Belgarath

I'm very willing to admit that I'm missing something! And I'm hoping that if so, someone can point it out. Also, FWIW, Derrin discusses the "predecessor employer" concept, in this context, in more detail in questions 10:10 and 19:28 of his book. I'm going to let this percolate in my so-called mind this weekend, in hopes of some flash of wisdom, but that's probably an exercise in futility. Have a great weekend!

I'll defer on that question to my personal favorite guru in this arena, Derrin Watson. Infinite are the arguments of the mages, but Derrin is very clear that two corporations cannot be a controlled group if they do not exist at the same time. Question 8.18 in his book, Who's the Employer, if you have access to it. And coincidentally, he notes that this question most often arises in connection with 415 questions! (now, if the original business was a sole prop, then we'd have a different result, apparently) I'm sure that not every attorney would necessarily agree with Derrin on this, so there may well be opinions by other ERISA attorneys out there... Thanks again.

In my original example, 1.415(f)-1(b) would most certainly not apply. Neither an ASG, nor a break-up of an ASG, nor an affiliated employer, nor an affiliated plan. The "predecessor plan" rule in (c)(2) is the "facts and circumstances" portion that is a cause for concern that has been under discussion. And while in my unusual example I feel reasonably confident that there wouldn't be a "predecessor employer" absent new citations coming to light - in the real life situation at hand, I wouldn't dare venture an opinion. That will be left up to ERISA counsel, if the potential client even engages counsel. I most certainly would not go out on the limb on this one! Thanks, as always, for the input.

"When you apply IRC 415(b) limits, treat all DB plans (whether or not terminated) ever maintained by an employer (or a predecessor employer) as one DB plan (IRC 415(f) and Treas. Reg. 1.415(f)-1(a)(1))." Again, my example: For example, I form Corp A that manufactures Pixie Dust, and terminate that plan (and dissolve that corporation) in 1995. In 2015, I form a new corporation that sells pieces of the Golden Gate Bridge Andy - this is precisely my point in my example. Let me make it clear - I ABSOLUTELY agree, and understand, that plans, even if terminated, of the "employer or a predecessor employer" must be aggregated. In my example, it clearly isn't the same employer. (My example assumes corporate status, NOT self/employed.)The question then turns on whether this (the Golden Gate Bridge sales Corp) is a predecessor employer. If it is your position that any business ever owned by the same person, regardless of type, time gap, etc., is a predecessor employer, then that's fine. But nothing in the Manual sections you quoted above supports that. (Well, I suppose that if your interpretation of the controlled group rules is that you have a controlled group even if the corporations don't even come CLOSE to existing in the same time, then the manual sections quoted would support a finding of predecessor employer status due to CG status.) But, I don't see that as a valid interpretation. Derrin Watson's book doesn't, either. I'm getting a feeling that there isn't any guidance, other than what has already been discussed, on this issue that is at all definitive, so we are left with varying interpretations, and facts and circumstances. In the absence of additional guidance, I'm now comfortable with my general assumption that in the unusual example I posited, there probably is no predecessor employer status. I would, of course, leave this to the employer and ERISA counsel for a final determination. (FWIW - some additional information on the "real life" situation that prompted this discussion has just come to light, and I think it is far more likely that it would, in fact, be a predecessor employer situation!! Turns out it is the same type of business, with a time gap of only 3 years or so) Again, I sincerely thank you all for your input, and taking the time to discuss this - and I'd still love to see references to any other guidance that I've missed, or hasn't been mentioned yet, that might clarify all this!

My example from above - For example, I form Corp A that manufactures Pixie Dust, and terminate that plan(and dissolve that corporation) in 1995. In 2015, I form a new corporation that sells pieces of the Golden Gate Bridge. I agree that if it is the same business/trade, or "all or a portion" of the business/trade, whatever, then it must be looked at carefully under the predecessor plan rules of 1.415(f)-1(c)(2), which is "facts and circumstances." Now, my example is hypothetical. In real life, I expect it is much more likely to be the same general business, although that isn't a given. And we would, of course, recommend ERISA counsel to assist the client with making the ultimate determination. I don't know at what point the "facts and circumstances" might support a finding that no aggregation is required. 4 years? 10 years? never? As I said, I haven't found anything concrete, and there may well not be any such concrete guidance, but I'm hoping there is some (one way or the other) that I've missed. Thanks again for your response, and any future input - I do appreciate it!

