Mike Preston

EPCRS. RP 2002-47.

More detail, please. What are the specs on the "contribution made to the union" plan? 100% vested? Used as a base in an integrated allocation? Is it made to a DC plan or a DB plan?

Nothing else jumps out at me, except for the following: 1) Your formula sounds like it might be a negotiated plan. This is probably something obvious, but changes to such a plan would require approval within the negotiation process. 2) Probably equally unenlightening is the fact that if this plan is aggregated with any other plans so that the other plans satisfy coverage or nondiscrimination you might find the change unwelcome. 3) Employee relations issues. Pretty much grasping at straws for additional problems, though.

Let's tackle them in reverse order. 1) The extension applies no matter what type of plan is eventually adopted. The extension applies merely if one is eligible for the extension. There are a number of ways to be eligible for the extension, but let's highlight just one of them. Assume that a plan sponsor executed a certification to adopt a GUST approved prototype plan on 2/2/8/2002. That plan sponsor has until 9/30/2003 (at the earliest) to adopt any GUST restatement that they want to use. They are not tied to the prototype plan that they certified. They are not even tied to a mass submitter at all. They can adopt a completely individually designed plan. Further, if that particular prototype plan sponsor has an extended RAP that ends after 9/30/2003, the deadline by which this plan sponsor can adopt an individually designed plan is extended, as well. Of course, in the case of the adoption of an individually designed plan it would have to be submitted by the extended deadline, not just adopted by that date. 2) Volume submitter plans are contemplated by the Service as "tweeners". That is,they are not prototype plans. But they aren't individually designed, either, except in one respect I'll mention in a minute. They are pre-approved if they are "word-for-word" with respect to options that have been accepted by the IRS. However, the IRS knows that volume submitter plans will be frequently tweaked to provide for provisions that are not part of those that were accepted by the IRS in advance. The question is when are such changes so significant that the IRS no longer considers the plan, as adopted, to be a volume submitter plan, and, instead, an individually designed plan? No one knows, precisely. But the IRS has said that a minor number of minor corrections will not preclude the plan being submitted as a volume submitter plan (lower user fee,easier submission form). I think it is up to the reviewer. Certainly one change to a monor issue won't blow volume submitter status. Back to what I was getting at earlier. A volume submitter, once submitted and approved, is treated as an individually designed plan from that point forward. Hence, future changes to plans that are contemplated in Revenue Procedures and the like will apply to such a plan as if that plan started out as an individually designed plan. Probably more than you wanted to hear.

Yes. There is a fairly well known court case where just this thing happened not once, but twice! THe plan sponsor amended the plan's eligibility criteria just before the individual was to enter the plan. Maybe somebody else knows the citation off the top of their head.

Yes.

It depends on your definition of "throw out". You most assuredly can modify a plan so that certain participants are no longer eligible for future benefits. If that is your definition of "throw out", go ahead and "throw them out." However, in and of itself, that doesn't mean that existing benefits (or benefits that people have become entitled to before being "thrown out") can be reduced or eliminated. Consider it as having the same impact as when an employee voluntarily changes jobs to a classification no longer covered by the plan. In and of itself, that is not anything that impacts their existing benefits.

I'm still of the opinion that the use of any particular rate in 2002 is not required in order to use the 120% calculation for 2001. And what you used in 2001 is clearly irrelevant to the determination. I know this presents calculation issues for those that can't even re-run the 2001 numbers on the higher interest rate, but I don't think the law itself is unclear. The IRS instructions appear to recognize the administrative difficulty and allow one to not recalculate 2001, even though that might result in higher quarterlies than otherwise required and, by definition, a higher deductible contribution for 2002 than otherwise allowable. I think the IRS has decided that the gain is just not worth the pain. Good on them.

I had left it open because I can conjur up a number of ways to provide for an allocation that is not comp-to-comp. First, if the plan document already provides for cross-testing then the allocation would be based on the cross-testing language. Second, one might consider an -11g amendment that would be pretty flexible. But I agree that in the absence of alternative language, if the plan document's regular allocation method is comp-to-comp then that is what you get.

I think I like the 1/5 rule, but I agree that there are so many implementation issues that it may never come to pass.

David, I'm still confused about your first post. Neither 8% or a mortality table would change as of the prior December. Can you clarify that? What you call super-grandfathering is what the IRS calls wearaway, if I understand you correctly.

In general, I'm in agreement. Just a couple of points of clarification. Notice 2002-1 indicates that the plan merely needs to be first "in existence" on 12/7/1989 or later in order to escape user fees. For this purpose, "in existence" is defined in Q&A 4 as "In general, a plan is in existence on the first day the plan was in effect." Unfortunately, this isn't a terribly clear statement. Does a plan that is signed on 12/27/89, but has a retroactive effective date of 1/1/89 satisfy the rule as first being in existence on 12/7/89 or later? I haven't seen any clarification on this point. Nonetheless, there is little doubt that plans first effective IN 1990 would qualify (not those effective after 1990). Also, note that small plans must be plans that aren't "too small". That is, one must have an NHCE participating in the plan in the plan year immediately preceeding the date of submission in order to qualify. I don't think that reliance is necessarily eliminated for _any_ amendment adopted after the GUST restatement is adopted. Certainly with respect to the GUST restatement itself the IRS has declared that "word-for-word" is very strict. I agree with your statement that two separate and allowable provisions can not be adopted within a GUST restatement (one applicable to years X and before, another applicable to years X+1 and later) where the plan itself didn't provide for such. Most plans provided for just this sort of thing relative to the Top 20% election, current versus prior year testing, the calendar year election, the small distribution amount of $5,000 and maybe some other things. So those you can handle within the GUST restatement. My document also contemplated modification of allocation formulas if cross-testing was implemented "along the way", too. But other items which are incorporated into the restatement will result in the plan not being eligible for reliance, as adopted. However, isn't that just for the GUST restatement itself? Assume a GUST restatement is adopted 5/31/2003. Assume an amendment is made before anyone accrues the right to a specific allocation formula later in 2003. That amendment is effective 1/1/2003 and modifies a provision of the plan in such a way that it would have been "word-for-word" if included in the GUST restatement (that is,applicable to all years from the GUST effective date). Doesn't that plan continue to have reliance for the 2003 and later years? Or do you think the IRS would require such a plan to completely restate that plan in order to establish "word-for-word" on an ongoing basis?

