Mike Preston

Then resign or, before resigning ;-), get an ERISA lawyer's opinion.

I sense that these are all variations on the same theme: you are looking for help in understanding the controlled group rules to help you pass the ERPA exams. That's fine and dandy. However, if you are looking for theoretical help I implore you to be succinct, grammatically correct and self-limit your questions so that it doesn't look like an adequate response requires a lot of time to provide you with the help you seek. This isn't meant to dissuade you from asking your questions in any way. Just as some friendly advice to help you get the most helpful responses.

It has been my experience that the excluded stock rules can have a dramatic impact on any controlled group analysis and that frequently there are one-way rights of first refusal hidden in by-laws or other documents that create excluded stock. And that getting access to those documents is sometimes like pulling teeth. Beware!

Who says those two things need to square. Something has to give and 415 never gives. As I've said from the beginning, it sounds like a 415 violation requiring an EPCRS filing to "square".

Yes, but the client is also advised by you as to whether the timing of the contributions results in a 415 violation or not. That is certainly an obligation under any reasonable standard of care doctrine I can imagine. So, if the fit hits the shan, and the IRS later claims an uncorrected 415 violation, your client will blame your firm for not telling them about the exposure.

And I can't find anything that specifically states the rule of 1.415©-1(b)(6)(i)© doesn't apply. Strangely, I *can* find a rule saying that 1.415©-1(b)(6)(i)© *does* apply to QNEC's made to satisfy an ADP test using the current year testing method. But absolute silence when it is the SHNEC. To remove all doubt, why not take the pro-active approach and conform to 1.415©-1(b)(6)(i)© ?

Welcome to the confusing world of pensions.

The last comment is way too delicate. A client that "historically" makes the SH contribution more than 30 days after the due date of the tax return is an IED waiting to detonate. Get them to change or prepare for ongoing EPCRS filings.

Yes, I already noted that the decision itself doesn't validate this specific IRS position and that its usefulness is limited to confirming what the IRS feels is a reason for disqualification. My job is to steer my clients away from those things the IRS thinks might be a reason for disqualification; especially if there are alternatives to maintaining a profit sharing plan without substantial and recurring employer contributions and if said alternatives are as cheap as converting the plan into a 0% MP plan.

I think the IRS disagrees with you. Yes, the substantial and recurring contribution requirement most frequently is related to the occurrence and consequences of a complete discontinuance defined in 1.411(d)-2(d) (specifically 2(d)(ii) mentions the substantial and recurring contribution requirement). As you point out, the consequence of a complete discontinuance is full vesting, not disqualification. But the IRS takes the position that making substantial and recurring contributions to a PS plan is also a qualification issue. Here is a cite to a very recent case where the IRS disqualifies the plan for, among other reasons, "(2) petitioner failed to make recurring and substantial employer contributions;". Now, I admit that the case is, in legal parlance, full of "bad facts" and I would feel better if the judge had included in his analysis confirmation of the IRS' second reason for disqualification, but it is what it is. The point here is that the IRS itself raised the issue as one which justified disqualification. http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=10607 I point out that 1.401-1(b)(2), which says in relevant part: "To be a profit-sharing plan, there must be recurring and substantial contributions out of profits for the employees.", is still in effect, although admittedly old due to the fact that it was last amended in 1963. Finally, why did we set up all those 0% Money Purchase plans if not to avoid the requirement for substantial and recurring contributions? Was the entire industry running, tails tucked 'tween its collective legs, from a non-existent boogie-man?

Trick question, huh? First of all, it is sections "7".12.1."x" not "17".12.1."x" (where x is 9 or 10 or 11), right? Second, gotta read 7.12.1.7 where it is made clear that the substantial and recurring requirement still applies. If you twist my arm I will back down from "There is no such thing as a frozen PS/401(k) plan." To: "There is only a small window between the time when a profit sharing plan is frozen until it is terminated where it can satisfy the rules requiring substantial and recurring contributions."

What bothers you about it?

Frozen plans are limited to DB or MP. There is no such thing as a frozen PS/401(k) plan.

Not to mention that such a plan would fail the requirement to have substantial and recurring contributions so it would not be qualified.

Why are you picking on paid moochers? Now, unpaid moochers get no quarter.

How long ago did the person who advised the CPA have his/her lobotomy?

I did, and I thank you for your observations.

Huh?

Andy, look up the definition of successor plan. It may surprise you.

Sure. You are confusing determining a contribution (which is discretionary) with determining an allocation (which is not, and has never been, discretionary). In order to be definitely determinable, either the plan document, or a separate instrument which is contemporaneous with the contribution, must specify how the contribution is allocated. So, as Tom says, you can easily put everybody in their own group and then have the client decide, when a contribution is made, who gets how much. They can, at that time, decided to allocate on a pro-rata basis or on an integrated basis or on any other basis that doesn't violate another statute (ADEA, 415, etc.). I see nothing wrong with you using a very long "describe" line to establish two allocation methods and then determining the amount that goes through allocation formula 1 (pro-rata) and the amount that goes through allocation formula 2 (integrated) in the same way that one would in the case of individual allocation groups: contemporaneously. I would think the combined allocation would easily satisfy 401(a)(4) general testing, but it may not be necessary to go through the effort because the allocation is considered a safe-harbor if it satisfies the rules for multiple safe harbor formulas (must be the only formulas, etc.). I'd treat it as satisfying the safe-harbor rules knowing that if the IRS challenges it, I can do the general test at that time to demonstrate 401(a)(4) compliance. The risk isn't 401(a)(4), it is 410(b). Continuing the example of 4 NHCE terminees with > 500 hours resulting in an NHCE ratio percentage of < 70%, there is the slight risk that the ABT is unavailable should the IRS assert that the covered group does not constitute a reasonable business classification (only those employed). The IRS likes to rattle sabres about this issue at conferences but I've never heard of it resulting in a problem in the wild. And, IMO, I find it hard to believe that a judge will say that benefits flowing solely to those employed at EOY does not constitute a reasonable business classification.

If the entity was formed 11/1/2014 then surely the DOH for the owner is no later than 11/1/2014. If the entity began operations in Dec of 2014 then the DOH for the other doctor is no earlier than 12/1/2014. Why can't the eligibility be set so that only the owner is in the plan for 2015?

Because it lays waste to the concept of what a minimum benefit is. What you are looking for is two sources, with alternative vesting schedules. Just not possible if there really is one source.

jpod, no amount of drafting can effect the result you posit. Minimums are minimums.

https://www.irs.gov/Retirement-Plans/Penalty-Relief-Program-for-Form-5500-EZ-Late-Filers

Not in my world.