Belgarath

We're hoping that this will be discussed more at the EA conference later this month. In spite of the assertion that "great deference" will ge given, I share the concerns that auditors won't necessarily agree. From a purely objective standpoint, age 55 is mostly crapola anyway. While there are of course exceptions, in our small plan market, the highly educated/highly paid professionals such as doctors, lawyers, accountants, etc., do NOT retire at 55. I think you'd be hard put to find much legitimate data to support such a retirement age in most of these cases. I'm only guessing, but I suspect it is precisely these types of cases that are the reason that 55 was NOT a safe harbor. Absent more guidance, we'll probably recommend to our clients that they switch to age 62, unless they sign a hold harmless on advice of their legal counsel. And since lawyers generally seem to just HATE to have their clients sign such a hold harmless, I think they will mostly switch to 62 and the problem is solved. Ditto for new plans.

I'm not quite sure I understand. At least as I understand things, a "horizontal plan termination" can occur where there is an increased possibility of reversion to the employer due to a change in formula or vesting. Since employee deferrals are 100% vested, this seems like a N/A to me. Or I guess my answer to your question would be "no." Maybe I'm just missing what you are asking.

Red Sox fans have a natural talent for composing laments.

Perhaps "An Octopus's Garden" would be a more appropriate lounging area for one of piscine heritage? Or maybe octopi eat fish, I don't know...so perhaps not such a great idea!

"Except as provided in the following sentence, all premiums payable for the plan year, and for all prior plan years, under the insurance or annuity contracts must have been paid before lapse. If the lapse has occurred during the plan year, the requirements of this subdivision will be considered to have been met if reinstatement of the insurance policy, under which the individual insurance contracts are issued, occurs during the year of the lapse and before distribution is made or benefits commence to any participant whose benefits are reduced because of the lapse." Obviously the above emphasis is mine. Well, 2006 is the plan year. The benefit is accrued for that plan year, and the level premium to fund that benefit is based upon that plan year - in other words, you have one premium amount due for each plan year - 2000, 2001, 2002, 2003, 2004, 2005, 2006. That's 7 premiums. I'm also assuming that the policy issue date was 12-31-2000, so that only 6 premiums have been paid prior to lapse, since the 2007 premium hasn't been paid. Maybe this is an unwarranted assumption? But running with that assumption...the "plan year" referred to in the first sentence of the reg is 2006. Ordinary life insurance policies lapse long before 9 months after the premium due date. So the premium wasn't paid before the lapse date. The second sentence wouldn't apply, because the lapse didn't occur during the "plan year" - it occurred during the next plan year (2007). Anyway, that's my thinking. Do you have any reason to believe that the reg should be interpreted otherwise?

Muchas Gracias!

I have a question regarding the 415 limits in DB plans - specifically (I think) under 1.415(f)-1. Lets say I have a business manufacturing widgets - 100% owned by me. I sponsor a DB plan for myself and my three employees. We go merrily along our way, and after 10 years or so, I liquidate or otherwise cease to operate the business, and terminate the plan. I then start a new business, selling portable lie detectors to be used when interviewing politicians. Do I have to count the benefits earned in my widget plan toward my 415 limits in my lie detector plan? And would it make any difference if the businesses were incorporated v. unincorporated? Although it seems a little "facts and circumstances" - it seems to me that if there's no continuation of prior plan, no CG/ASG issue, no relationship/continuation of prior business in my new business, that I don't have to count it. However, I'm far from certain that this is correct! Any responses appreciated!

If you get a yacht, you'll be a fish out of water. I would interpret 1.412(i)-1(b)(2)(v) to mean that it would fail to remain a 412(i) plan for 2006. I don't see how you could get to an answer of 2007 based upon this wording.

