Belgarath

I'll make an assumption here that the plan is subject to ERISA. If so, then I think ERISA 514(e)(3) requires a notice. I agree that if it isn't an EACA, no 90 day withdrawal provision is permissible. Off the top of my head, I'm not sure why anyone would generally choose an ACA as opposed to the EACA, but I'm sure there are some good reasons that people will point out.

Thanks Andy - that's what I thought. Would matter if his ice to Eskimo business had been a corporation? Based upon how I read the regs, I don't think it would...

Let's say someone who was a sole proprietor, selling ice to Eskimos, had a DB plan and terminated the plan in 1990 when he was 35 years old. Accrued benefit of 100/month payable at age 65, received lump sum of $40,000. (obviously I'm making up numbers here) Now in 2013, he starts a new sole proprietorship, selling hazing instructions to NFL teams. He wants to set up a DB plan for his new hazing sales business. Does he have to take into account, for 415 purposes, the benefit he accrued and received under his formerly terminated plan?

Mojo - in your situation, was any penalty assessed for incorrect characteristics being listed (or not listed as the case may be) or did they just require the forms to be fixed, with no penalties?

Question - it appears if you don't, no big deal, as no penalty? If you are an entity with an EIN and your responsible party has changed, use of this form is mandatory. Otherwise, use of this form is voluntary. You will not be subject to penalties for failure to file this form. However, if you fail to provide the IRS with your current mailing address or the identity of your responsible party, you may not receive a notice of deficiency or a notice of demand for tax. Despite the failure to receive such notices, penalties and interest will continue to accrue on any tax deficiencies.

Thanks. "Enabling language" is just a term I concocted for the language I have always seen. Essentially, the current plan document says nothing whatsoever about safe harbor, and doesn't have any of the language stating that you can do the "maybe" notice, etc., etc... My initial reaction was that you couldn't do the safe harbor for 2013 even if proper and timely notice was done in 2012, but then after reading he regulation, it seemed to me that it would be ok, unless I'm missing something...

So, here's one I hadn't seen, but maybe it is actually quite common. Plan language currently says NOTHING about safe harbor contributions, or the ability to utilize a "maybe" provision,etc. Last year, a "maybe" notice was done. Now they want to utilize the 3% SH and amend the plan for 2013 to provide the 3% SH. Is this ok, under 1.401(k)-3(f), or does the plan FIRST have to have safe harbor "enabling" language prior to 1/1/2013? The documents I have seen all have such "enabling" language, prior to the start of the "maybe" year.

Are you sure the language isn't hidden in there somewhere? I haven't seen an EGTRRA document that didn't provide for this. Something along the lines of, "The Gateway contribution will be allocated without regard to any allocation conditions otherwise applicable to Employer contributions under the plan" ... If there isn't such language, there should be.

Well, hang on a second. I missed by 2 weeks, to my great delight at the time (DOB 12/16/59) but that is just REGISTERING with the Selective Service. Not at all the same thing as an actual draft. So your friend who said the last draft was many years prior was in fact correct, IMHO. Of course, I don't know the terms of the bet, nor how many "drafts" had been consumed at the time the winners and losers were determined...

Just a follow-up on this. What a PIA! First, big surprise, the DOL never returned my call, although to be fair the government shutdown doubtless screwed things up. I'll call again. Now for practical ramifications. Since there is a separate 403(b) (non-ERISA deferral only) plan that satisfies the universal availability requirements, then the ERISA plan possibly COULD have excluded anyone deferring less than 5%? Is there any problem with that? I'm not sure this is a valid exclusion category. Assuming this COULD have been done, let us suppose that the employer operationally (in violation of the ERISA document terms) did this, and only allowed deferrals into the plan if they were at a rate of 5% or more. This brings up a couple of questions: 1. Seems largely "unenforceable" as deferral election can be changed at any time. 2. If you get past (1) above, perhaps this could be submitted under VCP with a proposed retroactive amendment to conform document to operation. Any thoughts on this? 3. Even if you can get the IRS to agree to (2), I don't see that this guarantees that the DOL would accept it as justification for not filing 5500 for prior years as a large plan. Any thoughts on this aspect? We're going to recommend the client consider getting legal advice from an ERISA attorney, but in the meantime, I'm trying to consider as many aspects as possible.

Maybe your wrapping technique needs to be more efishent.

Possibly attorney meant that all assets must be distributed prior to the plan being "terminated" - and you can't distribute the assets until they are contributed, rather than that all contributions must be made by the "termination date" of 12/31. Did the attorney actually say that all contributions must be made by 12/31?

Thanks Kevin.

