Belgarath

S-corporation - management company - 4 equal 25% owner-employees. No other employees. Now, I know they are not subject to Title IV due to the exception for a plan covering only "substantial owners" under 4021(b)(9). But it got me to thinking, what if they hired an employee - does this qualify as a "professional service employer?" This seems to get a little gray due to the "...but is not limited to..." clause in 4021©(2)(B). The "conservative" approach would be to say PBGC coverage required. And of course we could ask the PBGC if it ever happens, which isn't likely at this point. I just wondered if anyone had encountered a similar situation, or had seen any guidance on such a situation? As I think about it - the "conservative" approach from a PBGC coverage point of view might be considered aggressive from the IRS point of view, in that the combined plan deduction limits wouldn't apply if it is PBGC covered. So checking with the PBGC and getting an opinion from counsel would be absolutely necessary here, I think, if it ever actually came up.

Sorry, but this question is very confusing. 1. does ABC sponsor a plan? 2. if so, does this person have an account balance in the plan? 3. Is this person a former employee of ABC? How did this person ever get an account balance if never an employee? Really don't understand what you are trying to ask here, so some background information would be helpful

I've wondered about the following passage in the preamble, but never bothered to really look at it seriously. Do you mess with this, or find much in the way of practical application? Similarly, pursuant to §1.410(b)–6(b)(3), if a plan benefits employees who have not met the minimum age and service requirements of section 410(a)(1), the plan may be treated as two separate plans, one for those otherwise excludable employees and one for the other employees benefitting under the plan. Thus, if the plan is treated as two separate plans in this manner, cross-testing the portion of the plan benefitting the nonexcludable employees will not result in minimum required allocations under the gateway for the employees who have not met the section 410(a)(1) minimum age and service requirements.

Points well taken, although I must say I don't, offhand, recall ever seeing much if any comment alleging lack of integrity or honesty. I think that is pretty much a non-issue. Comments are more in the way impugning the general attitude of the agencies or some people (always courteous, but often uncooperative), and the lack of competence of some individuals. Anyone who has been in this business for a while will have horror stories to tell. While these are by no means the rule, neither are they a rarity. I think the frustrating thing is the feeling that once a "problem" occurs with an individual auditor/examiner/whatever, it is like putting toothpaste back into the tube, or nailing Jello to a tree. Being human, we tend to focus on the bad experiences rather than the majority of situations where they are reasonable. Anyway, I always agree that professionalism is the way to go, so your points are well made.

Austin - for some reason I seem to only be able to go back a year on my posts. Obviously, it was longer ago than that - time flies when you are having fun! But there was, as I recall, some fairly extensive discussion on a fraudelent emptying of the account - and whether it was a related court case or I'm just mixed up, I seem to recall a situation where the participant ignored certain steps to change adress/protect passwords, etc. - so the fund/Trustee wasn't liable. As you can see, I'm really hazy on remembering this!!

There has been a discussion or two on this subject on these boards within the last year, I think. I'll see if I can dig one out for you.

Agree. The Code and regulations (IRC 401(a)(9)©(ii) and Treasury Regulation 1.401(a)(9)-2, Q&A-2©) specify that if they are a 5% owner for the PLAN YEAR ENDING IN THE CALENDAR YEAR that they turn 70-1/2. Q-2. For purposes of section 401(a)(9)©, what does the term required beginning date mean? A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph © of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 701⁄2 or the calendar year in which the employee retires from employment with the employer maintaining the plan. (b) In the case of an employee who is a 5-percent owner, the term required beginning date means April 1 of the calendar year following the calendar year in which the employee attains age 701⁄2 . © For purposes of section 401(a)(9), a 5-percent owner is an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 701⁄2 . (9) Required distributions.— (A) In general.— A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee— (i) will be distributed to such employee not later than the required beginning date, or (ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary). (B) Required distribution where employee dies before entire interest is distributed.— (i) Where distributions have begun under subparagraph (A)(ii).—A trust shall not constitute a qualified trust under this section unless the plan provides that if— (I) the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), and (II) the employee dies before his entire interest has been distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death. (ii) 5-year rule for other cases.— A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 years after the death of such employee. (iii) Exception to 5-year rule for certain amounts payable over life of beneficiary.— If— (I) any portion of the employee’s interest is payable to (or for the benefit of) a designated beneficiary, (II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and (III) such distributions begin not later than 1 year after the date of the employee’s death or such later date as the Secretary may by regulations prescribe, for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin. (iv) Special rule for surviving spouse of employee.— If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee— (I) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained age 701/2, and (II) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee. © Required beginning date.— For purposes of this paragraph— (i) In general.— The term “required beginning date” means April 1 of the calendar year following the later of— (I) the calendar year in which the employee attains age 701/2, or (II) the calendar year in which the employee retires. (ii) Exception.— Subclause (II) of clause (i) shall not apply— (I) except as provided in section 409 (d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 701/2, or (II) for purposes of section 408 (a)(6) or (b)(3). (iii) Actuarial adjustment.— In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 701/2, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 701/2 in which the employee was not receiving any benefits under the plan. (iv) Exception for governmental and church plans.— Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term “church plan” means a plan maintained by a church for church employees, and the term “church” means any church (as defined in section 3121 (w)(3)(A)) or qualified church-controlled organization (as defined in section 3121 (w)(3)(B)).

