Belgarath

Is a non-electing church plan - defined benefit - required to restate for EGTRRA by the normal 4-30-2012 deadline? It seems to me that they are, although many "normal" document provisions need not apply. If they are NOT subject to the restatement deadline, is there a citation? I've been looking through the Rev. Procs., and I don't see where non-electing church plans are exempt from the restatement date. Thanks!

Bill, do I understand you to be saying that, for example, a Universal Life policy with a premium of 10,000 (and let's assume the $10,000 falls within the 25% limitation) but that has an internal "cost of insurance" of, say, $3,000 in year one, that you only count $3,000 towards your incidental limit testing? Or is that not what you are saying, and you are saying that you would test using the $10,000? I would suggest that anyone contemplating use of the $3,000 interpretation might be well advised to seek counsel before doing it. Aside from any interpretation of regulatory guidance, in the audits I've seen the IRS will treat the $10,000 as the "premium" subject to the 25% limitation.

We checked with Sungard, and they said the government plan doc would not be available until 2014!! Whether that newsletter was accidentally misleading or whether it was a "trial balloon" I can't say.

Mbozek - granted that there are statements giving the IRS imprimatur to the specific procedural steps that you mention, I still maintain that it is perfectly allowable under the Code/regs to handle in the manner I first mentioned. Do you agree? Disagree?

Bg - sorry, but I simply don't agree. The Code and regs do not require that the rollover into a 401(a) plan be by direct rollover only - only that an "eligible rollover distribution" may be rolled to an "eligible retirement plan" within the requisite timeframes. Now, the plan may not permit it, which is a separate issue altogether - hence my comment that the plan must permit it.

Yes, he can. Assuming of course that the plan permits incoming rollovers. Of course, he'll have to come up with the 20% that was withheld to roll back into the plan or he'll be taxed on it. An additional wrinkle to be aware of. Since he's over the RMD age, if he hasn't taken a RMD for 2012 yet, the regulations provide that any distribution coming out of the plan is first considered to be the RMD. Therefore this amount would technically be ineligible for rollover. So he may want to withdraw his RMD first, or, he can just plan on rolling back in the amount in excess of the RMD - whatever works.

ESOP - we are a TPA, but not for the ESOP. And by the way, thanks for the webinar info. I have no experience with ESOP's, but this was a question that came up in discussion. Seems like another one of these tricky little pension "niches" all on its own. QDRO, I wondered about the PT issue, which was why I asked if it was allowable - didn't know if there was a specific exemption that allowed it.

Thanks!

Here's another discussion of the issue. http://benefitslink.com/boards/index.php?s...mp;#entry204793

But do we only have to deal with the IRS regulations? The DOL 2550.408b-1(e) provides the following. FWIW, we actually contact 3 local banks every month to get a rate for such loans, and average the 3. We provide this number to the Plan Administrator, who can then make whatever determination they want! (e) Reasonable rate of interest. A loan will be considered to bear a reasonable rate of interest if such loan provides [[Page 505]] the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Example (1): Plan P makes a participant loan to A at the fixed interest rate of 8% for 5 years. The trustees, prior to making the loan, contacted two local banks to determine under what terms the banks would make a similar loan taking into account A's creditworthiness and the collateral offered. One bank would charge a variable rate of 10% adjusted monthly for a similar loan. The other bank would charge a fixed rate of 12% under similar circumstances. Under these facts, the loan to A would not bear a reasonable rate of interest because the loan did not provide P with a return commensurate with interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. As a result, the loan would fail to meet the requirements of section 408(b)(1)(D) and would not be covered by the relief provided by section 408(b)(1) of the Act. Example (2): Pursuant to the provisions of plan P's participant loan program, T, the trustee of P, approves a loan to M, a participant and party in interest with respect to P. At the time of execution, the loan meets all of the requirements of section 408(b)(1) of the Act. The loan agreement provides that at the end of two years M must pay the remaining balance in full or the parties may renew for an additional two year period. At the end of the initial two year period, the parties agree to renew the loan for an additional two years. At the time of renewal, however, A fails to adjust the interest rate charged on the loan in order to reflect current economic conditions. As a result, the interest rate on the renewal fails to provide a ``reasonable rate of interest'' as required by section 408(b)(1)(D) of the Act. Under such circumstances, the loan would not be exempt under section 408(b)(1) of the Act from the time of renewal. Example (3): The documents governing plan P's participant loan program provide that loans must bear an interest rate no higher than the maximum interest rate permitted under State X's usury law. Pursuant to the loan program, P makes a participant loan to A, a plan participant, at a time when the interest rates charged by financial institutions in the community (not subject to the usury limit) for similar loans are higher than the usury limit. Under these circumstances, the loan would not bear a reasonable rate of interest because the loan does not provide P with a return commensurate with the interest rates charged by persons in the business of lending money under similar circumstances. In addition, participant loans that are artificially limited to the maximum usury ceiling then prevailing call into question the status of such loans under sections 403© and 404(a) where higher yielding comparable investment opportunities are available to the plan.

