Mike Preston

IRC Section 404a1D, effective for plan years beginning after 12/31/2001. Not waiting on regulations that I know of.

Try this one and search for Revenue Procedure 2003-72: http://www.legalbitstream.com/irs_materials.asp?pl=i3

My comment is that I don't understand some of the jargon you are using. What, exactly, is Entry Age Normal PVAB and what does it have to do with this calculation? Did you mean Entry Age Normal Accrued Liability? Why are you subtracting PVFNC from EAN-PVAB? Something is amiss, but this is such a jumble that I can't tell what. What does your actuary say?

No great grandparent or great grandchildren attribution under those sections. Only if you see the phrase "lineal ascendants or lineal descendants" do you have to apply attribution.

1) No. 2) A 204(h) Notice indicating a cessation of benefits in the MP plan would have been required prior to the merger. If not, then the money purchase accruals would have continued under the auspices of the PS plan, which would no doubt scuttle the intent of the merger in the first place.

Good point, WDIK. However, just like the OP never stated that the mechanism for accomplishing the early entry was an amendment to the plan, there is a presumption here that the individual in question is likely to be an HCE in the second year. pmacduff's message was the first to suppose that HCE status was likely, and I agree it is likely, because in the absence of said individual becoming an HCE, there is no discrimination issue at all, notwithstanding GBurns' irrational comment to the contrary.

I'm still waiting for you to describe any method that can be used to accomplish the stated objective without an amendment. If there is no other way, why is it presumptuous to assume that an amendment is being contemplated? Look, you were just trying to start trouble with your post. You know that there is no way to accomplish it without an amendment. The OP knows it, too. Either make a credible argument as to how to implement the intended "additional benefit" or drop the issue, already.

GBurns, well if you feel that way, perhaps you can suggest a way to accomplish it other than with an amendment or a nose twitch. Under what theory do you feel that benefits for NHCEs must be the same for all? Wow!

I was not aware that you could make changes to the trust or custodial arrangements. I'll take your word for it since I've never made any changes in those areas. Thanks.

Well, at least you are ! (<=Note: That was supposed to show up as the Clickable Smiley that you used in your post, but it didn't!) Ahhhh! A cite! Wonderful! So, a single amendment would not rise to the level that would cause you consternation, right? Therein lies the rub. If the single amendment doesn't give rise to the issue, then it must be a pattern that does so. If it is a pattern, it is dealt with via 1.401(a)(4)-5. If it isn't a pattern, then it must fail on its first application under 1.401(a)(4)-4©(3). Multiple applications of 1.401(a)(4)-4©(3) won't do it. Did the IRS auditor offer you any beachfront property in Arizona? I admit that it would look like it should be discriminatory to the casual observer, like the IRS auditor you engaged in an informal conversation. Begging the issues of how it was presented and whether the IRS auditor fashioned him/herself as a protector of the downtrodden, there is just no support for the position that a benefit, right or feature extends to eligibility granted to an NHCE in a future year when that individual becomes an HCE. Judge Learned Hand comes to our rescue many times, and this is one of them. I don't care how many amendments are made to a plan that benefits people when they are NHCE's. They will never, ever give rise to a claim that such benefits are discriminatory under the existing Code and Regulations. But I can! Look at all of 1.401(a)(4). You won't find anything that says an amendment which benefits an NHCE can possibly give rise to a claim that something, ANYTHING, is discriminatory. Everything therein is about benefits to HCE's. And everything is therefore a cite that proves, by conspicuous absence, that such an amendment is not and can not be discriminatory. No argument here. I would even be willing to include a paragraph along the lines of: The taxpayer is particularly interested as to whether the proposed amendment, notwithstanding the fact that the benefit being provided is with respect to an individual who is an NHCE in the initial plan year, can lead to a claim by the Service that a violation of 1.401(a)(4)-4©(3), Effective Availability, might arise in a future year when the individual becomes, as expected, an HCE. That is, does the proposed amendment potentially provide a discriminatory benefit, right or feature either in the current year or any future plan year? I'd be interested in your analysis as to how much one should pay to an individual who has proved that the value to the entity in question is $10,000, is age 33, and otherwise makes $150,000 per year, but who only worked for 8 months during the plan year and therefore received $100,000 in compensation in the year in question. If the answer is "greater than $10,000" then how does the entity justify paying more than the amount determined as the "value" of $10,000? And where does it come from? I sense a chicken and egg problem here, if you catch my drift. I'm hopeful that you don't find this discussion a bother and that we can continue it.

GBurns: How do you suppose they accomplish the following: "offer that specific person accelerated eligibility"? I'm as big a fan of Elizabeth Montgomery as the next guy, but twitching one's nose won't cut it!

Sure, if they are made from tofu.

Random thoughts. Somewhere in here is what you are looking for. Pick and choose at will. I'm not sure it is a simple cite, per se, at least not a single cite. Let's start with some principles and see if that doesn't satisfy the proverbial attorney. 401(a)(4) and 410(b) are linked. If you are testing one, you are testing the other. Once you have a plan that has employer contributions you must satisfy the gateway requirements if your intent is to cross-test to satisfy a4. The definition of a plan is in 1.401(a)(4)-12, which refers you to 1.410(b)-7(a) and (b). 1.410(b)-7©(3) talks about disaggregating when a plan benefits otherwise excludable employees. It refers you to 1.410(b)-6(b)(3)(ii). That section says that when you disaggregate like this, you can't use the 2 year rule, only the one year rule. That is, it says you have to ignore 410(a)(1)(B). That much, should be clear. The gateway rules require that there be no restructuring. That is, you can't segregate the plan into two pieces, one that satisfies 410(b) after application of the two year rule and the other which includes "everybody else". QED. 'Nuff?