So, let's say a person terminates employment with Employer A at age 50. The exception under 72(t)(2)(A)(v), as I read it, does not allow the individual to wait until age 55, then withdraw without penalty - the actual separation must occur during or after the year in which the employee attains 55. (That's not quite what the code says, but the IRS blessed this interpretation in some guidance that I can't put my finger on at the moment.) However, am I correct in assuming that there is nothing preventing this money being rolled to the plan of new Employer B, then when separating from service with Employer B at age 55, it WOULD then qualify for the exception? Any disagreement?

Ah, good point. That would work nicely. The situation here is that they don't have any money half the time, so they don't know until late in the year as to whether they want to contribute 3% for the HC. So they can just exclude the HC from the safe harbor, and if they find out late in the year that they have enough to contribute for themselves, just contribute the 3% as you suggested. Gateway, TH, and everything else will be satisfied for the NHC by the 3% SH. I should have thought of that myself - thank you for the input!

Yeah, the question is whether you can do it for the current year. I'm just trying to find out if you have the flexibility to determine, year to year as part of the safe harbor amendment, as to whether you will give the 3% to the HC for that current year or not.

Suppose you have a 401(k) plan utilizing the "contingent" or "maybe" provision for the nonelective 3%. When the employer decides, in October, to provide the supplemental notice and amend the plan to provide the 3% nonelective, can they, as part of that amendment, elect not to provide it to the HC? Or, since the current prototype document says, to paraphrase, that there are no exclusions from the definition of "eligible participant" for purposes of the ADP test safe harbor contribution, would the employer be precluded from making that change - in other words, the HC exclusion from a safe harbor contribution (if made) wouldn't be discretionary other than amending prospectively for the NEXT year? I started out thinking the former, but I'm gravitating to the latter. Seems like an impermissible cutback if you take the first approach. Thoughts?

No. They enter 1/1.

Deadlines? Whaddaya mean? We all know all you have to do is push a button...

Or, if it is too late to get it established and make any meaningful deferral (a common problem mid-December!) and they want to make a profit sharing contribution, they can always establish the plan and not make the 401(k) portion effective until 1/1/2014.

Thanks Andy - now to take it one step further, since in my case, I think this equals knowledge without understanding. Does that mean that the first year accrued benefit for funding purposes must also be limited? Maybe this will make more sense if I give you the actual illustration example I'm looking at. 62 year old making way above comp limit for 2013, but 100,000 in all prior years. Now wants to install a DB plan. NRA is to be 65/5, so 67 is NRA. Benefit is a "unit credit of 20% of Average Monthly Compensation times Years of Participation limited to 5 years." So it is funding for 100% of pay at NRD, adjusted of course for 415. The illustration I'm looking at produces a monthly benefit at NRD of 9,554.87, (some adjustments go into arriving at that 9,554.87) and the monthly benefit accrued at 12/31/2013 but payable at NRD is $1,910.97. This results in a required contribution of app. 200,000 - 210,000. So my real question is: since that benefit at NRD of 9,554.87 (21,250 monthly compensation, with various adjustments) is assuming an average annual compensation of 255,000, is it permissible to fund for that full benefit for 2013 when the actual average comp., as of 2013, is much lower than 255,000? I probably should have posted all this first, but I didn't see the point in boring you if my initial fundamental reading was incorrect.

Just for the 100% of average annual comp limit, under 1.415(b)-1(a)(5). Say you have an employer (1-person corporation) that hs been in business for 3 years. Further suppose that W-2 income has been exactly $100,000 each year. For 2014 and onward, employer anticipates large increase in compensation - far above maximum comp level. When calculating a 415 maximum benefit, I read the regs as requiring use of pre-participation income when determining the high 3-year average. So in the first year, (2014) average comp would be (100,000 + 100,000 + 260,000 = 460,000/3 = 153,333) rather than simply using the higher 260,000 figure. Have I got that right?

I agree with you based upon the information posted. Since for these purposes you use 1563 attribution, and since the adult children have zero ownership, then there is no ownership attributed from parents to children. So the "substantial owner" exclusion doesn't apply, and it is a PBGC plan unless some other exclusion from Title IV coverage applies.

Thank you all. Very helpful.

I'm inclined to think this is ok, but thought I'd solicit opinions. Client establishes a DB plan at age 62, with NRA of 65/5. One-person plan. Anticipating huge income for three years, then income dropping off. At age 65, decides she is tired of it all, and closes up her business to retire, and wants to terminate the plan. I know this is a "facts and circumstances" issue, but my inclination is that this should be an acceptable reason to terminate. Any thoughts?