Mike Preston

I would also be interested in how the story ends. However, I still see the bank as being responsible for either: 1) cashing a check made out to Individual B when Individual B didn't sign the check; or, 2) if the check was made out to Individual B in such a way that Individual A could cash the check (same name) not "properly" (whatever that means) identifying on the check that it was really supposed to be Individual B that has the right to deposit the check. My assumption is that the Bank wrote the check out. Obviously, if the Plan wrote the check out and it didn't identify Individual B well enough so that the Bank should have been able to confirm that only Individual B was allowed to cash the check, then the responsibility switches to the Plan and, quite frankly, I don't have any idea of where the bouncing ball would end up.

I think Relius is correct. That is the way the minimum works when somebody is beyond the NRA defined in the plan.

Not enough information, I think. If the DB wasn't established by 3/31/2003 then establishing it now won't give rise to a deduction on a 3/31/2003 tax return. So, was it established, or not? Assume that it was. Were there other monies deductible on the 3/31/2003 tax return from the 401k plan other than deferrals? That is, was there an employer contribution to the 401k plan that ends up being deducted on the 3/31/2003 tax return? If so, I think you are going to have to deal with 40417, but that may not be a problem in an organization of this size. Care to elaborate?

I believe they would be different. Fred, I sense that you are updating your 401a4 spreadsheet to deal with calculation of benefitting and are therefore asking a theoretical question, rather than a question based on a specific fact pattern. I admit to being somewhat confused about the theoretical question, however. If someone is excludable, they are not taken into account when cross-testing. Since the condition (being excludable) defines the action (exclude from testing) there must be a portion of your hypothetical that is still to be identified. As far as a given individual being eligible for a SH match, but not getting one because of being a terminated employee with less than 501 hours, that person would be benefitting in the k plan (eligible to defer) and excludable from the m plan (ineligible to receive match because failed EOY employment and worked less than 501 hours). That person would also not be benefitting in the 401a portion (employer contribution, if there is one in addition to the SH match) and hence not eligible for a gateway nor a top heavy contribution and therefore not be considered in the cross-testing analysis. However, this person would be in the average benefits test. If, however, assuming this individual is not statutorily excludable (by working less than 1 year, etc.) and assuming the SH contribution is not the match, but the basic ER contribution, then the individual would be benefitting even if terminated with less than 501 hours and therefore both eligible for the gateway and would be included in the a4 testing because 1.410(b)-6(f) says so. Is there another permutation you were looking for?

http://www.irs.gov/retirement/article/0,,id=96450,00.html

Yup, that's me. No clue, as usual, though.

Absolutely. Unless the "extra" payroll you are referring to is a "bonus" (think Christmas bonus) payroll, and somewhere in your plan it is stated that "bonuses" are not impacted by a deferral election.

I seem to recall that, too. But wouldn't that have been obsoleted by the new 401a4 regulations dealing with safe harbor target benefit plans? I haven't checked those regs today, but I don't recall those regs having a 6% exception.

Basic eligibility of less than 1 year, but SH only given to those that satisfy statutory eligibility?

Amfam, I still think that in the case where the issuing party is the Bank, and not the Plan, that the Bank has the responsibility to make the check good, not the Plan. Now, maybe the Plan is also responsible, but I can't imagine the Plan not being able to hold the Bank responsible for the ultimate resolution.

You can use any rate you want. It is just a matter of whether you have a safe harbor plan under 401(a)(4) once you get done. As pointed out, if you don't use a rate between 7.5% and 8.5% the plan will not automatically pass 401(a)(4) (unless there are no HCE's in the plan).

I don't see why the TPA is involved at all. Or the Plan Sponsor. This is a problem for the Bank. They issued the check intended for a specific person. Either that person got it, or that person didn't get it. If that person didn't get it, then the Bank is on the hook for sending it to them, aren't they? That, I would think, is the purpose of the fraud paperwork: to legally convince the Bank that the negotiation of the check wasn't done by the individual to whom the check was made out to. Why would this go back to the Plan Sponsor or the TPA?

It could be a PT because it IS a PT. It doesn't matter that the deal for the plan is the same or better than what the plan could have gotten otherwise. That seems to be completely irrelevant, IMO, Congress set those rules up with the intention that they would, in some cases, preclude a plan from taking advantage of a "good thing". This was done so as to ensure that the a plan was protected from "bad things".

Having just returned from a week in DC, I don't have time to properly research it, so I wouldn't want to opine as to what the answer really is. I can tell you that my documents provide that there are two key issues you didn't address: 1) Is the underlying vesting schedule 100% at all times?; and, 2) Was the individual a participant when employment terminated the first time? In the first case, it might not seem like service means much, but it still applies for other purposes (formulas, etc.) But my guess, without researching, is that this person must have a 5 month period of service that can't be ignored unless the plan otherwise calls for 100% vesting on all accounts.

Sorry, I didn't read it as a hypothetical. My bad.

