Blinky the 3-eyed Fish

If you have the ERISA Outline Book look to the definition of shared employee. The promulgations Kirk is referreing to are Rev. Rul. 67-101 and 68-391 (obsolete). Basically, there is little guidance in the area according to Sal.

I recall at the LA Benefits Conference that Dick Wickersham said the IRS is not requiring anymore the written designation of the contribution within each rate group in order for the benefit to be definitely determinable. Obviously, there is no harm in doing it, but this goes along the lines of their relaxation of the some of the earlier cross-testing guidelines.

I didn't doubt something concrete existed, but I just can't get it through my thick head why there is an issue.

Andy, yes, you are the only one. Here is Accudraft's language from one of my cross-tested plans: "Forfeitures Of Non-Elective Contributions: Forfeitures attributable to Non-Elective Contributions will be used to reduce, at the discretion of the Administrator, either the Matching Contribution, the Qualified Matching Contribution, the Non-Elective Contribution, the Qualified Non-Elective Contribution, or any combination thereof, for the current Plan Year or for a future Plan Year." Very flexible indeed. I still am having trouble seeing why allocating forfeitures in the same manner as the employer contribution could be considered abusive or is not pursuant to plan terms. In my mind, there is a total allocation, so whether a portion comes from employer contributions and another portion comes from forfeitures is irrelevant. I think you would agree that the IRS has become more lenient since 1998 on the various cross-testing guidlines.

Andy, I am not understanding why there is a problem with classifying the forfeitures as an additional contribution even in years where there is no contribution and the allocation is only forfeitures. Why is it any less determinable than if there were employer contributions added? If the forfeiture ended up being very small, the employer could simply work the allocation so everyone gets the same percentage and no general testing would be required. If you don't like this provision, then you don't like everyone of my DC documents.

Thanks, it's new. It took me 10 minutes to find on the internet. I wanted you all to get a look at whom you were dealing with. I AM A RADIOACTIVE FISH!

If the document says the forfeiture is added to the contribution and allocated in the same manner (a common provision), then you would be correct. I am curious why someone would think otherwise. Do they have a basis for their opinion or as my daughter would say, "because, that's why".

What does the document say?

The same principles apply as with your initial question, so the answer is yes.

KJohnson, I too have had no problem with the situation you describe in paragraph 2. I wish though there were something definitive about using the "slap-on/snap off/spit to" amendments without submitting. It just doesn't make sense to me that you could to do a complete document restatement without modifications and there would be no need to submit, but be required to submit when the only changes are the simple GUST amendments. Appleby, why do you say there is a requirement to have the amendments done prior to the termination date? In my experience that has never been an issue with any IRS agent reviewing the submission. In fact, many times we will submit the GUST amendment as proposed, and have the client sign the amendment after receiving approval from the IRS.

A calendar year plan that terminated in 2002 obviously needs to be amended for both GUST and EGTRRA. This plan has a timely signed certification of intent to adopt a VS plan. For ongoing plans yet to have their document restated, they would have to either adopt a word-for-word document or apply for a determination letter. That much I know. But for this terminating plan, can they simply do "slap-on" amendments and not a document restatement at this time? Would they have to apply for a determination letter to get the extended time to adopt the GUST amendments? I feel comfortable that a terminating plan that did a complete document restatement would be in the same boat as the ongoing plan I described in the second paragraph, so my focus is on a terminating plan that just does a "slap-on". I think the answers to my own questions are yes and no. I believe the "slap-on" amendments are acceptable and since they are standard amendments without a need to modify them, it's as if they are "word-for-word" amendments and the determination letter need is avoided. I am less than sure, so please respond.

Suuuuure it exists fellas. I think it was removed from the board by bigfoot or the Lochness monster.

My understanding of the reasonable and uniform basis is it relates to whom is benefiting, not the level of benefits. We have offset plans with determination letters where the PS plan is cross-tested and that type of plan would be much more likely to not satisfy the uniform and reasonable criteria versus an age-weighted plan. But, I think to argue either type of plan is not reasonable and uniform in the offset situation would be to argue they are not reasonable and uniform on their own.

Everett, what is your concern? Why is an age-weighted formula not reasonable and uniform? Now, if the participants in the PS plan differered in some manner from those in the DB plan, I could see an issue here, but the same would apply with another safe-harbor allocation formula.

