Dougsbpc

Have a profit sharing plan with a two year eligibility period and 100% vested immediately. The plan is cross-tested and a 5% gateway is provided to all non owner employees. Suppose they want to change the plan to a safe harbor 401k with a 3% SH employer contribution. They want to keep the two year eligibility for profit sharing. They must provide the 3% SH to all employees with one year of service. Must those employees also be provided a 5% minimum gateway as those with two years of service do? Thanks

Generally, we complete the beginning of year valuation and communicate the minimum and maximum contribution. In that correspondence, we also describe the possibilities (increased minimum, elections etc). Then we send the client the valuation along with the bill. We think it helps to provide a B/S and I/S as of the beginning of the year, reflecting the values one day earlier. This way we don't have to mess with any current year contribution accrual in the annual report. Along with the B/S and I/S is the beginning of year valuation unadjusted by the timing of contributions or elections. Also, the report contains a copy of the prior year 5500 and schedules. Follow up is sometimes needed for elections and notices to participants. So far, this has worked for us. Our biggest problem is too much work which keeps us from completing next year's valuation as early as we would like.

Have a small DB plan that will be terminating in the next few months. Is there any problem amending act eqiv interest from 6.5% pre and post to 5.5%? There should not be any cut-back issues as everyone will be getting more not less. I know timing for the minimum present value cannot be utilized if changed within 12 months, but not aware of anything for actuarial equivalence.

A 401(k) plan has terminated in 2009. The 100% owner of the corporation sponsoring the plan will turn age 70 1/2 October 1, 2010. Her required beginning date is 4/1/2011 but she does not want to take two RMD's in 2011 so she wishes to start in 2010. Our understanding was that the RMD (if taken in calendar year 2010) must be distributed from the plan prior to distributing remaining benefits to the participant. The fund company will not make the distribution until the participant actually turns age 70 1/2. They claim IRS regulations do not allow for the RMD unless taken after actually reaching age 70 1/2. I asked if they could give me the cite they were referring to and they replied that we must instead prove to them that a greater than 5% owner could paid an RMD on termination prior to actually attaining age 70 1/2. They could be correct, but 401(a)(9) does not seem to specifically address the age issue. Has anyone run into this?

Thanks everyone for the replies on this. It is interesting, the adoption agreement has the following provisions: 5-5 Benefit limits (i) Maximum benefit limit. A Participant's Accrued Benefit shall not exceed $5,000. 7-4 Late Retirement Benefit (b) The following rules apply with respect to determining a Participant’s Accrued Benefit that commences after Normal Retirement Age: Unless a maximum benefit is designated under 5-5(i), the Participant’s Accrued Benefit as of the end of each Plan Year beginning after the Participant’s Normal Retirement Date is the greater of (1) the Participant’s Normal Retirement Benefit, calculated taking into account the Participant’s compensation and Years of Credited Service as of the end of such Plan Year or (2) the Participant’s Accrued Benefit determined as of the end of the prior Plan Year, expressed as an Actuarial Equivalent benefit as of the end of the current Plan Year. In calculating the Participant’s Normal Retirement Benefit under (1), such amount is offset by the actuarial value of any distributions received from the Plan prior to the close of the Plan Year. The document has the following provision: Late Retirement Benefit. (a) Amount of Late Retirement Benefit. Unless designated otherwise under 7-4(b), if the payment of a Participant’s Accrued Benefit commences after his/her Normal Retirement Date, the Participant’s Accrued Benefit as of the end of each Plan Year beginning after the Participant’s Normal Retirement Date is the greater of (1) the Participant’s Normal Retirement Benefit, calculated taking into account the Participant’s compensation and Years of Credited Service as of the end of such Plan Year or (2) the Participant’s Accrued Benefit determined as of the end of the prior Plan Year, expressed as an Actuarial Equivalent benefit as of the end of the current Plan Year. In calculating the Participant’s Normal Retirement Benefit under (1), such amount is offset by the actuarial value of any distributions received from the Plan prior to the close of the Plan Year.

Have a small take-over DB plan with a volume submitter document. The plan has a provision that places a maximum on accrued benefits of $5,000 per month. The prior administrator limited accrued benefits of the two owner employees to $5,000. However, one of the owners is two years past NRA and it appears no actuarial adjustment was made. In this case the owner who is past NRA does not care. Is it permissible to limit accrued benefits and not provide an actuarial adjustment?

Seems right that OP would not have a TNC. If a 412(d)(2) election were made, would there be any shortfall amortization payment to consider (assuming there was one)?

Small DB plan with unusual situation of 3 NHCEs leaving employment (not employer initiated). They have 2 employees already excluded by class. To pass 401(a)(4) for 2010, they will need to provide benefits to 2 of the 3 with an 11(g) amendment as neither will work enough to accrue a benefit. The employer will be replacing the 3 employees. The plan has a 1 yr eligibility period. This is not likely to happen, but suppose the new employees (all of whom would enter 7/1/11) terminated employment before that date. Could they be brought into the plan and provided a benefit with an 11(g) amendment? I know this can be done in a DC plan. Thanks.

You will need to pay attention to all those David mentioned. Over the years, we have had a few takeover plans where prior plan DB accruals were not taken into account when a second DB plan was adopted by the same employer. This is a very important consideration, especially with small plans where the company owner(s) is getting maximum benefits.

