Belgarath

Hi Lynn - no, I did mean 12-31-01. The asset test is performed using the assets on the last day of the prior plan year. As you correctly state, being a calendar year 2002, the audit requirements didn't become effective until 2002 (effective for plan years beginning after April 18, 2001). However, they apply at the beginning of the applicable plan year. So they are effective for 1-1-2002, but you'd use 12-31-01 asset values. And you have to comply as soon as reasonably possible. Does this change any of your answer? My own opinion is this: if you don't either reallocate assets to pass the test, or increase the bond as necessary, before the end of(in this case)2002, then you are stuck, and must get the audit. And if you could "reasonably" fix it sooner than the end of the year, then you can't wait until the end of the year. I just wondered what other folks think about this. For example, you could take a very rigid view on the assets, and say that if you fail the test in 12-31-01, then you cannot "fix" the assets in 2002, and would be forced to depend upon increasing the bond - presumably as soon a possible, but in no case later than 12-31-02. But there also may be folks who believe that if the bond is increased in 2003, that would still get you out of the audit for 2002. Hence my questions. As a procedural issue, when we do a 2002 valuation, we have asset values for the 12-31-02 date. These are the values used to test for 95% for 2003. So we test for the 95%. If they fail, then we immediately notify client that they must increase bond (unless their 10% bond is already sufficient to cover) or reallocate assets, if they wish to avoid the audit when they file their 2003 forms. I appreciate any feedback. Thanks.

Take a look at Revenue Ruling 91-4, Revenue Procedure 90-49, IRS Notice 89-52 Q&A 16, and PLR 9144041, which provide additional information on this subject. (Not certain if all these references are still valid - just some notes I jotted to myself when looking into this question quite a while back)

Since I'm always willing to question myself on this subject, just soliciting opinions: Suppose you have 2002 calendar year plan. As with many clients, they have just given complete data. We find that as of 12-31-2001, they fail the 95% asset test. And they have NO bond whatsoever. (Ignore for now that this is an ERISA violation in and of itself). For purposes of qualifying for the waiver, do you interpret the rules as: A. If they had bonded for a proper amount no later than 12-31-02, they qualify for the waiver. B. If they bond for the proper amount no later than the time they actually file the 2002 5500 form (in 2003) they still qualify, or is it too late if they didn't do by 12-31-02? C. If assets had been shifted in 2002, prior to 12-31-02 so that they satisfy the 95% test, is this sufficient, or does the fact that the beginning of year asset test (based on 12-31-01) failed automatically preclude them from satisfying the asset test for 2002? Any opinions or experience with the DOL accepting (B) above, for instance, even if you are inclined to think this doesn't satisfy the rules? Thanks.

Sorry, I disagree. The employer is NOT required, under the matching option, to contribute to any employee who does not elect to defer. I agree that under the 2% nonelective, the employer must contribute for all eligible employees whether or not they elect to defer, but if the match option is chosen INSTEAD of the nonelective, then no contribution is required for an employee who doesn't defer.

Agree that this should definitely be referred to an attorney. Just for purposes of discussion, I'm not so certain that there is necessarily a discrimination issue here. If you have a plan that has self directed investments, there may be some investments that are not available (not by decree of the plan language or choice of the plan administrator, but at the investment level) to those with smaller account balances. This does not automatically cause any discrimination, because all participants will have the same opportunity to purchase the same investments if and when their account balances reach the requisite level.

No program that I'm aware of. We have not taken over a plan that NEVER filed a 5500 EZ if required - we've taken over many that have had a late filing for takeover year, etc., and I've found the IRS to generally be pretty reasonable in negotiating reduced or zero penalties. At least you don't have to worry about DOL penalties on this one, so it somewhat limits the damage. How many years are you talking about? With a potential penalty of up to 15,000 for each year, it might be worth their while to hire some savvy ERISA counsel to negotiate for them.

That's a clever idea! I never thought of that. And I agree, I don't see why it wouldn't work. It seems ridiculous to have to take this approach, in that it gets you back to the same place as what Appleby originally suggested, it just takes an extra step. But it seems to me that this is required by the code/regs, which often elevate form over substance. Thanks for the idea.

Appleby - thanks for the response. I think we'll agree to disagree on this one. I still read the definition of "unrelated" transfer to require that it be transferred to a plan of another employer. As for IRC § 416(i)(6)(B), this is an election, and not mandatory. But even if the employer makes this election, I don't think it carries over to the new plan. Once rolled out of the SEP, it loses its SEP characteristics. At least, that's how I would interpret it. Even if you take the stance that the rollover amount retains those previous SEP characteristics for top heavy testing, at the very least, you'd have to include aggregate employer contributions. So the only way to avoid including at LEAST the employer contribution portion of the rollover would be to hang your hat on it being an "unrelated" transfer. Which I don't think it is. But I do greatly appreciate your comments - I find it very helpful to look at these questions from another perspective. Ciao.

I would, as always, refer them to their accountant for confirmation, but my opinion is yes. This does get a little interesting, because if you look solely at 404(a)(6), it seems to give you the opposite answer. It's one of those questions that I've always simply accepted what I've seen from some of the experts. I know Sal Tripodi (ERISA Outline Book) believes you can, and I also saw an outline from Kevin Donovan from some Webcast where he concludes that you can. He referred to Rev. Ruling 77-82, as well as PLR 9107033. Hope this helps.

