Belgarath

For 2009, an analyst didn't remember that the rules had changed, and filed a 5500 for a one person plan because it was a controlled group. Should have filed an EZ. Now, for 2010, they have other participants, so a 5500 is now the appropriate form. Just seeing what other folks would vote for. Would you: A) Leave it alone, and hope the DOL never kicks back the 2009 form B) File a 5500 EZ with the IRS for 2009, as an amended form, and attach the confirmation from the DOL to prove that the original was timely filed, but inadvertently filed as a 5500 rather than an EZ C) Other P.S. - they don't qualify for the SF Thanks!

Interesting. Then I have no suggestions!

Maybe I'm wrong, but perhaps you are looking for trouble where none exists. On line 10, you just answer "no." This SHOULDN'T cause any problems, but the IRS track record on these forms ain't great.

Posted on the IRS website as of 6/11.

From ASPPA: The Internal Revenue Service (IRS) announced at the ASPPA College of Pension Actuaries (ACOPA) Advanced Actuarial Conference that one-participant plans may use the 2009 Form 5500-EZ to report information for the full 2010 plan year. They stated that the 2010 Form 5500-EZ should be issued as early as next week; however, IRS will accept the 2009 Form 5500-EZ reporting 2010 data until the 2010 form is posted on its website. Additionally, the IRS will allow the 2008 Schedule SSA (Form 5500) to be filed for plans that do not want to wait for the release of the 2009 Form 8955-SSA. The IRS expects the 2009 Form 8955-SSA to be released shortly after the 2010 Form 5500-EZ and notes that the same IRS professionals are working on both forms. The IRS strongly prefers that filers wait for the official 2009 Form 8955-SSA. Filers and transmitters who plan to use the Filing Information Returns Electronically (FIRE) system will be mailed letters providing the Transmitter Control Codes (TCC) as soon as the Form 8955-SSA is posted. As a result, practitioners should be able to file electronically shortly after the paper form is posted. The IRS advises that filing the current Form 5558 and completing the section for requesting an extension of the due date to file the Form 5500 also would extend the deadline for filing the Form 8955-SSA. IRS indicated that the new Form 5558, when issued, will be more specific and the filer will need to check all boxes that apply. ASPPA submitted comments to the IRS on May 31st requesting a revision of the due date for filing 2009 and 2010 Form 8955-SSA, available here. ASPPA will continue to discuss these issues with the IRS and request workable solutions for practitioners.

Andy, IMHO, I'd say the answer to both your questions is yes. But I'm not an actuary, so my answer is not based on anything practical whatsoever, just my reading of the regs. Ergo, the accuracy of my answer is probably equivalent to a BoSox player trade manual entitled, "How to improve your team by trading away young talent."

As to your first post, what about, for example, a TPA who is paid under contract by the EMPLOYER, and not the plan? As to the second post, this gets more gray, IMHO. It seems likely that the intent of the DOL is to pull in the person or entity who makes the sale, under paragraph ©(1)(iii)(A), but I haven't yet come to grips with the shadings for many of the various scenarios that one can envision in all this crapola.

