Everett Moreland

404© protection is not available for an offsetting defined contribution account the investment earnings of which can affect a defined benefit. See the preamble to 29 C.F.R. § 2550.404c-1, 57 Fed. Reg. 46906, 46907 & n.6 (October 13, 1992); K Brown, Specialized Qualified Plans--Cash Balance, Target, Age-Weighted and Hybrids, 352-4th Tax Management Portfolio A-76 (2009). So far I have not had trouble getting a determination letter for a non-safe harbor floor offset plan, maybe because the language for how to calculate the offset is so detailed no IRS reviewer can bear to read it, or maybe because I've been lucky.

See: 1. 1.401(a)(4)-9(b)(3): (3) Optional rules for demonstrating nondiscrimination in availabilty of certain benefits, rights, and features. (i) Current availability. A DB/DC plan is deemed to satisfy section 1.401(a)(4)- 4(b)(1) with respect to the current availability of a benefit, right, or feature other than a single sum benefit, loan, ancillary benefit, or benefit commencement date (including the availability of in- service withdrawals), that is provided under only one type of plan (defined benefit or defined contribution) included in the DB/DC plan, if the benefit, right, or feature is currently available to all NHCEs in all plans of the same type as the plan under which it is provided. (ii) Effective availability. The fact that it may be difficult or impossible to provide a benefit, right, or feature described in paragraph (b)(3)(i) of this section under a plan of a different type than the plan or plans under which it is provided is one of the factors taken into account in determining whether the plan satisfies the effective availability requirement of section 1.401(a)(4)-4©(1). 2. 1.401(a)(4)-4(d)(4): (4) Permissive aggregation of certain benefits, rights, or features. (i) General rule. An optional form of benefit, ancillary benefit, or other right or feature may be aggregated with another optional form of benefit, ancillary benefit, or other right or feature, respectively, and the two may be treated as a single optional form of benefit, ancillary benefit, or other right or feature, if both of the following requirements are satisfied: (A) One of the two optional forms of benefit, ancillary benefit, or other rights or features must in all cases be of inherently equal or greater value than the other. For this purpose, one benefit, right, or feature is of inherently equal or greater value than another benefit, right, or feature only if, at any time and under any conditions, it is impossible for any employee to receive a smaller amount or a less valuable right under the first benefit, right, or feature than under the second benefit, right, or feature. (B) The optional form of benefit, ancillary benefit, or other right or feature of inherently equal or greater value must separately satisfy paragraphs (b) and © of this section (without regard to this paragraph (d)(4)). (ii) Aggregation may be applied more than once. The aggregation rule in this paragraph (d)(4) may be applied more than once. Thus, for example, an optional form of benefit may be aggregated with another optional form of benefit that itself constitutes two separate optional forms of benefit that are aggregated and treated as a single optional form of benefit under this paragraph (d)(4). (iii) Examples. The following examples illustrate the rules in this paragraph (d)(4): Example 1. Plan A is a defined benefit plan that provides a single sum optional form of benefit to all employees. The single sum optional form of benefit is available on the same terms to all employees, except that, for employees in Division S, a five- percent discount factor is applied and, for employees of Division T, a seven-percent discount factor is applied. Under paragraph (e)(1) of this section, the single sum optional form of benefit constitutes two separate optional forms of benefit. Assume that the single sum optional form of benefit available to employees of Division S separately satisfies paragraphs (b) and © of this section without taking into account this paragraph (d)(4). Because a lower discount factor is applied in determining the single sum optional form of benefit available to employees of Division S than is applied in determining the single sum optional form of benefit available to employees of Division T, the first single sum optional form of benefit is of inherently greater value than the second single sum optional form of benefit. Under these facts, these two single sum optional forms of benefit may be aggregated and treated as a single optional form of benefit for purposes of this section. Example 2. The facts are the same as in Example 1, except that, in order to receive the single sum optional form of benefit, employees of Division S (but not employees of Division T) must have completed at least 20 years of service. The single sum optional form of benefit available to employees of Division S is not of inherently equal or greater value than the single sum optional form of benefit available to employees of Division T, because an employee of Division S who terminates employment with less than 20 years of service would receive a smaller single sum amount (i.e., zero) than a similarly-situated employee of Division T who terminates employment with less than 20 years of service. Under these facts, the two single sum optional forms of benefit may not be aggregated and treated as a single optional form of benefit for purposes of this section.

See Notice 2010-9, here: ftp://ftp.irs.gov/pub/irs-drop/n-10-09.pdf The reference in Notice 2010-9 to the Energy Improvement and Extension Act of 2008 is to Division B of the H. R. 1424, here: http://frwebgate.access.gpo.gov/cgi-bin/ge...1424enr.txt.pdf. The Emergency Economic Stabilization Act of 2008 is Division A of H.R. 1424.