Thank you both for the responses. After considering it further, I certainly agree with Mbozek's comment re the 403(b)'s. But Appleby, could you take a look at 1.416-1, T-32, for the discussion of related vs nonrelated rollovers? It appears to me that the be nonrelated, it must meet a two-pronged test. It must be BOTH initiated by the employee, AND made from a plan maintained by ANOTHER employer. And therefore, I think, since the SEP's appear to be treated as DC plans under 416(i)(6)(A), if maintained by the same employer, then I would think it would count as related. After looking at these, is your opinion still the same? I want to make sure I get this right, as this is a situation that is actually likely to occur at some point. Right now, I feel reasonably comfortable with my conclusion, but I've been wrong before! Thanks again.

Derelict - I also had understood (maybe incorrectly) that there was a 1,000 INCOME exemption. So I'll wait to see what the CPA's here say.

I have a question regarding treatment of rollovers when doing top heavy testing. Now that EGTRRA permits greater portability, I'm not positive about the treatment of rollovers from certain plans as to whether they should be included as "related" or not. Assume you have a PS plan, and consider whether rollovers into that PS plan from each plan type below, maintained by the same employer should be included. Would appreciate any opinions. 1. A SEP. I would say yes, based upon 416(i)(6). 2. SIMPLES. I'm not positive on these. I would say no, but I can't find any definitive statutory treatment. Since I can't find any statutory or regulatory language similar to 416(i) for SEPS, (nor under 408(p)) I'd assume no. 3. 403(b). I'm a litle confused by this. I believe that if there are EMPLOYER contributions, as opposed to deferrals only, that the employer contribution portion would be included in the required aggregation group under 416(g), and therefore a rollover from this portion would be included. But deferral portions would not. This is moot on a personal level, since we never have plans where the same or related employer maintains a 403(b), but I'd still like to know the answer. 4. 457's. No. Appreciate your thoughts!

I'm not sure what is meant by "an old" 403(b) account, but yes, 403(b) accounts can now be rolled to a 401(k) plan. But you might want to do some checking - the 401(k) plan language must permit it - they are not required to permit it. And some 403(b) accounts have basis, and the 401(k) plan MUST account for this basis separately if it accepts it as a rollover. From my own perspective, I can't imagine why a 401(k) Plan Administrator would ever want to accept rollovers, but obviously many do.

Interesting case. Call me overly conservative, but I don't buy this as a viable solution without something "official" from the IRS. If we had such a case, we would cancel our service contract if the client insisted on using this approach. It certainly is a creative solution, however, so I give whoever thought of it credit for being able to think outside the box. And maybe it IS ok - I'm just not a risk taker when it comes to plan administration.

Then at least you're better off than I am - I'm not well liked period! Just curious - do you find the question generally has any "real life" application in a 412(i) situation? In other words, a 412(i) is nearly always sold in a small business. I would think that in order to pass nondiscrimination testing, you'd generally have at least one person who participates in both plans, and would therefore "benefit" under the PS as soon as any contribution is made, so that the question is moot - you are stuck with 25% or the DB cost if greater. But undoubtedly there are some aplications I haven't considered.

How about this? (sung to the tune of Wonderful World ) Don't know much about 410(b), Don't know eligibility, Don't know much about ERISA rules, Except they make us all look like fools. But I do know, if TPA's, Got free updates from Relius and BLAZE, What a wonderful world this would be.

I can't shed any informed light on it, because I wasn't there. But I agree with your conclusion that 404(a)(7) would apply, and I don't believe I'd rely on a statement from the podium, on this particular issue, even if Mr. Holland did in fact state this. Any chance that the PS account balance could be transferred to the DB? Probably not a viable option - but it's all I can think of.

Interesting. I checked a couple, and it appears to me that they were simply using an inflation assumption that didn't materialize. But I'm surprised that ASPA published this without at least a caveat (unless there was maybe one that didn't jump out at you?)

I'm puzzled. How did you phrase the Google search? I was interested to see what website would say 41,000, (because it is 40,000) so I tried a Google search myself, and could not find even one site that listed 41,000. Could you provide us with your search terms or a website example?

Don't know if this will help - I spoke with an Enrolled Actuary this morning, and he said that he thought (although not sure without doing some research) that the "without wearaway" requirement for 412(i) plans was due to LRM 23. Maybe this will give you a starting point.

Purely out of curiosity - does anyone know why there was ever a "carve out" of "individually allocated" insurance contracts in the first place? To my simple mind, common sense would dictate that an asset is an asset, and as long as it is owned by the Plan, it's an asset. Not that it matters - you just prepare the forms according to the instructions - (and obviously there are different interpretations of what those instructions mean) - I'm just wondering if there's any logical reason for it.

You could try 1.401(b)-1(a). There may be a better source than this, but take a look at the last sentence. That's all I can think of. Hard to believe that an IRS auditor would waste your time with this! Maybe you can reverse the field on the auditor - ask for documentation that it ISN'T permissible, and if he gives you ahard time, talk to his supervisor.

I think I'm missing something here. I thought that the only IRA amount which could be rolled to an eligible retirement plan was the amount which is "includible in gross income." See 408(d)(3)(A)(ii) as amended by EGTRRA. So this would preclude the nontaxable basis in the IRA from being rolled over to the qualified plan. Has something additional been passed that supercedes this, or am I misinterpreting something?

Blinky, I just wanted you to know that in addition to your administrative talents, you just saved my life. I have to make a mustard hollandaise tonight, and we're out of Grey Poupon, which I need to pick up after work. And if I'd forgotten, and couldn't make the sauce, my wife would kill me! Once again, these message boards prove their worth!

I absolutely agree that a blackout notice is required. Just wanted to clarify that my response was actually to RClines's question about who was responsible for it.