Dougsbpc

Suppose you have a calendar year DB plan with a one year service requirement and dual entry dates following completion of eligibility requirements. Suppose the plan is amended to have two year eligibility and dual entry dates. Must employees who met the prior eligibility requirements be eligible, even though they had not entered the plan by the time it was amended? Thanks.

It is my understanding that the funding relief interest rates will not be available to a plan that is using the full yield curve. Agree? Thanks

I believe employer contributions to a profit sharing or 401(k) plan must be funded in cash correct? In other words, if a company has non-related stock (basically an investment), they cannot use that investment to fund the plan correct? Thanks

We have a client that sponsors a small 401(k) plan. Back in early 2010 they mistakenly deposited 401(k) profit sharing contributions to SEP accounts. They had not contributed to the SEP since 2006. They started the 401(k) plan in 2008. I would think they should be able to write the mutual fund company a letter indicating that these were mistaken deposits and to please transfer these amounts to the 401(k) plan. It turns out that they have the same fund company for the 401(k) plan. Does anyone agree/disagree? Thanks

Thanks for the replies. It is interesting, with all the IRS plan audits we have had over the past 20 years, we have never been asked to provide corporate resolutions and have never had a problem.

We recently took over a 401(k) plan and generally received excellent information. However, there was one amendment executed a few years ago that did not have a corresponding Corporate Resolution. Is the amendment valid? Thanks

An S-corporation sponsors a 401(k) plan. The plan covers 2 employees including the 100% shareholder. The corporation pays medical insurance premiums for the shareholder. These premiums do show up as income in box 1 of the shareholders W-2 but not in box 5 (medicare wages). The plan defines wages as W-2 salary subject to code section 3401(a). We believe plan salary (less than $100k in this case) should only be wages subject to withholding at the source (i.e. box 5) Does anyone disagree and believe the taxable premiums need to be part of plan salary? Thanks.

Tom, No employees have ever been able to defer as it was a profit sharing plan until now. If eligibility for salary deferrals was 1,000 hours, the 5 part time would never have met those requirements. Not providing contributions to the part time is the employer's decision. It turns out that the part time employees would ordinarily be independent contractors (indeed even competitors of the employer). A few of the jobs they get are not possible with independent contractors, this is why some of them are on payroll and these are the part time employees.

Suppose you have a small profit sharing plan with 10 participants. 5 are full time and 5 are part time (under 1,000 hrs). The plan allows all employees to be eligible upon being hired. In the past, profit sharing contributions were provided to all employees (full and part time). They now want to amend the plan to be a 401(k) plan and require 1 year of service of 1,000 hrs for all sources. They also want the plan to have a safe harbor match and only want to provide the safe harbor match from now on. Since the 5 part time employees have never worked 1,000 hours, they would not have met the eligibility requirements for the new salary deferrals and safe harbor match. I believe rev. ruling 2004-13 also indicates that a safe harbor match would make a plan exempt from the top heavy minimum as long as no employer contribution (other than the safe harbor match) is funded for the year. Also this determination is made on a year by year basis. It appears that in this case, the part time employees will not be able to make salary deferrals, receive a safe harbor match or receive a 3% top heavy minimum. Does anyone agree / disagree?

Small traditional Defined Benefit plan will terminate in about 4 months. The plan document contains an alternate form of benefit choice of "Single sum distribution of a portion of the vested accrued benefit". This is not further described in the document. This seems to indicate the plan could offer an alternate form of benefit that would allow a distribution of a portion of a benefit paid in the form of a lump sum and the remaining portion paid in the form of an annuity. We have never had a plan sponsor want to offer this. Is this possible? Thanks.

To make a long story short, we administered a DB plan and 401(k) plan for a client for about 7 years. They left us for 2 years but the new administrator completely dropped the ball and did nothing during those two years. They came back to us. We noticed that incorrect distributions were made to a terminee back two years ago. It looks like the plan sponsor just took the PVAB from our 2007 report that was not based on 417(e). In any event, we recalculated her benefit and will have the plan distribute the additional $10,000 to her. In addition to the DB benefit underpayment, they overpaid the same participant $5,000 from the 401(k) plan. Can the DB plan reduce her benefit by the $5,000? Thanks.

Yes he will have worked more than 1,000 hours from 7/1/11 - 6/30/12. We propose the termination date be 6/30/12.

Suppose you have a 1 participant DB plan for a small profitable employer with a 6/30 plan year end and 1,000 hour requirement for benefit accrual. The plan existed for 4 years until benefits were frozen a year ago. Upon restating his plan on April 1, 2012 we unfroze the plan per his instruction effective for the plan year 7/1/2011-6/30/12. Now apparently he lost his largest client and wants to terminate the plan. If the plan were terminated effective 6/30/12, could he accrue a full year of participation for 415 dollar limit purposes for the year 7/1/11-6/30/12? Thanks.

Is it possible to use an age other than the NRA or SSRA to normalize benefits when cross-testing? For example, suppose you are cross-testing a DB and DC plan. Could you use age 70?, 75? Also, is it possible to limit post-NRA APRs to age 65? Thanks.

