Belgarath

My concern is based upon requirement #4 as stated in the preamble to the regulations, which says "...(4)the plan is amended to provide that the ADP test will be satisfied for the entire plan year in which the reduction or suspension occurs, using the current year testing method;..." I suppose it depends upon how you want to interpret this requirement. The resonable interpretation is as y'all have suggested - you amend so it is no longer safe harbor, and you therefore have to test based upon the existing plan language for a non safe harbor. But we're thinking ahead to plan termination, and we've had a lot of trouble with the IRS idiots in plan termination who don't know anything, as I've posted before. We can anticipate problems where they might want such language pulled into an entire separate amendment. Am I just being overly paranoid? Sieve - we'd be concerned with reliance on a favorable opinion/advisory letter as a determination letter for any purposes where it might matter.

I'm soliciting opinions on this. Most plans that provide for a safe harbor nonelective (or match, for that matter) will be either prototype or Volume Submitter plans. Technically, this is not a required amendment. So if a plan sponsor adopts it, will this remove the plan from prototype or VS status? Common sense would be that it would not. This new relief in the proposed regulations is predicated upn the idea that it is better to have an employer continue to maintain a plan, rather than have to terminate it. Yet many small employers, when faced with filing for a determination letter, would simply opt to terminate the plan. When they truly have a business hardship, they surely won't want to pay extra fees associated with "custom" documents. Any thoughts on this issue? Anyone discussed this with the IRS yet? Many thanks.

No, since this is a DB plan, (and therefore no suspension of the RMD requirement for 2009 distributions) the RMD amount is not eligible for rollover. The normal rules under 1.401(a)(9)-7 still apply. I think it is Q&A-3 you want, but you should check that - I'm going from memory. P.S. - so yes, the RMD is needed, in answer to your title line question. Didn't want you to think the "no" above meant that no RMD was required.

Yes, assuming you also satisfy all other requirements to eligible for EZ filing.

Assuming the plan itself doesn't restrict it, there's no requirement that it come only from employer $$.

From the Federal Register, Volume 72, No. 221/Friday, November 16, 2007/Notices. Emphasis is mine. Short plan year filings for 2009 plan years and filings for DFEs for 2009 reporting years will be subject to a special transition rule. The instructions to the Form 5500 Annual Return/Report advise filers that the due date for their Form 5500 for a plan year of less than 12 months (short plan year) is the last day of the 7th month after the short plan year ends. For purposes of determining the filing deadline, the instructions state that a short plan year ends on the date of the change in accounting period or upon the complete distribution of assets of the plan in the case of terminated or merged plans. For DFE filings, the instructions provide that DFEs (other than GIAs) must file 2009 return/reports no later than nine and one half months after the end of the DFE year that ended in 2009, and the 2009 Form 5500 must report information for the DFE year (not to exceed 12 months in length). The Agencies historically have permitted short plan year filers and DFEs to use the prior year’s forms if the current year forms are not available by the plan's or DFE's filing due date. The Agencies expect that, in some cases, filings for 2009 short plan years and DFE filings for 2009 reporting years (e.g., if the DFE year differs from the 2009 calendar year) may be due during 2009 and before the January 1, 2010, date on which the new EFAST2 wholly electronic filing system is expected to become operational for return/report filing purposes. Plans filing for 2009 short plan years and DFEs filing for 2009 reporting years will have the option of using the 2008 Form 5500 Annual Return/Report forms and filing for 2009 under the current EFAST filing system if they file before the date the new EFAST2 electronic filing system becomes operational. Alternatively, plans whose due date for their 2009 short plan year filing and DFEs whose due date for their 2009 reporting year filing falls before the new EFAST2 system becomes operational but who want to file electronically under the new EFAST2 system will be granted an automatic extension until after the EFAST2 system becomes operational in which to file. The Agencies intend to describe the terms and conditions for the automatic extension in the instructions for the 2008 Form 5500 Return/Report. http://www.dol.gov/ebsa/regs/fedreg/notices/20071116.pdf

First, because it is money purchase funds (pension funds) that doesn't necessarily require an annuity form of payment - it may just subject it to QJSA/QOSA requirements, which can be waived with signoff and spousal consent. But in answer to your question - yes, if there were any required spousal sign-off, then the funds could be rolled over to an IRA with an insurance carrier and annuitized. I suppose that the "advantage" (if there is one) to the plan annuity option is that a participant who isn't financially savvy could rely on the plan for an annuity payment, placing liability on the plan fiduciary rather than on the participant. This is a potential advantage to a participant, but not to the plan sponsor/fidiciary, so I would presume that most small DC plans wouldn't provide it, other than QJSA/QOSA requirements? Our DC plans don't offer the annuity option, other than QJSA/QOSA.

