Blinky the 3-eyed Fish

Well if you are trying for #4, well then you are trying to save in costs to the non-keys by utilizing the DB benefit the non-keys are receiving, so yes, you would see what DC allocation is needed. If you just contributed 5%, well that would meet #2 and certainly wouldn't be an attempt to meet #4.

You certainly can amend the document to achieve what I think you want. Satisfying the TH minimum when a participant is in both a TH DB and DC plan can be done one of four ways: 1. 2% DB Benefit (not 2% cash balance as you appear to recognize) 2. 5% DC allocation 3. 2% DB offset by DC 4. A combination of the DB and DC that can be shown to equal the 2% DB when totaled and the DC converted to a benefit. It sounds as if #4 is the one you are trying to meet.

I'm not so sure about the "no" part. True, the IRS does not like claims of scrivener's errors. Perhaps there is a high burden of proof, but that does not throw them out entirely. Or am I overlooking something else? I have never heard a different message. In fact, last week a panel that contained Holland, Schultz, Pippens and others reiterated, "There are no scrivener's errors."

I don't pretend to have been around when that promulgation came out, nor have I read it before today. However, I am not sure how you can completely discount Rev. Proc. 2003-44 when it is right on point and is the existing guideline for correction measures today. Let me also copy the very first part of 82-66. "Extension of remedial amendment period to qualify a plan. The Service will permit a retroactive amendment to qualify a plan after the remedial amendment period has expired, including any extensions thereof, if the following two conditions are met: (1) the plan is retroactively amended to comply with the qualification requirements as of the time the defect in the plan arose, and (2) employee benefit rights are retroactively restored to the levels they would have been had the plan been in compliance with the qualification requirements from the date the defect in the plan arose." Is this not talking about plans that failed to amend within the remedial amendment period? How can you extend that to an operation failure when the remedial amendment period is soley due to legislative changes? Do you honestly think an IRS agent will buy this argument?

"The purpose of this revenue Ruling is to provide additional guidelines for determining when a plan may make retroactive qualifying plan amendments after the expiration of the remedial amendment period provided in section 401(b) of the Internal Revenue Code and section 1.401(b)-1 of the Income Tax Regulations." Excluding HCE's is not a disqualifying defect. That RR has no application to this situation.

True, but the person's pension benefit will also be reduced by the value of prior distributions. That appears to be the piece that the participant is trying to "buy back". To then buy back a pre-tax benefit, you would certainly have to use pre-tax dollars, unless the plan allows for after-tax contributions to exist and the participant will have a basis upon distribution. The whole concept is highly unusual. The prior posts were under the guise that this was a forfeiture restoration.

I am certainly not saying anything is wrong here, but some of my worst takeover cases came from actuaries who could also make this statement, so it is definitely not a comfort by any means.

Then perhaps I can help. As I alluded to in my first post, Rev. Proc. 2003-44 prescribes the conditions for correction by amendment. Here are the applicable sections. I bolded the important parts. As you will see this situation does not meet the criterion and therefore cannot be corrected legitimately by an amendment. I think we can agree that an illegitimate correction invites ramifications. Section 4.05(2) (2) Certain correction by plan amendment permitted in SCP. A Plan Sponsor may use SCP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations only to correct Operational Failures listed in section 2.07 of Appendix B. These failures must be corrected in accordance with the correction methods set forth in section 2.07 of Appendix B. The amendment must comply with the requirements of section 401(a), including the requirements of sections 401(a)(4), 410(b), and 411(d)(6). SCP is not otherwise available for a Plan Sponsor to correct an Operational Failure by a plan amendment. Thus, if loans were made to participants, but the plan document did not permit loans to be made to participants, the failure cannot be corrected under SCP by retroactively amending the plan to provide for the loans. However, if a Plan Sponsor corrects an Operational Failure in accordance with SCP, it may amend the plan to the extent necessary to reflect the corrective action. For example, if the plan failed to satisfy the average deferral percentage ("ADP") test required under section 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. The issuance of a compliance statement does not constitute a determination as to the effect of any plan amendment on the qualification of the plan. Appendix B Section 2.07(3) 3) Inclusion of Ineligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an ineligible employee in the plan who either (i) has not completed the plan's minimum age or service requirements, or (ii) has completed the plan's minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected under VCP and SCP by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan's actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies section 401(a) at the time it is adopted, (ii) the amendment would have satisfied section 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees.

I don't think there is any good answer here, but I would be concerned with an amendment because it creates a big red flag in case of audit. I certainly would explain the options and the potential ramifications of each to the client, have them decide and get something in writing to protect yourself if VCP is not chosen.

