Craig Schiller

I feel guilty asking a question when I've never answered any. I've always had to give all of time to getting everything done, and usually much too close to the deadline. The question involves a cash balance plan year end 9/30/2021. Tax year ending 12/31/2021. There was no minimum funding required, and no contributions were made by June 15, 2022. So the Schedule SB will show no contributions for the 9/30/2021 plan year. The company nevertheless wants to make a contribution and be able to deduct it on the 12/31/2021 tax return. The question is, if a contribution is made by the due date of the 9/30/2021 Form 5500 - 7/15/2022 - and we therefore show this as applying to the PYE 9/30/2021, would that make it deductible for the 12/31/2021 tax year? The issues are: 1): The general rule is that when the plan and tax years don't match, the deduction limits can be based on the plan year ending in the tax year (plan year 10/1/2020 to 9/30/2021), the plan year beginning in the plan year (10/1/2021 to 9/30/2022), or a combination based on the overlapping months of each. That method needs to be selected the first year the tax and plan years differ, and keeping the same method each year. 2): Here, we have followed the method of the deduction for the tax year being based on the plan year ending within the tax year, so for the 12/31/2021 tax year, the deduction is based on the 9/30/2021 plan year. 3): Since the Schedule SB will not show any contributions, would a contribution made by July 15, 2022 actually be applicable to the plan year ending 9/30/2021, or does the fact that it is being made after the minimum funding deadline and will be shown on the 9/30/2022 Schedule SB, make this a contribution for the 10/1/2021 to 9/30/2022 plan year, despite it being reported as for the 9/30/2021 on the 5500 form? If this must be considered a contribution for the 9/30/2022 plan year, then the deduction would need to be reported on the 12/31/2022 tax year return. (There is a chance the rules are that the timing issues in #1 above, only apply to how the deductible amount is determined for the tax year, and unconnected to what year the contribution is made. Another words, if a contribution is made by the due date of the 12/31/2021 tax return (9/15/2022), it doesn't matter which plan year it applies to, as long as the amount being deducted is not more than the deduction limit for the plan year ending in that tax year (the 9/30/2021 plan year in this case). Thanks, Craig Schiller

Hi Tom and Belgarath - Thanks for your opinions. The reference to 1,415(j) is especially determinative. We did the refund rather than try a different approach. I think that if a plan stopped its salary deferrals on March 31st, but terminated the plan in June, for the ADP test one could count comp through June and thereby use $265,000 x 50%. If I had thought of it, I would have done it that way. This plan had prior year testing, making that a much better result.

Hi Benefits Link contributors - Hoping someone can help by lending their opinion. Plan terminates on March 31, 2016. Salary deferrals stopped on March 31, 2016. Distributions will not get completed until September so technically the plan year will end on 9/30/2016, not 3/31/2016. Note that 1.401(a)(17) -1 (b)(3)(iii) on "Compensation for a period of less than 12 moths states...(iii) ......"In addition, if the period for determining compensation used in calculating an employee's allocation or accrual for a plan year is a short plan year (i.e., shorter than 12 months), the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short plan year, and the denominator of which is 12. Does logic trump or the literal reading? Another words, can I use $198,750 in the ADP test for 2016 based on the plan year ending 9/30/2016, or is the plan year deemed ended when the plan terminated so $66,250? Thanks, Craig Schiller

Have a prospect which has about 10 current employees with accounts at Schwab and 5 prior terminees with accounts at Schwab. Client wants to require all current and future employees to transfer their Schwab accounts to accounts at T. Rowe Price on a website, but keep all the 5 accounts for prior terminees at Schwab, while trying to find them and hopefully paying them out. I read below from 1.401(a)(4)-4 that I test these 5 separately as to BR&F, so it doesn't matter if all 5 "frozen participants" cannot move their money, and all 10 currently benefiting must, even if all 10 are HC's and all 5 are NHC's or vice versa. (See below for definition of a frozen participant.). Just want to make sure I am reading this correctly. Anyone agree? Disagree? Thanks, Craig Schiller (2) Frozen participants. A plan must satisfy the nondiscriminatory availability requirement of this section not only with respect to benefits, rights, and features provided to employees who are currently benefiting under the plan, but also separately with respect to benefits, rights, and features provided to nonexcludable employees with accrued benefits who are not currently benefiting under the plan (frozen participants).

Hi all responders, Thank you for your comments. Very helpful. It explains how 2 actuaries could have a different take. The comments overall, and especially "2 cents" which was worth way more than 2 cents, it seems very clear that the RP2000-40 does not trump the otherwise clear statement in 1.430-(g)(1).

Hi BLink members: For a plan that is not terminating, can a funding method be changed from EOY to BOY? I asked 2 different actuaries to cross-check the answer and got 2 different answers. Thanks! Craig Schiller, CPC

I am certainly convinced that unless the reasonable business classification is on the plan level, if everyone is in their own rate group, the plan must pass the coverage test. And if a plan didn't have everyone in their own rate group, not relying on a last day provision as a reasonable classification, since the IRS has stated otherwise. I do still have some concerns about allocating $0 to someone solely because they terminated after the year is over, paranoid or not. I will not advise clients to not allocate to employees who terminated after the year if that is the sole criteria. But seeing the concensus about it not being a problem in and of itslef, I was comfortable advising the client who asked about this, that it could be done, since the coverage test passes. My concerns are: 1): The decision is based on criteria that occurred after the allocation date. Unlike an -11(g) change which has a statutory basis, theoretically I was concerned that could be a problem. While one can make the decision after the allocation date, I think of it as if the contribution were being made on that date. 2): I try not to have an allocation that will alienate an IRS auditor. That includes even -11(g) amendments which I don't need to do very often. I think a lot of this is as the person from ETA Consulting said - a matter of preference, + comfort and paranoia. Thanks all for your comments. Craig Schiller, CPC

