Belgarath

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.

While I do not believe there is anything in the regulations specifically authorizing this, I would have no problem with it.

Purely a function of your plan document. Some allow participation waivers, some don't. Timing and operational requirements should also be specified in the document language.

I've been wondering if the IRS would start taking the very reasonable approach that although these are not eligible for DFVC, that they would voluntarily limit their penalty structure to be the same as what would be charged under DFVC. This seems to be a fair compromise for everyone involved, but I haven't heard if this is being considered or actually being done. I'm guessing that now that DFVC is formal and available, that they would be more reluctant than they were in the past to completely waive penalties for EZ filers. Anyone had any recent experience with this situation?

I agree that they can be eliminated. 1.411(d)-4 actually refers to 1.411(d)(6) protected benefits. A hardship withdrawal isn't a protected benefit.

Although I've never done it, I read the form and instructions to allow only applying for determination of ASG status. However, assuming that is correct, which it may not be, I have no idea where this falls in the heirarchy of IRS processing.

IMHO, 508 doesn't have any exception on the permitted disparity disclosure for the individual account plans. a) Amendments of ERISA- (1) IN GENERAL- Section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended to read as follows: `(a) Requirements To Provide Pension Benefit Statements- `(1) REQUIREMENTS- `(A) INDIVIDUAL ACCOUNT PLAN- The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement-- `(i) at least once each calendar quarter to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the plan, `(ii) at least once each calendar year to a participant or beneficiary who has his or her own account under the plan but does not have the right to direct the investment of assets in that account, and `(iii) upon written request to a plan beneficiary not described in clause (i) or (ii). `(B) DEFINED BENEFIT PLAN- The administrator of a defined benefit plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement-- `(i) at least once every 3 years to each participant with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is to be furnished, and `(ii) to a participant or beneficiary of the plan upon written request. Information furnished under clause (i) to a participant may be based on reasonable estimates determined under regulations prescribed by the Secretary, in consultation with the Pension Benefit Guaranty Corporation. `(2) STATEMENTS- `(A) IN GENERAL- A pension benefit statement under paragraph (1)-- `(i) shall indicate, on the basis of the latest available information-- `(I) the total benefits accrued, and `(II) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable, `(ii) shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986 or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i), `(iii) shall be written in a manner calculated to be understood by the average plan participant, and `(iv) may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary. `(B) ADDITIONAL INFORMATION- In the case of an individual account plan, any pension benefit statement under clause (i) or (ii) of paragraph (1)(A) shall include-- `(i) the value of each investment to which assets in the individual account have been allocated, determined as of the most recent valuation date under the plan, including the value of any assets held in the form of employer securities, without regard to whether such securities were contributed by the plan sponsor or acquired at the direction of the plan or of the participant or beneficiary, and `(ii) in the case of a pension benefit statement under paragraph (1)(A)(i)-- `(I) an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment, `(II) an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified, and `(III) a notice directing the participant or beneficiary to the Internet website of the Department of Labor for sources of information on individual investing and diversification. `© ALTERNATIVE NOTICE- The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan-- `(i) updates the information described in such paragraph which is provided in the pension benefit statement, or `(ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits. `(3) DEFINED BENEFIT PLANS- `(A) ALTERNATIVE NOTICE- In the case of a defined benefit plan, the requirements of paragraph (1)(B)(i) shall be treated as met with respect to a participant if at least once each year the administrator provides to the participant notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. Such notice may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant. `(B) YEARS IN WHICH NO BENEFITS ACCRUE- The Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b) of the Internal Revenue Code of 1986) under the plan need not be taken into account in determining the 3-year period under paragraph (1)(B)(i).' (2) CONFORMING AMENDMENTS- (A) Section 105 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025) is amended by striking subsection (d). (B) Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended to read as follows: `(b) Limitation on Number of Statements- In no case shall a participant or beneficiary of a plan be entitled to more than 1 statement described in subparagraph (A)(iii) or (B)(ii) of subsection (a)(1), whichever is applicable, in any 12-month period.' © Section 502©(1) of such Act (29 U.S.C. 1132©(1)) is amended by striking `or section 101(f)' and inserting `section 101(f), or section 105(a)'. [PPA §508] (b) Model Statements- (1) IN GENERAL- The Secretary of Labor shall, within 1 year after the date of the enactment of this section, develop 1 or more model benefit statements that are written in a manner calculated to be understood by the average plan participant and that may be used by plan administrators in complying with the requirements of section 105 of the Employee Retirement Income Security Act of 1974. (2) INTERIM FINAL RULES- The Secretary of Labor may promulgate any interim final rules as the Secretary determines appropriate to carry out the provisions of this subsection. [PPA §508] © Effective Date- (1) IN GENERAL- The amendments made by this section shall apply to plan years beginning after December 31, 2006. (2) SPECIAL RULE FOR COLLECTIVELY BARGAINED AGREEMENTS- In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified on or before the date of the enactment of this Act, paragraph (1) shall be applied to benefits pursuant to, and individuals covered by, any such agreement by substituting for `December 31, 2006' the earlier of-- (A) the later of-- (i) December 31, 2007, or (ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or (B) December 31, 2008.