Here's the PLR Kevin referred to if anyone is interested. Although this PLR request specified that that the irrevocable waiver would apply if employee terminated and was rehired, it doesn't necessarily follow that the IRS would have reached a different conclusion if this was NOT so specified. FWIW, (which ain't much) and assuming the document is silent on this issue, I'd be inclined to think that if there was a bona fide termination of employment, you could probably take either approach on subsequent rehire without it being excessively risky. I wouldn't lose a lot of sleep over it. IRS Letter Rulings and TAMs (1998-2010),UIL No. 401.29-00 Qualified pension, profit-sharing, and stock bonus plan, Cash or deferred arrangements; UIL No. 402.00-00 Taxability of beneficiary of employee’s trust (Time and manner of taxation), Letter Ruling 200236047,Internal Revenue Service, (Jun. 10, 2002) Letter Ruling 200236047 , June 10, 2002 CCH IRS Letter Rulings Report No. 1332, 09-11-02 IRS REF: Symbol: T:EP:RA:T1 Uniform Issue List Information: [ Code Secs. 401 and 402] UIL No. 0401.29-00 Qualified pension, profit-sharing, and stock bonus plan - Cash or deferred arrangements UIL No. 0402.00-00 Taxability of beneficiary of employee’s trust (Time and manner of taxation) This is in response to ruling requests submitted by your authorized representatives by letter dated July 12, 1999, as supplemented by correspondence received through May 3, 2002. These ruling requests relate to sections 401(k) and 402(g) of the Internal Revenue Code (“Code”). You submitted the following facts and representations in support of the requested rulings. Medical Practice is a nonprofit, non-stock membership corporation organized under the laws of State D and is exempt from tax under Code section 501(a) as an organization described in section 501©(3). Medical Practice is a clinical medical practice which is designed to further the missions and goals of University, a political subdivision of State D. At the request of the University’s president, the Medical Practice was established on *****, pursuant to the University’s statutory authority to make contracts and develop health care delivery systems that are necessary or appropriate to carry out the University’s missions and goals. Central to the University’s missions and goals is educating students and residents of the University’s Medical and Nursing Schools. The Bylaws of the Medical Practice provide that its purposes include supporting the clinical, educational, and research missions of the University through the involvement of the Medical Practice’s employees in patient care, teaching and scholarship. The Medical Practice has two classes of members, the University Member and the Faculty Members. University is the University Member and a Faculty Member must belong to the faculty of the University School of Medicine or Nursing and be engaged in a clinical practice. Medical Practice is governed by a Board of Directors consisting of individuals. The University Member elects and can remove of these individuals. The Board of Directors selects the officers of the Medical Practice, including the Medical Director and President, from the Board of Directors. You represent that the University and Medical Practice are not treated as a single employer under Code section 414(b) or section 414©. You make no representation with respect to whether Medical Practice and University are members of an affiliated service group under section 414(m). The University maintains three retirement arrangements. Under Plan B, all University employees are eligible to make salary reduction contributions to purchase annuities intended to be described in Code section 403(b). In addition, eligible University employees have the option of participating in either Plan A, a defined contribution plan intended to qualify under section 401(a), or System C, a defined benefit plan also intended to qualify under section 401(a). The Medical Practice has adopted its own 403(b) plan, the 403(b) Plan, effective ***** which is intended to satisfy the requirements of Code section 403(b). Some time after the receipt of favorable rulings, the Medical Practice anticipates amending the 403(b) Plan (the “Amendment”), adopting the Retirement Plan, a defined contribution plan intended to qualify under section 401(a), and implementing the one-time irrevocable elections described below. Most participants in the Medical Practice plans are or will be participating in Plan A or System C, and possibly Plan B as well, with respect to their University earnings. The 403(b) Plan provides for Medical Practice to contribute an amount determined by Medical Practice each year (“Discretionary 403(b) Contribution”). The Discretionary 403(b) Contribution is a mandatory, non-elective contribution allocated to participants in proportion to their eligible compensation from Medical Practice. Discretionary 403(b) Contributions have been made under the 403(b) Plan at the rate of 11 percent of eligible compensation from the Medical Practice. Under the Amendment, each participant will be permitted to make a one-time irrevocable election of a level of contribution (“Alternative 403(b) Contribution”) that will be made in lieu of the Discretionary 403(b) Contribution, subject to any maximum or minimum that may be imposed by Medical Practice in order to comply with applicable coverage and nondiscrimination rules under Code sections 401(a)(4) and 410(b). Each Alternative 403(b) Contribution shall be expressed as a percentage of eligible Medical Practice compensation, as a dollar amount, or another formula amount, and will be made only from Medical Practice compensation without taking into account University compensation. Absent a timely election by a participant of an Alternative 403(b) Contribution, Discretionary 403(b) Contributions would be made for that participant for all periods of participation. A participant electing an Alternative 403(b) Contribution would not be eligible for Discretionary 403(b) Contributions. Participants in the 403(b) Plan as of the effective date of the Amendment may make one-time elections of Alternative Contributions by a deadline to be established