Mike Preston

It *IS* a simple place to start. Have corporate resolutions drawn up which change the name of the plan and transfer the plan sponsorship to B. It in no way is a plan termination. You file the 5500 based on the plan name and sponsor at the end of the year. Easy peasy. The only thing I might be concerned with is the underlying contracts. I would contact them first to make sure changing the name of the plan doesn't violate the contracts in any way. I don't think it should, but it doesn't hurt to be safe.

I've never seen one, but it doesn't strike me as all that problematic. Consider it a money purchase plan wih an allocation date of 1/1. Can it be done? Sure. Should the 415 limits be applied on a limitation year basis? Yes. Does that create administrative issues up the ying-yang? You bet. Just because the international firm says that everything is ok doesn't mean that everything is ok. Did they allocate in years past amounts that exceeded 25% of 415 compensation paid during the limitation year? I hope not.

What does the document say? There are two periods that plans separately define for purposes of this calculation: earnings credited during the plan year and earnings during the gap period from the end of the plan year until the date the monies are paid. Most plans provide for pro-rata earnings during the plan year and that gap period earnings are determined based on the 10% method. By no means do all plans provide these rules, though, so you need to look in the plan document. If there was a loss, you reduce the amount refunded.

I don't think so. The rate is determined under the relevant section if it is for 2002 or 2003. But that is just my opinion, as I couldn't find anything on a quick search of resource materials.

Not if it meets the uniformity requirements. In this case that would mean that both formulas must be available to the same group of employees. BTW, which safe harbor status are you referencing? The one that allows the k plan to auto pass the ADP or the one that allows the formulas to escape general testing? The answer to both is the same, but I'm curious which one you meant.

Try 1.401(a)(4)-3(b)(4)(i)©(2). Does the document put any other restrictions on the selection of accrual after application of 415? Like maybe it can't be elected if there are NHCE's in the plan? Strange.

What mbozek said was: "Employers can prevent retroactive benefit accrual by excluding service prior to the date the IC is reclassified as an employee in the terms of the plan. " That is, by adding the Microsoft language.

I don't think it is cheating to rely on the definition of discretionary as meaning discretionary. However, I agree with you that a match may not be discretionary if there is a commitment to the employees. In the case where the documnet itself labels the match as discretionary, though, the worst case scenario is that the commitment can be eliminated prospectively. If I was concerned about the underlying elections being predicated on the discretionary match I would ensure that the participants had an opportunity to modify their investment elections at the same time that the level of match was being modified (that would likely be the vast majority of cases).

In a word: yes. I took the OP as asking a slightly different question: If the plan is filled out with 2 Trustee's names, does the original adoption of that plan fail to be valid if the plan is only executed by the Employer and 1 of the 2 Trustees? If that was the intended question, I think the answer is that as long as the plan has at least 1 Trustee, it is a valid plan and Trust.

That's pretty old news, isn't it? As mbozek said, most plans are now written with "Microsoft" language. That is, even if recharacterized as an employee, the plan would not provide them with any benefits. Besides, that wouldn't help the OP in any way now because the OP wanted to know whether the current plan would accept a rollover.

The second and third tiers are extremely relevant. Remember that these formulas are used in connection with flat accruals. The limitations on the percentages are based on the 133% rule.

I don't know why there should be any name calling. I think that you owe it to the client to ensure that there isn't something you are missing.

Lynn, I think it depends on attitude. Some people like it, some people don't. I prefer not to have the fail-safe language because it specifies a singular correction methodology when, if not specified in the plan, a plan sponsor might have multiple options for correction. There are some that argue that the cost of compliance is reduced with fail-sae language. I agree as to the impact on time necessary to fashion a correction. That is a given. If the correction is mandated it takes almost no time at all to fashion a correction: just follow the document as it exists. But I have found that the time involved in fashioning a correction is frequently less than the cost of a fail-safe correction. That isn't always the case, though, so it remains a judgement issue at that level. There are also people who like the fail safe language because it allows untended plans to claim a violation only of operational compliance (we failed to follow the terms of our document, so we will just do what we should have done under EPCRS and be fine), rather than a violation of the non-discrimination rules that requires a retroactive amendment under EPCRS. I certainly agree that if a plan is not going to be tended, it will likely be in a better document position to have the fail safe language once a problem is discovered. Howver, this isn't always the determining factor. Even then, a non-fail safe plan might be able to fashion a correction that is less costly. fwiw

Have you contacted the prior actuary to see whether there is a controversy or merely a misunderstanding? I don't think that the misapplication of the rules of the revenue procedure invalidate the electioin, it merely requires somebody to redo any incorrect calculations in accordance with the rules. This is precisely the type of situation which the ABCD was created for. Have you called them to ask their guidance?

