Mike Preston

I thought the rule was that you had to submit documents since the last document that received a letter of determination. If you have a document that was deemed to have that letter of determination (such as a standardized prototype), you submit that document and any subsequent modifications. In some circumstances, such as where the benefits under the plan are being provided based on grandfather provisions and the new plan doesn't specifically identify the grandfathered benefits, it may be advisable to provide the older documents for clarification purposes.

I'm not sure I see the direct analogy to a qualified plan in the example you cite, but I'll take your word for it. I think there is a more recent case, though, dealing with disqualification and the ramifications thereof that argues the other way. Maybe. I think it had something to do with a rollover. Something about how a taxpayer failed to rollover in time, didn't claim the income, now wanted to withdraw the monies from the IRA and the IRS ruled that since there wasn't tax paid when received, they couldn't claim that the monies withdrawn now should have been taxed before (the s/l had clearly run on the year when the rollover took place) and were therefore exempt from taxes now. I see now that this is the same taxpayer that made the mistake, though, so it isn't directly on point to your example. I'd bet that the IRS wouldn't go gently into the good night, King precedent notwithstanding, though.

Absolutely. And it goes even farther than that. Even if the prior document provider didn't submit before 12/31/2000 for an approved GUST letter, there may be an organization that did submit, on behalf of that document provider, for a letter of its own. You might find this, for example, where a document provider sold their business to another firm, with its own documents. The acquiring firm would not have had to submit two sets of documents, one for the acquired firm and the other for itself. It could just rely on its own documents. So, check the status of the firm that provided the original document. If it appears on the IRS list (the list is published on the IRS web site - warning - it is big, about 200 pages in a pdf file with a very small font), the plan sponsor has until at least 12/31/2002, maybe later. If it doesn't, then see if they sold their business to somebody who appears on the list in a way that allows the plan sponsor to piggy-back onto a different document provider.

While I generally agree with mbozek's writeup, I think the courts have held that if the plan sponsor treated the plans as qualified in 1990 and 1991 (very unlikely for any other result) then something which is generally referred to as the "duty of consistency" would require the amounts paid from the plan to be exclusive of after-tax amounts, even if the IRS attempted to disqualify the plan for 1990 and 1991. Only if the IRS was successful in disqualifying the plan and managed to have everybody's tax consequences for the years in question (1990 and 1991) modified, with the appropriate adjustment to taxes paid, etc, could the taxpayer argue that the 1990 and 1991 amounts were after-tax.

If you have a trail of documents from 1/1/92, and those documents can be demonstrated as qualified, then I think you should just respectfully disagree with the auditor and have them start formal disqualification proceedings. While I woulnd't want to do this unless I was working in conjunction with an ERISA attorney on the issue and I would want to be darn sure that the documentation in question is not flawed in any manner (for example, is the document a "standardized" prototype and were all the required amendments made on a timely basis and does the plan's operation conform to the document's provision) if the supervisor has his or her heels dug into the same sand as the auditor, you may have no other choice. At some point, I would hope that somebody at the IRS would recognize that an LOD is not required and your later amendments and restatements were enough to establish the plan as qualified from adoption date forward. There is a case somewhere that held the absence of the plan document was not enough to generate disqualification. IIRC, it was a circumstance far more suspect than yours. Nonetheless, the court decided that disqualification was not appropriate. I don't remember the cite, unfortunately, but maybe somebody else remembers it.

What was the date that the first document that the client actually has was adopted? Was that (or any subsequent) document submitted to the IRS for a letter of determination?

Interesting interpretation. But clearly the lump sum feature itself is protected under 411(d)(6). And clearly, absent the special provisions, the methodology of selecting the 417(e) "rates" is protected under 411(d)(6). So, to say that lump sums aren't protected is wrong. To say that the method of determining the lump sum values isn't protected is wrong. But to say that the lump sum values themselves aren't protected is not necessarily a false statement. So, in a long winded way, I think you may have hit on the interpretation that the IRS has made!

I think Q&A 38 from the 2000 Gray Book provides a pretty good road map. If the individual receiving the additional benefit has an annuity starting date already on the books which is on or after the participant's normal retirement date, no further benefit election is mandatory, as long as the plan document so provides. If, however, the annuity starting date on the books is prior to the participant's normal retirement date the plan needs to get an election form signed with respect to the new benefits. Note, however, that if an individual was at the pre-EGTRRA 415 limit when a lump sum was paid, then additional benefits may only be paid to this individual if they come back to work after the effective date of EGTRRA.

I don't know about (ii) or (iii), but we have always held that a disribution can not be made to an individual under (i) (a qualified plan) unless the individual provides a valid SSN. If the employer finds out that an SSN on file is not valid, the distribution can't be made until a valid SSN is obtained. I've never been faced with a termnating plan that had a short time fuse on this issue, though. Normally, just telling the individual that they have to get a valid SSN before they can receive their distribution is enough to make them go ahead and get one.

