Mike Preston

Thanks. The helped a lot. I suppose there is no answer to the question as to whether there is any chance the 4980D penalties would be enforced against 2015 policies if the 4980D regs are issued sometime in 2015? She is perfectly willing to give her employees the option as to whether or not they enroll in the group plan because the employees are sophisticated enough to understand that if the employer pays less for benefits there is more money available for salaries. I suppose it is unwise to have a form signed by the employees opting to forgo health insurance coverage in return for a specific dollar bump in salary, right?

Thanks. I think. I'm not entirely sure what "plans that violate the Notice 2013-54 "no reimbursement of premiums" position that such programs violate a couple of mandated reforms." means. Can you expand on that a bit? I didn't see anything in 2013-54 that addresses 105(h). Certainly nothing that explicitly says that the $100/day penalty would NOT apply until specific regs are issued. Did I just miss it?

Got into an interesting conversation with a small business (4 employees) owner who currently has a small group plan. The small group plan has raised their premiums to the point where the state exchange policies are MUCH cheaper. So the owner will drop the group health plan for all employees and give them all a raise from which the employees can pay for the state exchange policy and the taxes on the increased compensation and still come out ahead. Sounds like a win-win. The employees have the same insurance coverage and a few more bucks to spend. The employer's expense is dramatically reduced. One glitch: the insurance for the owner herself. Before the ACA the employer *could* have provided employer paid health insurance just for herself (of course, she didn't *want* to restrict coverage in that way, but she could have, unless it was self-insured, of course). Now, with the ACA $100/day penalty for providing what the law apparently refers to as discriminatory coverage, she is a bit concerned about what her options are. Poking around on the internet I found a page or two referencing an announcement from the IRS that the penalties for providing discriminatory coverage will not be enforced until the IRS issues regulations in that area. Have those regulations been published? Is there any chance that, if they haven't been published to date, they will be finalized in 2015 with a 1/1/2015 effective date, thereby ensnaring those that do so? A $36,500 penalty is something that most small business owners would prefer to avoid, eh? Assuming the penalty is off the table for 2015 and assuming all of the employees get individual coverage from the state, can the small business owner continue the coverage she has always enjoyed, have the company pay for it and have the company deduct the premiums? For reasons I don't understand, the policies for everybody other than the owner are significantly less expensive through the exchange. Thanks mike

Because it isn't "old comparability"! Before the updated 401(a)(4) regulations were published circa 1991 plans could establish comparability using Rev. Rul. 81-202. Hence, comparability pursuant to the updated 401(a)(4) regulations were dubbed "new comparability" to differentiate from RR 81-202 comparability. It is still "new" (or at least "newer") when compared to RR 81-202 comparability. The absolute best, most thorough method to immerse yourself in all that is non-discrimination testing would be Larry Deutsch Enterprises' Non-discrimination Testing Symposium. Day 1 of the symposium is spent on material that might best be described as "New Comparability 101 and more". mike

Here's a link to a file that I've been using for over 11 years. There have been some minor updates to the rules since it was published, so everything should be double-checked. Let me repeat: it may be out of date in some respects so make sure you double-check EVERYTHING. https://dl.dropboxusercontent.com/u/4185297/Termination%20Date%20Deadlines%20v2.01.pdf

I have some very old worksheets that say nothing more than what has been said above: 1) The resolution terminating the plan must be signed no later than the proposed termination date (this only works, of course, if the plan has previously been frozen in accordance with 204(h)). 2) The NOIT must be issued at least 60 and no more than 90 days before the proposed termination date. At the time, my research didn't find anything formal directly on point. But I did find that the following statement was included in my research: "However, many advisors counsel their clients to have this signed before the NoIT is distributed."

