Belgarath

Hi Carol - thanks, but this is precisely where I'm having a problem with this concept. It just seems like administrative fiction. Anyone can defer to either plan. so what happens if you defer 5% to the "deferral only" plan? You don't get a match. This forces anyone who wants the match to enroll in the ERISA plan. To me, this crosses the line that the DOL has drawn in the Advisory Opinion - it isn't "completely voluntary" and it seems to also cross the line of "limited employer involvement." Thoughts?

Ok, I can look into that angle, but would it make any difference to the question at hand? Maybe I'm missing your point? Thanks. P.S. - is your question intended to assert that the following would exempt an annuity only plan from the H/Audit requirements? Exceptions: Insured, unfunded, or combination unfunded/insured welfare plans, as described in 29 CFR 2520.104-44(b)(1), and certain pension plans and arrangements, as described in 29 CFR 2520.104-44(b)(2), and in Limited Pension Plan Reporting, are exempt from completing the Schedule H.

501©(3) private school has two 403(b) plans, using TIAA documents. One is an ERISA plan, and gives a 5% match if you defer at least 5%. The other is a "non-ERISA" plan that is deferral only. It is worth noting that these were set up (by whom I don't know) prior to DOL Advisory Opinion 2012-02A. I think TIAA did this two-plan thing routinely. Although the AO refers to a situation where a separate Money Purchase plan receives the "match" if the employee defers into the deferral plan, it seems to me that the AO would apply to the situation above as well. At the very least, it seems an aggressive interpretation to maintain that the "deferral only" plan is non-ERISA based upon the penultimate paragraph in the AO. I certainly would say the client should get advice from an ERISA attorney if they want to take the aggressive approach. None of it makes much sense to me, because the ERISA plan has no exclusions. Doesn't exclude participants who are in another 403(b) plan of the employer, so it has to file as a large plan. That being the case, I'm not sure what possible benefit there is to maintaining a separate plan, which now being (perhaps arguably) subject to ERISA will also require filing as a large plan, since it also doesn't exclude anyone. Seems as though everyone is eligible to defer into either plan. Now you get to prior 5500's. Can you take the approach that audit wasn't required for years prior to the AO (2012)? I don't see how... I'd love to hear any thoughts on this!

Might depend on whether it is an EACA or a QACA. For the EACA, you don't have to have it cover all employees, as per 1.414(w)-1(b)(1). For the QACA, I don't saee a similar provision. I'm not certain whether the IRS might view it as a "benefits, rights, and features" issue requiring testing, but with 80% you would pass that anyway.

Just want to see if I'm nuts here. Suppose you have a public school, hence non-ERISA. Their 403(b) plan has a matching contribution piece. For vesting purposes, the document, as I suspect most do, defines a "year of service" for vesting as 1,000 hours. They would like a "last day" requirement - in other words, to receive a year of service for vesting, you must also be employed on the last day. Is there any reason this can't be done? Personally, I suspect that this won't be allowed under IRS prototypes when they are finally available, but then again, maybe it will.

Never heard of the IRS taking which position? I'm not clear. do you mean disqualification? 100% vesting? I've never heard of disqualification, but I most definitely have seen 100% vesting required, on more than one occasion.

The UBTI is clearly a tax liability of the trust. It isn't an administrtative "fee" for plan administration. So yes, I think it is different. I'd recommend you seek legal counsel before attempting to have the plan sponsor pay the tax.

Austin - I wouldn't get excited about the "out of profits" clause - this is a very old reg, and IRC 401(a)(27)(A) trumps this portion of the reg. COULD the plan be disqualified if no contribution ever made? Possibly - who can tell with the IRS. Generally, it is just a vesting issue. The fact that the IRS will allow a 0% money purchase plan, would make it completely ridiculous IMHO for them to disqualify a PS plan - but my understanding is that the 0% concept MP plan was approved in PLR's - I'm not aware of any official guidance that endorses this concept. The IRS has issued FDL's for 0% MP plans. I like Bird's suggestion better. Add a (k) feature, and hope someone defers.

As I understand it (and I use the word "understand" loosely) I believe that it would have to be brought into compliance as standing alone, (mandatory disaggregation) unless the special rule for employer-wide plans of 1.414®-1©(2)(ii) comes into play. Based upon the example given in that reg., and your post, it doesn't sound to me like this special rule would apply.

I haven't done any research to see if there is a special PTE covering this situation, but in the absence of such a PTE, I don't see how this would avoid being a prohibited transaction.

No, the earnings are not annual additions. Earnings are not considered annual additions under 415, and all you are doing is putting the participant "in the same position" as they would have been but for the error.

Thank you. Yes, I had finally figured this out. (And they use the principal and interest method, as an aside.) The comments have been very helpful!

Thanks Marcus. Their plan language is, IMHO, unclear on this point. Perhaps unclear on a lot of points... Assuming one takes the approach that doing on a cash basis is ok, then there's another piece that's unclear. When the shares are released on September (pick a day - say the 10th) of 2013, are they released at the share price on September 10th (which is unknown, as they aren't publicly traded) which would require a special valuation, or are they released at the value on 12/31/12? To me, it seems like the document is lacking in some respects.

Thank you! I'll get a copy of the document and take a look at it. I should have thought of this in the first place...

