Belgarath

Corps A & B owned 100% by Mr. Big. Mr. Big sells Corp B in a stock sale to Mr. Little. Corp B is now officially not part of the controlled group. Mr. Little has no interest in any sort of spinoff, etc., and does not want to sponsor a plan. So, Corp B. has to be removed as a participating employer. 2 questions: 1. Assuming the numbers are over 20%, is this a partial plan termination? 2. Since a stock sale and not an asset sale, is this treated as a severance of employment for purposes of permitting a current distribution? I believe the answer is yes to both questions, just curious if others agree.

What about a group annuity? I seem to recall that they are essentially individual "sub accounts" under the group annuity umbrella, and would presumably have the same crediting rates, etc... - but you'd probably want to contact Ned Ryerson about how it works.

It's interesting - I could have saved myself some time by reading Sal's stuff before I plowed through all the regs and cross references, because I ended up focusing on the precise phrase that Sal mentions in his analysis. See section in bold below. This phrase is what seems to me to prohibit requiring the full 365 days. But again, the whole subject is obscure enough that I do think there is room for reasonable disagreement. (e) Benefit accrual. (1) For purposes of section 411(b), a plan may provide that a participant's service with an employer or employers maintaining the plan shall be determined on the basis of the participant's total period of service beginning on the participation commencement date and ending on the severance from service date. (2) Under section 411(b)(3)(A), a defined benefit pension plan may determine an employee's service for purposes of benefit accrual on any basis which is reasonable and consistent and which takes into account all service during the employee's participation in the plan which is included in a period of service required to be taken into account under section 410(a)(5) (relating to service which must be taken into account for purposes of determining an employee's eligibility to participate). A plan which provides for the determination of an employee's service with an employer or employers maintaining the plan on the basis permitted under paragraph (e)(1) of this section will be deemed to meet the requirements of section 411(b)(3)(A), provided that the plan meets the requirements of 29 CFR 2530.204-3, relating to plans which determine an employee's service for purposes of benefit accrual on a basis other than computation periods. Specifically, under 29 CFR 2530.204-3, it must be possible to prove that, despite the fact that benefit accrual under such a plan is not based on computation periods, the plan's provisions meet at least one of the three benefit accrual rules of section 411(b)(1) under all circumstances. Further, 29 CFR 2530.204-3 prohibits such a plan from disregarding service under section 411(b)(3)© (which would otherwise permit a plan to disregard service performed by an employee during a computation period in which the employee is credited with less than 1,000 hours). See the regulations under section 411(b) (relating to benefit accrual).

Attempting to avoid ERISA status for the 403(b)?

Actually, we expect that they WILL just take the reversion. The Administrator just wants to know the options.

Many thanks.

Hmph! What I've found isn't terribly enlightening. It seems to me that it would be unreasonable to require the amendment to be signed prior to the termination date, as it isn't necessarily known by then whether there will be excess assets or not, and if so, how much? So does it seem reasonable to do an amendment currently, making it effective 12/31/2015 (plan termination date?) It'll be submitted to the IRS for a d-letter anyway, but it would be nice to know up front if they generally allow this approach or not....

Seems to me there are two issues. First, a failure to properly implement an election - assuming a proper deferral election was made. I think the fact that the "employee" in question is the owner is immaterial - an election was made, and not properly implemented, which is an operational error. This can be corrected under EPCRS - a portion of the under-withheld deferral (amount will depend upon specific dates) will need to be contributed as a "make-up" contribution, with interest. Second, taxes will need to be re-filed as the deduction taken was too large. Fun for everyone.

Haven't done any research on this yet - thought someone might know off the top of their heads. Non-profit organization is terminating DB plan, effective date is 12/31/2015. They have substantial excess assets. Plan currently is written so that excess assets upon termination revert to the employer. Can an amendment be done post termination date (i.e. currently) to allow reallocation, if they want to, or would that amendment have needed to be done on or before the termination date? P.S. - if they want to transfer to an existing 401(k) plan as a Qualified Replacement Plan - same question. As I said, I haven't done any research yet, but I'll have to do some as soon as I can...

Interesting. Thanks for posting that response. I neither disagree nor agree, since I wasn't sure in the first place! But as an observation, it sure sounds like a last day requirement to me, whether explicitly stated as such or not. Under the interpretation above, you don't get 12 months unless you are employed on the last day. My gut feeling is that something seems amiss with that. Fortunately, it isn't anything I have to worry about, and for that, I'm very happy!

I'm not convinced the regs are terribly clear on this. Take a look at 1.410(a)-7(e)(2).If you plow through that garbage and the references, I THINK ( but I'm not by any means certain) that you have to credit at least a partial year of service. And I sort of lean toward having to count a full year in your situation, since there really is no hours requirement. But I defer to the actuaries on this one...

To your three questions: yes, 10% of the nondeductible amount. Correct - stays in plan. Yes.

Did he deposit it all DURING 2015? If so, pay the penalty tax for a nondeductible contribution. If $5,000 or more deposited DURING 2016, then just deduct the deductible amount for 2015, and count the rest as a contribution for 2016. Doubtful that it would qualify for a "mistake of fact."

No, you aren't missing anything - that's one of the exceptions to the penalty.

Hey Austin - I still think 404(m) covers the timing for deductibility, assuming the plan qualifies as a "Simple" plan even though the contributions are made after the 30 day period. What I mean is this: (p)(5) says that employer elective contributions under (2)(a)(i) must be made no later than the 30 days. (2)(a)(i)(I) is still referred to as an elective "employer" contribution. So for deductibility purposes, I still think 404(m) covers it. The alternative, to me, is to take the hard line conservative (and IMHO, ridiculous) position that violating that 30 day requirement would disqualify the SIMPLE. And no, I've never seen a situation where an unincorporated was given a hard time due to depositing later than the 30 days.

Yes. See IRC 404(m).

Both pre-tax and Roth deferrals are subject to Social Security.

Thanks! I feel the cramp dissolving...

Thanks - that's precisely the potential interpretation that was concerning me. However, it seems unlikely that the IRS would quarrel with an interpretation that gives everyone a 3% nonelective contribution based upon full plan year comp, in spite of the fact that the 401k feature wasn't added until July 1?

I'm having a brain cramp - currently a straight PS only - no 401(k) feature. They want to add a 401k feature, with safe harbor nonelective as of, say, July 1. No problem with that. Question is this - the safe harbor feature isn't technically added until July 1. When calculating the 3% nonelective for 2016, they want to use full year compensation. Any problem with this?

You need to ignore the 3 people with losses, and don't try to "net" the negatives and the one positive. The one with the positive income will get the safe harbor contribution. The three with negative income will not. You could have three partners with 20 million in losses each, and one with a positive of $1,000, and the one with the positive $1,000 would be entitled to the safe harbor contribution.

Hey, thanks Tom. Hard to believe, but I just got a question on the deadlines for GUST and EGTRRA pre-approved plans, and I had blessedly blanked GUST out of my memory, so you saved me from having to look it up!

FWIW - I spoke to two different CPA's, who both agreed.

Shouldn't cause any problem. Very common to have two forms for the same year in such a situation. Note that I say "shouldn't." Impossible to guarantee that a change won't cause some sort of question. I can say that when I've done it, no problems/questions.

I think that is TAG's spreadsheet. P.S. - note how your result will change if you change ownership ever so slightly to give Mike 1% in Company A, and Bill 1% in Company B.