by the Medical Practice, which will be no later than the effective date of those elections. Discretionary 403(b) Contributions will be made for these participants for periods prior to the effective date of the elections, and Alternative 403(b) Contributions will be made for periods on and after that effective date. Employees who become participants in the 403(b) Plan after the effective date of the initial one-time elections may make one-time elections of Alternative 403(b) Contributions before they become participants in the 403(b) Plan. If Alternative 403(b) Contributions are elected by such a participant, they will be made for all periods of participation. No Alternative or Discretionary 403(b) Contributions will be made for these individuals for any period before they become participants. Prior to the effective date of the initial one-time elections, no contributions will be made by Medical Practice to the 403(b) Plan or any other plan or arrangement under Code section 403(b) pursuant to a salary reduction agreement. However, the Amendment may provide for voluntary, salary reduction contributions under the 403(b) Plan on or after the effective date of the initial one-time irrevocable elections. No special elections under Code section 402(g)(7) will be permitted under the 403(b) Plan. The Retirement Plan will provide for the Medical Practice to contribute amounts, if any, determined by the Medical Practice from time to time as a percentage of eligible compensation from the Medical Practice (“Discretionary 401(a) Contributions”). The Retirement Plan will also allow each participant to make a one-time irrevocable election of contributions (“Alternative 401(a) Contributions”) expressed as a dollar amount, a percentage of eligible compensation from Medical Practice, or other formula amount, and made only from Medical Practice compensation without taking into account any University compensation. The Alternative 401(a) Contributions will be subject to any minimum or maximum that Medical Practice may impose in order to comply with applicable coverage and nondiscrimination rules under Code sections 401(a)(4) and 410(b). Absent a timely election of Alternative 401(a) Contributions, Discretionary 401(a) Contributions would be made for that participant. Employees who already satisfy eligibility and participation requirements at the time the Retirement Plan is established will be required to make their one-time irrevocable election of Alternative 401(a) Contributions by a deadline to be established by the Medical Practice which will be no later than the effective date of those elections. Alternative 401(a) Contributions will be made only for periods on and after that effective date; no Retirement Plan contributions will be made for the participant for periods before that effective date. Employees who first satisfy the eligibility and participation requirements of the Retirement Plan after the effective date of the initial one-time elections may make one-time elections of Alternative 401(a) Contributions before they satisfy those requirements. If such an election is made, Alternative 401(a) Contributions will be made for all periods of participation. No Alternative or Discretionary 401(a) Contributions will be made for these individuals for any period before they become participants. If no election of Alternative 401(a) Contributions is made by an eligible employee before the applicable deadline, Discretionary 401(a) Contributions will be made for all periods of participation. The terms of a one-time irrevocable election of Alternative 401(a) or 403(b) Contributions may not be changed or rescinded after the election becomes effective and will apply upon rehire by the Medical Practice after a termination of employment. Once the one-time irrevocable election becomes effective, the applicable amount, percentage, or other formula will not be adjusted to satisfy nondiscrimination or coverage requirements, although the Medical Practice may make additional contributions under the 403(b) Plan or the Retirement Plan, or both, for some or all non-highly compensated employees in order to satisfy those requirements. The 403(b) Plan and the Retirement Plan will provide that contributions will be reduced to the extent necessary to satisfy the section 415 limit. Based on the above facts and representations, you have requested rulings that: (1) Neither Discretionary 401(a) or 403(b) Contributions nor Alternative 401(a) or 403(b) Contributions will constitute elective deferrals under Code section 402(g)(3). (2) A one-time irrevocable election under the Retirement Plan is not a “cash or deferred election” under Code section 401(k). With respect to ruling request (1), Code section 402(g)(3) defines “elective deferral” as including any employer contribution under a qualified cash or deferred arrangement (as defined under section 401(k)) to the extent not includible in gross income and any employer contribution to purchase an annuity contract under a section 403(b) salary reduction agreement. Section 402(g) further provides that an employer contribution shall not be treated as an elective deferral made to purchase a 403(b) annuity contract if under the salary reduction agreement such contribution is made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or similar one-time irrevocable election as specified in regulations. Section 1.402(g)-1© of the federal Income Tax Regulations (the “regulations”) provides that an employer contribution is not treated as an elective deferral if the contribution is made pursuant to a one-time irrevocable election made by the employee, in the case of an annuity contract under section 403(b), at initial eligibility to participate in the salary reduction agreement, or in the case of a qualified cash or deferred arrangement, at a time when the election is not treated as a cash or deferred election under section 1.401(k)-1(a)(3)(iv). In this case, the level of Discretionary 403(b) Contributions shall be established by Medical Practice in its discretion, and will not involve any individual elections by participants in the 403(b) Plan. In addition, the Amendment to the 403(b) Plan will require that the