Tom - yes, I agree. Kevin - I'm guessing (and I stress the word guessing, because my conversation didn't include a scenario such as you provide) that the IRS sees it as an issue of "fairness" in that the NHC do not have an opportunity to reach the maximum in a relatively short period, whereas the highly paid folks do (or might). I don't know what would happen on the 411(d)(6) issue - while the IRS might choose not to pursue it, I suspect a participant could perhaps successfully pursue a claim if deprived of an accrued benefit as you suggest. And your point about a reduction rather than outright suspension is well taken. Again, my conversation did not address a reduction. All of our inquiries from clients have been for an outright suspension, so I didn't really think much about a reduction. Perhaps once they have digested the initial blitz of questions, the IRS will issue a bit of clarification. 'Twould be nice.

Generally yes. Possible that all or a part could be basis, such as defaulted loan that was subsequently repaid, or qualified Roth distribution, for example. But the 200.00 threshhold does not prevent an otherwise taxable distribution from remaining a taxable distribution.

I just spoke with Lisa Mojiri-Azad - one of the authors of the regulation, regarding this subject. I'd first like to caveat this by saying I would strongly recommend that you call her with questions in case I have misquoted or misunderstood what she said. Having thus properly forewarned you: She was extremely pleasant and helpful - but she seemed quite surprised at the number of questions that this issue has generated. The gist was, based upon MY scenario which did NOT freeze the plan or provide for any short plan/limitation year... As Sieve has suggested, she confirmed that if the plan remains ongoing for all other purposes, and the only change is to reduce or eliminate the safe harbor nonelective, then the comp would be prorated for purposes of the 3% nonelective only. It would not be prorated for 415, 401(a)(4), or ADP purposes.

"So, it seems to me that, under that preamble statement, in a amendment or suspension situation you'd use prorated comp for the period of time that the SH non-elective contribution is made (see Prop. Treas. Reg. Sections 1.401(k)-3(g)(ii)(G) & 1.401(m)-3(h)(ii)(G)) and also for the period of time when any reduced elective contribution is made, and for the period of time each level of match is made (see Prop. Treas. Reg. Sections 1.401(k)-3(g)(i)(E) & 1.401(m)-3(h)(i)(E)), but not for ADP or for Section 415." And not for 401(a)(4) either, I presume?

John - this brings up a question re jurisdiction. It is possible for an employer to file for a determination letter with the IRS to get a ruling on whether a PPT has, in fact. occurred. Termination for cause might be a mitigating factor that they would accept. In your situation, let us suppose that the IRS did make a formal determination that no PPT had taken place. What happens then? Is the DOL bound by the IRS? Do they have any "agreement?" At a guess, the IRS ruling would stand for plan qualification purposes, and the DOL would still litigate...

Wow, I'm not sure I know enough about the securities world to even ask the question right, but here goes. Edit is because I've cleared up the terminology that I should be using, which may make the question less confusing. Suppose you have Mr. A, who is a registerd representative with Merrill Lynch. So apparently, if he sells a client some mutual funds with, say, Fidelity, it is through Merrill Lynch as his broker-dealer. Let's say the commissions payable by Fidelity equal $10,000, and are paid to Merrill Lynch. Merrill Lynch takes a cut of $500.00, and pays the balance of $9,500.00 to Mr. A. When it comes to reporting this on the Schedule C, is it acceptable to merely list Merrill Lynch for $10,000? Or should Merrill Lynch be listed for $500.00 and Mr. A for $9,500.00? I'm finding this very confusing. The DOL FAQ's didn't clear up this question for me, but that's possibly because I understand so little about how the securities world really works. Second question - suppose a TPA has an alliance with an outside mutual fund company, which also has a recordkeeping platform. The client puts 1 million with the mutual fund company. The mutual fund company then pays the TPA some sort of finders fee, or asset based, fee, whatever, of $1,000.00. But the TPA must turn around and pay the mutual fund company $800.00 for recordkeeping services. Does the Schedule C show: a. $1,000 to the TPA b. $1,000 to the TPA and $800 to the mutual fund company c. a net of $200 to the TPA and $800 to the mutual fund company d. $1,000 to the TPA and $800.00 to the mutual fund company e. other b & d both seem wrong, as they seem to double up and show an artificially high amount. I'd lean towards a. Thoughts?

