Belgarath

Just a wild thought for a Monday morning (oops, Tuesday) - is your client the only person required to be bonded? If so, and presuming he/she has no intention of absconding with the funds, why not take the 300 bond? (assuming the quote is valid - but I doubt it is...) Without taking the time to really analyze this issue, my off the cuff thought is that if I'm the one purchasing the bond, and I'm the only person being bonded, I'd get the cheapest bond I could find - since I'm not going to steal the money, I'll never collect on the bond, and whether the company is financially unsound, etc. - as long as they are on the list of acceptable companies, then I don't care about the quality of coverage. Very different from purchasing any other type of insurance, where I am generally the one being protected. Now, if there is another fiduciary that must be bonded as well, then, then it is a whole different ball game.

There's no such thing as too much wine. Try this at the next medical society meeting - posit that the liver is a muscle, and therefore must be exercised regularly to be healthy. (Might be scary if some of them agree) Andy - I agree wacky, but I've actually seen this a couple of times where there are several HC that are not also keys. Always throws me for a loop because I have a horrible tendency to treat the two as identical, which they generally are in our plans, but not always...

This sounds suspiciously like a RIA paragraph reference to a writeup/analysis of the PPA '06. I'd ask the accountant for a copy of the reference. And part of it says, "As under present law, for purposes of determining the excise tax on nondeductible contributions, matching contributions to a defined contribution plan that are nondeductible solely because of the overall deduction limit are disregarded." Anyway, you'd want to look at IRC 404 as amended by Section 803 of PPA '06. Hope this helps.

Sorry, but I don't necessarily agree that the distribution must take place in 5 years. Assuming (always dangerous to assume) that the surviving spouse is the sole beneficiary, see 1.401(a)(9)-3, Q&A-3(b)(2). Assuming the plan allows it, I don't see why she couldn't leave it in the plan, and withdraw as needed and permitted by the plan.

Well, perhaps one of the true SIMPLE gurus like Gary Lesser will chime in at some point, but IMHO... I think the effective date provision is to specifically allow either plans for new new employers, or new plans for existing employers, to be instituted after the beginning of the calendar year. As far as deferrals, I agree that you can't defer (for W-2 employees) based upon compensation prior to the effective date of the plan. However, I'd say that for the employer match, which is dollar for dollar up to 3% of compensation, that this compensation would be besed upon the ENTIRE calendar year compensation, and not limited to comp during the "short" initial year. I don't see any way around this.

Yes, I agree. Of course, my opinion and a dollar are still only worth a dollar, so caveat emptor!

I think it is permitted under 10.05. This seems to apply to your situation, where there are multiple entitities but only one plan. So if the parent's EIN is used for the 5500 filing, then the remedial amendment cycle is determined by the last digit of the EIN for that parent corporation, and that corporation only. I don't think 10.07 is the applicable section in this situation, if I'm reading it correctly. So I'm saying that you cannot make the determination that you can't use the EIN of the parent. Which I think is agreeing with you.

Yes, there's a potential problem. One of the requirements for eligibility is that the employer does not "...maintain during any part of the calendar year another qualified plan with respect to which contributions are made, or benefits accrued, for service in the calendar year." (My emphasis) So if a contribution is made for the PS plan year ending 6-30-07, this requirement isn't satisfied, and they cannot have a Simple plan for 2007. If there are no contributions to the PS plan, then you aren't using the "same" compensation twice, and therefore you should be fine for a Simple plan beginning 7-1-07.

I'll toss out my opinion here. Since you have specific statutory/regulatory requirements as to the allowable methods of correcting failures, and since your proposed method is not one of those allowable corrections, then you can't do it, or at least the plan can't explicitly provide for it. I suppose you might be able to somehow get the "net effect" by distributing and then increasing deferred comp by that amount, depending upon timing, but that's purely speculative on my part - I really don't know.

I'd go back and check the document/adoption agreement again. I've never seen a document that doesn't specify what death benefit options are available to beneficiaries.

