Belgarath

A SIMPLE plan has to do a VCP correction for improperly excluding employees for many years. Many of these former employees won't respond to employer letter asking them to set up a SIMPLE-IRA to receive a contribution. (amazing, isn't it?) Their current SIMPLE-IRA investment provider won't allow the employer to set up a SIMPLE-IRA for a former employee - they say the EMPLOYEE must set it up. Do you know of any vendors who will allow the employer to set up a SIMPLE-IRA on behalf of a non-responsive former employee? This really should be the broker's job, but the broker isn't doing it...

Another thought - it appears to me that is this situation, assignment of "FSO" status and "A-org" status is arbitrary. Is there any reason, if you were trying to simplify the situation, why partnership "X" couldn't be considered the FSO, and therefore make all the businesses one ASG under Proposed Reg. 1.414(m)-2(g)(2)?

I will be sooooooo happy when the PBGC (assuming the program is something that can be administered REASONABLY) will finally accept funds for missing participants. If done right, this will make life a whole lot easier for employers and TPA's. Bring it on!

By George, I think I've got it! Many thanks to you all!

Groan! I'm so confused now. I think this is what I misunderstood, and why I was concerned about getting better results than was warranted. So, going back to a numerical example - if the total employee population is 50 NHC, and 7 HC, and component plan 1 is going to cover 1 HC and 10 NHC: When testing for (a)(4) in component plan 2 - when I do the Ratio Percentage Test, I use ALL 50 NHC employees, and ALL 7 HC, and NOT just the 40 NHC and 6 HC actually in component plan 2? So, for garbage numbers to illustrate the point, suppose the EBARS of the HC's are: 1, 1, 1, 1, 3, 4, and 15. 15 (daughter) is in component plan 1. When I look at component plan 2 for (a)(4) testing, for the HC ratio, for rate group EBAR 3, I use 2/7, and NOT 2/6? And if I have 15 NHC in EBAR 3, (considering only those not in component plan 1) I use 15/50, and NOT 15/40? Again, my thanks, and my apologies for my confusion.

Yes, for 410(b). But once I get past 410(b), which passes with flying colors, then when I test component plan #2, and I'm passing nondiscrimination testing using rate groups, and passing the Ratio Percentage Test, (not the ABPT test) I'm considering only the HC and NHC in component plan #2, and not considering anyone in component plan #1. Right? that's what I was trying to get at, but I probably stated it poorly.

If I may, let me play Devil's Advocate for a moment. I don't for a moment dispute most of the points made. But, If I had reason to believe my remaining life expectancy was short, and my spouse (if I'm married) is amendable and will have sufficient assets, why is my being able to get a lump sum so evil? This would be a great thing in some circumstances. Or if the lump sum is made based on low current interest rates, and rampaging inflation returns in the future so that my monthly annuity is practically worthless - there are various scenarios one could posit. However, for policy purposes, with the greatest good for the greatest number, etc...I realize most people are better off with the monthly payment.

Hi Austin - I think I was posting this morning while you had already replied. So just to be SURE I understand what you are saying, when you say treating them as not benefiting, you are talking ONLY about 410(b), right? But for purposes of doing the rate group testing (and to be precise, the Ratio percentage test, NOT the ABPT) for component plan 2, I'm looking ONLY at those people in component plan 2. Not looking at any one in component plan 1. Agreed? If I seem paranoid, it's only 'cause everyone is out to get me...

Wondered what you'd do in this situation. I don't have a lot of details yet, so I'm making several assumptions to a possibly hypothetical, or possibly real, situation. And I'm hoping that I'm overthinking this, and it is simpler than I think. 1. You have four medical PC's, each owned 100% by a doctor. 2. You have partnership "x" - owned 25% by each of the 4 doctors. Partnership "x" does, let's say, all of the blood drawing and throat cultures for each of the 4 medical practices - that's all they do. 3. So, all of these are service organizations (health) and each doctor is an "FSO" and partnership "x" is an "A-org" for purposes of determining ASG status, as it regularly provides services to the PC's of each doctor. Now, it appears to me that this means there are 4 separate ASG's - one different one between "X" and each PC. Agree/disagree? I'm not finding solid guidance (well heck, not any guidance) regarding what has to be done once you determine that there are, in this case, 4 separate ASG's. The proposed regulations under 1.414(m)-2(g) give an example of determining that multiple ASG's exist, but that's as far as it goes. So, if PC "A" for Doctor Killjoy sponsors a qualified plan, for coverage, testing, etc., he must consider all employees of partnership "x." How the heck do you handle it when each PC has sponsored its own plan, doing their own thing, without considering the employees of partnership "x?" How would you even go about this? Do you have each PC test their own plan with partnership "x" employees only - and make sure coverage/nondiscrimination testing pass, and then somehow allocate the appropriate contribution amounts internally in partnership "x" to coordinate them for deduction purposes, based upon the relative amounts attributable to each partner's PC? For a simple example, suppose 3 of the 4 PC's contribute 5% to a straight PS plan. But PC 4 contributes 10%. In order to pass testing, let's say all of the employees of Partnership "x" have to receive 10% in order for PC 4 to pass. When it comes to allocating the PS expense in partnership "x" I presume any such expense would be allocated according their partnership agreement. Blech... As an aside out of curiosity - ASG plans I've run into have the plan sponsor being the FSO, do you see the A-orgs (or B-orgs)as sponsors very frequently?

Thanks Austin. This just might work - particularly given that for the ratio percentage test, 401(k) elective deferrals and matching are not included, which in this case helps.

