shERPA

I don't know where you are, but in the counties I'm familiar with assessed valuation bears little relationship to fair market value. The plan assets have to be carried at FMV. Showing an incorrect value on a 5500 isn't fatal, but yes it will affect the MRC and 404 DB contribution calculations as well as the AFTAP. And in a pooled DC plan it would affect the value of accounts and distributions (where an incorrect valuation could lead to a qualification failure). And an incorrect value could lead to a qualification failure in a DB distribution, undervalued could result in a 415 violation, overvalued would lead to a benefit being underpaid. Fair. Market. Value.

I'd be careful with terminology. Unless this TPA is taking on the role of a plan fiduciary in some capacity, the TPA doesn't "approve" distributions. A TPA would "confirm" that the requested distribution or IRR is permitted by the plan and that the participant is eligible for it. But a non-fiduciary TPA doesn't approve anything. Might seem to be a little thing, but us TPAs are obsessed with lots of little things.

Personally, with the revelation of more and more issues as you peel back the layers, I'd send the client to ERISA counsel. If they need document/admin/termination support, have the attorney engage you on behalf of the client. This is for the client's protection since there are multiple IRC, ERISA and fiduciary issue in play, best that the client is communicating under attorney-client privilege. Don't forget there are potential claims from employees, not just the agencies. It's also for your protection. IME it's almost impossible for a TPA to get properly compensated for the work/risk/complexity involved here. People expect to pay 5 and 6 figures to lawyers, they expect to pay 3 figures to TPAs.

There are a lot of things to be concerned about in plan operations. This is not one of them. Seriously, it's fine.

I don’t see a problem with this.

This is way beyond free general advice apropos an internet message board. They need to engage professionals to do the analysis. When it comes to taxation, retirement plans and M&A, nothing works independently, there are always "other considerations", and they are specific to the situation. Just my opinion.

No.

Mike are you saying 412(e)(3) plans are a disaster?

We are talking DB. I will likely recommend a 12 month plan year and the client would take the full year deduction for the PY beginning in the FY, per 1.404(a)-14(c) just to avoid the whole short year issue. The old '80s Plastic Engineering case provides authority for a full normal cost deduction in a short year, but in later IRS guidance for automatic approval of plan year changes they required pro-rating the deduction. I am not aware of any other authoritative guidance on this, are you or anyone else?

Jane starts out 2020 owning 100% of both Company A and Company B. Both companies make and sell products, they are not service orgs and they do not provide services to each other. Company A has about 50 ees and a 401(k) plan. Company B just employs Jane and her husband (B's actual production is outsourced) and B has no retirement plan. In July 2020, Jane sold 23% of A to a private equity firm, so now she owns 77% of A and 100% of B. So effective with the transaction they are no longer a CG. Can they now establish a plan in B for just Jane and husband for 2020? My first reaction is that if the plan is set up for calendar year 2020 this would not work due to the CG. Coverage testing would be based on the plan year and they have former NHCEs > 500 hours in the testing group. If they set up a plan in B effective 10/1/20, then the plan never exists while there is a CG, and the testing year would not include any NHCEs so presumably they would not have to consider company A in coverage. But does this raise a potential 1.401(a)(4)-5 discriminatory timing concern? Thanks.

Point of order, the former client has a plan, not you. Usually in wrapping up a corporation, final actions include appointing an officer to wrap up its affairs in an orderly manner. Who was named to do so? Also, who were the trustees? Do they want an IRS/DOL non-filing inquiry in a couple of years? Who will respond to it and what will they say? If they don't response, they may get an investigation. At that point sucks to be them, running up lawyer fees with no plan or corp to pay. Their choice.

Too funny, makes me feel old!

