profit sharing plan. There is no contribution obligation that must be offset. An amendment was added a few years back providing that amounts held in a forfeiture suspense account will revert to the employer upon plan termination. I believe the amendment was a word-for-word adoption of a model amendment. So, it should not aversely affect the plan's qualified status. Last year, the company was shut down. All affected employees were fully vested. This year, the sponsor wants to terminate the plan. All participants who still have undistributed account balances will be fully vested. There is no compensation in the current year. So, the remaining forfeitures cannot be allocated this year because the 415 limit is $0. Question: In the absence of a plan provision requiring reallocation of forfeitures in the current or any subsequent year, is there a rule or regulation that mandates when forfeitures must be allocated? (I'm not expecting any one to prove a negative, but I am wondering whether I'm missing some rule that will prevent the sponsor from claiming a fairly huge reversion.) The plan has a volume submitter approval letter. So, even if LRMs require plans to state when forfeitures will be reallocated, this plan appears to be silent. Can the employer get a reversion??

Proving a negative is a tough one for sure. Let me see if I can synthesize the replies as follows: 1. I can (clearly) amend the plan so as require a Year of Service prospectively; 2. I can amend the plan to remove any participant who has less than one Year of Service (and has no account balance); 3. I can split the plan in two as long as the plan doesn't pay settlor expenses. Please let me know if anyone disagrees. Now, a follow up question: Let's assume I'm now well below 120 participants. Would any one doubt I can amend the plan to say "Non-Owner Physicians are eligible immediately; all others must complete one Year of Service."? The physicians will likely be HCEs within a year or two; but since they can't be HCEs in year one, it seems to be a viable approach. Any disagreements?? Thanks all.

A plan's participant count will soon exceed 120. Sponsor wants to avoid Audit requirement. The plan has immediate participation for purposes of deferrals only. (The plan is not Top Heavy.) Very few participants with less than 1 year of service have signed up to defer. So, the plan has around 80 participants with no account balance. I know the plan can be amended to add a service requirement of up to 1 year, but Can the Employer amend the plan to remove previously hired "participants" who have not signed up to defer? I recall an IRS ruling in which they permitted an amendment removing participants as long as the amendment doesn't reduce accrued benfits. I can't find that ruling any more. Can anyone provide a citation one way or the other? Thanks for any feedback.

Thanks for all of your feedback. I particularly like how the discussion has devolved to smog! I need to clarify my question a little. The Philadelphia firm claims to own the acronym "OCPP". They may have been the first to use the acronym, but it was my impression that OCPP has become a generic term (like "cell" phone) referring to any One Category Per Participant Plan design. I agree that One Category Per Participant plan designs are not unique to that firm. But, does anyone have a short-hand name for it other than OCPP? If they're the only firm that uses OCPP, they may have a legal right to prevent any other TPA from using that acronym. So, my question is just this: Do you use the term "OCPP", or have you seen anyone other than a Philadlephia law firm use the term OCPP? Thanks.

I've heard that there's a Pennsylvania law firm that owns the rights to a "unique" plan design. The plan allows employers to allocate profit sharing contributions on the basis of One Participant Per Category. I think I've seen lots of other firms doing this; using a volume submitter (not prototype) plan document. You may feel this technique is too risky or inappropriate, but my question is this: Is there anything "unique" or proprietary about a One Category Per Participant design? I thought Corbel even teaches about this kind of design in its Cross Testing seminars. If you can direct me to any written references to usages of One Category Per Participant or OCPP by any one other than a Pennsylvania law firm, I'll really appreciate it. Thanks

The following question runs off on a different tangent, but I wonder if you can point me in the right direction: Assume there is a sponsor who had a safe harbor match in effect for all of 2007. It now turns out that the sponsor is in serious financial straights; in fact, they're headed for bankruptcy. The sole shareholder doesn't want to squelch on the safe harbor contribution. Can the sole shareholder fund the safe harbor match by having funds transferred from his accounts to those of participants entitled to the match? (Assume that the plan has been terminated, and therefore, distribution can now be paid from the plan.) I know this kind of transfer could happen in a DB plan. Can it be done in a DC plan? Thanks very much.

I've been working on this question too. So far, all I can find is: 1. Davis Bacon contributions can be used as QNEC's up to 10% of compensation; i.e., they can be used for ADP or ACP testing. I don't think there's a restriction in the event the contributions are made to another plan. 2. Letter Ruling 7108186900A, dated 8/18/71 (pre-ERISA, but not pre-Code Section 401(a)(4)) says that you can count contributions to another plan in running discrimination testing. I hope others might have something they can add to this topic.

I've got several clients that want to allow HCEs to maximize deferrals, but avoid any refunds. Some of the HCEs are catchup eligible. I'm strugling to find sensible ways to formulate "Plan Imposed Limits" that will allow us to define the exact point at which catchup contributions will kick in. Two Questions: 1. Has anyone seen any software (e.g., relius, datair, etc.) that can predict ideal levels at which plans should impose limits??? 2. Do you think there is anything that would prevent the following plan imposed limit (based on dates and names)?: Facts: There are 5 HCEs. None of them will hit maximum ($220k) comp this year. 3 of the HCEs are non-owners. These three have been allowed to defer until this point, but have now been ordered to stop due to testing limits. 2 owner-HCEs have not yet deferred anything. One of them is catchup eligible (as is one of the 3 non-owner HCEs.) Projection: I'm projecting that (on an annualized basis) there is room for aggregate HCE deferrals to increase by another 5%. I'd like to allow the young HCE-owner to use up that 5 percent. I'd like to allow the other owner to defer (only) the $5k catchup. Plan Limit: Do you think it's feasible to draft a plan resolutions that limits as follows for 2006 only: a. Non-owner HCEs cannot make any further deferrals after October 31 - other than catchup. b. Younger owner-HCE can make deferrals, but only up to 5% of pay; c. Older owner-HCE can make no deferalls in 2006 other than catchup. It seems insanely fine-tuned, but permissable, to me. Do you have any thoughts as to alternatives? Thanks very much.