You might also look into filing for a determination letter on a form 5300 - this has an option to request IRS determination of ASG status. But I second SoCal's advice to have an attorney make the determination.

I'm not actually sure. I think #2 in the second paragraph of the general explanation could perhaps be read to allow reference to the SPD, for example. As a practical matter, I suspect that the Employee Benefit Statement that is already produced (which presumably shows vesting) will form the basis for most of the new quarterly statements anyway. It is certainly safest to include this information until such time as the DOL issues regulations/model statements that permit otherwise.

JCT stands for Joint Committee on Taxation.

PPA Section 508. At least on my copy, pages 121-123 of the JCT explanation.

I agree - in general terms. You can still get burned - the ownership is either more than 50% of the value, or more than 50% of the voting power. So the adult children could own non-voting stock, for example, and therefore bring it back into controlled group status even though it might not appear to be so on the surface. Ditto with attribution from options, etc.. great stuff! Which is why we always refer them to their attorney to make the determination!

I had spent some time sifting through it yesterday, and had the same problem. The following is the closest I could find: http://www.dol.gov/ebsa/pdf/savingsfitness.pdf Hopefully, the DOL will provide some interim guidance, but in the absence of any, I'd like to think they'd be lenient on any reasonable attempt at good faith compliance.

And just to further muddy the waters, don't forget about "management function" affiliated service groups. See IRC 414(m)(5). These do NOT require cross ownership in any form, and neither group needs to be a "service organization."

The IRS has approved, in some volume submitter documents, such a "waiver" - or whatever term is used to define it - by the HC employees. Apparently, they let it go through in some prototype documents during the GUST restatement, but I have not personally seen a newer prototype where it is allowed, whereas I have personally seen it in VS documents. I'd stick with Planman's advice and check your document - it should be pretty clear as to whether permissible or not.

Although I'm not aware of a specific pre-approved fix for this in Rev. Proc. 2006-27, that doesn't necessarily mean that it is ineligible for correction. Depending upon facts and circumstances, I think this could still be submitted under VCP, or at worst as a "John Doe" submission.

I've seen the "waiver" approach used, and approved, for years and years. However, we recently had a case where the reviewer said that a "waiver" was not possible, but that the owner could sign a statement "foregoing receipt" of the benefit and that this would be accepted. Whatever works...

You can always make a vesting schedule better than the minimum required. The PPA just establishes the new requirements for "worst case" vesting that is allowable.

I wouldn't automatically assume that a real estate company isn't a service organization. Even though it isn't one of the automatic categories included as a service orgainization, that listing is not the exclusive means of determining whether or not a business is a service organization. It can also be considered a service organization if capital isn't a material income-producing factor. Under Proposed Reg. 1.414(m)-2(f)(1), capital is not a material income-producing factor if the income from the business comes promarily from fees or commissions for ersonal services performed by one or more individuals. Your situation probably isn't an ASG, but I'd just be cautious about assuming who is and isn't a service organization. I second the comment to use Derrin Watson's book as a reference tool! (And we always tell them to consult their attorney for such determinations anyway.)

Also see Notice 2005-95. But be aware that for plan terminations, the IRS is requiring that they be adopted. While I have this bully pulpit here, I'd like to put in a plug for those of you connected with ASPPA, IRS, etc., as something that could use some change, IMHO. I have yet to find anything positive to say about the foolishness of being required to amend a terminating plan in such situations. If you have operational compliance with the required amendment, or if it is completely inapplicable (the last one, for instance, had not had any minimum distributions to make, as no one working, or terminated within the last 15 years, or with a current account balance, had even been 65 years old) why in the world must everyone jump through these hoops? It accomplishes nothing as far as I can see. There, that's my rant for the day. But seriously, I know I'm not the only one with this complaint, and perhaps the powers that be could be persuaded to change this requirement?

I don't quite agree with your interpretation of the 5305-SEP form language. What the 5305-SEP form says is that it may not be used by a CG/ASG UNLESS all eligible employees of all members participate in the SEP. I agree that you can use 3 year eligibility to exclude those employees who do not have 3 years of service.

Let's suppose you have a sole prop who makes a $30,000 contribution to a PS plan. He has life insurance in the plan, TTC of $1,000.00. In this situation, he just deducts $29,000 on his 1040 when he files it. So far, so good. Now suppose that in a given year, he makes no contribution to the plan. There's still TTC, since premium paid from the fund. How does he report this on his 1040, since there's no otherwise normally deductible contribution from which to subtract it? As miscellaneous income on line (well, I don't have the form handy, but whatever line you use to report miscellaneous income?) I guess that's what I'd do in lieu of anything more concrete... Other?