What QDRO said. If you are looking for a reference for your client, 1.72(p)-1, first paragraph. As to what would costitute the upper end of "commercially reasonable" - I can't say. I don't believe that the instant cash loans offered on television by various legalized usury lenders would be considered reasonable, and I'd stick with "normal" viable commercial lending institutions.

Interesting question. IMHO, taking the conservative interpretation of the language in 1.72(p)-1, Q&A-20, it seems to me that a refinancing is treated as a new loan. If the plan says no new loans, then I think that includes refinancing an existing loan. Off the cuff without any further thought or research, it seems to me that if the plan provides that the only new loans permitted are refinancings of existing loans, then I think perhaps you'd have to look at nondiscrimination testing.

I think RLL's statemnent is rather broad, even though I don't disagree that counsel may be required. First, many TPA's already have one or more attorneys on staff, who may be very knowledgeable regarding some of the issues mentioned. Second, any good TPA knows what they can help with, and what they can't. On those issues they can help with, they are probably far more knowledgeable than the attorneys, and on those issues that require legal counsel, or CPA input, or a valuation expert, or whatever, they refer the client to appropriate experts. And it works both ways - often the attorney or CPA refers their client to the TPA on questions. "Good" experts in any discipline know their limitations and don't let their egos get in the way of doing the best thing for the client. Anyway, from my own perspective, ESOP's are a tricky specialty, and it is very possible or likely that outside experts may be required, so that point that RLL makes is well taken. Just don't automatically assume that the TPA firm lacks the qualifications/resources - and I do think a good TPA can be an excellent starting point, as they can focus the discussion and issues, and often in a more cost-effective manner than starting with legal counsel at the outset.

As a technical matter, I think the requirement has always been there. The AO didn't really change the status of some of these MEP plans as individual plans, based upon prior DOL guidance - just followed earlier opinions with some additional clarification, IMHO. See, for example, AO 83-15A and 81-73A. One could debate this, but at this point, I don't think it matters much... Lacking specific guidance, one can only hope that the DOL is not out for blood on this, which they don't appear to be. But whether they will offer some relief for years prior to, say, 2012 or 2011, is anyone's guess. They might choose to take the approach that these will have to be corrected under DFVC. It almost seems like if they were planning to offer a blanket amnesty, they would have done so already, but I can't pretend to be able to understand the collective thought process of the DOL's regulatory drafters. I've heard nothing on how this is being handled in real life situations.

I would check off "no." If they didn't have the coverage, don't say they did. As a personal observation related to the general subject, I never understood where the 10% amount came from. If the fiduciary embezzles the plan funds, 10% ain't going to cover the balances for the NHC except in the very smallest plans. Probably there was some sort of reason for the 10% standard when established, but it escapes me...

Hard to beat Sal's EOB. He has lots of examples if you take the time to actually go through them, and he has a particular genius for coming up with "real life" sorts of scenarios. I think Mr. Poje is one of the experts on this board regarding the subject, and he may have some suggestions for you. I find that many people automatically equate general testing with cross-testing, which often causes some confusion.

Yep. Thank you for the response.

This can't be all that uncommon, yet I'm finding very little information about it. Suppose a company basically runs into such financial trouble that their stock is now almost without value (likely bankruptcy, but I don't know that). ESOP will be terminated. Apparently the last valuation from a few months ago shows participants with substantial account balances, but of course now they are nearly worthless. Other than possible fiduciary issues, which isn't in question here, is this just as simple as paying the participants their current balance based upon stock value - i.e. no different than any plan where assets have dropped precipitously in value? Participants have right to take their distribution in stock, although I don't know if this is one of those plans where corporation by-laws or charter prohibit outside ownership. If the company is in the toilet, participants probably won't want stock anyway! And I don't know where the plan falls in a bankruptcy heirarchy. Just wondered if anyone has encountered this?

A question came up as to if a TPA receives Revenue Sharing payments from a mutual fund, should this be reported on line 10e? It seems clear to me that 10e is only required to be used if the payments are from an insurance company/similar organization, and would normally otherwise be reported on a Schedule A if you were doing a normal 5500 form. Any disagreement? If perchance you DID report a revenue sharing payment from a mutual fund on this line, I can't see that it would really cause any problems other than perhaps, at some point, a question. You don't typically see anyone get in trouble for over-disclosing! It does seem a little odd, in a way, that the SF would require disclosure for payments from an insurance company, yet not require it revenue sharing from a mutual fund...

Ah, good point!!

