KJohnson

I think that the Reg is VERY poorly worded, but I am inclined to agree with Belgarath. There are essentially two requirements for getting out of an audit. 1) Having 95% of investments in qualifying assets and 2) Making the additional disclosure in the SAR. Then,the regulations provide a further exception to having to make the disclosure in the SAR but that only applies if you have 100% of your assets in what I call "super-qualified" investements -- those listed in (b)(1)(ii)(A), (B) and (F)). In this case because the TPA rather than the finanical institution is sending out the quarterly statement, it would appear that they do not fall under (F) so they cannot assert that all of their assets are "super qualified." Therefore they will need to make the additional disclosures in the SAR to get out of the audit requirement. (To add even more complication, there is a question with regard to additional SAR disclosure even if you have 100% of your assets invested in "super qualified " assets because this only gets you out of the disclosure requirements of B(1). It appears that Section B(2) would be inapplicable, and Section B(3) would be inapplicable assuming that you are talking about the ADDITIONAL bonding requirement, but what about B(4)?)

Kirk, I would be interested as well. I've got the hard copy in my determination letter subject file and remember printing it off over a year ago. I thought it was an attachment to some of the CPE material that the IRS publishes but I went back and couldn't find it. BTW--I always find the CPE material very helpful. The 2002 IRS CPE material can be found here: http://www.irs.gov/retirement/article/0,,i...=102249,00.html

You might want to look here (BTW I don't agree with the "advice" that was given to the prototype sponsor by the IRS referenced in the post): http://www.benefitslink.com/boards/index.p...=ST&f=20&t=4889 Also, I echo that you need to look at your document. Even if the employer is making the match on a payroll by payroll basis there is a chance that the match is based on a yearly amount of deferrals in which case you might have "true up" issues if you changed the amount of match mid-year Look here for a general discussion of true-ups: http://www.benefitslink.com/boards/index.p...ST&f=20&t=19545

Mike, The reviewing agent and I had a long discussion about this regarding my volume submitters. They orginially insisted that this option be taken out. Ultimately he let me keep this in. His problem was a defintely determinable issue and I convinced him that as long as the method for the "add back" was spelled out and there was no employer discretion with the add back, you should not have a DD problem

Right. (If he stole from the plan itself and you obtained a judgment the answer might be different).

Blinky, I can see your point, but every time this has come up in front of Wickersham et. al. , they have been pretty emphatic that word-for-word means just that. They give the impression that if you spill a drop of coffee on your document you have somehow deviated from word-for-word.

1) I think the guidance is that if you adopt a non word-for-word you have to submit in order to get the extended RAP. In other words, if you don't submit, you were not a timely amender. I don't think the 'snap off" amendments would qualifiy as a word for word so if you use them you must go in for a letter 5310 or 5307. 2) I have had several clients who signed certifications and then decided to terminate their plans. They were going in for a 5310 anyway. Therefore instead of doing a full GUST restatement on the volume submitter, I simply used by GUST snap offs and submitted these with the 5310 to save the client a few $$. Thus far the IRS has had no problems with this.

Looking over the 2002 ASPA Q&A's and they repeated that adding the QJSA provisions to the profit sharing moneys does not present a problem. p 25. Is it a “411(d)(6) cutback” to amend a profit sharing plan that did not provide for annuities to add annuities? No. i.e. Does the addition of a requirement for spousal consent for a lump sum distribution on pre-existing account balances violate 411(d)(6)? No. This could occur where a PS plan and a MP plan are merged and the sponsor wishes to subject all balances to J&S for simplicity. We understand and we do not see that as a problem.

Just was looking at the 2002 ASPA IRS Q&A's and noted these. Apparently the IRS is taking the position that you do have to run BRF testing on this.p 5. If a 401(k) Profit Sharing Plan uses an individual funding vehicle with a $2,000 threshold and the business owners are able to immediately move into this funding vehicle that had multiple investment options, but non-owners with smaller 401(k) contributions are in a pooled money market until they reach the $2000 threshold, is this discriminatory? What if the threshold is $10,000? $25,000? $100,000? Answer: This is a benefits, rights and features issue and, depending on the facts, could either pass or fail. p 6. Is it okay to restrict Individual Brokerage Accounts to participants that are 100% vested in all accounts? Is this a BRF problem / issue? Answer: See question 5 above. This would be acceptable if you pass the BRF test.

The subsequent year--the year actually paid.

Also Katieinny I think you would have 204(h) problems on reducing the future accruals to 0 as of May 1 by giving the notice on April 23rd.

