Gary

I used to think that an on-going plan could not amend plan for safe harbor after the start of the plan year. But if my understanding is correct section 1.401(k)-3(f) provides that the plan can be amended after the first day of plan year to retroactively provide a non elective safe harbor effective as of BOY. Is that agreed? thanks

generally all of the 401k plans I have done non discrimination testing have been safe harbor 401k profit sharing plans. I recently observed a non safe harbor 401k plan that did not pass ADP test or the ACP test. While I am not responsible for correcting the failure I want to have some understanding of what can be done. For example, if the sponsor makes a QNEC for $1,000 for a given participant is it potentially permissible to divide the $1,000 in any desired way to apply to ADP and ACP tests? For example can $500 be applied to ADP test and $500 to ACP test or any combination including all $1,000 to ADP test? Of course the $1,000 cannot be double counted for both tests. Curious if that is a way it can be utilized. This way the plan doesn't have to make QMACs potentially and can make contributions for participants who did not defer as well. Thanks

husband and wife plan (no employees) a plan amendment to increase plan formula is effective 1/1/07 and adopted 3/15/08. it seems that increased plan formula could not be used for 2010 plan year for computing cushion amount. Am I missing something?

yes the plan can be amended. i got word that this was a plan that was tested on a combined basis with a profit sharing plan that contained one NHCE. My question re: testing for deceased former employee is if we increase his benefit, then in the denominator for testing compensation do we use his final year compensation? the plan tests on the annual method using plan year compensation. thanks

a plan wants to make an amendment to increase the benefit of a participant. the plan has 3 participants, all HCEs they would like to amend plan to increase the benefit of a deceased participant up to the 415 limit. the spouse has not yet received the pension. So his benefit is 5k per month and 415 limit is 8k, can the benefit be increased thus increasing what the survivor will receive? thanks

the plans say revert so i too am inclined to beleive that an amendment is necessary. thanks

Historically when I am working on a plan term for a one participant plan that has excess assets I amend the plan to increase the formula enough to absorb the excess assets and avoid the surplus. This of course is assuming they are not at the 415 limits. Another service provider takes the approach for a one participant plan that if the assets exceed the value of plan benefits, but the assets are less than the 415 lump sum benefit, they just ditribute all plan assets as a plan distribution since it is not greater than 415 benefit limit. Is there any prescribed reg or code section that allows for such a distribution without a plan formula increase amendment or does the plan formula need to be amended? I personally am not aware of authority to distribute the excess assets as a plan distribution without explicitly amending the plan formula. thanks

it seems pretty clear that this is an undertaking that is unnecessary. i don't intend to work further on this assignment i am just trying to become adequately informed to support my position. thanks.

after further information i found out that this plan never even had a formal document. they had a prior db plan for a short while which they terminated and distributed. then started this new plan, but no document ever prepared. tpa firm just didn't follow thru on that even though client paid for document prep. so essentially client just contributed about 100k for 8 or 9 years with no vals since about 2005 and no returns filed, no document, and assets close to $1 million. this request by tpa owner (also my boss) puts me in a precarious position. of course i can provide explicit disclosures in actuarial statement with val. other views?

when i go to the dol web site they have a schedule sb that you can fill out on line but it says "SAMPLE" in large letters on it. Does anyone know where this form exists without the word "SAMPLE"? I suppose this form can be used as it is, but it is not aesthetically appealing and would raise questions with plan sponsors. thanks

I'll check into this on the Form instructions, but can a statement of facts and circumstances be filed with the IRS along with the form 5500ez package to the IRS? Would the IRS review such a statement? Respond to it, etc.? thanks

If a cash balance planuses interest credit equal to the actual return on assets and the plan experiences say a 15% return for the year, does that mean that for funding purposes the participants' accounts are increased by 15% per year right up until ARA? Ironically a high rate of return can result in higher funding target and target normal costs. thanks

it doesn't appear that there is any place on the 5500EZ to indicate that the plan is exempt from sb

