Belgarath

No problem at all from my viewpoint. Many documents (Relius, for example) you would just specify the effective dates of those changes in the Appendix. So you restate 1/1/2022, with one or more provisions in the restated document not taking effective until 8/1/2022, as noted in the Appendix.

FWIW, be careful if your client is using a payroll service and has Roth deferrals. We've had issues with this on occasion where the payroll service provider doesn't understand, and adds the Roth deferrals back into Box 1 so they are being included in income twice.

Thanks Luke. If you note in my response above, [I'm very inclined towards Lou's interpretation.] I agree with Lou (and you) in general, practical terms. I just don't believe that it is ironclad. As an administrative issue, would I use the more common sense approach and exclude them? Likely yes, possibly subject to facts and circumstances. It's mostly that over many years of doing this garbage, I've developed a ?healthy? fear of absolute statements where there may be room for interpretation. I've never seen this issue raised with the IRS at ASPPA conferences, etc. - are you aware of any such unofficial musings by the IRS one way or the other?

This issue is somewhat "gray" IMHO, and I have seen it interpreted both ways. The "not employed" language seems to leave some room for argument when the employee isn't officially "terminated" as in your exact situation. I'm very inclined towards Lou's interpretation. As a practical matter, how would the IRS even prove that the employee wasn't "terminated" if they audited. No hours, no compensation, etc. - I wouldn't classify it as a "high risk." If there's a lot of money at stake, might be worth getting an opinion from ERISA counsel, although even that isn't going to help if the IRS disagrees.

Could you provide a bit of clarification? Is this person a Key Employee? Or Non-key? Or Former Key? And when you say "in the last plan year" do you mean the last Plan Year PRIOR to the Plan Year for which you are performing the valuation?

I just use the document system. Last year they had some serious service problems, but I must say, the last 4 or 5 months the response time has been excellent. And while I don't particularly like the new portal system (probably because it is hard to teach an old dog new tricks...) it seems to be working fine. Took a little getting used to, but that's generally true of any changeover.

Justatester - a quick observation FWIW - when a DC plan is terminated on a date other than the last day of the limitation year, under 1.415(j)-1(d)(3), there is deemed change of the limitation year - in this case, a short limitation year is created. So the fact that the 415 limit was prorated seems correct to me.

With the caveat that I haven't dealt with insurance in plans in a very long time, I'd like to point out an item that is often overlooked when discussing this subject. While the taxable term cost can generally be recovered as basis when the policy is distributed, this treatment does not extend to self-employed persons. They pay the taxable term cost, indirectly, as they cannot DEDUCT this amount, but they don't get to recover it on the back end. Possibly this has changed since I've dealt with this issue, so if potentially applicable here, you'd want to investigate that angle. Many times the purpose of issuing "maximum insurance" is for a sole prop owner to max out (or for the agent to increase commissions) so it pops up more often than you might think.

Thanks Brian. Good stuff!

'Cause I found a pretty good discussion of the issue in EBIA. In addition to general discussion, reference to RR 2002-32 re Health FSA's. The information was sufficient for my purposes, so I didn't want people to waste their time. Thanks for asking.

Thanks Luke. I thought I had deleted this post, but apparently I was unsuccessful!

deleted post

Does this follow the same rules as qualified plans, or is there a whole separate regulatory scheme?

While that is arguably a reasonable interpretation of the statutory language, I don't believe the IRS subscribes to that interpretation. Although PLR's can't be cited as precedent, see PLR's 201221059, and 201147032 for an indication of IRS stance (granted that they may have changed their approach since then). I'd recommend a client get an opinion from an EISA attorney before taking the "aggressive" approach, if the amounts involved are substantial.

Hi Austin - yes, this can be done. I think the mechanics are relatively simple IF the client has only 1 IRA with basis. Your example lays it out pretty clearly. However, I'd want to do a little digging on this, because my recollection (and I don't mess with this stuff with any frequency) is that if there is more than one IRA with basis, then ALL of the taxable amounts in ALL of the non-Roth IRA's have to be rolled into the plan in order to have only non-taxable basis left in the IRA's. Otherwise there's a whole crappy pro-rata thing. But caveat emptor - this ain't my thing - I never worry about it since the 401(k) plans can only allow the otherwise taxable amount. The rest ain't my problem!!!

Yes, and Yes. (My response to Austin was purely regarding the nondeductible contributions.)

Austin - plans don't allow the rollover of nondeductible IRA contributions because of IRC 408(d)(3)(A)(ii). So no can do.