I think it is an open question. If your plan document says that once you have 500 Hours you have earned X% of an entire plan year's compensation, then arguably you do have a 411(d)(6) issue if you change the formula because the employee has already earned a benefit based on an entire year of compensation. However, an argument can also be made that a benefit does not accrue until the compensation is earned. At least in a plan termination context IRS officials informally agreed that only the compensation up to the date of termination should be considered. (Kateinny and Archimage's position). The following is question and answer 72 from the 1998 IRS Q&A Session at the ASPA Annual Conference: 72. A calendar year 10% MP [that is, money purchase pension] plan has no last day employment condition, no hours requirement for receiving a contribution, and defines compensation as compensation paid during the plan year. It terminates on 6/30/98 with all participants having accrued 1,000 hours of service in the plan year to that date. On the same day, the sole NHCE [nonhighly compensated employee] terminates employment. The sole HCE [highly compensated employee] continues in employment through the end of the year and beyond. The participating NHCE had $10K in compensation to the date of termination; the participating HCE had $50K in comp to date of plan termination and a total of $100K in compensation for the entire plan year. Is the contribution required to satisfy 411(d)(6) (and 412): a) $0 [applying RR 79-237]; b) $6,000 counting compensation to date of plan termination; or c) $11,000 counting all compensation for all participants for the entire plan year. IRS Response: B is the correct answer. Interestingly the very next year at the very same conference to almost the exact same question they gave the old "this will be discussed from the podium" response. I wasn't there so I don't know what the repsonse was from the podium. 92. Can a money purchase plan with no last day employment requirement terminate now prospectively so that no contributions accrue for the rest of the year? Here are three possible ways of looking at it; which is correct? A. Aggressive position - no contributions required or allowable for the CURRENT plan year. See RR-79-237. B. Conservative position - contribution required for current plan year based on total compensation for the entire plan year. C. Medium position - contribution required for current plan year but only based on compensation earned to the later of the adoption date or the effective date of the plan termination/plan amendment. This will be discussed from the podium.

I realize that there is the "2 1/2 month rule" that can be applicable for including deferrals from after-year-end bonuses in the ADP test for the preceding year. However, what is the rule for the purposes of 404? If this bonus is paid on "account" of the prior year are the deferrals deductible in the prior year as long as the bonus is paid and the deferrals remitted in the 404 "grace period (until the date for the return)? I have read Rev. Rul 90-105 which prevents certain "gaming" of the grace period with regard to post-year-end deferrals but it doesn't seem to take on this question of a post-year-end bonus that is based on the prior year's performance of duties.

Corey Rosen reports in his column on the NCEO website that there was a TAM allowing this back in November 2001. You can find the column here http://www.nceo.org/columns/cr116.html I haven't gone back to look for it. If you do, will you post it? Also, I couldn't locate the actual edition, but apparently the Journal of Employee Ownership Law and Finance had an article about this issue in the Winter 2000 edition.

How about this scenario. 1) Calendar Year Plan provides that forfeitures will be allocated in the next plan year after forfeiture arises. 2) Plan provides that distribuitons only can be made at the end of the plan year following termination of employment. 3) A number of non-fully vestedl employees who terminated employment in 2001 (assume not enough for a partial termination) take their distribution in January through March 2002. This creates forfeitures. 4) Employer lays off all employees in November 2002 and goes out of business. 5) Plan provides that 415 excess will be put in a suspense account. 6) Plan provides that upon termination all amounts will be fully vested and unallocated amounts will be allocated but provides that any amounts that cannot be allocated in a 415 suspense account because of 415 limits will revert to the employer. ( 5) Plan formally terminates in 2003. What happens to the forfeitures that arose from those who took their distributions in 2002? They had already received a distribution and forfeitied the remainder of their account balance prior to the time the plan terminated as well as the time there was a "partial" termination due to the lay off. It would seem that there is a good argument that the forfeitures would revert to the employer. You would try an "apply" them in the next plan year, but no one has any comp in 2003. Therefore any allocation would be over the 415 limit and all forfeitures would have to go into a 415 suspense account. The suspense account, under the plan's terms, reverts to the employer. (as permitted under 1.411(d)(2)-2(a)(2))

I am not completely sure where the six months comes from, but that has always been my understanding. MBOZEK previously referenced you the plan termination audit guidelines. I think that is the best place to look. They can be found here: http://benefitsattorney.com/cgibin/framed/...?ID=290&id==290 They contain the following "exception" to the one year requirement: In general, a distribution is deemed to have been made as soon as administratively feasible if commencement of the distribution was delayed because of circumstances outside the control of the plan administrator. EXAMPLE: If a plan administrator submits a timely application for a determination letter upon termination, the plan administrator may generally delay the distribution of assets until the determination letter is issued.