See Section V of IRS Notice 2007-7. V. SECTION 829 OF PPA '06 Under § 402©(11) of the Code, which was added by § 829 of PPA '06, if a direct trustee-to-trustee transfer of any portion of a distribution from an eligible retirement plan is made to an individual retirement plan described in § 408(a) or (b) (an "IRA") that is established for the purpose of receiving the distribution on behalf of a designated beneficiary who is a nonspouse beneficiary, the transfer is treated as a direct rollover of an eligible rollover distribution for purposes of § 402©. The IRA of the nonspouse beneficiary is treated as an inherited IRA within the meaning of § 408(d)(3)©. Section 402©(11) applies to distributions made after December 31, 2006. Q-11. Can a qualified plan described in § 401(a) offer a direct rollover of a distribution to a nonspouse beneficiary? A-11. Yes. Under § 402©(11), a qualified plan described in § 401(a) can offer a direct rollover of a distribution to a nonspouse beneficiary who is a designated beneficiary within the meaning of § 401(a)(9)(E), provided that the distributed amount satisfies all the requirements to be an eligible rollover distribution other than the requirement that the distribution be made to the participant or the participant's spouse. (See § 1.401(a)(9)-4 for rules regarding designated beneficiaries.) The direct rollover must be made to an IRA established on behalf of the designated beneficiary that will be treated as an inherited IRA pursuant to the provisions of § 402©(11). If a nonspouse beneficiary elects a direct rollover, the amount directly rolled over is not includible in gross income in the year of the distribution. See § 1.401(a)(31)-1, Q&A-3 and-4, for procedures for making a direct rollover. Q-12. Can other types of plans offer a direct rollover of a distribution to a nonspouse beneficiary? A-12. Yes. Section 402©(11) also applies to annuity plans described in § 403(a) or (b) and to eligible governmental plans under § 457(b). Q-13. How must the IRA be established and titled? A-13. The IRA must be established in a manner that identifies it as an IRA with respect to a deceased individual and also identifies the deceased individual and the beneficiary, for example, "Tom Smith as beneficiary of John Smith." Q-14. Is a plan required to offer a direct rollover of a distribution to a nonspouse beneficiary pursuant to § 402©(11)? A-14. No. A plan is not required to offer a direct rollover of a distribution to a nonspouse beneficiary. If a plan does offer direct rollovers to nonspouse beneficiaries of some, but not all, participants, such rollovers must be offered on a nondiscriminatory basis because the opportunity to make a direct rollover is a benefit, right, or feature that is subject to § 401(a)(4). In the case of distributions from a terminated defined contribution plan pursuant to 29 C.F.R. § 2550.404a-3(d)(1)(ii), the plan will be considered to offer direct rollovers pursuant to § 402©(11) with respect to such distributions without regard to plan terms. Q-15. For what purposes is the direct rollover of a distribution by a nonspouse beneficiary treated as a rollover of an eligible rollover distribution? A-15. Section 402©(11) provides that a direct rollover of a distribution by a nonspouse beneficiary is a rollover of an eligible rollover distribution only for purposes of § 402©. Accordingly, the distribution is not subject to the direct rollover requirements of § 401(a)(31), the notice requirements of § 402(f), or the mandatory withholding requirements of § 3405©. If an amount distributed from a plan is received by a nonspouse beneficiary, the distribution is not eligible for rollover. Q-16. If the named beneficiary of a decedent is a trust, is a plan permitted to make a direct rollover to an IRA established with the trust as beneficiary? A-16. Yes. A plan may make a direct rollover to an IRA on behalf of a trust where the trust is the named beneficiary of a decedent, provided the beneficiaries of the trust meet the requirements to be designated beneficiaries within the meaning of § 401(a)(9)(E). The IRA must be established in accordance with the rules in Q&A-13 of this notice, with the trust identified as the beneficiary. In such a case, the beneficiaries of the trust are treated as having been designated as beneficiaries of the decedent for purposes of determining the distribution period under § 401(a)(9), if the trust meets the requirements set forth in § 1.401(a)(9)-4, Q&A-5, with respect to the IRA. Q-17. How is the required minimum distribution (an amount not eligible for rollover) determined with respect to a nonspouse beneficiary if the employee dies before his or her required beginning date within the meaning of § 401(a)(9)©? A-17. (a) General rule. If the employee dies before his or her required beginning date, the required minimum distributions for purposes of determining the amount eligible for rollover with respect to a nonspouse beneficiary are determined under either the 5- year rule described in § 401(a)(9)(B)(ii) or the life expectancy rule described in § 401(a)(9)(B)(iii). See Q&A-4 of § 1.401(a)(9)-3 to determine which rule applies to a particular designated beneficiary. Under either rule, no amount is a required minimum distribution for the year in which the employee dies. The rule in Q&A-7(b) of § 1.402©-2 (relating to distributions before an employee has attained age 70 1/2) does not apply to nonspouse beneficiaries. (b) Five-year rule. Under the 5-year rule described in § 401(a)(9)(B)(ii), no amount is required to be distributed until the fifth calendar year following the year of the employee's death. In that year, the entire amount to which the beneficiary is entitled under the plan must be distributed. Thus, if the 5-year rule applies with respect to a nonspouse beneficiary who is a designated beneficiary within the meaning of § 401(a)(9)(E), for the first 4 years after the year the employee dies, no amount payable to the beneficiary is ineligible for direct rollover as a required minimum distribution. Accordingly, the beneficiary is permitted to directly roll over the beneficiary's entire benefit until the end of the fourth year (but, as described in Q&A-19 of this notice, the 5-year rule must also apply to the IRA to which the rollover contribution is made). On or after January 1 of the fifth year following the year in which the employee died, no amount payable to the beneficiary is eligible for rollover. © Life expectancy rule. (1) General rule. If the life expectancy rule described in § 401(a)(9)(B)(iii) applies, in the year following the year of death and each subsequent year, there is a required minimum distribution. See Q&A-5©(1) of § 1.401(a)(9)-5 to determine the applicable distribution period for the nonspouse beneficiary. The amount not eligible for rollover includes all undistributed required minimum distributions for the year in which the direct rollover occurs and any prior year (even if the excise tax under § 4974 has been paid with respect to the failure in the prior years). See the last sentence of § 1.402©-2, Q&A- 7(a). (2) Special rule. If, under paragraph (b) or © of Q&A-4 of § 1.401(a)(9)-3, the 5-year rule applies, the nonspouse designated beneficiary may determine the required minimum distribution under the plan using the life expectancy rule in the case of a distribution made prior to the end of the year following the year of death. However, in order to use this rule, the required minimum distributions under the IRA to which the direct rollover is made must be determined under the life expectancy rule using the same designated beneficiary. Q-18. How is the required minimum distribution with respect to a nonspouse beneficiary determined if the employee dies on or after his or her required beginning date? A-18. If an employee dies on or after his or her required beginning date, within the meaning of § 401(a)(9)©, for the year of the employee's death, the required minimum distribution not eligible for rollover is the same as the amount that would have applied if the employee were still alive and elected the direct rollover. For the year after the year of the employee's death and subsequent years, see Q&A-5 of § 1.401(a)(9)-5 to determine the applicable distribution period to use in calculating the required minimum distribution. As in the case of death before the employee's required beginning date, the amount not eligible for rollover includes all undistributed required minimum distributions for the year in which the direct rollover occurs and any prior year, including years before the employee's death. Q-19. After a direct rollover by a nonspouse designated beneficiary, how is the required minimum distribution determined with respect to the IRA to which the rollover contribution is made? A-19. Under § 402©(11), an IRA established to receive a direct rollover on behalf of a nonspouse designated beneficiary is treated as an inherited IRA within the meaning of § 408(d)(3)©. The required minimum distribution requirements set forth in § 401(a)(9)(B) and the regulations thereunder apply to the inherited IRA. The rules for determining the required minimum distributions under the plan with respect to the nonspouse beneficiary also apply under the IRA. Thus, if the employee dies before his or her required beginning date and the 5-year rule in § 401(a)(9)(B)(ii) applied to the nonspouse designated beneficiary under the plan making the direct rollover, the 5-year rule applies for purposes of determining required minimum distributions under the IRA. If the life expectancy rule applied to the nonspouse designated beneficiary under the plan, the required minimum distribution under the IRA must be determined using the same applicable distribution period as would have been used under the plan if the direct rollover had not occurred. Similarly, if the employee dies on or after his or her required beginning date, the required minimum distribution under the IRA for any year after the year of death must be determined using the same applicable distribution period as would have been used under the plan if the direct rollover had not occurred.