Thanks MPHS. I'd ask, how WOULD it be a continuation of all or part of the trade or business of the former entity? Other than same owner, they are totally unrelated in every possible aspect, and many, many years between the liquidation/dissolution of one corporation and the establishment of another. And no, I don't agree that 1.415(f)-1(a)(1) requires consideration of the prior terminated plan in this situation. This regulation section refers to a terminated plan of the "employer." In this case, it is NOT the same employer - it is a separate corporation, hence a different "employer." So that's when I moved on to the possible "predecessor employer" issue, and I'm not reading that as applying in this situation either. Thanks again, and I look forward to any input you may have.

MoJo - my initial impression is the same as yours, but I got the same initial response from FIS that you did. Perhaps they are just being very cautious, at least for now - I don't know. But I'm sure they will be doing some sort of release explaining their position. We are using the VS document in AA format.

MPHS - thank you, but I still fail to see how, in my example, this would constitute a controlled group. The general rule is that the corporations must exist simultaneously for at least some period of time. Alternatively, the "predecessor employer" rule contemplates a couple of different situations - one where the new employer maintains a plan under which the participant had accrued a benefit, or there is a transfer of benefits from the former employers plan, or, if under the facts and circumstances, the new employer constitutes a continuation of "all or a portion of the trade or business of a former entity." In my example, I fail to see how either of these would apply. Now, it might be a different answer if the prior entity was a sole proprietorship. If you have some citation or authority for considering the situation in my example a controlled group, I'd greatly appreciate it if you could refer me to that citation/authority. Basically, I'm very concerned that there is something I might be missing, that would require aggregating the benefit under the very old, terminated DB plan, and any new plan that might be established. As I said, it doesn't "feel" right, yet I've been unable to find a solid reason that requires such aggregation for 415 purposes. And it may be that it is something simple that is right under my nose. Thanks. And Mike, enjoy the conference. Hopefully there will be a resolution of this question before you get back!

Thanks Mike. You wouldn't, by any chance, happen to have a citation? I can see where 415(b) limits the benefits for all plans of an "employer" - but what about when they are corporations? For example, I form Corp A that manufactures Pixie Dust, and terminate that plan(and dissolve that corporation) in 1995. In 2015, I form a new corporation that sells pieces of the Golden Gate Bridge. I'm just trying to determine the authority for "aggregating" these two plans for 415 purposes? It doesn't seem like 1.415(f)-1(c)(2) really "fits" this situation, so I'm trying to confirm the correct interpretation here.

Thanks - is this changed by the QSEHRA for small (under 50) employers? Seems like the new QSEHRA provides for reimbursement for medical expenses under IRC 213(d), (which includes the Medicare premiums, at least for Part B? what about part D?) You can't have the QSEHRA if the employer offers group health coverage anyway. If you are over 50 employees, then you have to follow the restrictions in IRS Notice 2015-17? I look at this stuff only on a very sporadic basis, and I'm now officially a bit confused.

I guess that makes two of us. I don't see it either.

Suppose John James had a DB plan years ago (1 man business, made scads of money, put a ton into a DB plan, ten ultimately terminated plan and rolled funds over to IRA). Now, some years later, he has another business. Wants to set up a new DB plan. Do 415 limits take into account the benefit paid to him under the prior plan? I don't think he's a "predecessor employer" but it just doesn't feel right, somehow, yet I'm not sure there is actually a problem. I'd appreciate any insights. P.S. - I have no idea what type of entity prior business was. Would it make a difference if he was a sole prop? I seem to recall that sole props "last forever" for some purposes.