A defined benefit plan once had 5 participants and all but the owner were paid their vested benefits 4 years ago. We have been filing a 5500 just reporting one participant. Is it possible to switch to a 5500-EZ now as the plan only covers the owner? Thanks.

Have a cross tested 401(k) plan with about 50 participants. Have always felt comfortable using accrued to date based on average comp. Is it permissible to use accrued to date based on current compensation and permitted disparity? Thanks

We switched over to paperless a few years ago. We just use Adobe Acrobat Pro. We set up a folder for each client and then sub-folders such as 2010 Admin, Participant Loans, Beneficiary Designations, etc. This tends to work very well as almost all software now allows you to print pdf. And we just scan any outside paper documents that come in.

It would sure seem that a plan would pass 401(a)(26) if at least 40% of eligible participants had accrued benefits that were at least .5% per year. The problem may be in 1.401(a)(26)-3©(2) Prior benefit structure. Part of this states " a plan will not satisfy this paragraph © if it exists primarily to preserve accrued benefits for a small group of employees and thereby functions more as an individual plan for a small group of employees".

Suppose you have a small defined benefit plan with 6 participants that has existed for 5 years. The benefit formula is 5% of FAC x YOP. All participants have accrued a benefit of 25% of their average salary. The 100% shareholder of the company (also a plan participant) wants to start a 401(k) plan for all employees and provide a mandatory employer contribution of at least 7.5% of salary every year. If the defined benefit plan were amended to continue 5% for shareholders and .5% for all others, would the plan fail 401(a)(26) going forward if there were no new participants? Both plans together would easily pass 401(a)(4). I know the safest way to go is a fresh start with each employees frozen accrued benefit + .5% going forward. This is the way we will go, but if the plan instead did not have an A+B formula, would it fail 401(a)(26)? No employee other than the owner would have a positive accrual going forward for quite some time. However, all employees would have accrued a benefit of at least .5% for each year of participation under the plan.

We administer a 401(k) plan with about 60 participants. The plan sponsor is a partnership that is owned by 5 corporations. Each of the corporations employs one physician. They are all related employers and considered an affiliated service group. Each of the corporations adopted the plan as participating employers. One of the corporations will now drop to a 3% interest in the partnership and the physician who is employed by that corporation (and the 100% shareholder) will only have salary of about $20k per year for the next 5 years. Will that physician still be considered an HCE going forward? In other words, is he considered an HCE because of his ownership in his corporation? Thanks

Given that payrolls are generally run 3-5 days prior to the actual paydate, it's perfectly reasonable to not start the suspension until the following pay period given your fact pattern. Many corporations who get data electronically from their TPAs often only receive a file once a week or even less often; many of them would not have received this change in time. I'd worry that doing something retroactively on this would create an undesirable precedent about how quickly the company implements deferral changes in the payroll system. Thanks for input, masteff. We have decided to let it slide since it was merely 5 days after the withdrawal took place.

Yes the deferral was made five days after the withdrawal took place. We caught it and reminded them to stop all contributions. Since the withdrawal and deferral dates were quite close, I'm hesitating having them withdraw and reimburse the contribution unless its necessary or could potentially cause problems.

A participant recently took a hardship distribution. A portion of the withdrawal was taken from his Salary Deferral benefit, and as such he is not allowed to make salary deferral contributions to his self directed account for 6 months following the date of the withdrawal. Employer went ahead and deducted the contribution from his paycheck anyway. Do we let it slide or reimburse the participant? Note: Sal-Def Contribution amount is approximately $75.00

Tom thanks for your take on this. So if aggregation is not chosen for testing plan A: 1. Plan A needs to use ABPT to pass coverage. By definition, this requires consideration of all contributions of all participants from all plans. This does not mean aggregation was chosen, since aggregation is required. Coverage passed. 2. Next, when testing for nondiscrimination, the ABPT is exactly the same as in #1 above. Rate group test includes accrual rates for all employees who would meet min age and service. Plan A participants who received a nonelective contribution with positive accrual rates, and plan B participants who did not benefit under plan A with 0 accrual rates. Is this correct?

Suppose you have two 401(k) plans sponsored by one company (no QSLOB exists). Assume the plans are not top heavy and they have nondiscriminatory classifications. As far as Employer Contributions: Plan 1 - Covers all employees hired before xxxx date - Provides 15% to owners, 5% to all others Plan 2 - Covers all employees hired after xxxx date - Provides 2% to all participants - There are no Key or HCE's in this plan It is our understanding that the 5% gateway would not have to be provided under plan 2 as long as each plan passes 401(a)(4) and 401(b) independently. Plan 2 passes both independently. Plan I will pass 401(a)(4) independently but requires the average benefit percentage test to pass coverage. Per 1.410(b)-7(e) all plans that could be permissively aggregated under paragraph (d) must be aggregated for this purpose. Paragraph (d) last paragraph indicates "if an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under section 401(a)(4) and 410(b)". Does this mean that you must treat both plans as one for 401(a)(4) and 410(b) just because one plan needed the average benefits percentage test to pass coverage? Thanks.