Belgarath

I've understood that the IRS, when it comes to coverage testing interprets 1.410(b)-4(b) such that a plan that has everyone in their own group/classification will be considered to have "substantially the same effect as an enumeration by name" and as such, it is not a "reasonable" classification and the plan must pass the ratio percentage test instead. That's fine - but is there any written guidance stating this? For some reason I'm unable to locate it if there is. Any unofficial IRS pronouncements to this effect at recent ASPPA conferences, etc? I've seen reference to an indirect interpretation of the issue from back in 2001, but I'd sure like to find something more direct and more recent. Thanks. P.S. I know they withdrew the portion of the proposed regulations that would have applied this same interpretation to NONDISCRIMINATION testing, But I'm still trying to track down some documentation/confirmation that this is how the operate n the coverage issue.

First, I'm not an actuary or DB plan expert. So I defer to those experts, but here are my thoughts, having done no additional research. Going from memory, I recall that for a plan subject to Title IV if ERISA, Section ?4041(e)? clearly prohibits it. For a 1-person or non-PBGC plan, although I definitely lean toward the "no can do" answer, I do recall reading somewhere (could have been the EOB) that it might be possible, if the defined benefit nature of the benefit was preserved by purchasing a paid-up annuity for the DB piece of the benefit. Not sure if this is "acceptable" or if most pre-approved DC plan documents would handle it. And frankly, terminated a non-PBGC plan doesn't seem like a big deal anyway - why take any chances? Just terminate and establish a new plan. FWIW...

Just curious to explore this a bit further. So what is the opinion as to whether an 11(g) amendment is permissible in a safe harbor plan if 414(s) testing fails - that is, does it retain safe harbor status if the 11(g) amendment is used? It doesn't really make any sense (to me) that safe harbor status should be lost since merely reverting to ADP testing isn't an option, but I'm not aware of this being specifically addressed.

Say a client has had 3 welfare plans under their cafeteria plan, filing separate forms. Then for 2018 changes to a "wrap" document, so only one 5500 will be required. Do you go back and amend the previously filed 2017 forms for the welfare plans to show them as "final" forms? Seems like if you just file the one new wrap plan, you'll get DOL inquiry on why you didn't file forms for the plans that get wrapped...

Yup, but in my case I'm already crazy, so it doesn't matter. It just doesn't matter! It just doesn't matter! It just doesn't matter! (Bill Murray in "Meatballs" - one of the better teen Summer Camp style movies ever made.) Anyway, the index accurately captures most of the stuff that you would typically look at. But of course it doesn't show you what other options may be available, and no explanatory notes,, etc., etc. - however, if a client calls and wants to know what the allocation requirement are for a PS plan or something like that, very handy to have.

Austin - the FIS document does something like this, albeit in a different format. For the 401(k) plan their system will produce an "index" which lists the employer choices made in the AA, and gives references to the appropriate pages. VERY handy for clients, and a quick reference for the TPA as well - a total of 2 pages. Unfortunately, they don't do this on the 403(b) adoption agreement. Obviously, no substitute for the full AA, but you can very quickly see most of what you need.

I think you are stuck. See 1.414(q)-1, Q/A-9(b)(2)(iii) - I note that it says for "all" employee benefit plans. Q-9: How is the top-paid group determined? A-9: (a) [Reserved]. See § 1.414(q)-1T, Q&A-9(a) for further guidance. (b)Number of employees in the top-paid group - (1)Exclusions. The number of employees who are in the top-paid group for a year is equal to 20 percent of the total number of active employees of the employer for such year. However, solely for purposes of determining the total number of active employees in the top-paid group for a year, the employees described in § 1.414(q)-1T, A-9(b)(1) (i), (ii) and (iii)(B) are disregarded. Paragraph (g) of this A-9 provides rules for determining those employees who are excluded for purposes of applying section 414(r)(2)(A), relating to the 50-employee requirement applicable to a qualified separate line of business. (i)-(iii) [Reserved]. See § 1.414(q)-1T, Q&A-9(b)(1) (i) through (iii) for further guidance. (2)Alternative exclusion provisions - (i)-(ii) [Reserved]. See § 1.414(q)-1T, Q&A-9(b)(2) (i) and (ii) for further guidance. (iii)Method of election. The elections in this paragraph (b)(2) must be provided for in all plans of the employer and must be uniform and consistent with respect to all situations in which the section 414(q) definition is applicable to the employer. Thus, with respect to all plan years beginning in the same calendar year, the employer must apply the test uniformly for purposes of determining its top-paid group with respect to all its qualified plans and employee benefit plans. If either election is changed during the determination year, no recalculation of the look-back year based on the new election is required, provided the change in election does not result in discrimination in operation. Edited for a typo...

Thanks for the response. Yeah, it is one of those situations where the failure(s) were relatively few, and the excise tax on the 5330 was a couple of dollars - some number (I don't even know the number, at this point) of deposits were a day or two late. Something in me rebels at the idea of a VFCP filing (albeit not that difficult) and charging a client for something that was already "corrected" and excise tax paid, and is so piddly to start with. Maybe I'm just in my "tax filing season grumpy" mode... Anyone have any experience with the DOL actually pursuing this on a 2 dollar excise tax case?

When one of these letter is received (basically a form letter) in a situation where the late deposits were tiny, and the excise tax was less than 10 dollars and was paid timely on a 5330, are you still filing a VFCP? Or are you responding to the letter, explaining that the late deferral was corrected, and excise tax paid via a 5330 submission?

Personally, I think the IRS auditor's assertion is ridiculous. Revenue Ruling 66-144 clearly states otherwise for a corporation, and ERISA amended 404(a)(6) to make that provision applicable to cash basis taxpayers. In my humble opinion...