I trust LDorsa to cite me any time she wants. "Does the plan sponsor have to make some election/statement re this methodology?" Since the plan is not being submitted, I would hope that the four corners of the document either reference a specific application of RR 80-229 or 4044 of ERISA. If there really is an election to be made, I suggest amending that provision of the plan *before* the plan termination date *and* submitting a 5310. I don't believe that the allocation methodology specified in the plan regarding how to divide assets in the case of an underfunded plan is subject to 411(d)(6), so making whatever changes need to be made should be doable through a pre-termination amendment. "What do I put on the participant benefit statements since participants are 100% vested in the full AB by formula but will only receive some % of that benefit (for sake of argument we can call it 90%)?" Anything you think is an honest reflection of the benefits they are entitled to. As has been mentioned in at least one prior response there are unknowns that may cause the assets allocated to various priority categories to shift. Chief among them is if a participant demands an annuity. This is likely to cause a loss to the plan thereby reducing the amount available to other participants. This makes the communication tricky. I know I've included a paragraph that essentially tells the participants that the plan is underfunded, that we have estimated the benefits shown on the distribution paperwork and that the actual benefit payable will be increased or decreased in accordance with the plan's provisions which depend, in part, on the actual cost to the plan of the benefits elected by participants. As long as the resulting benefit is not significantly different from the displayed benefit then the termination can chug right along. If something happens to change things dramatically, another round of elections can be sought, potentially devolving into an iterative process that is quite lengthy. Important to tell the client of this possibility, although in practice almost everybody elects a lump sum. "Anything else I need to consider?" I agree with the hold harmless suggestion. It might also be helpful to educate the client on the history of how the IRS has treated underfunded non-PBGC plans. There was a period (two or three years in length, ending about two years ago --- ballpark timeframes as I don't remember the specifics) where the lower level reviewers were bullying plan sponsors into making non-owner's whole and "insisting" on owner (not just majority owners) waivers. Only those that pushed back hard were able to resolve things in favor of the plan document's provisions which invariably cite 80-229 or 4044 in some manner. "FYI - client is not going to file for an IRS determination letter." Since this client isn't submitting the issue framed in the last paragraph should be based on the expected behavior of an IRS auditor rather than a reviewer. In essence, the whole process should be laid out before the plan sponsor and the communication to the participants needs to be honest and transparent. Be prepared for lots of questions from the plan sponsor, other advisors (like "Do you really need to do that?") and participants. mike

This is like the bad penny that keeps turning up. The compensation projection used in a BOY valuation is up to the actuary. It is an assumption. The actuary must choose what compensation to use just like the actuary must choose all of his/her assumptions.

Maybe they finally realized that many of us have spreadsheets that accurately determine the COLA's so they have devoted their scarce resources to some other project? Seriously, I have no idea. I haven't kept track but I assume those who get the IRS' Guidewire emails will be notified as soon as it is published.

One can, I can, and, apparently you can. Refreshing. If you are going to give your friend advice, at least give him good advice: he shouldn't just transfer from one plan to the other and consider the act of transferring the assets as meeting the technical definition of plan obliteration (note I did not use the term "termination" because an equally valid course of action is to formally merge the plans - either termination or merger satisfies the IRS as to stopping the requirement for continued 5500's). He should ask the folks he wants to empty what the formal process is they have for effecting a termination or he should ask the folks he wants to have as the surviving trust what the formal process is they have for effecting a merger. It might be as simple as a one page form that has three or four lines to fill in and signature block. Good luck.

Well, you might want to ask T Rowe whether they have a formal procedure for terminating a plan and, more to the point, whether you effectively did so. Belt, suspenders and quarantine suggest that you do the same with your stillborne plan. As to whether it is problematic to have multiple plans at once nobody can answer that without reviewing the documents you signed. It is not a problem, theoretically, to have one plan sponsor have multiple plans. But my guess is that the type of plan you signed has provisions in the base document that are, indeed, problematic. My guess is that you have a pair of plans that, because of their provisions, are no longer qualified and the only way to get this cluster-{censored} back on track is to submit the whole thing to the IRS in what is known as an EPCRS submission. Now, most folks in your position, once they hear that, will do their best ostrich imitation because a submission under EPCRS is likely to be pricey. And the likelihood of having the IRS discover the problem is low. However, I'm not comfortable giving advice that turns on the likelihood of discovery. I'm probably not your favorite person right now.