Ditto!

IRC 72(t).

Full calendar year. There is no short plan year/compensation period provision in 408(p).

Yeah, we'll just agree to disagree on this one. You may be right. I'd maintain that they can't possibly be "late" if they can't be deposited into the plan, and they can't be deposited into the plan until the income can be known, because you can't "defer" income until you have income. And it may turn out that income is lower than the amount already deposited. But heck, whatever works. At this point at least, I think this is one of those esoteric questions that we TPA's love to debate, which the IRS/DOL don't appear to find of any particular concern. Yet... A Happy and Healthy Holiday Season and New Year to all! (I'm out from this afternoon to January 2, so I'm in a rather jovial mood this morning. No amount of wandering through obscure regulations can disturb my equanimity today.)

We have, on rare occasions, had a client or CPA who got in a snit and refused to file for an EIN. That's their right, but we just tell them to go elsehwere for their plan administration. Life is too short, and a plan that starts on this kind of basis is generally a losing proposition from the start!

Wsp - Rcline and I are talking about the Employer id #. The Trust id# is a separate thing, (or EIN for the trust, whatever terminology you choose to use - we find it less confusing for our clients to discuss the issue in terms of TIN's and EIN's) and yes, I agree they would want a separate TIN regardless of what they choose to do for an EIN. The investments would be registered under the TIN.

