Dawn Hafner

I would like to re-open this thread re whether an ER provided cap must be in the plan document or not. I find the preamble to the final regulations a little confusing in this area. Below is what is mentioned in the final regs: "An employer-provided limit is a limit on the elective deferrals an employee can make under the plan (without regard to section 414(v)) that is contained in the terms of the plan, but is not a statutory limit or the ADP limit. A number of commentators suggested that the regulations specifically provide that a limitation on elective deferrals set by the plan administrator in accordance with plan terms is a limit contained in the terms of the plan. As noted in the preamble to the proposed regulations, the condition that an employer-provided limit be contained in the terms of the plan is intended to correspond with the requirements of §1.401-1 that a qualified plan be a definite written program and provide for a definite predetermined formula for allocating contributions made to the plan. Accordingly, if a limit is otherwise permissible under a section 401(k) plan, the limit will also satisfy the requirement in section 414(v)(5) that the limit be contained in the terms of the plan." I read this to basically say that if the limit is considered definite under Treas. Reg. 1.401-1 then it will be an ER provided limit for catch up purposes. Can a limit in the plan that gives the ER authority to set an annual limit on deferrals meet be considered definite? This is an ER set limit that applies to HCEs only. Do we need to actually amend the plan to provide for this limit to aliviate any question as to whether amounts in excess of this limit qualify as catch-up?

Our CT document does not indicate anywhere our method for testing 401(a)(4). Cross-Tested Document is somewhat of a invalid term. The only thing that makes a plan cross tested is the way your prove nondiscrimination which is provided under the regs, the document itself should not use cross testing methods as the way the plan must pass 401(a)(4). Now, if you had an Age Weighted plan that is different, because there my contribution is determined by the interest rates, table selected, participant age and compensation. In an AW plan you can run into problems if you have an HCE get a 3% TH and they get a higher EBAR than everyone else in the plan. Your document should be open enough to use any permissible method under the regs to pass 401(a)(4), including a Safe Harbor method.

I assume that you mean the ratio test for the young HCE rate group, not the overall ratio test for coverage. Does your plan have different classifications named in the document? What are they? HCEs and NHCEs? There is nothing that prohibits giving the same percentage to each classification. The difference in your case is that if you allocate 3% to all you should not be doing cross tested to prove nondiscrim with 401(a)(4), you get a free pass as all particiapants are getting the same rate - 3% of pay. You do not need to test on a benefits basis, so will not be concerned about the high EBAR for the young HCE. Sounds like going forward they may need to put the young HCE in a different class to let the other HCE(s) participate to a fuller extent.

What is age of son? §1563 (which is the code section that defines ownership attribution for brother sister cont group rules) has special attribution rules that depend on age of child. [The son is not a direct owner, but under attribution rules AND community property state law, he does have some ownership. I understand that double attribution cannot exist.] If over age 21 under the brother sister cont group rules Mom's percentage is not attributed to son because son does not own directly more than 50%. [Would the Son assume ownership in Company A from his Mother? Then would Daugher-In-Law assume ownership from Husband? ] No to both if Son is over 21. [Would Son assume ownership in Company B from his Mother? Would Daughter-In-Law assume ownership from Husband in addition to her existing ownership? What about Husband's share of Wife's ownership (community)? Wouldn't this be double attribution? ] Son will not get ownership attribution of B from Mom for same reason above. He will get the 21% attribution from his wife. Based on these facts, this is not a controlled group.

In the past the IRS was very accepting of reasonable cause letters and often waived their late fees. (I realize that this did not waive the DOL fee at that time.) Now that we file 5500s with the PWBA does anyone have any experiences they can share on reasonable cause letters? We are considering the DFVC program, but feel we have a reasonable cause. Our fear is that we will file for waiver of fees and have it denied and then have full fees apply rather than reduced DFVC fees. Thanks.