The odds are that either the employees are common law employees of the Dr. (facts and circumstances) OR they are in fact "leased employees" under IRC 414(n). I suppose they might not have satisfied the requirements under 414(n)(2)(B) and ©, but that's not generally the case. Austin - your brother-in-law may be covered under the leasing employer's plan, but UNLESS this plan satisfies the requirements of 414(n)(5), then he must be considered under the recipient employer's plan for eligibility and testing purposes. It very well may be possible to exclude him legally and still pass, but he must be included in the testing. As an aside, I've not yet seen a leasing company whose plan satisfies the safe harbor under 414(n)(5) - there may be some, I've just never seen one! Additionally, under 414(n)(1)(B), any contributions or benefits provided by the leasing company's plan that are attributable to services performed for the recipient employer, are considered as being provided by the recipient employer. I second Rcline's suggestion to scrutinize the document language - this will set out, very clearly I expect, exactly how they must be treated.

I believe that there is a fiduciary OBLIGATION to attempt to have the balance of the loan repaid. Certainly in a DB plan, or a DC plan with pooled funds, these are plan assets which should be repaid to the plan. On an individually directed account DC plan, this argument seems to make less sense, but I nevertheless believe that if push came to shove, the loan represents part of the participant's benefit, which the fiduciary has an obligation to preserve. I'm also assuming (and hoping for their sake) that the loan agreement does not provide that in the event of default, the repayment obligation is extinguished. I believe this could be determined to not be a bona fide loan, bringing in prohibited transaction/disqualification issues. I have not personally seen any enforcement action on defaulted loans in this situation, so the above may be largely theoretical, but I think prudence dictates that the Plan Administrator's recommendation be followed, and I also believe it is the correct choice. I don't see any regulatory support for NOT getting it repaid

Also see Revenue Procedure 2007-49, which modified (very slightly) RP 2006-27, Section 11.01, which will likely pertain to your situation.

I can't answer that - depends upon your document. Might require an amendment, might just be adding a new employer name and signature on the signature page, etc.

Oh joy! We just received our first one today. It didn't reference any previous DOL correspondence. However, like all yours, it was timely filed. (certified mail, return receipt!!!) I'm suspicious that they KNOW they have a screw-up there - they are making the process so easy (complete section I, and attach a copy of the form and mail it) which takes about 1 minute. It seems to me like they know there is a problem, but it would be too much work for THEM to fix it, so they dump it back on the client. And of course, if you had a client who didn't keep a copy of the signed form, then a cover letter is going to be necessary. Sigh...

Typically you would have them sign on as a participating employer. As far as service goes, (not vesting) there is some debate in the pension community. One side, which appears to be the majority (and I'm in this camp as well) is that as soon as Corporation B becomes part of the controlled group with A, then all service with B is counted for eligibility and vesting. A different view is that they only become employees as of the date the controlled group is formed, so their date of hire would be that date, not their original date of hire wiith Corporation B. You'll have to make your own judgements on this aspect - you can read 1.411(a)-(b)(3)(iv)(B) to arrive at the latter result, particularly if you read it fast. But read in conjunction with DOL reg 2530.210(d), I think you arrive at the former result instead. But as I said, their is some debate on this issue.

That depends. I would expect that this would normally show for 2005, but if they are prepared for a PS plan on a cash basis, for example, then it would be 2006. I think if you do a search you will find some prior threads on this subject.

I'm holding my breath, but we haven't (yet) had any of these. Has anyone tried contacting the IRS?http://www.irs.gov/help/article/0,,id=96730,00.html Or, The efast help line at 866-463-3278? Probably fruitless, I know, but it is all I can think of.

Yes it is ok, and would generally be annual additions for 2005. I'm assuming the contribution was actually made no later than 30 days after the end of the 404(a)(6) period - (which according to your post, they were.)

I agree with Mike. At least Revenue Procedure 2006-27 (Appendix A, .02) does provide for a "fix" - so one could possibly take the approach that at least the plan won't be disqualified if you make the contribution and it is subsequently audited, as long as you made it within the timeframes for SCP, depending upon whether "significan" or "insignificant" depending upon the demon facts and circumstances. However, if you are audited before you fix it, it brings you right back to...exactly what Mike said.