I agree with MJB. It isn't always reasonable to do it earlier, (yes, I know, the DOL isn't noted for being reasonable) but I, too, have yet to hear from any credible source that this practice has been challenged.

There are different rules depending upon which direction you are changing. You could take a look at IRS Notice 98-1, and regulation,1.401(k)-2©, IRC 401(k)(3)(A), and 1.401(m)-2© for starters. There's also an "anti abuse" rule for multiple changes - see 1.401(k)-1(b)(3) and 1.401(m)-1(b)(3). And slogging through these will undoubtedly lead you to some additional sections.

We are not receiving this type of request (yet, anyway...) but we also deal almost exclusively with small employers, so perhaps your case is a larger employer?

You could possibly refer him to the footnote #1 on page 2 of the SS-4 itself. But this may be a hard sell if no forms are being filed, and no distributions are being made.

My understanding is that they (the IRS) will apply this to Volume Submitter plans as well.

I don't know if it is a viable option here, but if the bond price is too high, you might be able to have it rolled to IRA's under the arrangement outlined in PLR 9514028? Of course, this might be one of those situations where the cure is worse than the disease... LTR-RUL, PEN-RUL 17,391O-5, IRS Letter Ruling 9514028, January 13, 1995. IRS Letter Ruling 9514028, January 13, 1995. Distribution restrictions: Highly compensated employees: Defined benefit plans: Individual retirement accounts (IRAs): Rollover distributions A highly compensated participant's agreement with the trustee of his defined benefit plan, under which all or a portion of his plan distribution, which was a restricted benefit under IRS Reg. Sec. 1.401(a)(4)-5(b)(3), would be contributed to a single IRA or to two IRAs, satisfied the requirement of Rev. Rul. 92-76 (CCH PENSION PLAN GUIDE ¶19,757), and did not violate IRS Reg. Sec. 1.401(a)(4)-5(b)(3). Under the arrangement, an amount equal to at least 125% of the restricted portion would be placed in either a restricted class of assets or in a restricted IRA. Adequate provisions were made in the event the value of the assets in either the restricted IRA or the restricted class of assets fell below 110% of the restricted amount and in the event that the requirements of Code Sec. 408(a)(6) reduced the value of the restricted IRA or the restricted class of assets to less than the restricted amount. Back references: ¶6432 and ¶6654. [Reproduced below is the text of IRS Letter Ruling 9514028. The ruling carries the stamped legend: "This document may not be used or cited as precedent. Code Sec. 6110(k)(3)."] In a letter dated August 5, 1994, supplemented by letters dated November 3, 1994, November 8, 1994, and November 22, 1994, your authorized representative requested rulings on your behalf concerning the distribution restrictions under section 1.401(a)(4)-5(b)(3) of the Income Tax Regulations. Company M, which is incorporated under the laws of State N, maintains Plan X, a defined benefit plan which your authorized representative asserts is qualified under section 401(a) of the Internal Revenue Code and the trust of which is tax-exempt under section 501(a) of the Code. Company M is a member of an affiliated group of corporations as defined in section 2.1©(7) of Plan X. The normal method of payment of benefits under Plan X is in the form of a life annuity or a qualified joint and survivor annuity, depending upon the participant's marital status at the time benefit payments commence. A participant eligible for benefits, however, may elect certain optional methods of payment. One optional form is the payment of retirement benefits in a single cash payment. It is represented that section 13.3 of Plan X contains restrictions in accordance with section 1.401(a)(4)-5(b)(3) of the regulations on the benefits Plan X can pay to any highly compensated participant (including a former employee) who is a member of the group consisting of the twenty five highest paid employees and former employees with the greatest annual compensation in the affiliated group. Taxpayer A is a participant whose benefit is restricted. Taxpayer A retired on June 1, 1994. Taxpayer A is 72 years of age and has been receiving monthly benefits from Plan X as required by section 401(a)(9) of the Code. These monthly payments have not been large enough to be restricted by section 13.3 of Plan X. Effective upon retirement, Taxpayer A became eligible under Plan X to receive the remainder of his Plan X benefit in a single cash payment and will elect to take such a distribution. Section 13.3 of Plan X permits distributions of restricted benefits if an acceptable arrangement for repaying the restricted benefits (Restricted Amount), is agreed upon. Company M has represented that the term Restricted Amount as used herein is defined in Revenue Ruling 92-76, 1992-2 C.B. 76. Revenue Ruling 92-76 defines the Restricted Amount as the excess of the accumulated amount of distributions made to the employee over the accumulated amount of the employee's nonrestricted limit. The employee's nonrestricted limit is equal to the payments that could have been distributed to the employee, commencing when distribution commenced to the employee, had the employee received payments in the form described in section 1.401(a)(4)-5(b)(3)(i) (A) and (B) of the regulations. An "accumulated amount" is the amount of a payment increased by a reasonable amount of interest from the date the payment was made (or would have been