What is it about the term "discretionary" match makes you think that it is not discretionary? There must be something I'm missing.

Andy, I think past service is irrelevant to the discussion. It is simply a matter of how many years a principal has until retirement relative to how many years the other employees have until normal retirement. The principal is typically older, with fewer years until retirement. The first tier is intended to get the principal to the targeted benefit. The second tier reduces required benefits for those that would reach retirement age within the period defined by the second period of service. This second tier participant is typically higher paid than other non-owners, is in the stage of their life where they are more concerned with current compensation than deferred compensation and appreciates the fact that if the employer has an aggregate salary-benefits package more is directed towards the salary side of things than the benefits side of things. The third tier are all the rest.

flosfur,it is really hard to comment on the second question, because all of the relevant language isn't available. However,for the first question, is there any reason why you want to limit the benefit for the owner but you selected a formula that was 150% in the first place? Wouldn't it have been easier to just use 100% reduced for YOP < 26 so that the issue doesn't come up? With respect to the second question, if you implement the limits of 415 before applying the accrual fraction aren't you just defining the plan as providing a projected benefit of 100% of pay, accrued ratably? How would that satisfy the 401(a)(4) rules on using a 25 year period? Maybe I'm just not understanding what you are getting at.

In our GUST volume submitter plans we have the ability to add fail-safe language to plans that have cross-testing language. I don't favor fail-safe language, but I know that many people implement it.

Not much since they fall into areas that I don't actively practice in. One is the situation where an individual works for an insurance company as a statutory employee, which is a very complicated arrangement for agents that are, for all intents and purposes, independent contractors eligible to participate in the plans of the insurance companies. Another is certain governmental entities allow participation by people who are not employees. Another would be a plan that is set up as a multiple employer plan, which may not satisfy this particular definition of being a consultant because the individual would be an employee with respect to an entity that participated in the plan. I think the concept of extending benefits to those who are independent contractors is more pervasive in the welfare benefits side of things, which is where GBurns may have gotten the idea from. As I said, these "exceptions" if one wishes to categorize them as such, are almost meaningless in the qualified plan side of things for most plans.

Yes, I am. There are certain exceptions that are so rare as to be bascially non-existent.

Well, I strongly disagree. The issue is whether someone is an employee or a consultant. If they are a consultant they are not entitled to participate in the 401(k) plan. If later, the individual is determined not to be a consultant, then the premise that you quoted (the arrangement is valid) falls apart. As it did in the Microsoft case, it fell apart because the individuals were determined to be employees, not consultants. If that happens in this case, it will be similarly retroactive, but it will have no impact at all on whether a current rollover will be accepted. I think it is wrong to give an individual advice on this board that implies that if they are a consultant they might have rights to participate in a 401(k) plan.

GBurns, you state that "It also might mean that even if valid you might still be entitled to benefits under the Plan." I would find it most unusual that, if valid, there would be an entitlement to any benefits under the Plan. Can you describe any situation where this might be so?

You need to clarify two things with your new "employer". First, are you an employee or not? The term consultant implies that you are not going to be an employee. If you are not an employee you may not participate in their 401(k) plan (not just the match, but the whole thing). However, if you are an employee, even an employee that is precluded from getting a match, you may still be eligible to rollover your money to their plan. However,t he answer as to whether or not you can do so is totally dependent on the language of the plan. The plan may have been written to not allow you a rollover, even if you are an employee.

That might be enough. Thanks.

Oh, I read it. And I guess I just jumped to the conclusion that austin was talking about an independent audit as required by ERISA. Guess we won't know until he or she decides to enlighten us. Just for kicks, how many audits as required by ERISA do you think there are in ratio to those that you seem to feel the OP was talking about?