Mike Preston

I guess I'm the only hardliner here. Somebody said to look to other plans, personnel records to see if the individual was married. That seems reasonable, but I somehow doubt it is required. The Plan Administrator needs to follow its procedures. If the participant filled out the forms fraudulently then the Plan Administrator should be absolved. Unless the Plan Administrator had some reason to doubt the way the forms were filled out, I doubt that ERISA would provide anything to the spouse. Of course, that might not stop an attorney from trying to get something for the spouse and the costs involved in defending the Plan Administrator's actions would likely exceed restoring the benefit lost to the spouse. But if it is a big enough plan and it believes in its procedures (like union plans do - just try getting an extra nickel from one of them based on this theory....HAH!), it should be willing to fight so that it doesn't create a situation where it can be easily defrauded. I agree that getting an attorney's advice is best.

I don't disagree with you.

Some documents have restrictions on the ADP test parameters. While the regulations clearly permit you to use compensation while the 401(k) feature was in effect, the document may require otherwise. It might make sense to read it to see what flexibility you have.

I think "making the average benefit test unavailable for coverage testing" overstates the case a bit. First, I'm not sure that the IRS is necessarily correct in their response. Second, even if they are correct, they point out that if the plan in question is aggregated with another plan then the aggregated group that is benefitting is the appropriate grouping to determine whether 410(B) coverage is met. Thanks for finding the reference.

You want me to give away all my secrets? (g) Seriously, it isn't anything more than rearranging the people so that all the rearranged plans satisfy one test or another. If you are lucky, it is more successful than "rearranging the deck chairs on the Titanic". You'll need a printout of the relevant testing percentages on all of the various testing methodologies before you can even begin to deal with restructuring. Keep in mind that when using restructuring, each restructured plan typically needs to meet the 70% test for 410(B) purposes even if the Average Benefits Plan is satisifed.

Owners versus non-owners is irrelevant to the non-discrimination tests. The only thing that matters is whether an individual is an HCE or not. In this case, you have a young HCE whose rate group is apparently not passing the tests. You can either test a different way (accrued to date, for example), restructure the plan and test the restructured plans separately, or fix the failure by increasing benefits to NHCE's so that the rate group passes the tests.

Blinky wrote: "I think you do would need spousal consent in this situation if the loan is less than 5k (with a > 5k balance), or if the vested balance is less than 5k but the total balance is greater than 5k." I'm not sure what the first few words were meant to imply. I guess it boils down to the phrase "total accrued benefit subject to the security is not in excess of the cash out limit...". I can understand that the IRS may have intended this to mean "total accrued benefit is not in excess of the cash out limit..." But they didn't. Sal's write up (which may be a reflection of IRS intent) is a reasonable interpretation of the regulation. The question is whether there are other reasonable interpretations.

As I said, I don't think so, although I'd be interested to know what others have as opinions. Yes, I understand that having the benefits not subject to a substantial risk of forfeiture is one thing that can lead to current FICA taxation. Most of these types of plans that I have dealt with over the years have delayed the payment of FICA taxes under the rules of 3121(v) and the regs thereunder. Of course, that is a bit easier to accomplish in deferred compensation plans that are defined benefit in nature.

Citation?

The political reality is that the investment houses that provide these services have tremendous political clout. To clarify what I previously said, I think that the DOL and the IRS will be forced to back away from challenging something that might technically violate the regulations if the net effect were to preclude the investment houses from "business as usual." Getting back to the technical definitions, however, I agree that the ability to have a particular investment option is a BRF (1.401(a)(4)-4(e)(3)(iii)((B) & ©). In the current context as long as the participants that are eligible for the threshold established by the investment firm meets the current availability test, do you agree it is unlikely that the effective availability test would be failed?

I think one uses a W-2, but in the case where the FICA taxes have been paid along the way (why would they do that?), not much (if any) would be subject to FICA on the W-2. I'd be interested in Mary Kay Foss' opinion on the matter.

I think there is a typo somewhere in Blinky's response. I will weigh in with Kirk and jaemmons.

In general, I think that would be a good idea. Seems so in this case, anyway.

Can you change the th minimum to 3.5%?

Works for me.

I think it all boils down to reasonability. If the minimum account was to be $1,000,000 I would think there is an effective availability issue. If the minimum account is related to a reasonable definition of profitability, I don't think the DOL or the IRS will ever be able to strike it down. It is a fiduciary issue as to whether to offer individual accounts at all. Once offered, if the fiduciaries effectively restrict access to those accounts by selecting service providers with exceedingly high minimums, they have to answer to the fiduciary rules. If they select service providers with $10,000 minimums I don't think there is a problem, unless, as pointed out above in this thread, the minimums are inconsistent with the minimums available to other customers (individual investors?) of the service provider.

I think the Bank might be convinced to pay the money to the IRS. The Plan Sponsor was operating as the agent of the IRS when it accepted the money from the investment company. Worth a shot. Maybe the IRS would even help.

Amending the plan sponsor is fine as long as it is acceptable to both the old and the new plan sponsor. You might want to have a joint resolution of the two plan sponsors indicating acceptability. Once the plan sponsorship has been changed, you report the change on the 5500.

Ithink your original post indicated that you had "added" a 401(k) feature to an existing PS plan. You are correct that if you simultaneously decided that there would be no non-safe-harbor contributions the plan would satisfy the exception and not be required to provide TH minimum allocations. Note, however, that if the PS portion of the plan has any forfeitures the plan might not satisfy the exception.

Andy, I think there is not nearly enough information to make the determination. Past salary history, cash flow needs, future employee projections. A db, even a 412(i), might make sense. But without more information than it really makes sense to share in these forums, I can't say one way or the other.

I don't think there is anything to add to the discussion. You just need to have the numbers compared and see whether there is an advantage. And, if there is, if the risks are worth it. But I will comment on one thing, since it is a Friday afternoon and I guess I'm in a rotten mood. We frequently get statements from clients that make our life more difficult. One of them is hearing that income is $600,000 and then hearing that it is $160,000. I know you were probably going on the best information available, but it is still deflating at times.

I'm not aware of any guidance as to what "in-service" distribution means. In the absence of specific guidance, I think the plan english meaning would apply. Yes, it sounds like an inservice distribution to me.

Actually, I don't. At least, not in this case. When the distribution took place, was the individual employed by the company that sponsored the plan?

Well, was it an inservice distribution?

No way is my firm continuing to provide services to the plan if they opt for a retroactive amendment along with audit risk, without submission under EPCRS. One thing that should be looked into before too many (more?) tears are shed on this thing is how did the HCE have his taxes completed? Is it possible that he told his accountant: "Oh, the W-2 is wrong, just use $xx,xxx as a 401(k) deferral when you complete my tax return." Yes, the IRS should have bounced the returns if they didn't match the W-2's. But I've seen stranger things. Well, I can hope, anyway.