The most recent IRS statement is in the following footnote 1 of Notice 2010-6: "However, until further guidance is issued, for purposes of identifying and correcting failures eligible for this section, taxpayers may apply the guidance provided in Section III.G of the Preamble to the final regulations issued under § 409A regarding application of change in control events by analogy to partnerships."

see Revenue Ruling 2004-57, here: ftp://ftp.irs.gov/pub/irs-drop/rr-04-57.pdf

ftp://ftp.irs.gov/pub/irs-drop/n-09-86.pdf

The preamble to the 1980 proposed regulations on benefit statements (2520.105-1 and -2 and 2530.209-1 and -2), which I found helpful in drafting benefit statements, states the following about a model statement: "In view of the multiplicity of plan provisions, it would be difficult for the Department to ensure that the format of a model statement would not be misleading under any circumstances. Accordingly, the Department has made a decision at this time not to publish model benefit statements." Apparently EBSA has not since changed its mind.

My concern is that I have drafted distribution forms and plan documents that rely on the 30-day notice in the Special Tax Notice, so I am glad I discovered this omission.

"Your Rollover Options" in Notice 2009-68 does not included the notice of the 30-day period that is required by the following 1.402(f)-1 A-2(a) to allow waiver of the 30-day period. Following is the notice of the 30-day period in the Special Tax Notice in Notice 2002-3: "Your Right to Waive the 30–Day Notice Period. Generally, neither a direct rollover nor a payment can be made from the plan until at least 30 days after your receipt of this notice. Thus, after receiving this notice, you have at least 30 days to consider whether or not to have your withdrawal directly rolled over. If you do not wish to wait until this 30-day notice period ends before your election is processed, you may waive the notice period by making an affirmative election indicating whether or not you wish to make a direct rollover. Your withdrawal will then be processed in accordance with your election as soon as practical after it is received by the Plan Administrator." 1.402(f)-1 A-2(a): "(a) This paragraph (a) is satisfied if the plan administrator provides a distributee with the section 402(f) notice no less than 30 days and no more than 90 days before the date of a distribution. However, if the distributee, after having received the section 402(f) notice, affirmatively elects a distribution, a plan will not fail to satisfy section 402(f) merely because the distribution is made less than 30 days after the section 402(f) notice was provided to the distributee, provided the plan administrator clearly indicates to the distributee that the distributee has a right to consider the decision of whether or not to elect a direct rollover for at least 30 days after the notice is provided. The plan administrator may use any method to inform the distributee of the relevant time period, provided that the method is reasonably designed to attract the attention of the distributee. For example, this information could be either provided in the section 402(f) notice or stated in a separate document (e.g., attached to the election form) that is provided at the same time as the notice. For purposes of satisfying the requirement in the first sentence of paragraph (a) of this Q&A-2, the plan administrator may substitute the annuity starting date, within the meaning of section 1.401(a)-20, Q&A-10, for the date of the distribution."

I misunderstood your question. My reading of the following 436(d)(4) is that the exception in 436(d)(4) applies until there is a benefit accrual. I think that is what "during such period" means. I think that 1.436-1(d)(4), read in light of the words of 436(d)(4), also applies the exception in 436(d)(4) until there is a benefit accrual. For example, the last sentence of 1.436-1(d)(4) applies 436(4) only "after the plan increases benefits," not "after the plan provides for possible future benefit increases." IRC § 436(d)(4): This subsection shall not apply to any plan for any plan year if the terms of such plan (as in effect for the period beginning on September 1, 2005, and ending with such plan year) provide for no benefit accruals with respect to any participant during such period. Treasury Regulation § 1.436-1(d)(4): This paragraph (d) does not apply to a plan for a plan year if the terms of the plan, as in effect for the period beginning on September 1, 2005, provided for no benefit accruals with respect to any participants. If a plan that is described in this paragraph (d)(4) provides for benefit accruals during any time on or after September 1, 2005 (treating benefit increases pursuant to a plan amendment as benefit accruals), this paragraph (d)(4) ceases to apply for the plan as of the date any benefits accrue under the plan (or the date the amendment takes effect). For example, the exception in this paragraph (d)(4) does not apply to a plan after the plan increases benefits to take into account increases in the limitations under section 415(b) on or after September 1, 2005.