C corporation has an ESOP. Their corporate charter/bylaws whatever restrict ownership to employees or plan only, so a stock distribution is not allowable. So when a participant is about to retire, (let's say they are entitled to $50,000 at current appraised stock value) I'm wondering what options are available. There were two that were brought up, and as I don't know much about ESOP's, I was wondering if one is "better" than another or if both are even allowable options: 1. The corporation makes a deductible contribution to the plan of $50,000. This cash is paid to the terminating participant, and the participant's stock is then allocated amongs the eligible plan partiicpants just like any normal plan contribution. This seems perfectly normal and acceptable. Is it? 2. The corporation contributes $50,000 to the plan to pay out the participant, but it isn't a deduction. Instead, they retire the stock. Is this allowable? Does it have any effect upon the stock price of the remaining shares in the plan? It would seem that this would be a "wash" and therefore a neutral transaction in terms of stock value (?), but is it even allowable?

Thank you both!! This was very helpful.

Hi John. Thank you. You don't, by chance, have a citation for the position that a restatement isn't required, do you? That's the missing piece of the puzzle I haven't been able to locate, and it has been driving me crazy! I've seen several opinions agreeing on this point, but I'd sure love some back-up. Of course, I'm sure the potential client in question didn't even have required amendments, much less restate, so there will be other problems to deal with...

I agree with Erisa that for 2011 TH determination, you'd look back to 2010. But for 2012 top heavy status, you'd look to see if he satisfied the key employee requirements in 2011 - the lookback year. Yes, he did. So you would count his account balance as a key in your top heavy testing for 2012.

My apologies - I was referring specifically to DB plans. So I guess my question still stands.

I must say I'm a bit confused on this. I have seen various opinions on the subject of restatement, but without citations. Is there anything official that says governmental plans don't need to be restated? Assuming the answer is no, then there appear to be two possibilities. First, they are using a VS document, and have until April 30, 2012. Second, they are an IDP, and would have already gone long past the Cycle C deadline (or Cycle E if they so elected) to restate and submit for a determination letter. What am I missing?

Are you simply not getting inquiries/applications, or just not getting the type you want? I've heard similar laments from other sources. And while it's a "chicken or egg coming first" sort of circle, I think a good deal of it has to do with the job and real estate market. When things are good, people are much more likely to take a chance, sell their house, and move. Now that prices are way down, many people cannot afford to do so. Also, in 2-income households, it may be very difficult for the second person to find an acceptable job even if the first one does. All of this then feeds on itself, so that people are much less likely to look, since it's too difficult or unaffordable, and since they know it is unaffordable/difficult, they don't bother to look/apply... There may be lots of other reasons, of course. This is just a personal theory based upon anecdotal evidence.

"Shame on someone for having a plan design with a six month suspension." Huh? Sorry, I'm missing the point of this one?

Yes.

Probably. I'm not sure this is specifically addressed in the regulations. First, check your plan document, which may specify. If not, I think most people take the interpretation that the alternate payee is treated as a "beneficiary" for the purposes of adding a QDRO distribution back in for considering top heavy status.

Hi John - yes, those, and all other interim amendments, were timely adopted. I absolutely agree that it is better to restate. However, the client doesn't want to pay for it, and I couldn't find anything requiring it, so I just wanted to be sure. Thank you both for your comments.

Re-upping this post. For a DB plan with an EGTRRA restatement deadline of 4-30-2012, where they want to terminate it now - one person, no 204(h) issues, all "interim" and "plan termination" amendments in place, but NOT restated for EGTRRA - is there any reason why an EGTRRA restatement is required? I can't find any guidance that requires the restatement, even if distribution isn't made until after April 30th, as long as termination date is prior to then. Mind you, I'm not saying it is a bad idea, but I can't find where it is REQUIRED. Any thoughts?

Is there a decent cafeteria plan reference source that isn't too technical - sort of for a high level skim of the basics? This would be for someone (me) who knows NOTHING about cafeteria plans. I just need to familiarize myself with them, but not in too much depth at this time. Beyond that, for the more technical issues, any other recommendations other than what has already been mentioned? Thanks.

I'll take a stab. Assuming I'm understanding your question correctly, my answer is no. The retirement age specified in the plan must be in compliance with the regulations - the fact that in an-service withdrawal isn't permitted is immaterial.

"Am I alone in thinking it unfair or inequitable for a plan to tell a widow she has to wait 10 or 20 years to get a pension benefit if her husband died at an early age? In theory a husband who starts a job at age 18 could work 20 years and then die at age 38, the wife would then have to wait 17 years for a partial pension or 27 years for a full pension. Would you want your wife to have to go through that? " First, since a plan can force the participant to wait until retirement age to collect a benefit, how is this "inequitable" to the surviving spouse? Of course I would prefer my spouse to be able to start collecting benefits presently (albeit drastically reduced, as pointed out earlier by Mike), but then I'd prefer the same treatment for myself, too. And if I terminate employment at age 40, I can't start collecting a benefit. Beyond what's "equitable" or "fair" depending upon your viewpoint - what's your deal here? Are you an attorney representing a surviving spouse who wants to currently collect a survivor benefit, and has been denied? You seem to have an agenda of some sort - which is fine. I'm dubious that you'll obtain the kind of answer on these boards that you are apparently looking for. Nevertheless, certainly an interesting question and discussion thread.