Belgarath

Depends upon how aggressive you are. If you believe, or more importantly, if you believe that the IRS believes, that everyone in their own group is tantamount to enumerating by name, then no, you can't use the ABT because it would then be, by definition, and unreasonable classification. If you are more aggressive, you could take the approach that the IRS doesn't believe this, or you are willing to bet that you can win that fight. Personally, I'd do the 11(g) amendment. If there is no last day requirement for an allocation, then if your document does not provide for passing coverage via the ratio percentage test, I guess you'd have the bizarre result of amending it to pass coverage when you already have a 100% coverage ratio? I haven't actually thought this part through - it seems too strange to be possible, but...

Yes. See IRC 404(a)(6).

" I am of the strong opinion that it can be applied on a participant by participant basis." I agree. And if you are interested, Derrin Watson agrees - I only know that because I watched a webinar where he said so! And no, our software doesn't handle it either.

Let me play Devil's Advocate for a moment - suppose plan accepts loan payments by check? (some do) - or suppose this person was they payroll person, and doctored the accounting somehow so that embezzled funds were run through payroll as a normal loan payment? Doesn't seem like any plan operational error there to me.

Hi Gary - do you have a citation for requiring an additional 10% in this situation? I'd have just filed with the $250 fee and included a new, signed, SEP (or SIMPLE if this were a SIMPLE plan) IRS model document...how is an employer even going to know the amount of "plan assets" if there are individual IRA's all over the place - employees might not even be willing to provide the account balance information. Thanks.

This seems like it should be a simple question, but I'm not so sure it is. Suppose you have 4 separate welfare plans 501-504. Client decides to consolidate them under 1 "wrap" document so that only one 5500 form has to be filed. Two questions - would you create a new, separate plan number for the wrap plan, or would you appropriate one of the existing plan #'s and "merge" all the plans into that? For the 3 (or 4, depending upon your answer to the question above) plans that "merge" or "terminate" - how do you handle the final 5500 filing? Just do it is a final form? There are no assets to distribute. I don't really see any other alternative, but perhaps I'm missing something obvious. Thanks - any thoughts/opinions appreciated.

"the advantage of prior year testing is you can tell the HCEs their limit (assuming they all defer the same % or whatever)" While I absolutely agree with Tom, I find this is often more of a theoretical advantage. How many times have you had clients completely ignore your instructions not to defer more than x%, and they do it anyway!!? Grrr... But on the bright side, hey, it is more income for fixing their problems that could have easily been avoided if they did what we told them to in the first place. Sometimes I forget that.

Stock sale? Is Company B still part of the controlled group? I'm assuming, based on your question, that the answers are yes. That being the assumption, I'd say that yes, since as co-sponsors of the plan, they are treated as a single employer for purposes of IRC 404. Now, the accountant/controller, whatever, might possibly have some problems with that approach from a corporate accounting viewpoint - that's a separate issue.

" Isn't it great to not have to actually know or remember anything anymore?" I never knew or remembered anything anyway, so it isn't a change for me...

Yup.

Not quite sure what you mean. Do you mean that from an overall employee benefits design viewpoint, the fact that compensation for other plan purposes is reduced, and therefore the NQDC "benefit" is lessened?

Excluded.

Yes.

Fascinating. So, a couple of ERISA attorneys think that the 12% might be justifiable. I'm not at all trying to be snide or sarcastic here - I'm truly interested in how this might be possible, so can you educate me a bit on situation(s) where it might be deemed reasonable, or, whether "reasonable" or not, that you think the DOL would accept? Thanks.

And my own version: Yesterday... Income tax was due, I had to pay... All the funds I tried to hide away... I don't believe, I'll eat 'till May. Suddenly... I'm not sure that I am fiscally... Ready for responsibility... Oh yesterday, came suddenly. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Seemed like prison time was on its way... Now I need a place to hide away... While keeping IRS at bay. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Taxes due, I filed come what may... Losing all deductions that's my way... Of giving IRS my pay. mm - mm - mm - mm - mm - mm - mm.