made) until the date for the determination of the Restricted Amount. Section 13.3 of Plan X provides that various means of securing the repayment including repayment from amounts held in an individual retirement account (IRA) may be used. Taxpayer A has elected to secure his repayment using an IRA. Taxpayer A will enter into an agreement (Repayment Agreement) with Plan X to repay the Restricted Amount if Plan X terminates and repayment is necessary. Taxpayer A will secure his repayment obligation with assets held in one or more IRAs established by him. It is represented by Company M that the Repayment Agreement and the security interest of Plan X in the IRAs and other related agreements and assignments would remain in effect after Taxpayer A's death and be binding on his estate, heirs and beneficiaries to the same extent as applied to Taxpayer A during his life. The Repayment Agreement would provide for periodic recalculations of the Restricted Amount as required by Revenue Ruling 92-76 or other Code authority. The Repayment Agreement would provide for the release of assets from the security arrangement should the Restricted Amount decrease because of the passage of time or other factors. The Repayment Agreement would provide for the termination of the participant's repayment obligation, and the release of any related security for repayment, should repayment no longer be required by the Regulation, Revenue Ruling 92-76 or other Code authority. For example, the Repayment Agreement could terminate should the value of Plan X's assets exceed 110% of its current liabilities, should the value of the participant's future benefits (had the payment not been made) be less than 1% of the Plan's current liabilities, or should the Plan terminate in circumstances where the benefit received by the Restricted Participant was not discriminatory under Code Section 401(a)(4). The IRA security arrangement as implemented through a single IRA and as implemented through two IRAs is described below. Under the single IRA arrangement, the participant would roll over the cash payment from Plan X into a single IRA. In conjunction with the rollover, the participant would enter into an agreement with the custodian of the IRA to have the payment invested in two classes of assets. One class of assets (the "Restricted Class") would consist of assets having an initial fair market value of at least 125% of the Restricted Amount. The second class of assets (the "Unrestricted Class") would consist of the remainder of the payment. The Repayment Agreement would be secured by (i) an assignment by the participant to Plan X of the participant's rights in the Restricted Class of IRA assets and (ii) a reciprocal agreement between the participant and the IRA custodian to hold the Restricted Class of IRA assets for Plan X during the period of restriction. If, by virtue of a participant's age or death, section 408(a)(6) of the Code would require that distributions from the IRA commence while the participant's repayment obligation was still in effect, such distributions would first be made from the Unrestricted Class of assets. In the event that the assets of the Unrestricted Class were exhausted as a result of such distributions, further mandatory distributions would have to be made from assets in the Restricted Class. In the Repayment Agreement the participant would agree to take certain remedial action in the event that (because of distributions, investment performance or otherwise) the fair market value of the Restricted Class of assets in the IRA should fall below 110% of the Restricted Amount. In such regard, the participant would cause IRA assets in the Unrestricted Class to be reclassified as part of the Restricted Class in an amount sufficient to make the fair market value of the assets in the Restricted Class equal to at least 125% of the Restricted Amount. Alternatively, the participant would establish an escrow arrangement of the type described in Revenue Ruling 92-76, and place in that escrow arrangement sufficient funds so that the aggregate fair market value of the assets in the escrow arrangement and the Restricted Class of assets in the IRA equalled at least 125% of the Restricted Amount. Under the double IRA arrangement, the participant would "roll over" the single sum cash payment into two IRAs established by the participant. One IRA (the "Restricted IRA") would receive an amount initially equal to at least 125% of the Restricted Amount. The other IRA (the "Unrestricted IRA") would receive the balance of the payment. The Repayment Agreement would be secured by (i) an assignment by the participant to Plan X of the participant's rights to the assets in the Restricted IRA and (ii) a reciprocal agreement between the participant and the Restricted IRA custodian to hold the assets of the Restricted IRA for Plan X during the period of restriction. If circumstances were to arise which required IRA distributions pursuant to section 408(a)(6) of the Code, total required distributions would be made from the Unrestricted IRA until exhausted. Upon exhaustion of the funds in the Unrestricted IRA, or otherwise as required by section 408(a)(6), required distributions would be made from the Restricted IRA. In the Repayment Agreement the participant would agree to take certain remedial action in the event that (because of distributions, investment performance or otherwise) the fair market value of the assets in the Restricted IRA should fall below 110% of the Restricted Amount. In such regard, the