I'm not sure I'm understanding what you are asking for. Are you saying that an ERISA Attorney wants you to weave the citations together that cover 416, 401(a)(4), cross-testing, gateways and eligibility in order to back up a particular claim? An ERISA Attorney shouldn't need that. Now, if he/she wants something more focused, that is a different story. In that case, what, precisely, is he/she looking for?

The above was the short version!

It was $116,000 in 2002 to get $40,000, it is $112,000 in 2003 to get $40,000, it will be $112,000 in 2004 to get $41,000.

Oh, now you are going to move beyond minimum benefits into 401(a)(4), huh? (g) When testing under 401(a)(4) in this scenario, the people who receive the gateway are all part of the a4 analysis. If it works with them getting just the gateway, fine. If it doesn't, you can consider giving them more. If giving more to those people who meet the 2 year rule works, you can do that, too.

I agree. The "solution", if there is one, is to do a test early enough in the year so that one can cut back the HCE's as far as future contributions go, and pass the test that way. Most plans allow the Plan Administrator to cut back HCE's in this manner on a uniform basis.

The maybe yes part of your brain should be listened to.

We all know that bad facts make bad law. And I wouldn't find it surprising that a court would find an intentional pattern of prospective changes intended to disproportionaly benefit current NHCE's albeit future HCE's as compared to current and future NHCE's to be bad facts worthy of bad law. But it would still be bad law and, upon appeal, one hopes that reason would prevail. The determination of who is an HCE and who is an NHCE is a fact based analysis, not a facts and circumstances analysis. In the plan year an amendment is effective it is imperative to measure the impact of that amendment on those who are then HCE's and NHCE's. There is absolutely no requirement that I am aware of to re-measure the impact of such an amendment during future periods, except with respect to features applicable to those future periods. That is, when measuring the impact of such an amendment in a future period, you look to the benefits rights and features provided in that future period. To assume that retroactive eligibility is a benefit, right or feature that is to be viewed as providing a current benefit, right or feature in a future period strains credibility to the utmost. And without a citation, I am just as confident as you, but obviously headed in the opposite direction, that there is no way the IRS could or would assert a violation of 401(a)(4). No matter, let's assume that your position is plausible and then look at the regulations in detail. First, a general comment. If you don't have a cite, you don't have a leg to stand on. The IRS used to have a requirement that a plan needed to pass a "smell test" in order to be non-discriminatory. With the introduction of the 1.401(a)(4) regulations they made it clear that there was no longer such a standard. Ira Cohen is on tape many, many times stating such. To the extent there remains any need to satisfy anybody's olfactory senses there must be a cite within 1.401(a)(4) that requires it. No cite? No legs. 1.401(a)(4)-5(a)(2) discusses the timing of an amendment. "Whether the timing of a plan amendment or series of plan amendments has the effect of discriminating significantly in favor of HCE's or former HCEs is determined *at the time the plan amendment ***FIRST*** becomes effective* for purposes of section 401(a), based on all of the relevant facts and circumstances." Measure to your heart's content, but on the date that the amendment in question ***FIRST*** becomes effective it is clearly non-discriminatory because it is providing an enhanced benefit to an NHCE. So, 1.401(a)(4)-5 doesn’t appear to be your cite with respect to the one-time amendment itself. Even if you consider the effect of the one-time amendment to really be a series of three plan amendments (three separate provisions): 1) the provisions in effect prior to the amendment in years before the amendment; 2) the provisions in effect for the year during which the amendment is effective; and, 3) the provisions in effect for the years after which the amendment is no longer effective - you do not reach the conclusion that the series of "amendments" is discriminatory under 1.401(a)(4)-5(2). Clearly the plan before the amendment must be assumed to be non-discriminatory or we have a non-starter. The amendment itself, in the year made, as shown above, is clearly non-discriminatory because it is providing additional benefits to an individual that is an NHCE. So the only chance of encountering a problem is in the year(s) following the year that the amendment is made. How is there a problem in such a future year? If I understand you correctly we must first accept your argument that, and I’m paraphrasing here, “the right to receive earnings on an account balance that exists solely because of the one-time amendment” gives rise to a current benefit, right or feature in this now future plan year. Do I have that right? I, for one, certainly don’t accept your argument. But, if I understand it correctly, how is this circumstance any different from a plan that provides an enhanced benefit to a group on NHCE’s and finds that in a future plan year all of those NHCE’s has terminated except for a group of employees that are now HCE’s? Or, a new plan that covers 5 HCE’s and two NHCE’s. One of the NHCE’s terminates so the next year you have 5 HCE’s and one NHCE. Is this subject to the same testing you have asked us to perform above? Does it pass? (I really have no idea what your conclusion would be.) Can you point to any other place in the Code, Regs, Notices, RR’s, RP’s, GCM’s, TAM’s or PLR’s where the Service has held you must analyze the remaining beneficiaries of a past amendment in determining whether a current benefit, right or feature exists? I’m not trying to be difficult, I’m trying to understand how you reached your conclusion that it is so obviously discriminatory.

Seems like a clear Benefits, Rights and Feature violation.

"The client did their part"? Really? Never balancing one's checkbook is "doing their part"? Not in my book.

Correct. Aggregation is only required based on key employees, not HCE's.

Kevin, do you have any cites to back up your claim that BRF's are to be viewed historically and not on a current year only basis?

Not a problem. It is a confusing area.