Yup. RR 2003-88. REV-RUL, PEN-RUL 19,948Z-11, Rev. Rul. 2003-88, I.R.B. 2003-32, August 11, 2003. Rev. Rul. 2003-88, I.R.B. 2003-32, August 11, 2003. Statute of limitations: Excise taxes: Defined benefit plans: Minimum funding standards: Accumulated funding deficiency: Unpaid liquidity shortfall. -- The IRS has provided guidance regarding the effect of Form 5500 and Form 5330 filings on the statute of limitations for excise taxes imposed due to the failure to meet defined benefit plan minimum funding standards under Code Sec. 412. Back references: ¶2905, ¶3135, ¶4085, ¶5405, ¶5430 and ¶7264. Part I Section 6501. --Limitations on Assessment and Collection (Also, §4971.) Rev. Rul. 2003-88 ISSUE What starts the running of the statute of limitations for purposes of the excise taxes imposed by §4971 of the Internal Revenue Code on failure to satisfy the minimum funding standards of §412? FACTS Employer X maintains a defined benefit pension plan ("the Plan") qualified under §401(a) that is subject to the requirements of §412. The Plan has an accumulated funding deficiency under §412 as of the end of the 2002 plan year. As a result, X is liable for the initial excise tax under §4971(a) for failure to meet the minimum funding standards. Form 5500 is timely filed for the Plan for the 2002 plan year and the form discloses the amount of the accumulated funding deficiency. However, X fails to file Form 5330 to report the excise tax liability on the accumulated funding deficiency. LAW AND ANALYSIS Section 4971 imposes excise taxes on the failure to satisfy the minimum funding standards of §412. The amount of the taxes, for which the employer is liable, is related to the amount of an accumulated funding deficiency, as defined in §412(a), and, in the case of a plan to which §412(m)(5) applies, to the amount of an unpaid liquidity shortfall under §4971(f). Although the determination of whether there is an accumulated funding deficiency is made at the end of the plan year, the tax on the accumulated funding deficiency is imposed for the taxable year (of the employer who maintains the plan) in which the plan year ends. Section 6501(a) provides that, except as otherwise provided in that section, the amount of any tax imposed by Title 26 of the United States Code (which includes §4971) shall be assessed within three years after the return was filed (whether or not the return was filed on or after the date prescribed), and no proceeding in court without assessment for the collection of the tax shall be begun after the expiration of that period. Section 6501(a) further provides that, for this purpose, the term "return" means the return required to be filed by the taxpayer. However, there are exceptions to the three year rule in §6501(a). Section 6501(e)(3) provides that, except as otherwise provided in §6501©, in the case of a return of a tax imposed under a provision of subtitle D (which includes §4971), if the return omits an item of the tax properly includible thereon that exceeds 25 percent of the amount of the tax reported thereon, the tax may be assessed, or a proceeding in court for the collection of the tax may be begun without assessment, at any time within six years after the return is filed. However, §6501(e)(3) also provides that in determining the amount of tax omitted from the return, there shall not be taken into account any amount of tax imposed by chapter 43 (which includes §4971) that is omitted from the return if the transaction giving rise to the tax is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the Treasury or his delegate of the existence and nature of the item. Section 6501© provides several rules that take precedence over the provisions of §6501(e)(3). Section 6501©(3) provides that in the case of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of the tax may be begun without assessment, at any time. Also, §6501©(4) provides that if both the taxpayer and the Secretary of the Treasury or his delegate