If I understand your question, doesn't the following statement in 1.436-1(d)(4) indicate that 436(d) applies to a plan if a benefit increases on or after September 1, 2005, because of an increase in the 415 limit? "For example, the exception in this paragraph (d)(4) does not apply to a plan after the plan increases benefits to take into account increases in the limitations under section 415(b) on or after September 1, 2005."

Thank you for your reply. My concern about the above statement in Notice 2008-68 is that it seems to conflict with the last sentence in IRC Section 402©(2), which is the last sentence of this post. That last sentence was added by Section 411(q)(2) of the Job Creation and Worker Assistance Act of 2002 and is explained as follows in the Joint Committee on Taxation's General Explanation of Tax Legislation Enacted in the 107th Congress: "A technical correction was enacted in section 411(q) of the Job Creation and Worker Assistance Act of 2002, described in Part Eight of this document, to clarify that a qualified plan must provide for the direct rollover of after-tax contributions only to a qualified defined contribution plan or a traditional IRA and that, if a distribution includes both pretax and after-tax amounts, the portion of the distribution that is rolled over is treated as consisting first of pretax amounts." (at 128 note 122) "Under prior law and under the Act, a qualified retirement plan must provide for the rollover of certain distributions directly to a qualified defined contribution plan, a qualified annuity plan, a tax-sheltered annuity plan, a governmental eligible deferred compensation plan, or a traditional IRA, if the participant elects a direct rollover. The provision clarifies that a qualified retirement plan must provide for the direct rollover of after-tax contributions only to a qualified defined contribution plan or a traditional IRA. The provision also clarifies that, if a distribution includes both pretax and after-tax amounts, the portion of the distribution that is rolled over is treated as consisting first of pretax amounts." (at 253) IRC Section 402©(1) and (2): © Rules applicable to rollovers from exempt trusts.-- (1) Exclusion from income.--If-- (A) any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, (B) the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and © in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. (2) Maximum amount which may be rolled over.--In the case of any eligible rollover distribution, the maximum amount transferred to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)). The preceding sentence shall not apply to such distribution to the extent-- (A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust or to an annuity contract described in section 403(b) and such trust or contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or (B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B). In the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to paragraph (1)).

1.411(d)-4 Q&A-2(b)(v): "A plan may be amended to provide for the involuntary distribution of an employee's benefit to the extent such involuntary distribution is permitted under sections 411(a)(11) and 417(e). Thus, for example, an involuntary distribution provision may be amended to require that an employee who terminates from employment with the employer receive a single sum distribution in the event that the present value of the employee's benefit is not more than $3,500, by substituting the cash-out limit in effect under section 1.411(a)-11©(3)(ii) for $1,750, without violating section 411(d)(6). In addition, for example, the employer may amend the plan to reduce the involuntary distribution threshold from the cash-out limit in effect under section 1.411(a)-11©(3)(ii) to any lower amount and to eliminate the involuntary single sum option for employees with benefits between the cash-out limit in effect under section 1.411(a)-11©(3)(ii) and such lower amount without violating section 411(d)(6). This rule does not permit a plan provision permitting employer discretion with respect to optional forms of benefit for employees the present value of whose benefit is less than the cash-out limit in effect under section 1.411(a)-11©(3)(ii)."

1.401(a)(31)-1 Q&A-9: Q-9: Must the plan administrator permit a distributee to elect to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to have the remainder of that distribution paid to the distributee? A-9: Yes, the plan administrator must permit a distributee to elect to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to have the remainder paid to the distributee. However, the plan administrator is permitted to require that, if the distributee elects to have only a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover, that portion be equal to at least a specified minimum amount, provided the specified minimum amount is less than or equal to $500 or any greater amount as prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter. If the entire amount of the eligible rollover distribution is less than or equal to the specified minimum amount, the plan administrator need not allow the distributee to divide the distribution.

Please let me know if you think the following statement in Notice 2009-68 (the new 402(f) notice) is correct: "If you do a direct rollover of only a portion of the amount paid from the Plan and a portion is paid to you, each of the payments will include an allocable portion of the after-tax contributions."

The following from EBSA Advisory Opinion 2001-01A is consistent with John's statement: "In the context of tax-qualification activities, it is the view of the Department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay. Where a plan is intended to be a tax-qualified plan, however, implementation of this settlor decision may require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required by changes in the tax law, nondiscrimination testing, and requesting IRS determination letters. If, on the other hand, maintaining the plan’s tax-qualified status involves analysis of options for amending the plan from which the plan sponsor makes a choice, the expenses incurred in analyzing the options would be settlor expenses."