I'm looking over a plan that intends to termiante and distribute benefits. 4 partiicpants. facts: this plan was frozen 12/31/2004. plan chose to apply pre EGTRRA limits (140k limit in 2002) fresh start says when plan amended (presumably freeze established fresh start date on 12/31/2004) benefts at that time are fresh start benefits where it is defined as a "frozen accrued benefit" as if employee terminated and such benefit shall be increased in accordance with 415(d) increases if the benefit were subject to 415b limits. Below is what has been done by tpa: 1. they used 415 $ limit of 140k in 2004 when computing 12/31/04 benefit. Question: should it have been increased by then for COLA to 145k since it was 140k in 2002? 2. benefits that were limited by 415 $ limit did not increase after 2004 for COLAs. Question: should the 415 $ limit have been increased here thus increasing the benefit payable at plan distributionin 2011? 3. benefit that was limited by comp limit was not increased for COLA increases after 2004. Questions: should that limit have been increased for COLA after 2004? thanks

I am trying to establish an approach to administering a db plan after a plan freeze where the doument is silent re: 415 application after plan freeze. In other words let's say a plan sponsor freezes a plan's benefit accruals and makes no mention as to how 415 will apply after the plan freeze. So, essentially, the plan would have to handle 415 limits in accordance with statutory requirements. That is, the plan provisions has the basic 415 statutory language in place. With that said, I make the following interpretations as reasonable (or at least not unreasonable) with regard to application of various aspects of 415 benefits for plan admin purposes: 1. service credit and participation credit continue for 415 purposes (of course participant must work requisite hours in plan year) 2. hi 3 avg comp continues and thus a participant's hi 3 avg can increase after plan freeze 3. cost of living dollar limit increases still apply Of course the accrued benefit is frozen and if such benefit is below the 415 limit at time of freeze then the 415 limits may have no effect on such benefit. However, if act equiv is say 5% and participant chooses lump sum, then the increase in 415 benefit can enable participant who has annual benefit below 415 to receive a higher lump sum that might have otherwise been limited by 415 lump sum limit. So, if it is desired to have 415 freeze at time of plan freeze as well, than drafting the amendment to freeze accruals and freeze 415 benefits would be the suggested approach. That is, explicitly address the matter. Thanks and welcome other views.

back in october 2010 final regs and proposed regs were released in connection with cash balance plans. when do plans need to adopt amendments to comply with the regs? Not sure if the plan document providers like ft williams have done anything in connection with the regs? I saw one of their documents that did not incorporate the regs; not sure how current it was. thanks

they just contributed what they felt like.

1) Lump SUm Distributions My understanding is that 411(a)(13)(A) and regs provide that a cash balance plan can pay a lump sum equal to account balance and satisfy 417e without being required to project account to NRA, convert to annuity and determine PVAB using 417e segment rates or do whipsaw calculation. So if a new cash bal plan designed properly the lump sum can be the account balance. Agreed? 2) Projected account to compute Accrued Benefit Accrued Benefit is annuity at NRA. In order to project account balance if plan uses actual return on assets and return for year is: a) less than 0 (i.e. negative) it is acceptable to project balance using a negative annual return until NRA, but for backloading testing you can use a future rate of 0. b) say 10% (i.e. some high rate) then future interest credits to project balance to NRA would use 10% per year? And could result in an employee's AB exceeding the 415 limits if they were already at or close to the limits. Agreed? Thank you.