Hi Peter: I suppose a fiduciary might reason almost anything, but that doesn't make it right. I concede that I have made an assumption here that these were loans granted within the last 5 years. If they were principal residence loans granted many, many years ago, perhaps the 12% could be justified, but I still doubt it. If made within the last 5 years, it is unjustifiable. And if a participant complains to the DOL, I think that is exactly what the fiduciary is going to find out. I'm just having a very hard time concocting any reasonable point of view that allows for a 12% interest rate fitting within the guidelines...and the OP says it was meant to "discourage" loans. That's not allowable!! I guess I'm just a little cranky on some of these participant loan issues, because participants are getting screwed, and some of them are people without much money. Whether the new owner decides to take the risk of not correcting is an entirely separate question from the determination of whether it is a PT or not, and on that question, I defer to you attorneys. But I feel pretty confident that upon investigation/audit/participant lawsuit, there would be a determination that there was a PT. Of course, my opinion plus a dollar is worth...probably less than a dollar.

As an example for sake of illustration, suppose it is a DB plan. Plan sponsor is required to adequately fund the plan. If Plan Sponsor/Administrator sets a 12% interest rate that cannot be supported by any reasonable standard, the Plan Sponsor's required contribution is reduced. Methinks there is a problem there. But aside from that, it is a prohibited transaction if the interest rate ain't "commensurate." According to my Webster's, commensurate means "equal in measure or extent" or "corresponding in size, extent, amount, or degree." Would you really want to argue, either in court or with the DOL auditor, that 12% would be "commensurate" and therefore not a PT when by any reasonable sampling of commercial lenders for a loan in "similar circumstances" you would get something like (pick a number) 5%? I sure wouldn't....

I'll go out on a limb here and give a flat NO. And I'll be willing to bet that a DOL auditor wouldn't allow the 12% rate either. But, I also predicted that the Patriots would beat Denver in the AFC Championship game, so my predictions aren't worth much...

Well, it'll have to be fixed, but how is another issue! Off the top of my head, without some investigation, I'm not certain if this is a prohibited transaction as a fiduciary breach in addition to an operational violation (the plan certainly must have language/loan procedures for determining a "reasonable" interest rate). I'm not an attorney, but in most of the situations I've seen where someone is purchasing the stock, there should be some form of due diligence where the sale and purchase agreement addresses who is responsible for what, and whether the price is adjusted accordingly or whatever. This is definitely something that should be addressed by legal counsel if it hasn't been already. Should be fun.

Try 1.415(j)-1(d)(3).

A valid splitting of hairs, but the net result is that currently allowable methodology (using the average benefits test when each employee is a separate classification) will not be allowable, and given that many plans are designed to use this methodology, it whacks a lot of employers. After all, the IRS instituted gateway to make sure acceptable minimum levels of benefits were being provided. Changing now when everyone has just restated/redesigned plans is just plain rotten! Granted that these are only proposed regs at this point, it bodes poorly for the not-so-distant future.

Yeah, I did that first before posting. Doesn't help much. Thankfully, after getting updated information, the original information wasn't quite correct, and it turns out this isn't our problem. Long story not worth repeating. But, I'd still be interested in whatever thoughts anyone has on the original question!

I would hope that ASPPA, etc. would be all over this. There are all kinds of IRS pre-approved documents out there that specifically permit each employee to constitute a separate classification, so IF they take the approach that each employee in a separate classification is tantamount to enumerating by name and therefore impermissible, that puts a lot of employers in a tough spot.

Thanks. So you would simply have it considered an eligible rollover distribution, and allow participant to choose to take in cash or roll to an IRA? Or, would you consider it an ineligible contribution from someone ineligible to participate, and have it refunded and a corrected W-2 produced? Makes me squeamish, but I appreciate any thoughts you may have. At this point, I'm not even sure what the "squeaky clean" correction would be - haven't thought it through yet. Seems odd that I've never seen/heard of this situation that I recall.

Here's a lulu. Corporation A restated their Plan last January 2015. Included a Participation Agreement for Corporation B, part of a controlled group. Corporation A sold Corporation B last July. (at this point, I believe a stock sale rather than an asset sale) Didn’t tell us. We therefore did not have the plan/participation agreement changed. One Corporation B employee signed up for the Plan in December. They have had $7500+ withheld from their pay. This was also unknown as the contributions have not been remitted to the fund/platform because Corporation B now uses a different payroll company than Corporation A, and they don’t know how to get the funds from Corporation B checking account to current funding company. Apparently. This is third-hand... We have also been informed that since Corporation B was sold, Corporation A does not want any of Corporation B's employees participating in the Plan. Best way to correct? Obviously get the participating employer agreement removed, but I don't see how they can just refund the money and issue a corrected W-2. Seems like this employee's funds will have to remain in the plan. I don't see a "distributable event" here, so money can't simply be rolled out, unless Corporation B establishes a plan of their own? Maybe there's an easy solution I'm missing.