Belgarath

This may provide a good starting point. http://www.irs.ustreas.gov/pub/irs-drop/rp-03-10.pdf

Mike - I'm not sure this will generally work so well. A lot of plans won't allow participant loans to terminated participants, particularly if they are just about to receive a distribution. Why not just strip the policy as you suggest, then roll that money into an IRA - then withdraw it from the IRA? Assuming you put it into something no-load/no surrender charge, this should work fine. And you can elect out of any withholding on the IRA distribution if you so choose. All this, of course, assuming that CSV and FMV are the same. I haven't taken the time to consider how this would play out if the FMV is higher. Not on a Monday morning...

I'm just curious if anyone does much with these. My knowledge of them at this point is nearly zilch - about 10 minutes of fast reading. In the small employer market, are there certain basic situations where they might be useful? A very cursory skim makes it look like they can't be used for ASG's (but can for CG's) and groups of <50 can be used for DB 401(a)(26) testing, but coverage testing would be applied across the whole group, (the <50 exception doesn't apply) so offhand I don't see the big attraction, but that's a guess based upon pure ignorance!

Rather difficult to opine without some detail from the article. I'm only GUESSING that perhaps it refers to the PFEA amendment.

Enut - I'm not so sure. The Q&A-9 that Fresno refers to says that for property OTHER THAN cash, employer securities, or plan offset loan amounts, you go to 35.3405-1, Q&A F-2 and F-3. When you look at these Q&A's, it provides methodology for the withholding. I'd say the withholding must be done. Foolish as that seems.

It depends on your exclusion classification. The IRS issued Quality Assurance Bulletin FY-2006-3 in February. This type of exclusion (and others as well) will be scrutinized very carefully. If, for example, you exclude "part time" workers, then it would seem likely that your document wouldn't be approved, even if you could pass coverage testing. Now, if all the "full time" workers are salaried, and all the hourly employees are part time, and you exclude hourly employees, then this should be ok - subject to coverage testing of course. My guess is that they are not going to be real user friendly" on this issue in general..

The reason I asked this was due to a question which was, of course, purely hypothetical. Suppose a business sponsors a plan with a 1 year of service eligibility requirement. They neglect to inform the TPA that they have a batch of part time employees, going back for years, that they never bothered to report on the certified census. Some of these people worked over 1,000 hours. Plan population is such that they easily pass coverage without including these folks. Further suppose that the attorneys for the business determine that the employment contract that these employees sign is worded such that it constitutes a waiver of participation in the plan. That was the hypothetical scenario. I just wanted to see what folks thought about this subject, and I appreciate your comments.

Interesting. I wasn't aware of this. Is this the only circuit that has adopted this interpretation, or has it not been litigated anywhere else? For you attorneys out there, in light of this, what would you advise?

I'm drawing a blank on this - it seems to me that I recall that an employer may not make employment conditional upon waiving participation in a qualified plan. But I'm not sure why I think that - is it true? If not, was it ever true, and got changed? It's bugging me, and I can't find anything addressing this specifically. (Even if permissible, it wouldn't work for long as they would fail coverage testing at some point.) Thanks!

I agree with Enut. This isn't a partial plan termination question, it is where the plan is terminating. Under IRC 411(d)(3), all affected employees become 100% vested. Although "affected employees" isn't defined, I know there was a GCM (sorry, don't know the number offhand) that basically said if you hadn't had a forfeiture, you were an affeced participant. And if they were partially vested, then there's no forfeiture until either there's a payout (prior to termination) or the 5 break years. (This is only if they are partially vested - there can be a "deemed forfeiture" if the plan so provides for a zero % vested participant, and this won't be subject to 100% vesting upon subsequent plan termination.)

One other comment which probably doesn't apply, but watch the combined plan deduction limits if DB cost is high enough.

Thanks for all the comments. Just fyi - the rounding has been done in the same manner every year, and it makes no difference if HC or NHC - 50 cents or above is rounded up, less than 50 cents is rounded down. And, it is a basic plain vanilla integrated plan. No cross testing. Anyway, the client will simply ask the auditor to tell them how to allocate it, and act accordingly. 'Cause there are 12 NHC and only 9 pennies. At that point, I presume the auditor will simply drop the issue. I'm thinking there are maybe some other difficulties that we don't know about that are not necessarily related to the plan, and they (IRS) are trying to harrass them with everything under the sun so they can use these things as bargaining chips. Only possible reason I can think of for this level of insanity.

Thanks. In general, I prefer not to play the manager card as they are apt to merely close ranks. The odd thing is, it seems to me that this auditor is pretty sharp - picked up a couple of items that in my experience, most auditors would miss - and I agree with the finding on these items. The rounding just seemed pretty obnoxious to me, so I was hoping there was something I could point to that would obviate this step. I thought about 10 pennies in an envelope myself, with instructions to allocate the extra penny for interest in any way deemed appropriate. Maybe it's a new initiative - ha'pennies for halfwits or something. Oh well, I'm sure something will be worked out.