Thanks for thinking that I might be writing for a prestigious law firm. I used to work with Mand Marblestone & Danziger. Since July, 2005, I've been operating my own prestigious firm. I wonder whether there's something in the article that would cause it to be distinguishable from the scenario I originally posited. You descibe both plans as covering all employees. That may change the 'testing group' to require; e.g., aggregated testing for top heavy purposes. I hope you'll go back to the author and ask for clarification. I posted my question originally because I wasn't positive two fully inuslated plans of the same employer would guarantee separate Gateway treatment. I still do believe that the plans should stand alone - for Gateway, and for Top Heavy, purposes.

MJB - The "strangers" who peruse these boards tend to be practitioners in the field, and include some real experts. They can provide insights reflecting years of experience. No one is bound to accept responses; least of all, fiduciaries who WILL make the ultimate decision. In my experience, fiduciaries will ask their service providers for input. My input to them may or may not be colored by the feedback I've gained on these discussion boards. I appreciate your opinion about matches on Catch-up which, clearly, differs from that of QDROphile. I wonder if anyone else can provide input so as to help fiduciaries avoid problems with the IRS.

I'm looking at a case that had a standard Safe Harbor Match (SHMAT) for 2005. That is, the plan was to match deferrals dollar for dollar up to 3%, and then, 50 cents on the dollar on the next two percent. The sponsor misunderstood the match formula. They thought the formula was dollar for dollar up to 4% of pay. Wouldn't you know it - almost all of the employees deferred exactly 4%. The employer made a 4% match, even though these participants should only have gotten a 3.5% match. This kind of error must happen all of the time. Does any one know of (a) IRS sanctioned self - correction , or (b) practical suggestions? Thanks very much.

Dear QDROphile - Thanks for the reference to the Preambles to the Catch-up Regs!!!! I've got a case in which the employer matches deferrals up to 15% of pay, so there is definitely a question of whether catchups must be matched. Do you agree with the following line of reasoning: The preambles seem to require a match on catch-up. It appears that IRS accepts plan language that expressly denies a match on catchup. But, in my case, the document does not expressly deny match on catch-up. Therefore, this plan must match the catch-up. Right? Thanks for the feedback.

I'm struggling with the same question. There must be guidance in the final k regs. I just don't have time to read them at the height of contribution confirmation season. I'm guessing that silence means you WILL match. Otherwise, why would document preparation software prompt you ONLY when you WON'T match. Does anyone have a cite? Thanks very much.

Thank you all for your thoughtful replies. I kept the facts simple in my example. The actual case involves 10 HCEs and 180 NHCE's. The 2 shareholder HCEs want to get more than the 9% the are currently getting in the big plan. You can imagine that the gateway cost for 180 NHCE would be a whole lot more than it would be for around 30 NHCEs in a second plan. It does seem odd that you can do through two plans what you cannot do by restructuring a single plan. Back in the 70's, IRS used to speak of the "telescoping rule". That is, if you telescope down all of the separate transactions, would it result in an otherwise prohibited outcome. I've not heard anyone use the term "telescoping" since the 70's. Being risk averse, I suspect I'll submit to IRS with a schedule Q. The odd thing, I suppose, is that I would end up submitting the larger plan for the D Ltr, since that is the one with exposure to a gateway problem. Again, thanks very much. I hope ya'll feel free to keep posting if other thoughts come to mind.

If an employer has the right demographics so that it can establish two separate plans - i.e., each plan separately passes coverage and discrimination - must the Gateway Minimum requirements under one plan be applied to the other plan? Example: Company has 2 HCEs and 2 NHCEs. Employer creates two plans; one covers HCE 1 and NHCE 1; the other plan covers HCE 2 and NHCE 2. Both plans will be cross tested. However, Plan number one only provides 3% to the NHCE and 9% to the HCE. The employer would like to fund Plan number two at 5% for NHCE 2 and 15% for HCE 2. Each plan separately satisfies minimum coverage. Assume that age disparity in each plan is adequate so that each plan passes (a)(4) testing. I read the regs under 1.401(a)(4)-8 as requiring a "PLAN" to satisfy Gateway requirements. Thus, in the example above, each plan should be able to separately satisfy the gateway without regard to a different/higher gateway requirement under an entirely separate plan. Does any one see a flaw in this approach? (Don't count the additional cost of administering two separate plans a "flaw".) While we're at it: Would it be possible for one of the 2 plans to implement a 401(k) Safe Harbor election, and the other not? (I know catchup contributions require universal availability. But is there a universality requirement for safe harbor treatment in separate plans of a single employer, whren each plan passes all testing separately?) Thanks for the feedback.