I just got mine yesterday and it was dated june 20; so i guess they are processing them slowly but surely. thanks

an owner of a tpa firm comes to me and says that his client implemented a 1 participant db plan in the late 90s. the plan has not kept up with all the amendments and restatements and they have not filed 5500EZs since the year 2000. The plan has about 800k. The sponsor/participant would like to terminate plan and distibute assets. It is expected from owner of tpa firm that distribution will be well below 415 limit. The tpa owner would like to perhaps just prepare a final return and perhaps include a statement explainng the situation, the corrective action taken. Essentially a self correction attempt. The tpa owner feels his firm is somewhat responsible for the missed filings and from a business perspective cannot charge client for VCP fees incurred by his firm and is concerned that it would not be cost effective to do so. Any thoughts on that technique and its consequences? Alternatively, I tend to think they would need to go straight into the VCP program. thanks

Below are some computations that are intended to apply some fundamentals related to cash balance plans as compared to traditional plan: NRA is 62 pre ret act equiv is 5.5% a62 = 12 using 5.5% and app mort above applies to traditional plan and cash balance plan cash balance interest credit of 5% per year cash balance plan AB is life annuity at age 62 cash balance plan provides lump sum equal to account balance (subject to 415) say we have an HCE who earns 200,000 and is age 45. say under traditional plan his AB after 1st year of participation is 19,500 (i.e. 415 limit) therefore 415 lump sum = 19,500 * v^17 * a62 = 19,500 * (1.055)^(-17) * 12 = 94,172 say under cash balance plan they give him a credit of 94,172 so cash bal AB after one year is: = 94,172 * (1.05)^(17)/a62 = 17,969 so in other words under the cash balance plan the accrued benefit is only 17,969 v. traditional plan of 19,500, however the cash balance account value of 94,172 does not exceed 415 lump sum and could be distributed if he were to terminate at end of first year of participation. And for non discrimination testing: under traditional plan his accrual rate is 19,500/200,000 or 9.75% and under cash balance plan accrual rate is 17,969/200,000 = 8.99% are the basic principles of cash balance plan 415 limits, accrued benefits and non discrimination testing being applied correctly? Of course I do not address the funding calculations under 430 in this analysis. thanks

a plan tests on the annual method. a 2011 db valuation uses projected 2011 pay. can non discrimination testing use the 2011 estimated pay as used in the val or does the non discrimination have to wait until after 2011 completed and use actual 2011 pay for testing? thanks

if the accd ben is equal to the hypothetical account then they both have ABs equal to 2,500. no problem. If the accrued benefit is defined as an annuity at NRD then what is the AB for each participant? We'll assume that for the younger employee his proj bal at NRD is 10,000 and the older employee's proj balance at NRD is 5,000. The APR is 10 under terms of plan at NRD.

PPA provides methods for cash balance plans to comply with the age discrimination rules. It indicates that for two similarly situated participants, the plan will not violate the ADEA rules if the older person has an accrued benefit at least as great as the yonger participant. Say both earn 50,000 and the credit is 5% of pay. Therefore, each participant would receive a credit of 2,500 for the year. Say the int credit rate is 4% per year. One participant is age 30 and the other is age 50. If the accd ben is defined as the benefit payable at NRA of 62 where the benefit is determined based on increasing the account to age 62 and then converting to an annuity, clearly the younger participant would have a larger accd ben and the ADEA so it seems would be violated. However, if the AB is defined to be the hypothetical account balance then both would have an AB of 2,500 in this case. And of course that appears to be in compliance with ADEA and is fine. For this example, it is the first year of the plan. Does this mean that cash balance plans need to be designed where the AB is equal to account bal or am I missing something? thanks. I presume that even if AB is account bal for funding it would have to be projected to ARA and then discounted using segment rates to determine FT and TNC.

this is a perplexing issue and various people have differing beliefs on the subject of the effect of 415 limits after a plan freeze. In looking at the 415 regs (in the past), if the participant would have worked enough hours to receive a year of service for vesting and for benefit accrual purposes, then it does not seem unreasonable to have the 415 comp limit be based on 4 years of service and have the 415 dollar limit be based on 4 yrs of participation. And if the comp in the 4th year increases the 415 comp limit that does not seem unreasonable either. With that said all members of our firm does not necessarily see it that aggressively. I use "double negatives" to make my point as opposed to a simple "positive" as that may be a bit too strong. Of course the accrued benefit is frozen, but if it were limited by 415 limit then conceivably it could increase.