Has anyone ever heard of this? Corporate PS plan being audited by the IRS. Auditor maintains the plan is discriminatory because the compensation from the W-2 is rounded to the nearest dollar, and for the year in question, the HC and 2 NHC got rounded up, and 12 NHC got rounded down. By my estimation, given the percentage of compensation that was contributed, this would result in 9 cents being reallocated among 12 people. If this were April 1 I'd think it was a joke. However, apparently it isn't. There's always something new in this business...I never thought I'd be asking such a question, but does anyone know of any statutory/regulatory authority that allows rounding of the compensation. Sheesh.

See attached post, which may be helpful. Or maybe not... http://benefitslink.com/boards/index.php?s...opic=29662&st=0 Of course, there's a potential problem if this is a small plan and the asset mix is such that the client can't qualify for the small plan audit waiver. If they have to pay for a plan audit, they will be sorry!

It isn't really that simple a definition. In the most basic form, an employee who at any time during the plan year is: 1. An officer having annual comp in excess of 130,000 (adjusted); 2. A 5% owner; or 3. A 1% owner whose annual compensation exceeds 150,000. However, when you start delving into the details of the above, including attribution, it can get a little tricky. I'd highly recommend you take a look at something like the Pension Answer Book or Sal Tripodi's Erisa Outline Book, Tax Facts, etc. which are all very helpful.

Ok, say you have a DB plan, IRS approved Volume Submitter. For purposes of benefit accrual, the document uses 3 year average participation comp., except to the extent that there isn't three years of participation, in which case it goes back to employment years to the extent necessary to get a 3 year average. Now suppose an employer wants to do a minor modification to use only participation compensation. It would seem that this could be handled as a minor modification on a 5307. But I'd like to see how folks would handle this. Would you submit now, off-cycle? Wait to file on-cycle? Other? I might actually have to break down and go to some conference (a great sacrifice, because I HATE business travel) where there's an opportunity to just chit-chat with other folks about some of this stuff in general - anyone have recommendations about one that might particularly focus on 2005-66 and related issues?

I assume a participant loan won't be sufficient? These "phony" terminations of an owner always make me squeamish. Bad enough when it is a NHC, but it seems like begging for trouble when you do it with an owner. However, apparently a lot of people disagree with my connservatism on this issue!

Interesting question. I'd guess it isn't any different than any other fiduciary prudence issue - if the funds were invested in Executive Life the day before it went under, I'd think there might be a valid claim. But if there's evidence of proper, reasonable, and prudent fiduciary due diligence when selecting the insurance carrier, then I'd think the fiduciary should be ok. I wonder, however, how many of these claims get judged purely on hindsight - maybe some of the ERISA attrorneys out there have seen some real cases. But unless the employer is bankrupt, is it really going to matter? Doesn't the plan still have to provide the benefit, then the employer stands in line with the other creditors to recover as much as possible? I don't know how that works...

Based upon my reading of the RR, I'd say it applies to pension plans (both db and dc) but not profit sharing plans. (Since ps plans are specifically permitted to purchase life, health or accident insurance under 1.401-1(b)(ii)). Now, IMHO it is foolish for the IRS to apply this to any DC plan, my opinion doesn't matter!

While I tend to agree with FL that the fiduciary aspects of this are not likely to be a problem, I'd personally be more concerned that the IRS might assert that use of the plan account as described violates 412(i). The approach given is both reasonable and practical. The same cannot automatically be assumed of the IRS, particularly in a 412(i) context these days. It would be nice to think they they would adopt a "no harm no foul" approach in this situation, but I don't think I'd want to count on it.

No, they don't have to. Several years ago, there was a participant notice requirement, but the DOL dropped that - can't tell you when, offhand. What I'm not sure of is if a participant gets wind of it somehow, and requests information, whether or not the employer would be required to give it to them. I read somewhere, sometime, in some forgotten source, that they had to, but I've never looked into it because it has fortunately never come up!

Posting here so as not to waste the time of anyone not interested. Go Sox! And hearty boos and hisses to the Bronx Bombers and their misguided fans. My wife is a teacher, and her principal is a diehard Yankees fan, so they ganged up on him this morning and decorated his office with Bosox accoutrements, right down to Bosox peanuts and Fenway Franks. I'm assuming they will all be fired by noon. Good thing it is a night game, or the New England economy would probably take a 50% productivity hit today. Enjoy the game!

You should be able to just amend and restate rather than terminate.

For anyone who wants to look at it further, Sal Tripodi has a good discussion of the issue (presenting both sides) in the EOB, pages 1.144 and 1.145 of the 2006 edition, if you have access to it.