one-time irrevocable election will be made no later than the effective date of those elections. Employees who become participants in the 403(b) Plan after the effective date of the initial one-time irrevocable elections may make one-time elections of Alternative 403(b) Contributions before they become participants in the 403(b) Plan, and neither Alternative or Discretionary 403(b) Contributions will be made for any period before they become participants. As of the effective date of the Amendment, employees will have participated in the 403(b) Plan but will not have been eligible to participate in a salary reduction agreement under a 403(b) plan maintained by Medical Practice. Participants in the 403(b) Plan who are not newly hired by University and Medical Practice will have been previously eligible to participate in University’s Plan B, an elective 403(b) plan. However, because you represent that University and Medical Practice are not treated as a single employer under Code section 414(b) or 414©, we need not address the issue of whether eligibility for a salary reduction election under University’s Plan B would prevent the applicability of section 1.402(g)-1© of the regulations because of the aggregation principles of section 414(b) or 414©. Therefore, eligibility for Plan B is disregarded for purposes of determining whether a one-time irrevocable election to make an Alternative Contribution under the 403(b) Plan will be made by the participant at initial eligibility to participate in a salary reduction agreement. In addition, the Alternative and Discretionary Contributions under the 403(b) Plan are made from compensation paid by the Medical Practice. Accordingly, we conclude, with regard to ruling request (1), that neither the Discretionary 403(b) Contributions, nor the Alternative 403(b) Contributions made pursuant to the one-time irrevocable election, constitute elective deferrals under section 402(g)(3). Regarding ruling request (2), section 1.401(k)-1(a)(2) of the regulations provides that a “cash or deferred arrangement” generally means an arrangement under which an eligible employee may make a cash or deferred election with respect to contributions under a plan intended to satisfy the requirements of Code section 401(a). Section 1.401(k)-1(a)(3)(iv) of the regulations provides that a cash or deferred election does not include a one-time irrevocable election made upon an employee’s commencement of employment with the employer or upon the employee’s first becoming eligible under any plan of the employer, to have contributions in a specified amount or percentage of compensation made by the employer to the plan and any other plan on behalf of the employee for the duration of an employee’s employment with the employer. This section further provides that in no event is an election made after December 23, 1994 treated as a one-time irrevocable election for purposes of this paragraph if the election is made by an employee who previously became eligible under another plan of the employer. Section 1.401(k)-1(g)(6) of the regulations defines the term “employer” by reference to the definition of “employer” in section 1.410(b)-9. Section 1.410(b)-9 defines “employer” to mean the employer maintaining the plan and those employers required to be aggregated with the employer under Code section 414(b), ©, (m) and (o). Section 1.401(k)-1(g)(11) of the regulations provides that the term “plan” means a plan as defined under section 1.410(b)-7(a). Section 1.410(b)-7(a) sets forth a definition of “plan” for purposes of sections 401(a) and 403(a), and defines the term to mean a plan described under Code section 414(l) (which imposes requirements on a plan intended to be qualified under section 401(a), 403(a), or 405), with certain exceptions not relevant to this ruling request. As indicated above, a cash or deferred arrangement means an arrangement under which an employee may make a cash or deferred election, but a cash or deferred election does not include a one-time irrevocable election made at initial eligibility to participate in any plan of the employer. In this case, eligible employees of the Retirement Plan will have been previously eligible to participate in the System or Plan A, and Plan B, maintained by the University. You represent that the University and Medical Practice are not aggregated under Code section 414(b) or 414©. Therefore, the System, Plan A and Plan B are not “plans of the employer” under section 1.401(k)-1(a)(3)(iv) of the regulations. In addition, by referencing only sections 401(a) and 403(a), section 1.410(b)-7(a) indicates that the term “plan” does not include a 403(b) plan for purposes of the regulation. Thus, with regard to ruling request (2), we conclude that a one-time irrevocable election under the Retirement Plan will not be a cash or deferred arrangement under section 401(k). The above rulings are based on the taxpayer’s representation that Medical Practice and University are not treated as a single employer under section 414(b) or section 414©. The above rulings do not address whether the result would be the same if section 414(m) applies. The above rulings do not address whether the plans of the Medical Practice or the University qualify under section 401(a) or 403(b). The determination of the status of the plans under section 401(a) is within the jurisdiction of the Pacific Coast Office. Also, no opinion is expressed as to whether the contributions that are the subject of this ruling request are subject to tax under the Federal Insurance Contributions Act, and no opinion is expressed as to whether the amounts in question are being paid pursuant to a “salary reduction agreement” within the meaning of Code section 3121(v)(1)(B). This ruling is addressed only to the taxpayer who requested it. Code section 6110(k)(3) provides that it may not be relied on or cited by others as precedent. Copies of this letter are being sent to your authorized representatives pursuant to powers of attorney on file with this office. Should you have any concerns regarding this letter, please contact. Sincerely yours, Donzell Littlejohn, Acting Manager, Employee Plans Technical Branch 1. cc: *****

