Medusa

I don't agree AT ALL. By the way, take a look at the defined contribution LRM's RE 401(a)(17):

QDROPhle: I believe 1.401(a)(17)-1(B)(3)(iii)(A) requires it. It's worded kind of strangely and it would appear that it might just be talking about short plan years until you look at the example. (iii)(B) contains the exception for deferrals and matches. This was run by several competent ERISA attorneys and all agreed it was an issue.

You do have to be careful with employer contributions, though. For example, I had a plan that made a quarterly allocation rather than an annual one. For the quarter, I could only use 1/4 of the annual limit. So in effect, an individual whose compensation is not paid evenly throughout the year (as in the case of a bonus) is SOL. With the $170,000 limit and a 5% employer contribution rate, my person made $25,000 in Q1, $25,000 in Q2, $25,000 in Q3 and $80,000 in Q4 because of the bonus. Even though the individual did not reach the $170,000 cap for the year, he did reach the quarterly cap in Q4 and we could only use $42,500 of the $80,000.

In RCK's defense, there has been more than one person confused about this issue. However, on numerous occasions the IRS has been asked this question and has responded that the limit does not apply to deferrals in this way. Most notably in the Summer 1997 issue of the IRS Western District Key Office's EP/EO Bulletin and also at 1999 ASPA Conference Q & A session.

I agree. I believe the standing authority on this is still Rev. Proc. 87-27.

Hey I know you! In my opinion, the individual should get the lesser of their total contributions or the amount available. In this case the latter applies and they should be able to get $800. What, if anything, bothers you about this?

What DOL can do and what they will do are not necessarily the same. My personal experience is that they will write asking for the audit report, and will not assess penalties if the report is furnished within the requested timeframe. Note that this timeframe is SHORT. I think they have the authority, though, to treat the return as incomplete and to assess penalties on that basis. And no, I don't think there is anything you can do for damage control short of filing the audit report.

I recently had to deal with an identical issue (attorney incorporated 10/15/01 but wants full 401(a)(17) limit for calendar plan year 2001). I checked out the famous ERISA Outline Book where it is definitely reported as a gray area. If you have access look at Chapter III, Section IV, Part A.4.d. He says that informal guidance from IRS is that you can have an effective date prior to the date the business was established.

We recently received a bankruptcy notice instructing us to transfer loan payments that have been made since March (the effective date of the bankruptcy, I think) to the bankruptcy trustee. I do not think I have any basis to do this, has anyone seen anything similar?

I see where you are going now. I personally have been opting to file sans Sch. Q since a determination letter on anything but form has proven to be of little value in an audit. As for your question, no one is benefitting as that term is defined under the 410(B) regs, so I think you are safe to complete just the minimal required sections of Part I and II. Medusa

According to Announcement 2001-77:

OK. I am more interested in the legal restrictions than in the plan restrictions. The plan can be changed.

Thanks QDROphile, but I guess I'm not seeing where that regulation prohibits payment of such compensation. The individuals we're dealing with are not receiving compensation from the employer or anyone else.

Just about every plan I've ever seen has stated that Advisory or Administrative Committee members shall serve without compensation. However, I have a couple of situations where some of the comittee members are not currently on the employer's payroll. They are retirees, and they have asked whether it is permissable for them to receive compensation for their services. I cannot find anything precluding their receiving reasonable compensation, although there is that worrisome plan language about serving without compensation, that must have come from somewhere. Anyone know WHERE?

In that other thread, I believe it was established that if the enhanced match is the only match, and if it not based on deferrals in excess of 6% of pay, it satisfies ACP safe harbor.

It was pointed out on another thread that if the 8 NHCE's are definitely not going to contribute, you could think about an enhanced match, which does not have the same caps as a discretionary match. Here's the other thread: http://benefitslink.com/boards/index.php?showtopic=11108

I have seen plenty of loan policies that have these restrictions. Usually the statutory limits are cited, with the additional stipulation that (for example) the amount of the loan will not exceed the deferral account balance. We have seen the limits on investments where illiquid investments were involved. So the policy might cite the statutory limits, not to exceed the portion of the deferral account balance invested in mutual funds. You would need to be careful that this is not a discriminatory policy in operation, but it is not likely to be.

We had a similar situation a few years ago. In that case, the audit was actually completed, but it was deficient according to DOL correspondence we received. After the accounting firm revised the audit, we found we had to file an amended 5500 because the financials changed. We filed that within the timeframe allowed by the DOL, but through a miscommunication with the accounting firm, no one responded directly to the party who initiated the deficiency letter. They then assessed an $88,000 penalty, which they subsequently agreed to reduce to $8,800. However, the client was in the same position as yours, and there was no one to pay that penalty, so the DOL ended up never collecting. There are probably all kinds of loopholes surrounding this issue, so I would never advise you to take this route. I do not know if the DOL dropped the matter because the amount involved wasn't worth it, or perhaps because we had in fact made an effort to comply. Who knows if they would act the same today.

It sounds like you are talking about a profit sharing contribution and it sounds like you are asking whether the $170,000 cap applies before or after reducing compensation for deferrals. There was an earlier thread on this subject, and I believe the conclusion was that compensation is capped after subtracting deferrals. http://benefitslink.com/boards/index.php?showtopic=9690

For those who are interested, the following e-mail message was sent by the individual working on getting our volume submitter plan approved:

Chris, that Revenue Ruling seems to support that the plan can stay in existence, so long as the document and operations are consistent with current law. There are some later Revenue Rulings that seem to affirm this. In our situation, of course, we do have sponsors, so that is not an issue. Anyone know of any contrary position taken by the IRS, other than the ASPA conference comments?

I have not been able to locate these ancient rulings on any of my resources, and I am probably far too young to have seen them when they were issued. If anyone knows what they are, I would appreciate a pointer in the right direction. The only guidance I can find relates to vesting.

The problem is generally participant loans or other illiquid assets. I don't think anyone has an issue with full vesting. It is more that we don't want to terminate. To convert it into a 0% money purchase plan, which they indicated would solve the problem, seems like smoke and mirrors to us. I searched our resources to determine whether there was any documented evidence that the IRS had disqualified such plans; I couldn't locate anything. In fact, I ran across several PLR's that didn't specifically address this issue, but did involve profit sharing plans that had been frozen for a number of years, and no mention was made of this being a problem.

It would seem to me that 1.411(d)-4 Q/A 4 would preclude such use of employer discretion. Certainly the LRM's do.

Five or six years ago, at some conference at which the IRS was presenting, a question was asked about whether a frozen profit sharing plan could continue to exist indefinitely. The IRS's response was that without the possibility of future contributions, it could not. Since then, we have been restating our frozen profit sharing plans as 0% money purchase plans, since IRS indicated that this did not present the same problem. However, we have seen no mention of this position either formally or informally since then. Is anyone familiar with this issue or does anyone have any direct or indirect evidence of the IRS's position? It is a pain in the neck to restate them if we don't need to. Thanks for any input, M.