FWIW, I'd say that a nonelecting church plan IS subject to K/M testing. Since there is no specific exemption from this qualification requirement (that I'm aware of) then the requirements apply. Caveat: I don't deal with Church plans, so this is hardly an expert opinion in this arena!

Thanks BG - I think what you are talking about touches upon my possible discomfort or lack of understanding. Using your example, under the service spanning rules, why wouldn't he have "6 consecutive months" actually in June, with more than 500 hours and therefore be eligible - assuming they are using 500 hours?

Sal's EOB is a very good source. I'd watch the distinctions between governmental and tax-exempt plans, as there are a few that are important. Documents can be a little tricky, depending upon your provider, as there aren't "prototypes" - Sungard, for example, has one sort of modeled on a prototype, but it is a collection of Word documents that you may have to modify - sometimes extensively. Distribution forms can be screwy and require a lot of customizing as well. Other providers may specialize in this a bit more - I don't know. You are also frequently dealing with clients who may not have qualified plans, so will be even more clueless on admin items than clients are in general. For a tax exempt, make sure you do the top hat filing with the DOL. Obviously, there are other issues as well. Really, I think Sal's book will get you up and running pretty well.

I've only seen a couple of plans that ever have used this. Have a sort of unusual situation here. Employer currently has just a 6-month eligibility requirement, with no hours requirement. Employer has some people who come and go for short periods. Under the service-spanning rules in 1.410(a)-7, this is causing people who work only a few hours per year to become eligible - they will work for 1 week, terminate for 2 months, work another week, terminate for 4 months, etc.. First, this is a poor design for this type of employer. That aside, they want to keep 6-months. Simply making it "6 consecutive months" is meaningless under these same service-spanning rules. What if they just say something like "6 consecutive months with a minimum of 500 hours" (or 800 or 1000 hours - whatever), or something along those lines? I believe this is perfectly acceptable. Are there any "hooks" or traps for the unwary that I'm missing?

If they are truly that unresponsive to a CLIENT request, I'd add something to GMK's suggestion. And this needs to come from the client, not from you as an outside broker, which it appears you are. (I'm not excusing MM's apparent lack of professionalism, by the way) Have your client, in their letter to MM, state their dissatisfaction with the lack of cooperation and obstructive behavior in the exercise of legitimate contractual rights (surrender), and cc the State Department of Banking and Insurance with a recommendation that they investigate and/or audit to determine if penalties and/or class action lawsuits are appropriate. That usually gets some attention and prompt action.

Yes, they can require that their own paperwork must be used. Has anyone considered ASKING them why they won't transfer? There may be a flaw in whatever paperwork is being sent, etc... I flatly don't believe that they will refuse to answer a question from the ANNUITY OWNER/CLIENT as to why they refuse to "move the assets."

Interesting. A couple of observations: The PPA/HEART amendment contains the following. I think you could argue that since your vesting schedule DOES in fact satisfy PPA, that you do NOT need to to complete a "custom" schedule in the PPA amendment. The wording in (a) says that IF your vesting schedule does NOT meet PPA.... - well clearly you do. Ambiguous enough to be reasonably interpreted to require nothing be completed on the PPA, I think, even though it might be a stretch. Realistically, do you think that an IRS auditor, in this situation, would require you to apply 6-year graded vesting to someone who is already vested a higher percentage under the clear intent of the plan, and the SPD clearly gives the more favorable schedule? I'd like to think not. Granted it is safer to put the proper schedule in the PPA/HEART amendment. On another note, my SPD's have been printing out showing the proper vesting schedule in such a situation - other than for 403(b)'s, which are a PIA and don't always seem to follow normal document results. I don't understand why yours aren't printing properly. Probably some arcane checklist combination - have you tried actually submitting your checklist to Relius? I had a strange situation a while back that I don't even remember, and while they couldn't figure out the problem over the phone, once I sent them the actual checklist they were able to explain how to avoid the problem. Good luck. The Employer only needs to complete the questions in Sections 2.2 through 2.7 below in order to override the default provisions set forth below. If the Plan will use all of the default provisions, then these questions should be skipped. 2.1 Default Provisions. Unless the Employer elects otherwise in this Article, the following defaults will apply: a. If the Plan has a vesting schedule for nonelective contributions that does not meet the Pension Protection Act of 2006 (PPA), then the vesting schedule for any Employer nonelective contributions for Participants who complete an Hour of Service in a Plan Year beginning after December 31, 2006, will be the schedule below. Such schedule will apply to all nonelective contributions, even those made prior to January 1, 2007. If the Plan has a graded vesting schedule (i.e., the vesting schedule includes a vested percentage that is more than 0% and less than 100%), then the vesting schedule will be a 6-year graded schedule (20% after 2 years of vesting service and an additional 20% for each year thereafter). If the Plan has a cliff vesting schedule that requires more than 3 years of vesting service, then nonelective contributions will be nonforfeitable upon the completion of 3 years of vesting service.

No problem! I regularly mix up my years until at least May of every year anyway.