An age-weighted PS plan can be used to offset DB benefits. Why are you unsure of this specific type of plan?

Andy is correct, as usual. Merlin, I believe this situation is acceptable because of the floor offset situation. The participants are only having their DB benefits lowered because they are getting more in the PS plan. Their total benefit is in tact. It's not an issue where the net DB benefit is frozen in time at it's highest level. Otherwise, you would also have to consider the DC account balance at each instant in time and determine if at that point the net DB benefit were greatest.

When the top paid group election is allowed to be made is a point of debate right now, as there is no clear guidance. Issues arise if people move from HCE status to NHCE status or vice versa, causing them or other participants to receive less of a benefit than they otherwise earned. In your case making the top paid election would cause people to move from HCE to NHCE status. So, you have to ask yourself while considering all contribution sources, would this cause a cutback in contributions earned? If the answer is no, then I would feel comfortable making the change at this time. In answer to your second question, yes. You will also need to know how to calculate the losses and to follow your document if addressed in there.

The 50% owner of the corporation that sponsors a 401(k) plan takes an in-service distribution of 401(k) source dollars without any sort of forms and contrary to the terms of the document. He is about 45 years old. Obviously, this is a no-no for many reasons, so does anyone know if there is some specific guidance regarding correcting this problem? Self-correction would be preferred. I tried reviewing Rev Proc. 2002-47, but didn't locate anything. If no specific guidance is available, I am taking opinions on how to correct this.

Yes.

Depending on how the document reads an employee can sign an irrevocable waiver to participate in the plan. What you need to be worried about is will the plan still pass the 410(b) coverage requirements. Where's your TPA in all of this?

Mike, can you give an example of a typical formula you would use?

David, my sentiments exactly. Mwyatt, "The "downside" is that the funded projected benefit in this case would obviously be larger for your population resulting in higher costs going in (in fact it would be larger for anyone with more projected accrual service than your owner, assuming that if you took the unit approach you limited credited service to say, the amount of service your owner might have at retirement)." Are you speaking from a funding aspect? You could always have limited the unit accrual formula to a maximum of 25 years, so the projected benefit would be equal using both types of formulas. Also, you could still fund the plan using unit credit. "However, this may not necessarily be a bad thing as the front loading inherent in unit accrual, especially if there is a real disparity between the owner's service and other participants, may mean that when your owner retires you may be looking at an underfunded plan." I didn't understand this. Why is unit accrual front-loaded?

I have mostly small plans with one owner that we try to maximize, while minimizing the other participants. It's late in the day and I may be loopy, but I am wondering when a safe harbor flat benefit formula using fractional accrual can be worse for this type of client versus a unit accrual plan. A benefit formula is designed to get the owner at a certain benefit level. Mathematically, each person who would have less than 25 YOP at NRD would have the same benefit under a flat benefit formula as if the plan were designed with a unit accrual formula. However, those with greater than 25 YOP at NRD would accrue LESS of a benefit under a flat benefit formula. Simple math but this example might illustrate it better. Flat benefit: 150% of FAP reduced for YOP at NRD < 25. Assume owner would have 15 YOP at NRD and comp is $100,000. Proj Benefit = $100,000 * 150% * 15/25 = $90,000 AB 5 years into the plan = $90,000 * 5/15 = $30,000 Unit Accrual = 6% of compensation (designed to produce same benefit at retirement as above) AB 5 years into the plan = $100,000 * 0.06 * 5 = $30,000 Say a person has 30 YOP at NRD: Flat: Proj Benefit = $100,000 * 150% * 25/25 = $150,000 AB 5 years into the plan = $150,000 * 5/30 = $25,000 (thus, less than the 30K produced by the unit accrual formula) So, again, in a situation with a certain benefit being targeted to a person or persons who would have less than 25 YOP at NRD, it would seem a plan in which there are other employees with potential for YOP > 25 at NRD would be best designed with a fractional accrual formula such as above. Thoughts? Calling Mike Preston....

Mab, I fear that there may be some information missing in the overall picture. Do you mind describing the 2 plans - who they cover, and are deferrals, matching contributions and nonelective contributions being made?

From the discussion I am not able to determine for what period this testing is being done. So I thought I would just throw out, as a reminder to Jimmy, that you cannot take away the right to a contribution that is already earned. So hopefully we are not talking about a 2002 year-end.