participant would cause assets in the Unrestricted IRA to be transferred to the Restricted IRA in an amount sufficient to enable the fair market value of the assets of the restricted IRA to equal at least 125% of the Restricted Amount. Alternatively, the participant would establish an escrow arrangement of the type described in Revenue Ruling 92-76 and place in that escrow arrangement sufficient funds so that the aggregate fair market value of the assets in the escrow arrangement and the Restricted IRA equalled at least 125% of the Restricted Amount. In the event distributions required by section 408(a)(6) of the Code following the participant's death result in the fair market value of the assets in the Restricted Class or the Restricted IRA falling below 110% of the Restricted Amount, then the participant's successor(s) in interest will be required to establish an escrow arrangement of the type described in Revenue Ruling 92-76 and place sufficient assets in that escrow arrangement so that the aggregate fair market value of the assets in the escrow and the Restricted Class or the Restricted IRA equals at least 125% of the Restricted Amount. Based on the above facts and representations, the following rulings have been requested: 1. Either variation of the IRA arrangement will satisfy the requirements of Revenue Ruling 92-76 and neither variation will violate the provisions of section 1.401(a)(4)-5(b)(3) of the regulations. 2. A single cash payment by the Plan to Taxpayer A in payment of his remaining accrued benefit will constitute an eligible rollover distribution under section 402©(4) of the Code (to the extent it otherwise qualifies under section 402©(4)), and the rollover of the payment into one IRA or two IRAs (depending upon the IRA arrangement selected) within the 60 day period described in section 402©(3) of the Code will be treated as a transfer of all amounts received in the payment in accordance with section 402©(1) of the code (to the extent such amounts are otherwise eligible for transfer under the Code), where the rollover is made as follows: (a) The rollover is made into one IRA, and the initial Restricted Class of the assets of the IRA is at least 125% of the Restricted Amount; or (b) The rollover is made into two IRAs, and the Restricted IRA receives assets equal to at least 125% of the Restricted Amount and the Unrestricted IRA receives the balance of the rollover. 3. The assignment to Plan X of Taxpayer A's interest (i) in the Restricted Class of assets, where the rollover is made into one IRA, or (ii) in the Restricted IRA, where the rollover is made into two IRAs, will not prevent qualification of the IRA subject to such assignment under section 408(a)(4) of the Code. 4. Neither assignment referred to in (3) above will violate the Code section 401(a)(13) prohibition against assignment or alienation of plan benefits so as to prevent qualification of the IRA subject to such assignment. 5. Neither assignment referred to in (3) above will result in a deemed distribution under section 408(e)(4) of the Code. 6. Neither assignment referred to in (3) above will result in disqualification of the IRA subject to such assignment under sections 408(e)(2)(A) and 4975©(1)(D) of the Code. 7. Plan X will not be disqualified under section 401(a) of the Code and the accompanying trust will not lose its tax-exempt status under section 501(a) of the Code merely because (i) a payment made to Taxpayer A consists in part of restricted benefits and (ii) the contingent obligation to repay such benefits is evidenced by a Repayment Agreement secured under the IRA arrangements described above. Section 401(a) of the Code provides the requirements for the qualification of employees' retirement plans. Section 401(a)(4) provides that neither the contributions nor the benefits under a plan may discriminate in favor of employees who are highly compensated. Section 1.401(a)(4)-5(b)(1) of the regulations provides that a defined benefit plan must incorporate certain provisions restricting benefits and distributions so as to prevent the prohibited discrimination that may occur in the event of early termination of the plan. Section 1.401(a)(4)-5(b)(2) requires a defined benefit plan to provide that, in the event of plan termination, the benefit of any highly compensated employee (and any highly compensated former employee) is limited to a benefit that is nondiscriminatory under section 401(a)(4) of the Code. In any one year, the total number of employees whose benefits are subject to restriction under section 1.401(a)(4)-5(b) may be limited by a plan to a group of not less than 25 highly compensated employees and former employees. If this group is so limited under a plan, the group must consist of those highly compensated employees and former employees with the greatest compensation in the current or any prior plan year. Section 1.401(a)(4)-5(b)(3)(i) of the regulations further requires a defined benefit plan to provide that the annual payments to an employee subject to restrictions on distributions must be limited to an amount equal in each year to the payments that would be made to the employee under: (1) a straight life annuity that is the actuarial equivalent of the accrued benefit and other benefits to which the employee is entitled under the plan (other than a social security supplement); and (2) the amount of the payments that the employee is entitled to receive under a social security supplement. Section 1.401(a)(4)-5(b)(3) (iv) of the regulations provides that the above