Ok, thanks, so let me see if I'm getting this. Assuming I'm not using the average benefits test, I'm testing each component plan separately. So component plan one is tested on an allocations basis, and passes. Component plan two is tested tossing out all employees, either HC or NHC, that are included in component plan one. After doing this, we are left with 6 HC, and 40 NHC in component plan 2. If each rate group, of the remaining 6 HC and 40 NHC in component plan 2, can pass the ratio percentage test (which I think it can, as remaining HC EBAR's are very low) then life is good - don't need to move on to the ABPT, which will fail. And as I said in the first post, Gateway as a whole will pass anyway given the allocations. Or, is that not allowable?

Thanks for the response - and sorry to be dense, but can you elaborate a bit about what you mean on the testing of component plan 2? This may be the piece that I'm worried about missing - when actually doing the test, you do not include those people in component plan 1, right? So your rate group tests would be based solely on the participants in component plan 2, and the daughter wouldn't be a consideration?

Probably a mistake to even think about this on a Friday afternoon, but I'll give it a shot. Takeover plan, general tested allocation formula with 3 groups. Group 1, owner. Group 2, Head Honcho - (non-owner). Group 3, everyone else. Group 3 includes the owner's early 20's daughter. There are 7 total HC. There are 50 NHC, who are all in group 3. The daughter in group 3 is blowing the tests, 'cause this plan has very few young people. Group 3 is currently slated for an allocation of, let's just say, 4%. Proposed allocations are such that Gateway will be passed regardless. So, I wanted to see how far off base I am, because I'm sure I'm missing something. If you separated this into component plans, where the HC daughter is the only HC in component plan 1, and you put, say, 10 of the NHC with the lowest ebars into component plan one, and test it on an allocations basis, everyone in component plan 1 would be under a safe harbor allocation method with the same 4%. Coverage for the component plan would be NHC - 10/50 = 20%, and for HC, 1/7 = (rounding up) 15%, so component plan 1 passes 410(b). Then for component plan 2, you use the rest of the HC's (who have fairly low ebars) and use the rest of the NHC, and test component plan 2 on a benefits basis. Assuming it passes, then you just have 410(b), which gives you 40/50 = 80% for the NHC, and 6/7 = (rounding up) 86% for the HC, so you pass 410(b) as well for component plan 2. Have I got this all wrong? No need to be gentle - I left any ego back in the 90's with my lost youth... Thanks in advance.

If it is completely participant-directed, ("eligible individual account plan") then I don't think the 25% limitation applies, nor does the 10% limit apply. I'm assuming it is not part of a floor-offset arrangement. And of course assuming the plan document provides for it... You may want to take a look at ERISA 407, which should help to clear up some of your questions.

Very carefully. What I'd do, not that it is necessarily correct, is on Line 7a, I'd cross out the number of participants, and write in the correct number with a note to the effect of, "reduced loan correction fee schedule as per Revenue Procedure 2015-27 is being used." Then write in the correct amount where you'd normally put in the fee. I'd also make specific note/explanation of it in my cover letter. I'm sure there are other, (perhaps better) ways to do it.

Sal also discusses this issue in the QDRO definition of the EOB.

Mbozek - thanks for this information - I was not aware of this. What constitutes "pay status" (for purposes of this law) for a DC plan - does it mean, for example, that if you are entitled to receive an in-service distribution of your profit sharing account if you request it, that this would be considered "pay status" or are the requirements more rigid? Thanks.

It seems rather brazen for a company to pull something like that out of the blue. Hard to figure...I've never heard of anything like this. Can the DOL fine people for falsely advertising DOL review and approval?

Here's the PLR http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl20b6/1/doc

Hey - look what I found - granted that it is old, still interesting in light of this conversation. I haven't yet been able to find the PLR being referenced. http://benefitslink.com/boards/index.php/topic/8553-considering-service-for-a-prior-company/

Hi Austin - in the absence of guidance saying otherwise, how could you have identical stock ownership in EACH corporation, if those corporations don't exist at the same point in time? I was thinking specifically about 1563 - how can 5 or fewer/80% test be met with regards to corporation A and B if corporation A doesn't exist? What day are you testing? Suppose instead of being formed next day, new corporation B isn't formed until 2 weeks later, but in the same calendar/plan year - would you assert this is a CG as well? Is there a statutory/regulatory "time limit" that you can point to that clarifies this? There was some stuff in the proposed 414(o) regulations addressing this, but that portion of the proposed reg was withdrawn. I'm just saying I don't think this issue is necessarily a slam dunk either way, and I'd be careful opining either that it is or is not a CG. In fact, I might give "input" but I'd make darn sure I wasn't the one making this decision, cause the ramifications for being wrong in either direction could be unsavory. P.S. - perhaps as support for the fact that this is merely a reorganization, and therefore a CG, you could use 368(a)(1)(F)? I'd still defer to counsel!

I'm not so certain of that. If both entities are corporations, since they don't exist on the same day, there may not be a CG. On the other hand, if it is a mere change in form, for example a sole prop or partnership that incorporates, then I think you do have a CG. This one could be tricky, and I'd recommend ERISA counsel. The 415 regulations (1.415(f)-1©(2)) might also consider this a predecessor employer situation. So I think there is the potential for some "gray" in this situation, depending upon facts and circumstances.

What an enlightening response! If you only a bit weary, I admire your patience.

Since I rarely see a governmental plan, I was just curious if it is a common provision in a governmental profit sharing plan, to offer a matching contribution, which is based solely upon deferrals to the 457 plan?

I think if you submit this under VCP, you are likely to be unsuccessful for the reasons Kevin already mentioned. My vote is that the client is probably up the creek without a paddle. How much money is involved? If a big plan and a lot of money, they might want to engage ERISA counsel to see about a court approved reformation of the plan, or the combined "writings" that constitute the "Plan" being sufficient to ignore this error, but that's getting out of my league.