Belgarath

Because, the law requires it. As Lippy referenced, see 401(a)(11), and I believe (from an admittedly failing memory) ERISA 205. Additionally, there are regulations under 1.401(a)-20, and probably other applicable references that I haven't looked at recently or that don't come to mind immediately. So the rule is, QJSA applies unless you fit one of the valid exemptions.

I'd also recommend that you not be too quick to assume that profit sharing plans/401(k) plans are automatically exempt from the QJSA requirements. There are several requirements that must be satisfied before the exemption applies, and many plans and/or individual participants don't qualify for the exemption, depending upon specific plan language and circumstances. Particularly watch out for situations - and there are a LOT of them - where a pension plan amended and restated to a PS plan. there were a ton of these post-EGTRRA, and the prior pension money is subject to QJSA.

1.411(d)-4, Q&A 2(b)(2)(x).

I would add one other caveat - particularly where there are family members involved. There are often options to purchase the stock, and watch out for this! This can create ownership where there's no other apparent attribution. I fully agree with your practice of having an ERISA attorney make the determination. We always refer the clients to their attorney as well - it is just so easy to get burned on this subject.

See Section 7.4(f) of the revised VFC program, as well as PTE 2002-51 as amended to conform with VFC. This may cover your situation, but I'd check with legal counsel.

While I generally agree with MJB's reading of the statutory and regulatory language on an absolutely technical basis, I don't agree with his assertion that: "When it comes to audits the IRS isnt going to object if the plan uses a lower look back comp threshold then required under 414q1B because there is no prohibition in 414q1B against using a lower lookback comp threshhold than the maximum permissible amount ("HCE had comp in excess of 80,000")." If you are going in for a technical reading on things, I believe that 414(q)(1)(B)(i) is absolutely crystal clear. It says "...in excess of $80,000,..." - it does NOT say that the threshhold can be lower. Suppose, as Bird has asked, you use $40,000. Or $10,000 for that matter. Now you exclude a few of them, and your HC percentage is now doodley, so you hardly have to cover any NHC. I'm sorry, but I don't believe any IRS auditor around who is competent will let this fly. Do you disagree? MJB - other than the quirk above, while I think I agree with your technical reading of statute/regulation, can I ask you this: in "real life" as opposed to a bunch of of us qualified plan weenies on a message board, do you really think there is a problem with using the 95,000? And are all your clients actually using the 100,000? I can honestly say that I have neither seen nor heard of an actual plan that is not using the 95,000 interpretation. I'm doubtful that the IRS will disqualify virtually every qualified plan in the country due to this. Conversely, if using your 100,000 argument, even if the IRS does dispute it, (and I'm not convinced they would) I'm betting you'd win in tax court. So I'm not sure it ultimately matters which one is chosen.

A picky detail, but I'm pretty sure Andy meant "parent-subsidiary" rather than "parent-child."

Wow, that sounds good! A lot better than crow, which is what I normally seem to eat.

If I'm reading your post correctly, the client would be paying annual fees of between 14,400 and 19,200 for depositing the deferrals for a 10 person 401(k) plan. If that's the case, and this financial "advisor" asserts that it is more expensive to do it using a (normal?) daily valuation/investment system, I'd assert that he's either looking at different plans than I see, or he's using a particularly high grade of hallucinogenic substances. Maybe I just see better plans than he does. Or I'm misunderstanding your post.

Sorry, I forgot to include this one: http://www.irs.gov/irb/2005-51_IRB/ar12.html

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!