Blinky the 3-eyed Fish

I am largely unfamiliar with EPCRS (I never ever make mistakes ), so let me know if you think this is correct. All those affected are NHCEs, so no discrimination issues. Takeover profit sharing plan has the following issues: 1) The prior TPA failed to include some eligible employees. This seems like an easy correction under SCP: just give contributions plus earnings. Note I specifically did not say to adjust for losses as I don't think that is required and I don't want to do that.) 2) They allowed participants into the plan too early. Seems like the SCP correction can be to amend the plan under 2.07 of Appendix B to retroactively allow entry. 3) There is a last day requirement to receive a profit sharing contribution, yet too much was given to terminated participants. They just needed to get the gateway, but instead received amounts over and above it. I don't see how this is eligible to be corrected under SCP and allow the employees to keep the allocations. The correction would require an amendment to remove the last day requirement. I don't see this as one of the operation failures eligible for correction under SCP under 2.07 of Appendix B. So, it seems to me a VCP submission is required. 4) Their EGTRRA restatement was effective 1/1/2008 yet signed 11/2009. It did amend eligibility entry dates. It would be best if the effective date was changed to 1/1/2009. Anyone know what the IRS would say about this? When making the VCP submission should all failures be disclosed, even the ones that can be corrected via SCP? Thanks.

That is true, but by not applying the offset to class A, there are those at the IRS that will challenge it under (a)(26)-5. I don't have time to go into details, other than I know such challenges exist. If you have a FDL on (a)(26), then you are in much better shape than if you don't.

If the offset is applying just to Class B and not to class A, you probably have (a)(26) issues though.

This is entirely a plan document issue. So what does the document say? If it doesn't say, well then that is a poorly drafted document and it leaves room for how it should be interpreted.

I agree to exclude her. It's impossible IMO to include her in nondiscrimination testing, so the same treatment should be shown for coverage testing. Nothing official though as far as I know.

So he was. I don't proclaim to know how to read either.

You got me there. But the same aggregation rules apply to (a)(4) no matter how you are satifying the testing, so no aggregation with the SEP is allowed when testing the DB plan. No way, no how, no sir. As an aside, I believe the aggregation rules are in the 410(b) regs and of course (a)(4) and 410(b) must be in lock step.

What is cross-testing?

Testing on comp from date of plan entry is allowable, but you need to use the applicable entry date for the portion of the plan you are testing. The entry date for the 401(k) piece is immediate so you need to use full year 2009 comp for 2009 ADP testing. It doesn't matter that the PS entry is a later date.

I am certainly no ADP/ACP testing expert, but to shift matching contributions to the ADP test, doesn't the match have to meet the QMAC requirements? I don't see anything in the OP that would indicate they do.

Tested for what? Aren't you asking the same question again?

No.

Yeah, but only every 5 years or so. I guess the IRS considers this a lot better than the cash balance plan for a law firm with a retirement age of 30 so the lawyers can take out their contributions every year.

I don't know why you couldn't do it sooner than 2 years. I know of no successor plan rules for DB plans like those that affect 401(k) plans.

Also read Rev. Rul. 80-229.

Minor changes that are typographical or reference errors keep the reliance. Beyond that any changes are modifications that lose the reliance on the VS determination letter. I believe Rev. Proc. 2007-44 goes into this. Modifications to the language, depending how many and how much is changed, may or may not take it out of VS status and make it an individually designed plan. You might as well submit under a 5307 and make the IRS tell you that you need to submit under a 5300. Minor changes clearly do not take you out of 5307 status though.

Read Sch Q instructions to see what information you must provide. If your TPA report contains everything, then great, but it probably doesn't. There is no mandated way in which it needs to be formatted.

A client takes a distribution but then returns the funds to the plan (including the tax withholding) within 60-days to avoid it being a taxable distribution. I am not quite sure how the 1099-R should report the distribution. To compound things, the money wasn't returned until January 2010. Has anyone researched this?

Yes, the DB benefit is offset by the AE of the PS contribution. Actually, it doesn't have to be AE and could be some other means to convert it to a benefit, but AE is most popular. I don't understand the last question though. Converting the PS to an AE benefit involves projecting forward the balance as part of the calculation. I have seen the testing done either way with approval from the IRS, either ignoring the current year offset earnings or not ignoring, I personally don't understand how ignoring the earnings can be correct since the increase in the DB net benefit during the year is affected by the earnings of the DC balance. It's part of the equation and should be accounted for.

I agree it probably should be effective 1/1/2009. If I understood you correctly, there were no changes to the document from 2008 to 2009, so the 1/1/2008 effective date has no real effect on the plan. If that's right, my recommendation is to submit as is and have the IRS make you change it.

This is a specific Relius Cycle D question. It's my understanding that Cycle D submissions will review PPA provisions (i.e. they are on the applicable Cumulative List). If anyone that uses Relius didn't notice, their original DB PPA amendment was a load of crap and they corrected it with a new release in December sometime. The problem is that the Cycle D documents have that load of crap PPA language in them. The 436 language is the biggest culprit. They also come with a PPA amendment that seems to incorporate some of the provisions not already in the document. In other words it's a cut-down version of the full PPA amendment because many of the provisions are in the document body. Has anyone noticed this? If so, what are you doing, assuming you don't want to have the client sign a document that has bad 436 language in it? My initial thought is having the client sign an entirely new PPA amendment, even though they signed a good PPA amendment previously. That new amendment would override the bad language in the document.

Unless a sole proprietor has steady income or is not adverse to having fluctuating contribution requirements that lag one year behind current year income, a BOY valuation date is a recipe for trouble for a sole proprietor. If the owner really wants to know what his valuation date is, have him look on his 2008 schedule SB first page. Of course there is a free pass to change it in 2009 and 2010.

I echo some of the earlier comments. I will very rarely consider a floor offset unless those with net benefits in the DB plan are limited to the owner or the owner and spouse or if every owner's net benefit is at the 415 limit. I have found there is just too much potential for the offset to cause havoc amongst owners. I do have one plan where they pooled the offset balance and that does work fine. One other wrinkle for which I don't have a great answer to is if an offset plan fails the nondiscrimination testing. The solution of course is to provide higher benefits to NHCEs. Normally, giving a higher DC contribution to one or two will pass the tests. But if you do that in an offset plan, you run the risk of not satisfying the "uniform benefits" of (a)(26)-5. I have heard that the IRS has blessed some plans that caps the offset amounts (like only contributions up to 7.5% of pay count toward the offset), but I have heard that is not uniformly accepted. I too don't like the uncertaintly that the offset balance cannot be frozen, and so even if future DB accruals are ceased, the offset rages on. I don't necessarily agree, but it's another potential trouble point.

Accrual requirements are not a concern. If you pass coverage, you are fine. The concerns lie in true BRFs like in-service distribution timing option you mentioned and plenty others. I will leave it to you to research what are BRFs, but know that making the provisions the same eliminates this concern. FYI, in most DB/DC combo arrangements the majority of NHCEs get greater DC benefits so if that plan has more features than the DB plan, the BRF testing is usually satisfied. Of course each situation is different.

That argument had weight before the final 415 regs were issued. Now it doesn't IMO.