I think what you are asking is whether there is a special advance notice requirement, similar to a 204(h) notice. The answer is no. I agree with the prior posters that it is good practice to notify participants as soon as possible, and of course do a SMM.

What kind of amendments? Are these unilateral interim amendments from a service provider for pre-approved plans, (many of which don't even need to be signed) or are they discretionary amenements or IDP plans?

I think maybe you are confusing a SIMPLE with a SEP? I agree that 1.415(g)-1(b)(3)(iv)(A) provides for he disqualification of the non-SEP first, as you mention, but a SIMPLE 401(k) is treated the same as any other DC plan for these purposes. Which eans, I think, that employer chooses, and if the employer doesn't choose, the Commissioner chooses.

Let's see. FWIW, I also have never thought much of the "subtrust" concept. I have grave doubts of its validity. Bird - as to the sale by the plan to the ILIT, this is permissible. PTE 92-6 was amended back in 2002 to allow it, assuming you satisfy the requirements. And I think there is no "transfer for value" issue if the sale is to a trust that meets certain requirements - however, like you, I'm rather foggy on that - the one time I looked into it years ago, the sale was to a grantor trust, and I did determine that a sale to a grantor trust that met certain requirements was treated as a sale to the insured, which was exempt from the transfer for value rule. I would most certainly tell them to speak with tax/legal counsel!!!

I love it! Thanks Tom.

I must confess to being a cult member as well.

Nope. I'd try another bank.

Can it go up? If the lump sum maximum for the limitation year in which the plan termination date falls is, (pick a number)- $1,000,000, and the benefit doesn't get paid for 2 or 3 years, is the $1,000,000 still the maximum, or could it be higher if the maximum is then, say, $1,100,000? Sorry if these are dumb questions.

Thanks Andy! This was very helpful, as I'm not an actuary, so I find some of these DB discussions challenging. You obviously don't wear glasses, as you need your ears to hold up the glasses, and therefore Tyson might be a bad choice...

ATA - thanks for the response. Pardon my ignorance, but are you saying that the value is "pegged" as of the plan termination date, or that it can change? And when you say "IRS has taken the position" - is this anything they have formally stated in some guidance? Or questoins from the podium, etc...?

Ok, so a DB plan terminates. Question is, what happens to the lump sum limit for 415 purposes? Is it set in stone as of the plan termination date? If the distribution isn't made until a year or two later when the termination is finally approved, does it go up or down based upon participant's new age and/or changes to 415 limits, etc.? Is there any formal answer to this, or only opinion? We're having a little informal discussion, and so far, it appears that there isn't any definitive guidance, only opinion.

I'm not entirely sure what you are asking, but I think perhaps you are taking an overly broad interpretation of the scope of the "non-reliance?" What the Revenue Procedure says is: (b) if the employer maintains or has ever maintained another plan covering some of the same participants, §§415 or 416. So what it is saying is that you can't rely on the VS advisory letter for 415 or top heavy. So I'd interpret this as just requiring operational compliance, which you undoubtedly do anyway. Not sure what others might think on this.

I did a search, and there's some conversation about this subject, but I'd like to see if anyone has changed or has additional opinions. Plan is a safe harbor match plan. Only two employees - one is HC and one is NHC. The NHC does NOT defer. For 2009, the employer forgot to contribute the SH match of $960.00 on his own behalf. Two (at least) possible interpretations. 1. Take the hard line, and say that since the SH match was not made by 12-31-2010, the plan fails safe harbor, and therefore must be tested with ADP, which would obviously fail. 2. Take the approach that not only is the above ridiculous, but isn't even permissible, as the plan can't provide that failure to contribute SH causes the plan to revert to ADP testing, so the safe harbor MUST be made. I say 2 is the way to go - correct under SCP as a significant error, as we are within the 2 year timeframe, and contribute the $960.00 match plus earnings. Votes?

Ah. Now I get it. Well, I'm not aware of any either.

See a good planning attorney. Is the beneficiary of the trust a spouse? There are a stack of PLR's allowing a rollover in such a situation for a spousal trust beneficiary, assuming of course all the i's and t's are handled properly, and the moon is in the proper section of the zodiac. I don't know if there are any similar rulings if you have a non-spousal beneficiary.

"FWIW - we only allow hardships based on the IRS' pre-defined reasons." Ditto.

Jpod - I think the "right to defer" notice is required under the QPSA regs. In other words, the plan can;t require a surviving spouse to receive the QPSA prior to the date the particpant would have attained age 62 or NRA. See 1.417(e)-1©.