I am aware that typos exist in several pre-approved documents and that modifying the plan to eliminate the typos is purportedly an acceptable practice. What constitutes a typo is, of course, subjective. However, clarification of short plan year implementation language is a bit of a stretch. I would suggest you reconsider on that one. My pet peeve is the transition provision. Say you have a plan that provides for one "thing" for plan years from 1/1/97 through 12/31/2002. Say you want to have a different "thing" effective from 1/1/2003 forward. (You can adjust the dates so that they are consistent with the year that the plan is being amended for GUST). According to the IRS, and I have this from multiple sources, some in Washington, some in Cincinatti that an amendment to the language as simple as: "Effective for years through 12/31/2002 (blah, blah, blah) shall apply, while effective for years commencing after 12/31/2002 (blah2, blah2, blah2) shall apply." takes your plan out of "word for word" compliance and REQUIRES submission in order to take advantage of the extended RAP. In the case above, assume that both (blah, blah, blah) and (blah2, blah2, blah2) are provisions that exist in the pre-approved language and if either of them were the only provisions in the document it would satisfy the definition of "word-for-word." The ONLY option appears to have a document drafted that merely provides for (blah, blah, blah) and then an amendment drafted which is an entirely separate document that amends the provision as of 1/1/2003. The exception for this is if the pre-approved document contemplated changes along the way. For example, my document contemplates that there might be different elections in different years for various things such as the Top-20% election, prior year or current year testing, certain allocation formulas, the implementation dates of various 401(a)(9) regulation incarnations. Embedding the pre-approved language which provides for different provisions in different years does not eliminate "word-for-word" compliance.

LOL. However, if the document is not a word-for-word adopter, are you saying that you don't submit? That is, only if the non-word-for-word language is significant do you not submit? If so, I think you might have a problem. It can be rectified by 9/30, but ........... not if you don't submit. At least that is what the IRS says, over and over.

I have heard that he retired on Monday, April 28th.

>>>>>>>>>>>>>>>>>>> 1.414(q)-1Q&A9 - (b)(2)(iii).

It is allowable.

OK, I think I came up with a situation where the general test might fail even though a component plan would pass the safe-harbor, if it were available. I think Sal's comment is meant to be restricted to a plan that satisfies the integration rules at the maximum permitted disparity factor (5.7% currently). IIRC, the general test does not allow use of lower permitted disparity factors, so the statement that the test is merely an aggregation of separate coverage groups is not correct if permitted disparity is being tested under a4 and the integration factor isn't 5.7%.

Not enough information. How many years has this been going on? Were the administrative functions performed as if this money was deposited? Were the ADP tests done with or without this money? Does it matter? What is the relationship between the amount of monies involved to the entire plan? That is, is the failure insignificant?

You are on the right track. One 5500 is fine, as you have only only plan.

You may be right. The regs are so convoluted at this point that different conclusions are possible, I suppose. I infer from the way the -9 reg is written that the general test is not required on the component plan. The limitations on the use of the uniformity rules are spelled out in -9 (and include such things as gateway rules). Those limitations don't impact this particular fact pattern. The only way I can see that general testing would be required is because the language of -9 makes it clear that the uniformity rules are to be applied against the DESIGN of a plan, not the OPERATION of the formulas. That leads to an ambiguity in this case. Does the restructure count as part of the design? I think an argument can be made that it does. If that argument fails, though, your conclusion is correct. Maybe to be safe, do it both ways!

I don't disagree with you. I haven't found anything yet that allows the 11/1 contribution to be defined with respect to compensation for a period other than the current limitation year. There is that provision at the end of the reg that allows the commissioner to extend other definitions of compensation to Section 415 so a full search would need to be done before ruling out what was done entirely. Have you asked the prior firm to tell you their specific rationale?

Andy, I don't think that the multiple formulas satisfy the uniformity requirements in light of the 1000 hours/last day rule. Hence, Archimage is correct that the plan must be restructured as indicated in order to satisfy the safe-harbors. However, the question becomes whether it is necessary to restructure at all. If the aggregated allocations satisfy the general test, restructuring is unnecessary. It becomes a question of which is easier to prove: compliance with 410(b) on the restructured plans, giving one an auto-pass on 401(a)(4), or satisfying the general test on the aggregated allocation, thereby avoiding the need to test the restructed plans for compliance with 410(b). I can't hardly imagine a plan that gives 3% to those who are eligible for the SHNEC and an integrated allocation to others that wouldn't pass the general test on a contributions basis But I suppose it is possible.

Yes, there are regulations that require refunds to be credited with interest on the period from date of contribution to end of the plan year. Earnings credit during the gap period are not mandatory. The calculation of earnings during the plan year must be "reasonable." With that said, yes, it is up to the plan to decide how to implement the provisions, as long as those provisions are consistent with the regulations.

What is the limitation year, and how is 415 compensation defined for purposes of the limitation year? Those are the determining factors.