Mike Preston

There is no way on this earth that it will not be "allowable" to use the method identified in the proposed reg preamble. In the vast majority of cases there is a spread between the minimum and the maximum. By increasing the minimum you are reducing that spread and there is a no harm no foul result. Sure, there are situations where the spread doesn't exist, but they really are rare.

I wouldn't show zero if there actually were five.

My EGTRRA Volume Submitter 401(k) plan allows Roth rollovers into the plan. I wouldn't normally elect that option if the plan doesn't otherwise allow Roth accounts. What does your plan say?

OK, I looked it up. If you continue to read the section you cited, you will find a reference to another section in the case of payments due before the valuation date. If you follow that reference, it will say "Reserved." So, we know the proposed regs are silent on the issue. Looking to the text that precedes the proposed reg itself, you will find a section entitled "Proposed Legislation". This is the fifth section from the end (the last section being "Drafting Information"). In that section dealing with "Proposed Legislation" the IRS says that the "... additional amount would be determined by applying interest at an annual rate of 5% to the underpayment of the required installment for the period of time between the due date for the required installment and the earlier of the date of payment or the valuation date." So, when we get final regs on the issue (I note that the proposed regs were published on 4/15/2008), are you willing to ignore this warning from the IRS and risk not applying penalty interest for late quarterlies due before the valuation date in the hope that the IRS will allow the additional amount to be determined only for payments missed after the publication of the final regs? Do you feel lucky? Well, do ya'?

You need a conference call with two parties: 1) the person responsible for drafting the plan; 2) an ERISA lawyer. I could be wrong, but I do not sense a happy ending.

Absolutely. The IRS routinely checks for a26 issues on DL submissions, so it isn't necessary to ask.

Average comp, IMO. It is an interesting issue, though. Consistent with the requirement that the benefit has to be measured based on the provisions of the plan with respect to the normal retirement age, I would think that the definition of benefit compensation in the plan would control. If that is a 3 year average, so be it. However, there is no requirement that the benefit in the plan be specified based on pay. In the absence of a pay related benefit, I agree that it is unclear whether the IRS would force use of "current year compensation" versus "high x-year average." Could one rely on the fact that every plan has to have a top-heavy benefit which includes a compensation averaging methodology and apply that if no other compensation averaging exists within the four corners of the document?

Your attempt to make me look up the reference has failed.

As do I.

I think the whole idea is a non-starter. Check out the "discriminatory timing of amendments" rules in 401(a)(4).

May be, but they can't (I hope) copyright the concept. In fact, I discussed this exact concept in detail at a study group meeting in Los Angeles, right after PPA passed; complete with the reference to the 2004 regulations contemplating the 3% threshold. I think the concept works. If you have the computerized model to support it (which I assume Mercer does) it probably has a market.

I presume you have seen this, but just to be sure: http://www.dol.gov/oasam/library/law/lawtips/DOLopinion.htm

Yes.

I have done a number of these and you can contact me if you want to. They are not as simple as the client would like because the IRS has made up certain rules with respect to valuation of assets and allowable calculations that are difficult to navigate for those who have not done it before and only marginally less difficult to navigate if one has, because they demand a lot of information in very specific formats, even though some of the information would be completely irrelevant. At first blush, though, if the actuary engages in a negotiation with the IRS that proves fruitful, almost none of the first three years will be disallowed while the fourth year is potentially at serious risk. Of course, that is not to say that anybody (even me) can guarantee a fruitful negotiation with the IRS. After just a quick glance, are the insurance contracts in force merely annuity contracts? If so, I wonder why the IRS is pushing this? Is there something else going on that isn't apparent from the attachment? In any event, this stuff takes more time than it makes sense to spend, which is, I believe, part of the IRS' game plan. Good luck.

Would that it were.

I'm not sure what is being said here. A participant excluded improperly is a participant. If said participant was a participant as of the beginning of 2008, said participant counts towards the 120 participant threshold. Isn't it that simple? You can't get out of an audit by improperly excluding participants.

Owner only plan?

I believe that 0.5% as an annuity at normal retirement is the threshold and you have to have 40% meet that threshold. This isn't new stuff. And nothing new has come along to replace it.

The only thing you will find is the mention in the preamble to the existing final regs that tells us that the concept of applying the additional 5% penalty will apply to all late payments, not just those that take place after the valuation date.

I'm confused by what you have written. First you say that a pdf file must not be restricted (in the editing sense) and then you say that you think PDF writer will somehow not allow changes. Aren't those two things fundamentally inconsistent? In any event, there are a number of programs that allow you to edit a pdf file. The full version of Adobe Acrobat does, of course, but there are cheaper alternatives if all you want to do is edit existing text. In fact, there is a free one, amazingly called "pdfedit", if you have the computer chops to get it to work (it is a unix based program that requires those on windows machines to load the cygwin X-server). I think the theory is that if you are the one controlling the content, you should just make sure that the file is not tampered with when you upload it. Or, if there is any tampering to be done, make sure you are the one doing it!

The audit requirement is determined as of the first day of the year, not the last, isn't it? How many of your 36 were participants as of the first day of the year? Speaking just about 2008, of course. Somebody else will have to comment on the requirement for an audit in 2009 as I don't have time to look it up at the moment.

I repeat: how sure are you that the plan with the HCE's passes coverage on its own? It certainly sounds like it does, but since it is a simple matter to lay out the exact number of NHCE's in each group, and you haven't, that tells me that you don't really have a handle on everything. If that is so, then the attorney is doing what he or she should in ensuring the client's interests are protected. Have you done an average benefits test? If so, and it passes (as it most likely would) then your numbers make it highly, highly unlikely to have a failed 410(b) test on the plan with the HCE's. I'd be very curious how many people terminated during the year (and therefore did not receive an allocation) with more than 500 hours, and who therefore are not excludable. I'd also be interested in knowing just how many we are talking about that you describe as "less than 100". 99? 17? In any event, if you can show that the the plan definitively passes 410(b), the attorney should drop his or her request for a general test, assuming the benefit structure is as you say.

If all is as you say, then you are right and the attorney is wrong. How sure are you that each plan satisfies 410(b) on its own without aggregating with any other plan? How sure are you that each plan has provisions which allow it to be treated as a safe-harbor for 401(a)(4) purposes?

You have options. You can combine or test separately. And after making that decision, you can test by separately testing those who meet statutory eligibility and those who do not. And those are just the "basic" options.

There are effectively two reasons for the suspension of benefits notice. The first is to stop paying benefits that would otherwise be payable. The second is that, in some circumstances, the effect of the suspension of benefits notice is to avoid actuarial increases on the suspended benefits. Note, however, that actuarial increases are required post age 70 and 1/2 (one's RBD). It is possible that there is a confusion somewhere. I certainly agree that the plan can't unilaterally suspend benefit accruals upon attainment of NRA. However, if a participant is fully accrued at NRA then there are some who might argue that, per the formula, additional years after attainment of NRA won't result in an increased benefit. If, on the other hand, a benefit formula takes into account compensation and one's compensation increases after NRA, it is necessary to use that increased compensation in the determination of benefit at a later date.