I thought to be a business associate you had to be receiving individually identifiable health information . I just didn't think that kind of information would be involved in typical COBRA administration for a fully insured plan.

ADP perfroms the "typical" COBRA services for an employer with a fully insured plan. Employer will receive no PHI from its insurer. ADP has sent a Business Associate Agreement to be signed. 1) What kind of PHI would ADP be handling in processing COBRA notices, forms and payments? 2) If this is a small plan, would there be any requirement to have this agreement in place before 2004 (if it is required in the first instance)?

As to the year "requirement" see the following. If you haven't distributed within a year, I always have treated this as a "rebuttable presumption" that you have not distributed as soon as adminstratively possible. Rev. Rul. 89-87 1989-2 C.B. 81, 1989-27 I.R.B. 5. Internal Revenue Service (I.R.S.) Revenue Ruling WASTING TRUSTS: TERMINATING PLAN Published: July 3, 1989 Section 401. - Qualified Pension, Profit-Sharing and Stock Bonus Plans, 26 CFR 1.401-1: Qualified pension, profit-sharing and stock bonus plans. (Also Sections 411.7805; 1.411(d)-2, 301.7805-1.) Wasting trusts: terminating plan. A qualified plan under which benefit accruals have cased is not terminated if assets of the plan remain in the plan's related trust rather than being distributed as soon as administratively feasible. Rev. Rul. 69-157 clarified and Rev. Rul. 79-237 modified. ISSUE Is a pension, profit-sharing, or stock bonus plan terminated if, after an amendment is adopted to terminate the plan, the assets are not distributed as soon as administratively feasible, but are held in the plan's trust which remains in effect in order to make distributions when employees become entitled to payments under the terms of the plan as they exist when the amendment is adopted? FACTS For several years before 1988, Plan A was maintained as a qualified plan. In 1987, actions were taken to terminate the plan as of December 31, 1987. All benefit accruals ceased and participants were fully vested in their accrued benefits. However, the plan's trust remained in existence in order to pay benefits when due under the terms of Plan A, on and after plan participants attained the ages necessary for early or normal retirement benefits. The assets of Plan A were not distributed as soon as administratively feasible following the date of plan termination as specified for the plan. LAW Section 401(a) of the Internal Revenue Code provides that a trust created or organized in the United States and forming a part of a qualified stock bonus, pension, profit-sharing plan of an employer shall constitute a qualified trust only if the various requirements set out in section 401(a) are met. Section 501(a) of the Code provides that an organization described in section 401(a) (that is, a trust which is part of a qualified pension, profit-sharing or stock bonus plan) is exempt from taxation. Section 1.411(d)-2© of the Income Tax Regulations provides that, for purposes of section 411, a plan to which Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) applies is considered terminated as of a particular date if as of that date it was terminated under section 4041 or 4042 of ERISA. Section 1.411(d)-2© also provides that a plan that is not subject to Title IV is considered terminated on a particular date if, as of that date, it is voluntarily terminated by the employer or employers maintaining the plan. Rev. Rul. 69-157, 1969-1 C.B. 115, provides that a trust that is part of a qualified plan will not retain its qualified status after the plan has been terminated. Rev. Rul. 69-157 also provides that a plan is not considered terminated in fact where the plan continues in effect until all the assets have been distributed to participants in accordance with the terms of the plan. Section 1.416-1, T-4, of the regulations defines a terminated plan as one which has been formally terminated, under which crediting service has ceased for vesting and benefit accruals and under which plan assets have been, or are being, distributed as soon as is administratively feasible. Section 1.416-1, T-5, provides that under a plan for which the assets are not distributed as soon as administratively feasible, minimum contributions or benefit accruals are required under section 416 of the Code. Section 1.401(a)-20, Q&A-6, of the regulations provides that a terminated or frozen plan is subject to the survivor annuity requirements of sections 401(a)(11) and 417 of the Code, unless such plan was terminated prior to September 17, 1985 and all assets were distributed as soon as administratively feasible after the termination date. Rev. Rul. 79-237, 1979-2 C.B. 190, holds that, once applicable, the minimum funding standards described in section 412 of the Code apply to a pension plan through the date of its termination. Rev. Rul. 79-237 defines the date of termination for plans subject to Title IV as the date described in section 4048 of ERISA. ANALYSIS In order to terminate a qualified plan, the date of termination must be established, the benefits of plan participants and other liabilities under the plan must be determined with respect to the date of plan termination, and all plan assets must be distributed to satisfy those liabilities in accordance with the terms of the plan as soon as administratively feasible after the date of termination. Generally, the date of plan termination for a single-employer plan under Title IV of ERISA, will be the date of plan termination for purposes of the Code. In addition, a single-employer plan to which Title IV applies that has not been terminated under Title IV, even though its assets have been distributed, will not have terminated for purposes of the Code. A plan that is amended to terminate and to cease benefit accruals has not, in fact, been terminated under the Code if the assets are not distributed as soon as administratively feasible after the stated date of plan termination, regardless of whether the plan is treated as terminated under other federal law, including Title IV of ERISA. Termination of a multiemployer plan under Title IV of ERISA generally goes not result in plan assets being distributed as soon as administratively feasible after the date of plan termination under Title IV. Accordingly, such a plan will not be treated as terminated under section 401(a) of the Code and will have to continue to meet the requirements of section 401(a) to retain its qualified status. In the case of a single-employer plan that is terminated for purposes of Title IV, if plan assets are not distributed as soon as administratively feasible after the date of plan termination under Title IV, the plan will not be treated as terminated for purposes of the Code, except that the plan will be considered as terminated for purposes of section 1.411(d)-2© of the regulations. Thus, for example, a plan which is terminated for purposes of Title IV, but under which plan assets are not distributed as soon as administratively feasible, will not be terminated for purposes of Rev. Rul. 79-237 for determining the applicability of the minimum funding standard to such plans. Whether a distribution is made as soon as administratively feasible is to be determined under all the