The IRS addressed these types of concerns at the LA Benefits Conference. They expressed the intention of the memo was not this broad, but rather the abusive situations, like short service employees. They promised clarification by way of a response to the Corbel and ASPPA letter on this issue shortly. That should alleviate your consultant's issues. Logically, though, the IRS cannot make large policy changes on a whim, so to think that the typical disparity achieved between HCE's and NHCE's via general testing is obliterated due to a memo is a sky-is-falling mentality.

Here is the official response: The IRS has consistently said that there are no scrivener's errors. So now you are left with an operational failure. Rev. Proc. 2003-44 has the details, but my recollection is that an amendment is not an option here because it serves to only benefit HCE's. Thus I believe VCP is your only offical recourse of correction. Now if you want to ignore that and prepare a replacement page, well then that's an option too. It's one that can get you in a lot of trouble, but nonetheless an option.

Ah, there it is and right on point. Thanks and good job.

Ask the consultant specifically why he disagrees. Is it just related to the Gold memo or other factors?

True that it's an accounting question but you will be hard-pressed to find accountants (or anyone else for that matter) who feel comfortable with the answer. Santo, I think you aren't going to find a better analysis than the one you have already read.

Sorry about your health status. I am not questioning the 4-year rule. That I agree on. What I am questioning is the statement that "..the IRS does count a change in the valuation date due to a change in plan year as a funding method change". Can you elaborate on this? I certainly don't see it in 2000-40. I honestly have never had to consider this question, so I am just looking for some backup. Logically, I would disagree that a plan year change could cause a funding method change for the reasons I stated in my first post and because I don't believe the valuation date to be crux of the funding method but rather the date within the plan year.

PATA, there are different rules for when prior service can be discounted. I can tell you though that you need a least a break-in-service to even think about discounting any prior service. In this case, that didn't occur, so the 2002 plan year hours are in for eligibility and vesting (of course the doc could exclude YOS for vesting prior to age 18 or the effective date, but I digress). Having a balance is not the criterion for being a participant. As for the TH, he is a participant active on the last day of the plan year, so certainly he is eligible for the TH contribution.

The answer to your question depends on the context to which it is applied. 412©(8) is a rule whereby an amendment to the plan, if made within 2 1/2 months after the plan year, can be retroactively applied to the first day of the prior plan year and considered for the actuarial valuation and correspondingly, the deduction available for that prior plan year. The same rule applies for this purpose no matter if increasing benefits or decreasing prospective benefits. Now if you just want to increase benefits, but aren't concerned with the valuation, well then this deadline would not apply. It sounds though as if you are applying the question for the former reasonings.

Not to sound condescending, but are you sure you are reading the document correctly? While I have seen 412(i) plans describe the AB this way, when it comes to defining the payout, they also describe that the participant will receive their PVAB, which in turn is defined as the CSV of the contract. It is almost as if defining the AB as the formula in the plan is to have a tangible AB for purposes of nondiscrimination testing. Otherwise, you get into issues that Larry Deutsch wrote about. Now you say the plan is underfunded, but what factors are you using to value the lump sums?

I was wondering if you could elaborate as to why you feel this way? I guess it boils down to your thought that a change in valuation date due to a change in plan year is indeed a funding method change. But then what of an end of the year valuation in the year of distribution when the assets are paid out during the year sometime? The last day of the plan year is altered. No automatic approval is available, so how is this different? Just curious.

Unless you are testing the DB plan on a contributions basis, this is not a cross-tested plan. Nonetheless, this is the exact opposite of the concern in the memo. The concern was giving more to short service employees which in turn affects the general testing in a manner not intended by the regs. This case is giving less, so no worries.

Your can hang your hat on the fact that if an employee is not a participant in the plan they do not receive a contribution, ever. If the plan is only a profit sharing plan, i.e., it does not have a 401(k) feature which would require 1 YOS eligibility for that piece, then this person is not a participant and receives nothing.

I assume by those cites, which I don't have handy, that you are asking if the QNEC can be used in the ADP or ACP tests if also used to satisfy the gateway. I was trying to convey that yes, he thought they could.

Why not just have a cross-tested-type design with the HCE's in a separate group? That way if you want to end up giving them 3%, you can do that by way of a PS contribution.

Per the IRS, additional guidance is coming soon.

FWIW, this exact scenario was posed today at the LA Benefits Conference and Holland, while not totally sure, said that he thought the QNEC's used in the ADP would also satisfy the gateway.