Many years ago I researched this and thought there was vague authority to draft a plan to provide no top-heavy accrual for a participant who moves to a class of employees who are ineligible to participate. The IRS has approved plans so drafted. I would not have the courage to amend a plan to avoid a top-heavy accrual for a current participant by excluding a class of currently eligible employees, except as a proposed amendment conditioned on IRS approval or maybe where the exclusion is for some other substantial reason. This is addressed (unsatisfactorily) in Q&A 15 of the 2000 ASPPA IRS Q&As, which is available here: http://www.reish.com/practice_areas/techni...ps/IRStip61.cfm and here: http://www.aspa.org/Main-Menu/Advocacy/Gov...irs_qa.htm.aspx

The following line 3c of Form 5300 asks for a representation that interested parties have been given the required notice: "Have interested parties been given the required notification of this application?" The issue here is not merely that this is troublesome. One of the important issues for you is losing your ability to practice before the IRS if you are involved in misleading the IRS about whether the required notice was given.

The following is from the 2009 IRS Q&As of the ABA Joint Committee on Employee Benefits: 29. § 409A – Prefunding of Nonqualified Deferred Compensation Plans Do Section 409A(b)(3)’s restrictions on prefunding nonqualified deferred compensation of covered employees during a restricted period with respect to qualified single-employer defined benefit plan apply to the CEO of a non-public entity? This question arises because Section 409A(b)(3)(D)(ii) defines covered employee as including individuals described in Section 162(m)(3). Section 162(m)(3)(A) provides: “For purposes of this subsection, the term ‘covered employee’ means any employee of the taxpayer if ... as of the close of the taxable year, such employee is the chief executive officer of the taxpayer or is an individual acting in such a capacity.” While Section 162(m) only applies to public companies, this text could be read as subjecting CEOs of all entities, including privately held companies and not-for-profit entities, to the prefunding restriction in Section 409A(b)(3). Proposed Response: Section 409A(b)(3)’s restrictions on prefunding nonqualified deferred compensation of covered employees during a restricted period with respect to qualified single employer defined benefit plan apply only to covered employees of public companies. IRS Response: The Service representative indicated that there is not an answer on this question and that it is an issue that is under study.

Perhaps state law merger won't apply if the participant's beneficiary is other than the participant's estate. For example, I believe that state law merger does not apply to a revocable trust if the remainder beneficiary is other than the beneficiary-grantor's estate.

Can a defined benefit plan stop a current employee's benefit accruals when the employee goes into pay status at normal retirement age and continues to work, if the pay status is elected by the employee? Does the ADEA allow this because stopping the accruals is not "because of age" but because the employee elected to start benefits?

I don't know about Word, but it's available here in html format: http://www.irs.gov/irb/2009-39_IRB/ar14.html

Consider whether a 204(h) notice is needed. See the following from 54.4980F-1 A-7(a)(1): "All plan provisions that may affect the rate of future benefit accrual, early retirement benefits, or retirement-type subsidies of participants or alternate payees must be taken into account in determining whether an amendment is a section 204(h) amendment. . . . . Plan provisions that may affect early retirement benefits or retirement-type subsidies include . . . actuarial factors used in determining optional forms for distribution of retirement benefits."

The absence of funding for the 2010-2012 payments does not delay the application of FICA/FUTA. The 2010-2012 payments are reported on Form W-2 because made by reason of the former employment relationship.

I think the following 1.401(a)(9)-6 Q&A-1(d) answers your question. See also 1.402©-2 Q&A-7. (d) Single sum distributions. In the case of a single sum distribution of an employee's entire accrued benefit during a distribution calendar year, the amount that is the required minimum distribution for the distribution calendar year (and thus not eligible for rollover under section 402©) is determined using either the rule in paragraph (d)(1) or the rule in paragraph (d)(2) of this A-1. (1) The portion of the single sum distribution that is a required minimum distribution is determined by treating the single sum distribution as a distribution from an individual account plan and treating the amount of the single sum distribution as the employee's account balance as of the end of the relevant valuation calendar year. If the single sum distribution is being made in the calendar year containing the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been distributed, the portion of the single sum distribution that represents the required minimum distribution for the employee's first and second distribution calendar years is not eligible for rollover. (2) The portion of the single sum distribution that is a required minimum distribution is permitted to be determined by expressing the employee's benefit as an annuity that would satisfy this section with an annuity starting date as of the first day of the distribution calendar year for which the required minimum distribution is being determined, and treating one year of annuity payments as the required minimum distribution for that year, and not eligible for rollover. If the single sum distribution is being made in the calendar year containing the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been made, the benefit must be expressed as an annuity with an annuity starting date as of the first day of the first distribution calendar year and the payments for the first two distribution calendar years would be treated as required minimum distributions, and not eligible for rollover.