have consented in writing before the expiration of the time prescribed in that section, the tax may be assessed at any time before the expiration of the period of extension. Section 6058(a) requires employers that maintain certain funded plans of deferred compensation, including plans qualified under §401(a), to file an annual information return. Section 301.6058-1(a)(1) of the Procedure and Administration Regulations provides that the annual return of the plan is the appropriate Annual Return/Report of Employee Benefit Plan (Form 5500 series). Section 54.6011-1(a) of the Excise Tax Regulations, however, requires any employer liable for tax under §4971 to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans. Generally, filing a Form 5500 does not start the §6501 statute of limitations for assessment for taxes. Absent a specific statutory or regulatory exception, Form 5500 is not designated for the reporting of tax. Section 6501(l)(1) provides an exception for taxes imposed by §4975. Section 6501(l)(1) states, in pertinent part, that for purposes of §4975, the return to be used for purposes of starting the running of the statute of limitations on assessments shall be the return filed by the plan for the year in which the act giving rise to the liability occurred. No such exception exists for §4971. Therefore, the general rule of §6501(a) applies. The return used for purposes of the statute of limitations for §4971 is Form 5330, as designated by §54.6011-1(a). Disclosure of information on Form 5500 does not commence the running of the statute of limitations under §6501 because only disclosure on the return required to report and pay the tax (Form 5330) is relevant. If an accumulated funding deficiency or unpaid liquidity shortfall is disclosed on the Form 5330 or in an attached statement, the statute of limitations for collecting the tax imposed by §4971 expires three years after the filing of the Form 5330 in which the deficiency or unpaid liquidity shortfall is disclosed. If an accumulated funding deficiency or unpaid liquidity shortfall is not disclosed on the Form 5330 or in a statement attached to the Form 5330, the statute of limitations on assessment is six years. However, either of these periods may be extended by a written agreement for an agreed-upon period of time. If Form 5330 has not been filed for a year in which an accumulated funding deficiency or unpaid liquidity shortfall occurs, the tax may be assessed, or a proceeding in court for the collection of the tax may be begun without assessment, at any time after the date prescribed for filing the return. In each case, the statute of limitations is determined without regard to whether the accumulated funding deficiency or unpaid liquidity shortfall has been disclosed on Form 5500. HOLDING The filing of Form 5330 starts the running of the statute of limitations for purposes of the excise taxes imposed by §4971 on failure to satisfy the minimum funding standards of §412. If an accumulated funding deficiency or unpaid liquidity shortfall is disclosed on Form 5330 or in an attached statement, the three-year statute of limitations of §6501(a) applies. However, if the deficiency or unpaid liquidity shortfall is not disclosed on Form 5330 or in an attached statement, the six-year statute of limitations of §6501(e)(3) applies. If Form 5330 is not filed for that year, §6501©(3) permits the tax to be assessed at any time after the date prescribed for filing the return. Because X has failed to file Form 5330 to disclose the accumulated funding deficiency, the tax under §4971 may be assessed, or a proceeding in court for the collection of the tax may be begun without assessment, at any time. DRAFTING INFORMATION The principal author of this revenue ruling is James Flannery of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans' taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Flannery may be reached at 1-202-283-9613 9888 (not a toll-free number).