Belt and suspenders says file a series of 5500's for each year that any plan, even the 0-asset plan, was in existence. With the IRS Pilot Program described in Revenue Procedure 2014-32 there is no downside. Chance of the IRS doing something to you should you *not* file is low, but why take even a low chance? How did you arrange for the transfer from the T Rowe to Fidelity? What paperwork did you fill out? Did you ever formally terminate the plan or are you just pretending that the plan was terminated because the underlying investment account was emptied and closed?

There is no anonymity on the internet.

Have you run the ABPT on a cross-tested basis? If not, make sure the plan's ERISA counsel agrees that you can (some are misguided into thinking that doing so invokes gateway: it does not) and once you get approval, do so. I can't believe it will fail. If this were left to fester for two years and the IRS audited and if I was brought in to see what could be done the first thing I'd do is run the ABPT on a cross-tested basis. While you don't say it explicitly, I am presuming the plan would satisfy 410(b) if the ABPT was passed.

Of course it must.

Thanks.

John, are you saying that when cross-testing a plan where a participant enters mid-year you are not allowed to determine the EBAR based on the projected benefit divided by comp while a participant?

John, remember that the two can't be combined. If you are using testing compensation from date of entry you have to be using annual comp. If you are using average compensation then you can't use comp from date of entry. But you can exclude certain 12-month periods of compensation if, during such periods, the plan disregards the employee's compensation for determining benefits - see 1.401(a)(4)-3(e)(2)(ii)(A). See also 1.401(a)(4)-3(e)(2)(ii)© for allowing certain months of compensation to be excluded as well, but I've rarely had to apply that one. And, also, accrued-to-date testing must use average compensation. See 1.401(a)(4)-3(d)(1)(i) and 1.401(a)(4)-3(e)(2)(ii)(A), with exception for certain formulas. Things can get very confusing in this area, real quick. I think we have reached that point in this discussion. The use of the word "But" seems to indicate you disagree with something. However, the first two things you mention are generally associated with drop out years and drop out months. I wasn't discussing either. Maybe I'm just not understanding what you are disagreeing with.

John, remember that the two can't be combined. If you are using testing compensation from date of entry you have to be using annual comp. If you are using average compensation then you can't use comp from date of entry.

John, not to worry! :-) Tom, it seems that they recruit folks who are fond of sucker punches these days. With Miller down for the year it looks like Michigan State is all that stands in their way within the conference. As far as what I forgot, it is hard to argue that I forgot to take into consideration something that I specifically said is usually irrelevant. Besides, you guys are discussing rate group testing and I was discussing the requirement that each component plan satisfy 410(b). As you know, a completely different kettle of fish. I'll fade back into the background now. Cheers.

As the anonymous actuary cited I note I've fallen into the ranks of "etc." :-( Tom, exactly what did I forget?

John, I don't disagree witih your advice, but I would point out that your mathematical proofs are not consistent with the language of the Code. To be top-heavy the account balances attributed to key employees must EXCEED 60% of the total. $0 can never EXCEED anything. So, if the first year of the plan is 2011 then it is definitively not top-heavy in 2012.

Remember you can run the ABPT on a cross-tested basis, so 47% may already be > 70%.

Which plan(s) fail coverage? Surely one of them passes 410(b). Is there an acquisition in the recent past such that you can use 410(b)-6c? Give some body counts. If, in the end, the 401(k) doesn't satisfy coverage your choices are to have a non-qualified CODA (doubt you would want this) or to pull some people into the plan that work for A and give them an EPCRS contribution.

Sorry for the ambiguity. David is right.