And rightfully so, I might add. I think one of my rationale's (rationalizations?) as to why the 417(e) rates are ignored when general testing (is that a true verb?) is that the concept was born when 417(e) rates were the PBGC rate sets. There is just no way that the 1992-1993 political environment would have allowed the IRS to issue regulations that required the MVAR determination to be based on duration-based interest rates. There was no such thing as GATT at the time, of course.

Blinky, I think you changed the subject a bit. In the case of a lump sum that is subsidized (a rate that is less than the testing rate) the subsidization is naturally reflected in the increased MVAR. But that doesn't mean the 417(e) makes its way into that calculation. Am I misunderstanding your comment?

I wouldn't characterize it as a longer stretch, but one of plan document language. Different plans have different rules regarding the treatment of excess annual additions. In most cases, the plan sponsor elects to have the elective deferrals refunded. In the minority of cases, the plan document calls for the elective deferrals to remain intact, with reduction instead to the entitlement of the employer contributions. In my view, it hardly seems "fair" to do the latter, but then again, my view doesn't mean very much in this case! But I fully agree with pjk that if the document calls for the deferrals to remain intact in the case of a 415 violation that the regulations do not allow those deferrals to be treated as catch-up.

How is that relevant? Are they non-profits where the issue is one of common control that is not identified? Unlikely.

The regs, when I last read them, left me with the impression that one tests for catch-up deferrals on a superimpostion basis. That is, one tests after the end of the year, after superimposing all of the limits under the terms of the plan: 402(g), plan imposted, and 415. In this case, there might be problems if there were any NHCE's because an HCE that terminated during the year and did not receive an allocation under the non-401(k) portion of the plan, would have his/her $1000 treated as an elective deferral under the ADP test. But, as long as there are HCE's only, it should work just fine.

I have submitted a fair number of general tests and have never referenced the 417(e) rates. The IRS has never brought up the issue.

The purpose of the irrevocable election is to allow the conversion of compensation into plan contributions without having those amounts treated as deferrals for ADP purposes. The goal is to say: yes, it is a deferral, and no, we ignore it in the ADP test. In order to do this, one must follow 1.401(k)-1(a)(3)(B)(iv). There is a corresponding rule for counting the employee in the ADP test at all at 1.401(k)-1(g)(4)(ii). I've never actually seen anybody make this election, though, so in my experience anyway it is not nearly as significant as the above reference.

Absent specific language to the contrary, my gut feel is that the result should be consistent with a wearaway approach. But I wouldn't be surprised if a participant had a different view. See if you can round up each and every piece of benefit communication that dealt with the change. There may be a surprise in there that would give you some guidance as to what was expected.

I think the intent is clear and I think the result is equally clear. It works fine.

I'd be very interested in Carol's cite.

As long as both the HCE's and the NHCE's have the same availability with respect to the making of after-tax contributions, I don't see any restrictions other than the 100% of pay 415 % limit actually applying. I suppose there might be an isolated case where somebody who makes more than $160,000 wants to make an after-tax contribution which would exceed the dollar limit, but on a practical level, that isn't likely to happen. So, other than slightly modifying your original statement to say that both the 100% percent of pay limit and the $40,000 dollar limit apply to the elections made under the plan I'm not aware of any other limitations.

After-tax contributions are aggregated with matching contributions and must satisfy the ACP test. Hence, what you are proposing will likely not work. In typing the above, I totally missed the part about it being a collectively bargained plan. Yes, the ACP tests do not apply to collectively bargained plans, while the ADP test does apply even though 410(B) and 401(a)(4) do not.

Derrin has incorporated your question into the Q&A column that he publishes. For the definitive answer, see: http://www.benefitslink.com/cgi-bin/qa.cgi...d=164&mode=read

Hi, neighbor. Can you disclose whether the plan in question is a governmental plan? If the plan is not a governmental plan there is no way that vesting can be applied on a pro-rata basis. If the plan uses the "1,000 hour" rule, then any participant (even a part-timer) that works 1,000 hours or more in a vesting computation period (typically a one year period) will be given credit for a year of vesting service. And once they have 5 years, they are vested. If the plan uses the "elapsed time" rule, then the part-timers become vested after being employed for 5 years, even if they work less than 1/2 time. I'm not sure about the answer if the plan is a governmental plan. I could look it up, but somebody else probably knows that answer off the top of their head. If not a governmental plan, the person you are dealing with is not as well informed as they could be.

If the irrevocable elections were intended to be made in conformance with the 401(k) regulations such that the $10,000 would be treated as a non-401(k) deferral, leaving them with the ability to defer further monies on top of the $10,000 (as true deferrals) then those elections apply to all plans of the employer, even those not yet established. What happens if you revoke an irrevocable election? I don't have a clue. But it probably isn't pretty.

If the waiver is legitimate (i.e., supported by plan document provisions and administrative details adhered to) then the doctors are not participating in the plan. Non-participants do not receive top-heavy minimums. If the waivers are invalid you have bigger problems.