Hello John - Thanks for the response. I take it you mean "yes" Mike is correct, and the IRS would automatically not consider it a reasonable classification since everyone is in their own rate group, and one or more rate groups is receiving a $0 allocation (not yes - Mike is wrong - and since not contributing to hygienists is reasonable, it would meet the reasonable classification test)? Craig Schiller

I see how valuable these on-line discussions are, and hope that this year I finally have time to read and follow these on-line discussions regularly. They are tremendously valuable in making sure ones understanding of the rules are correct, and how other practioners are handling things. Since so many rules can be open to so many possible interpretations, knowing how other practioners interpret them helps in understanding the rules, and giving better odds to not veering too far off. It was very helpful to see the concensus about applying a last day provision even though the plan document didn't "check that box." It was also helput to have Mke Preson's explanation as to why it wasn't okay to consider a last day provision a reasonable classification. I am concerned about a third thing I wasn't aware of, and suspect I was wrong. I wasn't aware that if a plan has everyone in their own rate group and gives no contribution to even 1 person, it means the plan cannot use the average benefits test. Another words, assume a plan has 20 participants all eligible, and provides a contribution to all except for 8 dental hygienists. Assume the directive states the contribution is to all other than Dental Hygienists I would have had no idea that it precludes the use of the Average Benefits Test. But per Mike Preston, the IRS would consider that naming people if all are in their own rate group. Does anyone think otherwise? I wouldn't bet against Mike but am hoping he is wrong as I was never aware of this rule. Thanks, Craig Schiller

First, thanks for the responses. I have a few comments on the comments: 1): Paraniod refers to an irrational level of worry or suspicion. I can make an argument that the IRS has exercised its powers irrationally making concern of the irrational, rational. 2): I disgagree that one cannot call "excluding" those who are not employed on the last day of the plan year" a reasonable classification. It is not naming employees by name, It is a decision that year not to contribute to any employee who terminated prior to the end of the year. I also don't think the fact that each person is in their own rate group has any bearing on it. I think what matters is the classification that is actually applied. 3): I think one can certainly argue with some validity that when the choice made in completing a plan document is "last day is required" or "a minimum # of hours" to receive an allocation, or "no last day or minimum # of hours," selecting the latter is paramount to making the choice that neither a minimum # of hours, nor employment on the last ay will be used as a criteria for an allocation, and that would trump the fact that the employer can choose how much it contributes to each separate allocation group. What I most wanted, I think i got which was what other practioners did. It seems like most practioners in a plan with separate allocation groups would be comfortable not selecting the requirement that "employees be employed on the last day of the plan year" and still choosing not to allocate to such a group in a plan year. I hope that is what I am reading into the comments, 4): One more thing: I think an IRS agent is looking over my shoulder, Better sign off.

I would be very appreciative of any opinions on this question that I'm sure is not a black and white answer. Plan has a provision with no minimum hours to get a contribution, and no last day requirement. Company wishes to make a contribution for 2014 that is 3% for all employees emplolyed on 12/31/2014, and 0% for those who are not employed on that date. In your opinion, is it violating the terms of the plan to do the above? On the one hand, one can argue that by not selecting to require employment on the last day of the plan year, it is effectively an election that if you are employed on the last day of the plan year, you will get a contribution if one is made. On the other hand, one can argue that while it wasn't elected as an automatic factor to deny a contribution, since each person is in their own rate group, nothing prevents an employer in a given year to apply the provision. Thanks! Craig Schiller, CPC

1. The 1st point is correct. The plan requires when over the 415 limit and over NRA to take distributions. 2. If not taken timely, the plan document also requires that the payments be made up on the cumulative value of the monthly payments at NRA (or if spouse does not consent, the QJSA equivalent. Since the document spells out the corrective procedure which is a "Retroactive Annuity" no VCP is needed. 3. The person was not taking minimums and is about to receive the distribution. Based on comments such as yours, and the fact that these have the character of a temporary life annuity, and payments made as a life annuity are not eligible for a rollover, we are going to advise this person that the payments are not eligible for rollover. Thanks for your feedback.

Hoping someone can help me with this. Plan document requires person at 415 limit, and working past NRA to take their money. Person past NRA is now being provided the monthly payments they should have received as a Retroactive Annuity. The rest is being rolled over. The question involves eligibility for a rollover. I can see 3 ways of looking at this: 1): Since it is treated as being paid as a life annuity, my guess is it cannot be rolled over, since distributions paid over a life annuity basis are not eligible for a rollover; 2): Maybe it is considered similar to an equal installment distributions. If so, since this covers less than 10 years it should be eligible for a rollover; or 3): Maybe it is treated as a lump sum which would make it eligible for a rollover. Does anyone know the answer to this? Thanks, Craig Schiller

Plan has 1 asset with an asset that does not have a readily determinable market value so must file the 5500 form, not 5500-SF. It also has a Variable Annuity investment with an insurance company called Allianz. Does this investment mean a Schedule A must be filed? I wasnt sure since as a Variable Annuity, none of the investments are itself with the general assets of the insurance company. On the other hand, the Schedule A instructions seem to require a Schdule A if it is an "account, policy, or contract with an insurance company". Thanks for any opinions.

If anyone is interested, someone who is not our client, is looking to hire an actuary to help her and her husband understand their CalPers plan. He was on workmen's compensation and is not working. I think he is over age 60. He wants to be able to purchase some credits. If you interested in taking this on and helping, call me at 415-725-1100 and I'll give you her name and phone #. Craig Schiller