I assume (maybe incorrectly) since the title of the thread is "controlled group" that it is really an affiliated service group partnership of professional corporations. So each doc has a separate 100% owned PC. So the doc is an HCE due to ownership of the PC stock. Assuming the PC is a partner in the group it's an ASG. OTOH, if the doc has a separate PC and neither the doc nor the PC has ownership in the group, it wouldn't be an ASG or CG. If all the docs are directly employed by the group then you are right the doc is not HCE unless also a 5% owner. To channel Larry Starr, we can't really answer properly without complete facts.

Wouldn’t this depend on the actual demographics in the given year? The plans would need coverage tested on the shortest eligibility period. So if the group plan was excluding more than 30% of NHCEs due to 1 YOS, and the doc plan has immediate eligibility, it would fail the ratio test. But if all NHCEs were in and no new hires waiting to get in, coverage would pass?

There is no one answer. Personally I'd look at how the plan normally works and why it was designed the way it is. If the sponsor wanted short eligibility to help with recruiting and be able to provide an employee benefit sooner, and some years the short service ees didn't really impact testing, then I'd probably not worry about vesting in an odd year when it does matter. If OTOH the plan was designed to intentionally manipulate the testing results with short service PT NHCEs who never vest, then I'd probably recommend some minimum level of vesting for them. YMMV.

Vesting is an issue if a -11(g) corrective amendment is needed. If all participants are in separate groups an amendment isn't needed, at least not for purposes of allocating contribution.

Yeah, do you have that disclaimer script handy that is read at the beginning of every session that includes government speakers? I agree I would use this, and anything else I thought might stick to the wall once it's an audit situation. But to knowingly set up a plan on this basis, not so much. As you say , it's an "unbelievable response".

No.

Ha ha! Yes, you are right, I should have been more specific. "What is the economic benefit to the client of buying life insurance...." Since the client is paying the bills.

It's like Whack-A-Mole. You see the issue clearly. What agent wants to do is discriminatory. What ErnieG says will work, but it's more expensive to cover NHCEs. Some say they provide an additional PS contribution, over and above what is necessary to pass (a)(4) testing, to cover the insurance premiums needed to provide insured death benefits in the DC plan that equal the relative HCE death benefits in the DB plan. Arguably this could work, but this would be a huge amount of work to initially calculate and then monitor and adjust annually to keep death benefits non-discriminatory. Who is going to do this work and who is going to pay for it? Once all that work is done and paid for, and once the additional PS contributions are made to pay for the NHCE insurance, what's the point? What is the economic benefit of buying life insurance for HCEs in the DB that makes all of this worthwhile?

OK, got it, thx. From what I've seen the reg EBECatty posted above is actually a bit clearer than many of the "explanations" I found that seemed to create the confusion, at least for me.

Yes Luke, she's still employed and since it's open enrollment, she can make a change right now anyway. She did get back to me that she was able to get in touch with her HR people and they confirmed that what she elects now is what's available to her for COBRA. Thanks.

Thank you @EBECatty, this is helpful. Bottom line it seems that the employer must offer the exact same coverage as existed prior to termination, and does not have to allow any changes. The termination of employment and loss of group coverage is not a qualifying event that permits an individual to change their coverage.

Understood. But upon termination she's no longer eligible for her current group coverage - and this is typically a HIPAA qualifying event. So does the loss of group coverage trigger the exception that allows her to elect different coverage under COBRA?

An employee expects to be laid off in the next couple of months, the employer is closing a local office and the employee does not intend to move to the new location. Can she change her health plan election when electing COBRA? She is still employed and they are currently in their open enrollment period. She is currently in Plan A and would normally continue in this plan. However Plan B Is less expensive. If she cannot change she may choose Plan B now. If she can change she will stay on A For now and then decide between A and B when the COBRA decision must be made later. The info I’ve found seems contradictory, it say generally you cannot make such a change, but then it says there are exceptions that allow the change for HIPAA qualifying events. And losing group coverage eligibility is a qualifying event. I’m a pension guy, just trying to help out a friend and want to make sure I’m getting it right. Thanks.