Here's what I think, and it is nothing more than inconclusive general blathering. I get cheaper coffee than Mike, so my thoughts and $1.25 will get you a medium coffee at a thoroughly disreputable local convenience store. I think almost anyone outside of the IRS, and likely some within the IRS, would agree that "terminated participants" is a "reasonable" classification by any rational standard. However, as previously indicated by others, the IRS appears to have taken the approach that if everyone is in their own group/classification, then by definition there is no reasonable classification, and you can't use ABT for coverage testing. (FWIW, that's how we operate - maybe we are just cowards). I have no idea how you'd fare if you took this up the ladder at the IRS, if in fact an auditor even raised the issue, and how you'd fare in court if you went beyond that. I think I'd describe the issue and options to the client, and have them decide - preferably in conjunction with legal counsel. However, legal counsel might well cost more than just giving contribution to two more NHC, so they might want to just make the darned contribution?

RCline - I sent a query to FIS on this, and if they respond to me prior to doing a general release, I'll let you know. I'm thinking the current language in the VS (in AA format, at least) would allow it. It refers to contributions that must be 100% vested pursuant to the Code when contributed. But the Code/Regulations will be modified to say 100% when allocated, rather than contributed. So I THINK it'll work. But we'll see once we actually get the IRS guidance, and confirmation from FIS.

Hurray! About time, but kudos to the IRS for finally taking a sensible approach on this.

I think I may have to retract my prior statement that you would always pass the compensation ratio test... You technically, again, don't "automatically" satisfy a 414(s) definition, because there are only 3 permitted "safe harbor" modifications to 415 comp that automatically satisfy 414(s). Any other modifications (and excluding only bonuses would be an "other" modification") are subject to testing. And while excluding bonuses is "reasonable" I'm not sure about the issue below. I'd have to double-check, but it seems to me that I recall exclusions of comp in excess of the 401(a)(17) limit wouldn't help in trying to pass the compensation ratio test, because the individual is considered as having 100% of compensation taken into account under the plan.

I agree with your logic (that is, no, it isn't deemed to satisfy 414(s) just because the HC are excluded.) And although you would always pass the 414(s) compensation ratio test in your scenario, compensation that uses other than the 414(s) "safe harbor" exclusions must also use a definition that is "reasonable." In real life, I would expect you would normally pass, but I don't believe it is automatic.

Yeah, I was assuming that there was an immediate loan offset as of the termination date. That's the way most plans I see work, as most employers (at least that we work with) don't want anything to do with loan payments from ex-employees. I agree with what you are saying when the plan still allows repayment up to the end of a cure period. P.S. - I was responding to Bird.

Try 1.72(p)-1, Q&A-19.

What kind of a plan? If a defined benefit plan, perhaps the beneficiary isn't entitled to anything, if a full lump sum distribution was made upon termination of employment.

Beautiful! Thanks!!

The following is being used as a "substantially equal" periodic payment over 10 or more years, to avoid 20% withholding. I'm not yet convinced it qualifies, but on the other hand, it seems reasonable that it should. Participant terminates at age 65. Takes a 13 year payout (well over the 10 or more years required for the exception). Account is distributed as 1/13th the first year, 1/12th the second, etc. It seems to me that in order to qualify, under Revenue Ruling 2002-62, this method would require establishing an initial LIFE EXPECTANCY, and similar methodology could then be used over that life expectancy. But I don't think you can arbitrarily use a lesser number for that same methodology. Opinions?

Is this the IRS model SEP form, or a prototype SEP? I'm not certain if a prototype SEP document may be able to have such an exclusion? You definitely can't with the IRS model SEP, as ETA has mentioned, and you may not be able to with a prototype SEP - I just don't know about the prototype. If you have a prototype, check the document to see.

Mike - is it possible to exclude "resident aliens" as a class, subject to coverage testing?

Most documents offer an option to pay by check, as well as by payroll deduction. So for your commissioned salesperson, just allow payment by check.