facts and circumstances of the given case but, generally, a distribution which is not completed within one year following the date of plan termination specified by the employer will be presumed not to have been made as soon as administratively feasible. A plan under which all assets are not distributed as soon as administratively feasible is an ongoing plan and must meet the requirements of section 401(a) of the Code, in order to continue its qualified status. Such a plan remains subject to the minimum funding requirements of section 412, where applicable. Also, in any year in which the trust assets have not been distributed, the plan is subject to the information reporting requirements of sections 6057 and 6058 and, in the case of a defined benefit plan, the actuarial reporting requirements of section 6059. In this case, Plan A was not in fact terminated when benefit accruals ceased because distributions were not made as soon as administratively feasible thereafter but were delayed until the participants became entitled to receive distributions under the terms of the plan as they existed when the benefit accruals ceased. HOLDING A pension, profit-sharing or stock bonus plan, under which benefit accruals have ceased, is not terminated if, after an amendment is adopted to terminate the plan, the plan assets are not distributed as soon as administratively feasible but are held in the trust which remains in existence in order to make distributions when employees become entitled to receive payments as provided under the terms of the plan as they exist when the amendment is adopted. This revenue ruling does not consider whether the cessation of benefit accruals results in a partial termination within the meaning of section 1.411(d)-2 of the regulations. EFFECT ON OTHER REVENUE RULINGS Rev. Rul. 69-157 is clarified. Rev. Rul. 79-237 is modified to provide that for purposes of that revenue ruling, a termination will not occur if plan assets are not distributed as soon as administratively feasible, even if the plan is terminated under Title IV of ERISA. PROSPECTIVE APPLICATION Under the authority of section 7805(b) of the Code, the holding in this revenue ruling will not be retroactively effective for eligible plans (as described below). Under the section 7805(b) relief described in the previous sentence, an eligible plan will be treated as having terminated on the date of plan termination specified by the employer if distribution of all remaining plan assets is completed prior to the later of January 1, 1990, or as soon as administrative feasible after July 3, 1989. An eligible plan for which plan assets are not distributed, but which is amended prior to January 1, 1990 to comply retroactively with all qualification requirements for the period following the specified termination date and to retroactively restore employee benefit rights to that which they would have been had the plan been in compliance with the qualification requirements during such period, will be considered to have been an ongoing plan which was qualified for all years following the termination date specified by the employer. Thus, for example, an eligible plan would have to be amended by January 1, 1990 to comply retroactively with all qualification requirements for which the period to amend without loss of qualification has expired, including any section 401(b) remedial amendment period, and to restore employee benefit rights to that which they would have been had the plan been in compliance with such qualification requirements. In addition, the plan would have to operationally comply with any qualification requirements for which the effective date has passed but for which the section 401(b) period has not expired, and employee benefit rights have to be restored to that which they have been had the plan operated in conformance with such qualification requirements. An eligible plan for purposes of the section 7805(b) relief described above is a plan that was formally terminated prior to July 3, 1989, and either was entitled to rely on a favorable determination letter (or favorable opinion letter if such plan is a standardized master or prototype plan as defined under sections 4.07 and 4.08 of Rev. Proc. 84-23, 1984-1 C.B. 457) immediately prior to the stated date of plan termination or satisfied section 401(a) of the Code immediately prior to such date. In addition, either the employer must have received a favorable determination letter that considered the plan termination or the actions taken in conjunction with the formal plan termination must not have adversely affected the qualified status of the plan. In order to be eligible for the section 7805(b) relief, the employer must have treated the plan as a terminated plan (except for the distribution of all plan assets as soon as administratively feasible) at all times following the date of termination specified by the employer. An employer will not be considered to have treated the plan as terminated unless all benefit accruals or contributions ceased upon the specified date of termination (except for any top-heavy minimums required under section 416 of the Code), and section 411(d)(3) was complied with, both in form and operation, as of such date of plan termination. The section 7805(b) relief provided in this revenue ruling, however, will not relieve an employer from the obligation to provide for any top-heavy minimum accruals required under section 416 of the Code or to meet the survivor annuity requirements of sections 401(a)(11) and 417 for the period following the date such provisions became effective. Thus, in order to be eligible for the section 7805(b) relief provided herein, an eligible plan must have complied with the requirements of sections 416, 401(a)(11) and 417. This section 7805(b) relief shall not apply to, nor extend the 7805(b) relief otherwise applicable to, any otherwise eligible plan with respect to which the Service has notified the employer (or the employer's authorized agent) that the plan did not satisfy the requirements for a qualified plan as of some date after the date of termination specified by the employer. Those plans which are not eligible for section 7805(b) relief, or which are eligible but do not satisfy the conditions by January 1, 1990, will be treated as ongoing plans for all years and will be subject to the qualification requirements of section 401(a) of the Code. Such plans will not be qualified for all prior years in which the qualification requirements were not met and will be qualified for current or future years only if such plans are retroactively amended to meet all qualification requirements for the period during which the plan was ongoing, and employee benefit rights are retroactively restored to that which they would have been had the plan been in compliance with the qualification requirements during such period. DRAFTING INFORMATION The principal author of this revenue ruling is Charles D. Lockwood of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue ruling, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service or Mr. Lockwood between the hours of 1:30 p.m. and 4 p.m. Eastern Time, Monday through Thursday by calling (202) 566-6783/6784 or (202) 343-0729. (These telephone numbers are not toll-free numbers). Rev. Rul. 89-87, 1989-2 C.B. 81, 1989-27 I.R.B. 5