I have a hazy memory that the excise tax SOL for a minimum funding failure starts running only upon filing a 5330, not the 5500. I'm not certain why I think that, so I guess I'll have to look it up.

But this gets tricky. Tom is the expert on this, so he may be able to elaborate, but I believe this gets into the "bottom up" or "targeted" QNEC's that were so significantly restricted in the final regs. The rules are a bit complicated, but you might want to take a look at 1.401(k)-2(a)(6). We took the coward's way out, and we don't do these types of QNEC's. For our plans, it just wasn't worth the hassle.

Cats rule! Dogs, like people, are subservient to them.

I agree with WDIK. See following from Revenue Procedure 2005-16. SECTION 19. EMPLOYER RELIANCE .01 Standardized M&P Plans - An employer adopting a standardized M&P plan may rely on that plan's opinion letter, except as provided in (1) through (3) and section 19.03 below, if the sponsor of such plan or plans has a currently valid favorable opinion letter, the employer has followed the terms of the plan(s), and the coverage and contributions or benefits under the plan(s) are not more favorable for highly compensated employees (as defined in §414(q)) than for other employees. (1) An employer may not rely on an opinion letter for a standardized plan with respect to the requirements of §§415 and 416, without obtaining a determination letter, if the employer maintains at any time, or has maintained at any time, another plan, including a standardized plan, that was qualified or determined to be qualified covering some of the same participants. For this purpose, a plan that has been properly replaced by the adoption of a standardized plan is not considered another plan. The plan that has been replaced and the standardized plan must be of the same type (e.g., both defined benefit plans) in order for the employer to be able to rely on the standardized plan with respect to the requirements of §§415 and 416 without obtaining a determination letter. In addition, an employer that adopts a standardized defined contribution plan will not be considered to have maintained another plan merely because the employer has maintained another defined contribution plan(s), provided such other plan(s) has been terminated prior to the effective date of the standardized plan and no annual additions have been credited to the account of any participant under such other plan(s) as of any date within a limitation year of the standardized plan. Likewise, an employer that adopts a standardized defined contribution plan that is first effective on or after the effective date of the repeal of §415(e) will not be considered to have maintained another plan merely because the employer has maintained a defined benefit plan(s), provided the defined benefit plan(s) has been terminated prior to the effective date of the standardized defined contribution plan. (2) An employer that has adopted a standardized defined benefit plan may rely on an opinion letter with respect to the requirements of §401(a)(26) only if the plan satisfies the requirements of §401(a)(26) with respect to its prior benefit structure or is deemed to satisfy §401(a)(26) under the regulations. However, an employer may request a determination letter if the employer wishes to have reliance as to whether the plan satisfies §401(a)(26) with respect to its prior benefit structure. (3) An employer that adopts a standardized plan may not rely on an opinion letter with respect to: (a) whether the timing of any amendment to the plan (or series of amendments) satisfies the nondiscrimination requirements of §1.401(a)(4)-5(a), except with respect to plan amendments granting past service that meet the safe harbor described in §1.401(a)(4)-5(a)(3) and are not part of a pattern of amendments that significantly discriminates in favor of highly compensated employees; or (b) whether the plan satisfies the effective availability requirement of §1.401(a)(4)-4© with respect to any benefit, right, or feature. An employer that adopts a standardized plan as an amendment to a plan other than a standardized plan may not rely on an opinion letter with respect to whether a benefit, right, or feature that is prospectively eliminated satisfies the current availability requirements of §1.401(a)(4)-4 of the regulations. Such an employer may request a determination letter if the employer wishes to have reliance as to whether the prospectively eliminated benefit, right, or feature satisfies the current availability requirements. .02 Nonstandardized M&P Plans and Volume Submitter Plans - An employer adopting a nonstandardized M&P or volume submitter plan may rely on that plan's opinion or advisory letter as described below if the employer's plan is identical to an approved M&P or specimen plan with a currently valid favorable opinion or advisory letter, the employer has chosen only options permitted under the terms of the approved plan, and the employer has followed the terms of the plan. Also see section 19.03(3) below. These employers can forego filing Form 5307 and rely on the plan's favorable opinion or advisory letter with respect to the qualification requirements, except as provided in section (1) through (4) and section 19.03 below. (1) Except as provided in section 19.03(2), (3) and (4), adopting employers of nonstandardized M&P plans and volume submitter plans may not rely on a favorable opinion or advisory letter with respect to the requirements of: (a) §§401(a)(4), 401(a)(26), 401(l), 410(b) or 414(s); or (b) if the employer maintains or has ever maintained another plan covering some of the same participants, §§415 or 416. For this purpose, whether an employer maintains or has ever maintained another plan will be determined using principles consistent with section 19.01 above. (2) Adopting employers of nonstandardized M&P plans and volume submitter plans may rely on the opinion or advisory letter with respect to the requirements of §§410(b) and 401(a)(26) (other than the §401(a)(26) requirements that apply to a prior benefit structure) if 100 percent of all nonexcludable employees benefit under the plan. (3) Nonstandardized M&P plans must give adopting employers the option to elect a safe harbor allocation or benefit formula and a safe harbor compensation definition. Adopting employers of nonstandardized M&P plans that elect a safe harbor allocation or benefit formula and a safe harbor compensation definition may rely on an opinion letter with respect to the nondiscriminatory amounts requirement under §401(a)(4). Adopting employers of nonstandardized M&P plans that are §401(k) and/or §401(m) plans may rely on an opinion letter with respect to whether the form of the plan satisfies the actual deferral percentage test of §401(k)(3) or the actual contribution percentage test of §401(m)(2) if the employer elects to use a safe harbor definition of compensation in the test. Adopting employers of nonstandardized M&P plans described in §401(k)(11) and/or §401(m)(12) may rely on an opinion letter with respect to whether the form of the plan satisfies these requirements unless the plan provides for the safe harbor contribution to be made under another plan. (4) A VS plan may give an adopting employer the ability to select an allocation formula for the employer non-elective contribution which satisfies one of the designbased safe harbors in §1.401(a)(4)-2(b)(2) or a benefit formula which satisfies one of the design-based safe harbors under §1.401(a)(4)-3(b)(3), (4), or (5), and the ability to select a safe harbor compensation definition for such formula which satisfies §1.414(s)-1©. If the adopting employer selects (utilizes) such formula and compensation definition, then the adopting employer may rely on an advisory letter with respect to the nondiscriminatory amounts requirement under §401(a)(4). .03 Other Limitations and Conditions on Reliance - The following conditions and limitations apply with respect to both M&P and VS plans: (1) An adopting employer can rely on a favorable opinion or advisory letter for a plan that amends or restates a plan of the employer only if the plan that is being amended or restated was qualified. (2) An adopting employer has no reliance if the employer's adoption of the plan precedes the issuance of an opinion or advisory letter for the plan. (3) An adopting employer can rely on an opinion or advisory letter only if the requirements of this section 19 are met, and the employer's plan is identical to an approved M&P or specimen plan with a currently valid favorable opinion or advisory letter; that is, the employer has not added any terms to the approved M&P or VS plan and has not modified or deleted any terms of the plan other than choosing options permitted under the plan or, in the case of an M&P plan, amended the document as permitted under section 5.06 or 5.09 or, in the case of a VS plan, modified the document as permitted under sections 14 and 15. Thus, for example, in the case of a VS plan, the employer's plan must be identical to the approved specimen plan except as the result of the employer's selection among options that are permitted under the terms of the approved specimen plan and modifications permitted under sections 14 and 15. (4) An employer's plan will not fail to be identical to an approved M&P or specimen plan merely because the employer modifies or amends the plan to: (a) Add or change a provision and/or to specify or change the effective date of a provision, provided the employer is permitted to make the modification or amendment under the terms of the approved M&P or specimen plan as well as under §401(a), and, except for the effective date, the provision is identical to a provision in the approved plan. Thus, an employer is not required to restate its M&P or volume submitter plan in order to change options under the plan or to specify different effective dates. Also see section 5.02, which limits an employer's ability to amend an M&P plan without causing the plan to be treated as an individually designed plan, and section 5.11, which requires the employer to complete a new signature page when the employer changes options in an M&P adoption agreement. (b) Correct obvious and unambiguous typographical errors and/or crossreferences that merely correct a reference but that do not in any way change the original intended meaning of the provisions. No such changes may affect any qualification requirements of the plan. The Service in its discretion may determine that any such changes are not considered identical. © Adopt model, sample or other required good faith amendments that specifically provide that their adoption by an adopter of a VS and or M&P plan will not cause the plan to be treated as an individually designed plan or cause the plan to fail to be "identical" to the approved M&P or specimen plan within the meaning of this section. (5) An adopting employer cannot rely on an opinion or advisory letter if the adopting employer has modified the terms of the plan's approved trust in a manner that would cause the plan to fail to be qualified. .04 Reliance Equivalent to Determination Letter - If an employer can rely on a favorable opinion or advisory letter pursuant to this section, the opinion or advisory letter shall be equivalent to a favorable determination letter. For example, the favorable opinion or advisory letter shall be treated as a favorable determination letter for purposes of section 21 of Rev. Proc. 2005-6, regarding the effect of a determination letter, and section 5.01(4) of Rev. Proc. 2003-44, regarding the definition of "favorable letter" for purposes of the Employee Plans Compliance Resolution System. Of course, the extent of the employer's reliance may be limited, as provided above.

The latter option.

Right, it is for limitation years ending in the calendar year. So a DC plan with a 7-1-06 to 6-30-07 limitation year would have a 415 limit of $45,000.