There are various message threads on this topic already, but I would like to get some up to date feedback. We use a PPD (Corbel) prototype and the Corbel VS version that is similar to the PPD format. Both adoption agreements allow for a discretionary match formula to be combined with a discretionary amount. "In determining a Participant's deferral contribution taken into account for the specified time period under the matching contribution formula, the following limitations apply: Discretionary. The Plan Administrator will take into account the deferral contributions as a percentage of the Participant's Compensation as the EMployer determines. How much leeway does this give the ER. If formula and amount considered are discretionary can they do different formulas by class, by years of service, by division? We normally communicate the matching formula currently being used in a memo to ees, but wondering how much must be in document. This seems to give a lot of leeway. The basic document contains no additional language about the formula being definitley determinable. Using the double discretionary langauge in the document does not appear to be definitley determinable, but both plans have received favorable letters, and numerous users are utilizing these to restate plans currently. Thanks for any input.

Yes, the Trustee has executed a note for a Revolving Line of Credit. They will draw on the note as necessary to purchase stock from the public and to fund distributions from the plan. Distribution options include lump sum and installments and the participants elect to receive either cash or securities. To date all participants have elected lump sum cash distributions. The Trustee intends to draw on the Revolving Line of Credit to fund these distributions. Can the plan document for a C-Corp ESOP be written to give the participant a distribution option to choose between cash and stock. Assume the bylaws do not prohibit outsiders owning stock. In operation, can the C-Corp. ESOP distribute the participant's securities account balance without using the Put Option?

Is it possible to have an ESOP loan meet all requirements of the regulations and be a line of credit form of a loan? If so, what are the pitfalls to watch for? If not, please provide a cite that would make this impermissible. Thanks!

I would like to revive this topic. We recently had an actuary prepare a plan doc for us that has classifications in the DB. He prepared the SPD only indicating the NHCE class, leaving out the fact there are two other classes, one for the President and one for the Vice President. I have always prepared CT SPDs disclosing all classes in the plan. Does anyone else know if it is permissible to limit the disclosure in this manner? Any cites?

Is anyone attempting to run ESOPs on Relius? We do run our ESOPs on Relius, but do run into several calculations that must be done outside the system. (release of shares, 1042 allocation limits, 415, etc.) Does anyone have any tips or tricks to make ESOPs easier to run on Relius they would be willing to share through a user's group? We would also like to simply our statements by combining different stock funds together for particiapnts. (Loan 1, Loan 2, 1042 stock,etc.) They get confused by all these different stock funds. Does anyone use an ESOP software that "does it all" or close to it?

Is anyone attempting to run ESOPs on Relius? We do run our ESOPs on Relius, but do run into several calculations that must be done outside the system. (release of shares, 1042 allocation limits, 415, etc.) Does anyone have any tips or tricks to make ESOPs easier to run on Relius they would be willing to share through a user's group? We would also like to simply our statements by combining different stock funds together for particiapnts. (Loan 1, Loan 2, 1042 stock,etc.) They get confused by all these different stock funds. Does anyone use an ESOP software that "does it all" or close to it?

The definition of a stock bonus plan is a defined contribution plan under which benefits are distributable in employer stock. Treas. Reg. -(B)(iii)1. An ESOP may be a stock bonus plan, or a stock bonus plan and money purchase plan. See IRC §4975(e)(7). My question is are S corp ESOPs and C corp ESOPs that do not distribute in stock due to bylaw restrictions still considered "stock bonus plans"? It is necessary to know when preparing the 5500, and the actual definition of a stock bonus plan seems to be contrary to these type of ESOPs. Thanks.

"SH NE" refers to Safe Harbor Nonelective, so we have a very similar issue in this case. Funds not eligible for HS distribution were actually distributed. Thank you very much for your response. That is very helpful. I would also be interested to hear from anyone else that has done a submission for a similar issue.

Has anyone ever run into the situation where a SH NE source was incorrectly distributed along wtih 401(k) money in a hardship? According to what I can find the correction method appears to be to request the funds back from the particiapart. One of the Q&As on plan correction indicates that it should not be necessary to have ER make up the distribution amount if the participant decides not to refund the plan as this would unjustly enrich the participant. The Q&A goes on to recomend that you file for approval with IRS however under VCO as this is not a safe harbor method of correction. Has anyone submitted under VCO for a similar issue and if so what was the IRS response? Thanks. Dawn

Anyone have any thoughts on this?