For your partial plan termination question, it might be instructive to review this IRS snapshot, as well as Revenue Ruling 2007-43. See particularly this excerpt - emphasis is mine. Assuming they were in fact voluntary, and that there is no partial termination, it is back to the question of whether an allocation to terminated participants who are 0% vested will satisfy the coverage/nondiscrimination testing. That's a tough one. In a design-based safe harbor plan, I think it is clearly acceptable. When you get into a new comparability plan, certainly a lot of potential for abuse, and I'm not certain there is a bright line standard. For example, even in a new comparability plan that has no allocation requirements, allocating up to the 415 limit for all of the 0% vested terminated participants in order to skew testing results might invite an auditor to put the hammer down. Facts, Circumstances and Presumption of Partial Termination The presumption of a partial termination happens when the turnover rate is 20% or greater. If the plan sponsor can provide evidence that the turnover rate was not the result of employer-initiated severance from employment and the severance was purely voluntary, the IRS may find that there was no partial termination. This type of evidence may include information from personnel files, employee statements or other corporate records. The employer may also provide evidence that the turnover rate is routine. To determine if a turnover rate is routine, the employer must show the turnover rate in other periods and the extent to which terminated employees were actually replaced. The IRS will also consider whether or not the new employees did the same types of work, had the same job classification or title, and received comparable compensation. Rev. Rul. 2002-42 provided that the merger or conversion of a money purchase pension plan, without other indications of a partial termination, does not result in a partial termination. If the employer cannot provide sufficient evidence to show that the turnover rate was routine or was not the result of employer-initiated severance from employment, the presumption of a partial termination will stand and the affected participants, including those who voluntarily terminated during the applicable period, must be fully vested. https://www.irs.gov/retirement-plans/partial-termination-of-plan

I don't know if this will help, or is totally the wrong thing you are looking for - I don't use the Relius Admin system. But here's a response they sent re lifetime income disclosures in response to a query a while back: Tables Prior to generating any reports or results, the user must download needed tables and updates into Relius. These are global and are done by choosing Utilities / Update Global Tables from the main menu. The two tables are (a) the Ten-Year Uniform Life and (b) the Ten-Year constant maturity Treasury (CMT) securities yield rate for the first business day of the last month of the period to which the benefit statement relates. These rates must be updated monthly and are available from FIS. They are typically available for download by the fifth business day of the following month. Report Lifetime Income Disclosures are required all participants. For those over the age of 67, the disclosure will use their current age. For participants under this age, the disclosure will be provided such that age 67 is assumed. Relius Administration provides a report for this. The report is called "DOLLifetimeIncome.rpt" and is located in the original reports directory. It is currently listed under the Participant Certificate / Standard report node on the ReportWriter Front-End. The report is a standalone report only. However, users are free to use it to customize certificates by inserting this as a sub-report. Lifetime Income Disclosures have also been added as an selection in the Relius Communication Bundle (RCB) or RCOMM setup.

It does smell funny, but on the other hand, suppose it was a design-based safe harbor - basic pro-rata allocation, no requirements to receive an allocation. They would receive an allocation, and still be 0% vested and ultimately not receive a dime of it.

Thanks. Agreed if they have no HCE's, but when I said "most likely" that's my own assessment, without census information. We'll see.

Questioning myself a bit on this. Suppose you have a plan that allows immediate deferrals, but for eligibility requirements for the safe harbor nonelective, wants to have 3 consecutive months with 250 hours to be eligible. Now, automatic top heavy exemption is blown, but that's immaterial for this plan. Shouldn't be any problem with this, if you pass testing using the OEE, right? Or is there something else I'm missing? Most likely this isn't going to be an issue anyway, as prospective client most likely doesn't have any HCE's...

Amen to RGB's response. We send them an invoice with a "courtesy discount" which shows the full fee, minus the discount to zero it out. They can see how nice we are that way. And in some cases, we bill the full or partial amount if appropriate in the circumstances.

I like Rockn's suggestion. Not being an attorney, I wonder if such a provision is valid under State law in all 50 States? This isn't a provision I've seen, although honestly I haven't looked for it before...

An interesting observation was made yesterday in the "Pensions on Peachtree" webinar. According to Ilene, (and I hope I'm not misquoting her) there is not AUTOMATICALLY a CG just because you are in a community property state. If the businesses were totally separate prior to the marriage, then they don't fall under the community property ownership rules. There was a term for this that I didn't quite catch. (Maybe one of the attorneys here can chime in with the appropriate terminology.) I toss this out as one more reason to have clients make the CG determination in consultation with their ERISA attorney!