There was a good article today by EBIA discussing the effects of the Great West decision on benefit overpayments. It can be found here: http://www.ebia.com/weekly/articles/2003/4...403Lumenite.jsp The court apparently let the case go forward where the funds were directly "traceable" from the plan to an ira and then from the ira to the purchase of a home.

What kind of distribution events were they? I believe that you are correct in that there is some "wiggle room" in the reg, but the various treatises and the Revenue Rulings have always seemed to limit in-service distribution option to stated age, hardship, seasoned money and five years of participation.

asire2002. While I think an argument could be made under the regulations that such an event might fall under 1.401-1(b)(1)(ii), I don't think the IRS takes such a broad view. You might look at Rev. Rul 71-295, 73-553. If you have experience with other distributable events where you have received a determination letter after "flagging" the issue, I would love to hear what the distribution criteria were.

A plan document could not even provide that this is a a distributable event. For a profit sharing plan the only distributable events that you can have are: death, retirement, disability, termination of employment, stated age, hardship, five years of participation or more, or "seasoned money" of two years or more. I suppose a plan COULD provide something like: A paricipant who no longer is in a job classification covered by this Plan and is age _______ may receive a distribution....

You might want to look here: http://benefitslink.com/boards/index.php?a...=ST&f=20&t=8418 and here: http://benefitslink.com/boards/index.php?a...=ST&f=20&t=4889 I frankly think that this can be done, although some IRS individuals have informally disagreed as noted in the posts above. However, as QDROphile notes, you need to check your document to see what the "true up" period is for the match. For example if your plan sets the match on a plan year basis rather than a payroll to payroll basis and if you stop the match mid-year, you may be forced to perform some "reallocations" of amounts already contributed. (e.g. a participant who says I'm stopping deferrals after you stop the match may have to have some of his prior match reallocated if other participants continue deferrals because the match is based on an entire year of deferrals). If you have participant statements going out on a monthly or quarterly basis that reflect the match, then you may well be asking for trouble with regard to this reallocation. However, if your plan document does the match on a payroll by payroll basis there should not be a problem.

BTW--Here is a link to Corbel's opinion on the testing implications of the irrevocable waiver: http://www.corbel.com/news/faqdetail.asp?ID=23