C-corporation has leveraged ESOP. Say 2012 is the first plan year. Under their repayment schedule (and don't ask me how they arrived at it, 'cause I don't know) they make a December payment of interest only. Let's say that this requires the release of 1,000 shares, valued at $10.00 per share. Now they make a principal payment in September of 2013, and DEDUCT AND ALLOCATE it for the 2012 plan year. They want to release shares as of the date the contribution was made in September of 2013. So just for ease of illustration, suppose there are 10 participants, and they all receive an allocation of 100 shares in December of 2012. In addition, they all receive an additional $30,000 allocation for the 2012 plan year, based upon the September 2013 contribution. Is there any problem with only allocating the shares released in December of 2012, on the 2012 valuation, showing each person with an account balance of $31,000 (100 shares @ $10.00/share = $1,000, plus the $30,000 allocation) and then in September of 2013, assuming no change in stock price, everyone will receive a share release of 3,000 shares which will be reflected in their statement of 12/31/2013? It appears from 54.4975-7(b)(8)(i) that this is acceptable, I guess depending upon how you interpret the "For each plan year"- does that phrase allow cash accounting such as I have specified, or does it require accrual accounting? Thanks!

Hi David - sorry to be dense, but I still don't understand. The employer, before dissolving, is going to do amendment/resolution to terminate the plan, establishing a termination date of 10/31/2013. The Plan Administrator/Trustee (which remain as such, in spite of the dissolution of the employer) will then wind up the plan termination, distribute assets, file 5500 forms, etc... How is this any different than an unincorporated partnership that sponsors a plan having a partner leave mid-year, (maybe unexpectedly, maybe death, etc.) which legally dissolves the partnership entity. The plan is then terminated, but often at a much later date. Are you saying a plan termination date in such situation must be made effective retroactively? And in this case, no, the plan language doesn't provide for automatic termination upon dissolution of the employer.

Oh, let's see... BG - thinking was that making the amendment effective 6/1 would make it inapplicable to anyone who terminated prior to the amendment date. David - why can't the termination date be after the corporation dissolves? ESOP - they want to keep the full plan year to avoid pro-rating any limits, as they want a maximum contribution for the final year. Thanks for all your responses!

I feel like my head is full of sand today. A corporation is dissolving, and all employees, including the HC, will oficially terminate employment on September 30, which is one month prior to the plan year end. The plan will be terminated, with a plan termination date of 10/31/13 - the plan year end. Plan currently has a 1000 hour/last day requirement. Since the HC owners will be terminating employment prior to the last day of the plan year, they want to amend the plan to provide only 1,000 hour allocation requirement, but no last day requirement. So far, so good. Here's the question. They had one NHC with 1000 hours terminate in May, They don't want to give her a contribution, so they want to make the amendment effective June 1, 2013. Am I imagining trouble where none exists, or is this going to be a discrimination problem? It will only affect 1 NHC adversely, and there are a total of 4 NHC, so even if a potential problem, should pass nondiscrimination testing? Thoughts?

Possibly, BUT - be careful on this. First, make sure the document allows loans to be taken from assets in life insurance contracts. Many documents, even if life insurance is a permitted investment, don't allow loans from the policies themselves. So then the plan trustee takes the policy loan, still within the plan, and transmits the proceeds to you as a PARTICIPANTloan. Technically, "you" are not taking the policy loan.

Bird - not to belabor the point, but 1.401(k)-3(e)(4) gives you two options upon plan termination: (4) Final plan year. A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either— (i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or (ii) The plan termination is in connection with a transaction described in section 410(b)(6)© or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d). Assuming you don't want to revert to ADP/ACP testing, then you are left with (ii). So the determination of whether the plan termination is "in connection with" a 410(b)(6)© transaction is critical. And I think the 410(b) reg I cited previously shows that an asset purchase qualifies as a 410(b)(6)© transaction for these purposes. Maybe I'm just misunderstanding what you are saying. Anyway, thanks for taking the time to respond.

I guess that's the crux of the question. For these purposes, I don't think they have to be. The 401(k) regulations only require that it be a transaction "described" in 410(b)(6)©. With the addition of the regulation I cited, I don't think 410(b)(6)© applies only to becoming a controlled group/ASG, or leaving a controlled group/ASG. In an asset sale, no one becomes part of the group or leaves the group because there is no change in stock ownership. If the cited regulation isn't then meant to cover a situation such as I describe, what meaning does it have? So your corporation has a plan. I buy all of your assets. Your employees all come to work for me. Your corporation still exists, but you have no employees or payroll. I believe you are allowed to terminate your safe-harbor plan with a short year as long as you satisfy the safe harbor requirements through the short year period when I bought you out, because the regulation clearly refers to an "asset" transaction involving a change in employer of the employees of a trade or business.

I think I'm right on this, but an accountant is challenging it, and I thought I'd just see what others think. Corporation A sponsors a 401(k) plan, utilizing the safe harbor match. Calendar year plan. As of some date this month, Corporation A's assets will be purchased by corporation B. The plan will be terminated with a termination date of 9/30/13, and will satisfy the safe harbor requirements through that date, so will qualify as a safe harbor plan. It seems that this is perfectly acceptable under 1.401(k)-3(e)(4) and 1.401(m)-3(f)(4). The accountant is asserting that this doesn't qualify as a 410(b)(6)© transaction because 401(b)(6)© doesn't include an asset purchase. I disagree, based upon the regulations. See 1.410(b)-2(f) below. Am I missing something? Seems prettty obvious to me, but I'm always willing to question myself... (f) Certain acquisitions or dispositions. Section 410(b)(6)© (relating to certain acquisitions or dispositions) provides a special rule whereby a plan may be treated as satisfying section 410(b) for a limited period of time after an acquisition or disposition if it satisfies section 410(b) (without regard to the special rule) immediately before the acquisition or disposition and there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition. For purposes of section 410(b)(6)© and this paragraph (f), the terms “acquisition” and “disposition” refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business.

IMHO, no.

IRC 4979 © and (d), for purposes of the excise tax, provide definitions that route you back to the definitions in 401(k)(8)(B), and 401(m)(6). FWIW I agree with you also.

Yes.