I'll post an opinion: it is, at the least, a prohibited transaction.

Is he non-profit really a governmental entity? If not, then a 5500 is due.

What does the plan say?

Well, I'm on the other side on this one. I've been through a couple of DOL audits in the last few months with these types of transactions, and the DOL has not raised the issue. Of course, in each case I've been involved with the plan and the fiduciary could each have purchased 100% of the investment quite a few times over without straining. That is, there was no issue that the plan was helping the fiduciary "afford" the investment and there was no issue that the fiduciary was helping the plan "afford" the investment. In fact, the existence of multiple investments of this kind, leading to diversification of risk, is probably a contributing factor to the non-exitence of a PT. It all depends on the facts.

If every time a requirement is identified, the underlying formula(s) is(are) changed to accomodate the issue, I agree with you that the requirement is satisfied. No mention was made of the safeguards until your last message. No description I've ever read of a PEP or a CB plan has included the safeguard you mention. Glad to know that they are there. In some plans, at least.

You can certainly use elapsed time, if you wanted. Part time and full time would be treated the same. Alternatively, you can use the DOL equivalencies. Either: 1) 190 hours for each month during which 1 hour was worked 2) 45 hours for each week during which 1 hour was worked 3) 10 hours for each day during which 1 hour was worked There may be another one in there somewhere.

411 has rules in addition to the "basic" anti-backloading rules. Remind me again what happens in the case of an individual that doesn't have a large increase in compensation? Let's take the example of a 64 year old that has participated in the plan since age 25. Let's assume that compensation through age 64 is 1885031 ($25,000 initial compensation, 3% salary scale) and the PEP benefit is 7.5%, or $141,377.33. Let's assume GAR94 and the annual rate for 2003, of 4.92%. This is an annuity purchase rate of 142.49185 at age 65. The $141,377.33 at age 64 is $148,333.09 at age 65 (maybe more if we increase for mortality - for simplification purposes, I won't), which is a retirement benefit of $1041. Now, what happens between ages 64 and 65? We have to assume that compensation stays level, I think, so $79,175.67 * 0.075 is added to the lump sum, which yields $147,315.51. A smaller amount that what was started with. How does this satisfy 1.411(b)-1©(3)? I am reminded of a discussion I once had with Ira Cohen on this issue. We were talking about grandfathering of benefits payable under a defined benefit plan. Maybe he has changed his mind since the mid-80's. Then again, maybe not. But in the valuation software I use, the plan's benefit accrued at normal retirement, payable in the normal form, is not allowed to decrease as a participant increases his "age or years of service." As I think I said during my rant, those who wish to apply DC type rules to the hybrid plans are guilty of tortured reasoning. They are ignoring 414(j) to begin with, or they are ignoring one or more rules of 411. Note that I'm not disagreeing with Onan. Age discrimination might very well be measured on the basis of DC concepts and therefore such a design might not be age discriminatory. However, with that said, I must admit that the fine line difference between "rate of benefit accrual" and "accrued benefit" is difficult to fathom without a bit of stretching (from Cooper v IBM): "Defendants argue that § 204(b)(1)(H)’s phrase “rate of benefit accrual” should not be expressed in the form of an age 65 benefit and that the term benefit accrual means something different than the term accrued benefit." Again, this ignores the plain application of 411, which is all I was addressing. Thanks for indulging me in this discussion as I admit that I don't sheppard any cash balance or PEP plans personally, because every Plan Sponsor I have talked to about the issues isn't willing to bear that particular risk. In the end, the political reality might be that it is impossible for the court system, or Congress, to ignore the steamroller.

Alf, the fact that a plan is not an "ERISA plan" doesn't mean that it can ignore the rules in the Internal Revenue Code. A one participant plan that covers the business owner is not an ERISA plan. Neither is a two participant plan that covers the business owner and the business owner's spouse. But that doesn't mean anything as far as this discussion goes.

Correct, I am not. But the measurement of the non-discrimination testing must be done for a particular year. What year you choose is up to you. If the timing of the amendment is after the year you choose, it is an -11g amendment.

If I were you, I'd take a look at that SEP. It has rules that have to be followed, just like a qualified plan. And it sounds like you think those rules are based on how much money an employee wants to defer. That is not true. Unless it is a SAR-SEP, the amount of money being funded has to be the same percentage of pay for each participant. In this case, it sounds like you have at least two participants (X and Y), so at the least they each have to fund the same percentage of pay. Have they? In all likelihood, though, there are other employees who are also supposed to be receiving contributions. The eligibility for a SEP can be a bit longer than the eligibility for a qualified plan, like 2+ years instead of 1, but once one satisfies the rules as established in the SEP document, there is a REQUIREMENT that the participant receive the exact same percentage. Now, if it is a SARSEP instead of just a SEP (had to be in existence since 1996, I think, for the SARSEP rules to apply) then the plan can indeed accept deferrals. However, there is still an ADP test that must be performed and if the only people deferring are X and Y then the rules aren't being followed.