referenced restrictions do not apply, if any of the following conditions is satisfied: (1) after payment to a restricted employee of all benefits payable under a plan, the value of the plan assets equals or exceeds 110% of the value of the plan's current liabilities, as defined in section 412(l)(7) of the Code; (2) the value of the benefits payable to a restricted employee under a plan is less than one percent of the value of current liabilities before the distribution; or (3) the value of the benefits payable to a restricted employee under a plan does not exceed the amount described in section 411(a)(11)(A) of the Code ($3500). Section 1.401(a)(4)-5(b)(3)(v) of the regulations provides that, for purposes of paragraph (b), any reasonable and consistent method may be used for determining the value of current liabilities and the value of plan assets. Revenue Ruling 92-76 holds that a lump sum distribution in an amount in excess of that otherwise permitted under section 1.401(a)(4)-5(b) of the regulations may be made, provided there is adequate provision for repayment of any part of the distribution representing the Restricted Portion in the event the plan is terminated while the restrictions are still applicable. Revenue Ruling 92-76 states that one permissible method of securing the agreement for repayment of the Restricted Amount is the deposit with an acceptable depositary of property having a fair market value equal to 125% of the amount that would be repayable if the plan terminated on the date of the distribution by the trust. Under the Revenue Ruling, if the market value of such property falls below 110% of the Restricted Amount, the employee is obligated to deposit whatever additional property is necessary to bring the value up to 125% of the Restricted Amount. With respect to ruling request (1), under the IRA arrangement selected, Taxpayer A will enter into an agreement with the trustee of Plan X under which all or a portion of the Plan X distribution would be contributed to a single IRA or to two IRAs. Taxpayer A will enter into a further agreement with the IRA custodian in order to secure his obligation to repay the Restricted Amount. This depositary arrangement with the IRA custodian is comparable to the arrangement established in Revenue Ruling 92-76. Under the single IRA arrangement, an amount equal to at least 125% of the restricted portion will be placed in the Restricted Class of assets. Under the arrangement using two IRAs, an amount equal to at least 125% of the restricted portion will be placed in the Restricted IRA. Adequate provisions are made in the event the value of the assets in the Restricted IRA or the Restricted Class of assets in the single IRA fall below 110% of the Restricted Amount. The Repayment Agreement and related agreements also provide adequately for repayment in the event that the requirements of section 408(a)(6) of the Code reduce the value of the Restricted IRA or the Restricted Class of assets in the single IRA to less than the Restricted Amount. Accordingly, we conclude, with respect to your ruling request (1), that either IRA arrangement will satisfy the requirements of Revenue Ruling 92-76 and neither arrangement will violate the provisions of section 1.401(a)(4)-5(b)(3) of the regulations. With respect to your second ruling request, section 402©(1) of the Code provides, generally, that if any portion of an eligible rollover distribution from a qualified trust is transferred to an eligible retirement plan, the portion of the distribution so transferred shall not be includible in gross income in the taxable year in which paid. Section 402©(4) of the Code defines "eligible rollover distribution" as any distribution to an employee of all or any portion of the balance to the credit of an employee in a qualified trust except the following distributions: (A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made -- (i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or (ii) for a period of 10 years or more, and (B) any distribution to the extent the distribution is required under section 401(a)(9). Section 402©(8) of the Code defines eligible retirement plan as (i) an individual retirement account described in section 408(a), (ii) an individual retirement annuity described in section 408(b) (other than an endowment contract), (iii) a qualified trust, and (iv) an annuity plan described in section 403(a). Section 402©(3) of the Code provides, generally, that section 402©(1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed. Revenue Ruling 92-76 holds that an otherwise eligible lump sum distribution consisting, in part, of benefits restricted under section 1.401(a)(4)-5(b)(3) of the regulations, may be considered a lump sum distribution, even though a portion of the distribution may have to be returned to the plan. In this regard, a lump sum distribution is also an eligible rollover distribution to the extent it is otherwise eligible for rollover. Revenue Ruling 79-265, 1979-2 C.B. 186, provides that a qualifying rollover distribution is not includible in an employee's gross income in the tax year when paid merely because it is transferred into several IRAs. With respect to ruling request (2), we conclude that a single cash payment by the Plan to Taxpayer A in payment of his remaining accrued benefit will constitute an eligible rollover distribution under section 402©(4) of the Code (assuming it otherwise qualifies under section 402©(4)), and the rollover of the payment, into one IRA or two IRAs (depending upon