P.S. - if you have access to the EOB, there's a nice discussion of this starting on page 7.724 (2019 edition).

I agree with Bird and Just - I don't see, for example, that 404(a)(8)(c) says that. It says that it limits the deduction to the earned income.

FWIW, depending upon which document you are using, the language is even simpler. From the FIS PPA 401(k) VS document: (f) Divorce revokes spousal Beneficiary designation. Notwithstanding anything in this Section to the contrary, unless otherwise elected in Appendix A to the Adoption Agreement (Special Effective Dates and Other Permitted Elections), if a Participant has designated the Spouse as a Beneficiary, then a divorce decree that relates to such Spouse shall revoke the Participant's designation of the Spouse as a Beneficiary unless the decree or a "qualified domestic relations order" (within the meaning of Code §414(p)) provides otherwise or a subsequent Beneficiary designation is made.

The plan doesn't specify. The beneficiary form has space for two "contingent" beneficiaries. The INSTRUCTIONS, but not the beneficiary form itself, have this sentence: "Contingent beneficiaries only receive benefits if all named primary beneficiaries predecease you."

Ran across a very interesting question yesterday. Let me first say that the client will be directed to legal counsel, but in the meantime, I'm interested to see what opinions folks may have. 401(k) plan, participant "X" completed a beneficiary form years ago. Spouse as primary, Father as "contingent." Plan has normal language that a divorce revokes the spousal beneficiary designation. X gets divorced. No QDRO directing that ex-spouse receive any benefits from the plan or must remain as beneficiary. X never completed a new beneficiary form. Some years later, X dies. No spouse, no children. Plan, if there is no designated beneficiary, lists the parents of the deceased as 3rd in the hierarchy, after spouse and children. X's parents are divorced. So here's the question. Is a "contingent" beneficiary designation valid if the primary does NOT die? In other words, in this situation, is the Father the sole beneficiary, as a "contingent" beneficiary, or does the automatic revocation of the ex-spouse as beneficiary ALSO revoke the "contingent" status? If contingent status NOT revoked, Father is sole beneficiary. If contingent status revoked, then death benefit would be split between Father and Mother. This may be a well-settled question in law, so maybe there is a standard answer? Thanks for any opinions.

I'm honestly baffled by the extent of this thread. I fully understand the opinion that the IRS stance is stupid or ridiculous, but when has that generally been the determining factor? It seems like it is more about "winning" a discussion point than it is about what the IRS regulations say about it. Tom already quoted it - (1.401(k)-1(a)(6)(iii)) - I don't see how one can read the plain language here and come away with anything other than that the deferral election should be signed by 12/31. They specifically mention both a partnership or a sole proprietorship. (iii) Timing of self-employed individual's cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner's compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor's compensation is deemed currently available on the last day of the individual's taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated. If you want to argue that the IRS doesn't enforce this requirement, or that there is little or no "risk" or that you have had lots of plans ignore this requirement and it hasn't been mentioned on audit, then that's a different story. But to my weary brain, the "correct" answer, backed by the regulations, is that ya gotta have it signed on or before 12/31.

The transferred Money Purchase assets generally can't be eligible for an in-service distribution prior to age 62.

So say an S-corp has a leveraged ESOP. Total value of shares is 1 million. $200,000 has been allocated to participants, the remaining $800,000 is in the suspense account. When determining if the plan is top heavy, do you include the suspense account when determining the 60% figure? Or, is determined solely on the assets that have been allocated, and the suspense account is ignored?

Thanks, gentlemen.

Thanks Tom - I'm talking purely about coverage testing, and not the average benefits percentage test. So you agree that for these coverage testing purposes, no aggregation?

Want to see if I'm nuts. I'm looking at a situation where an employer has an ESOP, and a 401(k) plan. The 401(k) plan provides deferrals and a safe harbor match only. The census/testing results provided for the ESOP are confusing at best, but it APPEARS that the ESOP failed the 70% ratio test for coverage. It further appears that the ESOP was then permissively aggregated with the 401(k) to "allow" it to pass coverage. Now, under the mandatory disaggregation rule in 1.410(b)-7(c)(2), it would appear that for coverage purposes, an ESOP plan (or portion of plan) can't be permissively aggregated even with another non-ESOP Profit Sharing plan (or portion of plan), (other than as provided in 54.4975-11(e)), much less with a 401(k) or 401(m). Am I missing something? Before checking with the TPA, I'd like to think I understand what I'm talking about... Thanks.

So, suppose that an s-corp ESOP has what I would consider (fairly standard?) language to permit the transfer of shares from the ESOP account to a "non-ESOP" account within the plan, in order to avoid a potential 409(p) failure. Are there any tax implications of this, other than the fact that the shares so transferred will be subject to UBTI on their pro-rata share of the s-corp earnings?

Ask the investment provider to provide you with an explanation that you can give to the client. At least in theory, the revenue sharing shouldn't affect the participant accounts. However, not being an investment person, I'm not the right person to comment on this.

Ah, thanks for the clarification. I don't have plan in mind - I was browsing through the 403(b) forum re another question, and happened upon this thread. But I'm glad I asked!

I have always found this issue a little convoluted. Specifically regarding 410(b) coverage testing on a 501(c)(3) ERISA 403(b) plan that includes employer contributions: If I understand this correctly, if you have the "less than 20 hour per week exclusion" these employees are also disregarded for coverage testing on the employer contribution. For example, 6 NHC employees, one is excluded under the 20 hour exclusion - when determining the coverage testing group under 410(b), this person is excluded, so there would only be 5 NHC to consider for the 401(b) testing. Of course, if they ever work 1000 hours, then they move out of this excluded class and would then be considered. Comments?