1. Yes. Seems "unfair" to consider something a RMD when you haven't actually attained age 70-1/2 when you take the distribution, but that's how it works. See 1.402©-2, Q&A-7(b). 2. In this situation, 1.401(a)(9)-6, Q&A-1(d) gives you two options for calculating the RMD that is thus ineligible for rollover. The Q&A will give you the specifics, but yes, you should be able to use the uniform lifetime table and calculate as you propose. I'm assuming she is no more than 10 years younger than Jack?

FWIW - I think you must make the RMD, but just under SCP - and pay the penalty tax. I think you'd only use VCP if the facts and circumstances dictated that SCP was not available. And you could then request a waiver of the excise tax as part of the VCP filing.

Kind of an interesting question. See 1.401(a)(31)-1, Q&A-11. It seems to me that if, as in the case Wolfman originally discussed, the plan does not permit rollovers of <200, (which is permissible) then no 402(f) notice need be distributed to those participants. However, if the plan DOES permit rollovers of these small amounts, since they are in fact eligible rollover distributions under 402©, (because 402© does not exempt these amounts from the definition) then the notice must still be provided.

John - I'm sorry, but I'm just not getting the flow of your question. "So we do not have identity between who is obligated on the note and who owns it as an asset." But doesn't the plan own the outstanding loan as an asset? It isn't an "asset" that may be potentially assumed by another party - at least not in any plan I've ever seen. What I've seen is that the account balance is first automatically offset by the outstanding loan, and whatever is left is distributed to the named beneficiaries - in this case, the daughter and the wife#2. If you somehow get past all this, or have a plan with different terms than I'm accustomed to, then I'm jut not sure of the answer. My gut says no, but without doing some research, I have no sound basis for my gut reaction. How's that for a useless answer!

I'm confused as well - thinking more along the lines of Bird. Does the plan provide that upon death, the account balance is reduced by the outstanding loan? If so, then does this question become moot?

J Simmons et al - I must apologize, because I see I haven't been including enough information. In this case, the participant had named the spouse as beneficiary, but the spouse died several years ago, and the participant never updated a beneficiary designation. The plan provides that if there is no valid beneficiary designation at death, it is the spouse, and if there is no spouse, then it is the estate. Thanks for the fee estimate. Would you care to venture a guess as to the chances of success? I'm not terribly sanguine about it, but that's really an uneducated guess. Seems like a longshot...

Sieve - while I readily admit my ignorance of estate law, I'm not sure I understand. There was no "designated beneficiary" named, (sorry, I see I forgot to mention this!) so the default beneficiary under the plan is the estate. Since there is no will, wouldn't it then pass under state intestacy laws? How else could it possibly be allocated? And I don't agree that the PLR's (some of them, anyway) don't deal with intestate situations. See, for example, 9752072. There are others as well. Hence I revert to my original question for the time being. Thoughts?

Does the plan have an hours requirement to accrue a benefit? If so - say it is 500 hours, and the freeze takes place prior to anyone getting the 500 hours, then isn't the compensation irrelevant?

We've recently had a couple of DOL audits on plans - one where the Trustees took a lot of money out of the plan and apparently didn't pay it out to the participants - (fortunately not until a couple of years after they terminated services with us!) and another where we never did know what the reason was - could have been random for all we know. They wanted information going back as far as 2002, as I recall. That was a lot of fun, since they want it all organized into the various categories they specify. The temptation is strong to just copy the whole file, send it to them, and let them organize it themselves! However, better not to "poke the bear" so we restrained our baser instincts.

Individual dies intestate, with substantial IRA and Qualified plan funds. Possibly in the state of Texas, if that makes any difference. This is completely unrelated to any plan for which we do TPA work, so I have no vested interest in any potential answer. Here's my question - under the language of the statute/guidance, the sons could not roll over to an "inherited" IRA for RMD purposes. There are many PLRS allowing a SPOUSE to do a rollover in this situation. Since the non-spousal rollovers are relatively new, it doesn't surprise me that there are no PLR rulings (that I'm aware of) for a similar nonspousal situation. My question, for any of you tax attorneys who care to take a stab, is this: (A) - what is your guess as to the liklihood of success in applying for a favorable PLR ruling allowing a non-spousal rollover? (B) - not asking you to reveal your fee structure, but if you were to make a guess on a reasonable range of attorney fees and IRS fees to apply for such a PLR, what might that be? For example, less than $10,000? $10-20,000? More? Many thanks for any input. (Edit was for a typo)

I think it is very unlikely that the IRS would permit a retroactive amendment to conform the document to permitted disparity allocations, when the document was previously amended to provide otherwise. The employer is stuck with paying the make-up amounts to make the participants whole. Whether the employer then attempts to collect from another party is a separate matter.

In the scenario you describe, the plan wouldn't pass coverage testing if the only eligible NHC is excluded.