the IRA arrangement selected) within the 60 day period described in section 402©(3) of the Code will be treated as a transfer of all amounts received in the payment in accordance with section 402©(1) of the Code (to the extent such amounts are otherwise eligible for transfer) where the rollover is made as follows: (a) The rollover is made into one IRA, and the initial Restricted Class of the assets of the IRA is at least 125% of the Restricted Amount; or (b) The rollover is made into two IRAs, and the Restricted IRA receives assets equal to at least 125% of the Restricted Amount and the Unrestricted IRA receives the balance of the rollover. With respect to ruling request (3), section 408(a)(4) of the Code requires that, in order for a IRA to be qualified, the written instrument creating the IRA must provide that the individual's interest in his or her account must be nonforfeitable. Under this provision, an IRA custodian or an employer would be precluded from asserting any claim to the assets in an IRA. Taxpayer A will enter into the Repayment Agreement which is secured by the assignment of his rights in the Restricted IRA or an assignment of the Restricted Class of assets in a single IRA if a single IRA is used. The assignment will be in the amount necessary to satisfy the repayment obligation under section 1.401(a)(4)-5(b)(3) of the regulations and Revenue Ruling 92-76. Since the potential return of the restricted amount to Plan X's trustee would not derive from any claim by the IRA custodian or Company M, but from Plan X's right under certain circumstances to the restricted amount, no forfeiture would occur in violation of section 408(a)(4) of the Code. Accordingly, with respect to ruling request (3), we conclude that the assignment to Plan X of Taxpayer A's interest (i) in the Restricted Class of assets, where the rollover is made into one IRA, or (ii) in the Restricted IRA, where the rollover is made into two IRAs, will not prevent qualification of the IRA subject to such assignment under section 408(a)(4) of the Code. With respect to ruling request (4), section 1.401(a)-13(a) of the regulations states that section 401(a)(13) of the Code applies only to plans to which the minimum vesting rules of section 411 apply. Since IRAs are not subject to section 411, section 401(a)(13) is not applicable. Accordingly, with respect to ruling request (4), we conclude that neither assignment referred to in ruling request (3) above will violate the Code section 401(a)(13) prohibition against assignment or alienation of plan benefits so as to prevent qualification of the IRA subject to such assignment. With respect to ruling request (5), section 408(e)(4) of the Code provides that, if an individual uses the IRA account balance as security for a loan, that portion is treated as a distribution to that individual. However, since the contingent obligation to return certain restricted amounts to Plan X is not a loan, section 408(e)(4) is not applicable. Accordingly, with respect to ruling request (5), we conclude that neither assignment referred to in ruling request (3) above will result in a deemed distribution under section 408(e)(4) of the Code. Ruling request (6) concerns the loss of exemption from taxation under section 408(e)(2) of the Code where an employee engages in a prohibited transaction as described in section 4975 of the Code. In this regard, Reorganization Plan No. 4 of 1978, Federal Register, Vol. 43, No. 201, October 17, 1978, generally assigns to the Department of Labor exclusive responsibility for issuing administrative exemptions under section 4975© of the Internal Revenue Code. Since the Department of Labor has not determined whether the proposed transaction constitutes a prohibited transaction, we are unable to address ruling request (6). With respect to ruling request (7), we have ruled in ruling request (1) that the depositary arrangement under either IRA arrangement satisfies the requirements of Revenue Ruling 92-76 and that neither arrangement will violate the provisions of section 1.401(a)(4)-5(b)(3) of the regulations. Accordingly, with respect to ruling request (7), we conclude that Plan X will not be disqualified under section 401(a) of the Code and the accompanying trust will not lose its tax-exempt status under section 501(a) of the Code merely because (i) a payment made to a participant consists in part of restricted benefits and (ii) the contingent obligation to repay such benefits is evidenced by a Repayment Agreement secured under the IRA arrangements described above. This letter ruling is based on the assumption that Plan X meets the requirements of section 401(a) of the Code at all times relevant hereto. Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative. Sincerely yours, Frances V. Sloan, Chief, Employee Plans, Technical Branch 3

There is absolutely nothing inherently wrong about amending a prototype using non-prototype language. As you mentioned, you can no longer rely on prototype status or favorable opinion letter, so your subsequent language/filings will need to take this into account. I'd have them sign an 8905 immediately if you plan to subsequently move them into a pre-approved document.

I will caveat this heavily - I haven't gone back and read 2005-66 with regard to this question. My memory of it is that you could generally wait to file. The purpose is supposed to be that plan sponsors generally don't have to file more than once in a given cycle, and there's no reason why a new plan should be treated less favorably.