Or amend the 401(k) plan to permit loans then adopt a very restrictive loan policy effective from now on. That way you do not open the flood gates, which is why many employers do not want to offer them. You should be ok as long as the loan policy is enforced on a non-discriminatory basis.

A profit sharing plan participant was mistakenly paid her benefit of $4,800 from the corporation account rather than the plan account. Benefit elections were signed, the employer just mistakenly paid the roll-over benefit from the company account. We are thinking about just having the plan reimburse the company for the amount. Has anyone else run into this problem?

Agreed since the plan has not existed more than 5 years. In general, it is unfortunate that there is not an exception for a corrective amendment.

Can the full yield curve with October 2008 segment rates be used for a 2/1/2009 beg of year valuation? I think this is available for plan years beginning in 2009 correct? In this plan there would not be any material change issues. Thanks.

An NHCE is beyond NRA of 62 but under age 70 1/2. He will continue to work indefinitely. He requests a lump sum distribution of his entire accrued benefit now. Plan document allows for distribution after attaining NRA. Is his PVAB based on the greater benefit resulting from application of 417(e) and plan AE assumptions, or is he limited to PVAB based on AE assumptions now?

You might try asking the PBGC for an extension. They may grant an extension for a brief period of time. We submitted a request for an extension based on the fact that the plan had substantial losses and most of the remaining assets will be difficult to liquidate. They provided an extension of 3 1/2 months. Check the PBGC web site under the Plan Termination section. They outline the procedure for requesting an extension.

If the DB benefits to EE's are small to begin with, self-directed investments in the DC plan are not much of a problem. However, there can be a fluctuation problem for those with higher benefits. Before the plan is adopted recommend pooled investments for the DC plan. If they insist on self-direction then mention the potential for benefits to fluctuate. With all the 401(a)(26) and other ambiguity, we decided a few years ago to instead just recommend combo plans without offsets. 1/2% of pay per year to EE's in the DB and at least 7.5% to EE's in the DC. One of the biggest problems with $0 net benefits to EEs in an offset plan is internal. Many employers hate to distribute benefit statements and other reports to employees. In fact, I am sure some employers dont even distribute them.

We have looked for an answer on this but have not found it. A plan clearly has more than 5% of its assets invested in non-qualifying assets. Therefore, to be exempt from the small plan audit, they will purchase a bond "equal to 100% of the value of non-qualifying assets". Is the value of non-qualifying assets equal to the net value of non-qualifying assets? For example, suppose you have a plan with just a real estate investment with a market value of $900,000 but a mortgage payable of $500,000. Must the bond be for $900,000 of coverage or $400,000 of coverage? Thanks a million.

A calendar year DB (beginning of year) plan terminates 1/31/2009. There will be no Target Normal Cost because no participant would have worked 1,000 hrs one month into the year. There will be a shortfall amortization payment of $40,000. My understanding is that the contribution would be $40,000 x 1/12 = $3,333 (adjusted for interest at effective rate). In other words the full TNC (provided participants will accrue a benefit) plus the pro-rated shortfall amortization payment. Agree? Thanks.

Suppose the owner of a small corp that sponsors a DB plan is also a participant in the plan. He also happens to be the trustee. He owns 7% of the stock of a privately held company (not the company that sponsors the DB). Can the plan invest in that stock? Something tells me that it may be a prohibited transaction. Use of plan assets for the benefit of a disqualified person. The disqualified person being him as a plan fiduciary. Suppose instead this was a publicly traded company. Then would it be a prohibited transaction?

We will probably get a coverage determination from the PBGC, but has anyone had experience with something like this? Architect with 5 EE's has had a DB plan for 5 years. Plan has not been covered because of professional service employer exemption. Now acquires 80% of a storage facility business and has a controlled group. They have no problem covering all 15 employees from the storage business so the storage business becomes a participating employer in the plan. Now most income is derived from the storage business. ERISA 4021©(2) says a professional service employer is any entity owned or controlled by professional individuals where BOTH THE ENTITY AND THE PROFESSIONAL INDIVIDUAL OWNING AND CONTROLLING IT ARE ENGAGED IN THE SAME PROFESSIONAL SERVICE. Here we have a professional controlling a business that happens to be a participating employer in the plan, but he and the storage business are not engaged in the same professional service. We are thinking the plan must now be covered. Any agreement/disagreement? Thanks much.

Yes...If no AFTAP was issued then I dont think you could have a material change as the presumed AFTAP would be less than 60% and would stay that way until 2010. If you now change the 2009 val by using the full yield curve, you havent changed the less than 60%. Also, I think the final regs allow us to switch between beg and end of year valuations without obtaining approval for 2008, 2009, and 2010. Since many plans have recovered losses, this might also be a solution. What if you had a plan certified at 98% for 2009 but changed to the yield curve now and that brought the AFTAP up to 107%? At 98% there were no restrictions so I would think this would not be considered a material change.

Are there any restrictions to using the full yield curve for a 1/1/2009 DB valuation? For the 2009 year, I believe we can go back 3 months before the start of the plan year. October 2008 would provide the most relief. This plan had enormous losses in 2008 but have gained back all that was lost. A reduced minimum for 2009 would sure help. Thanks.

First 401(k) with Roth contributions. Must Roth contributions be held in a separate account? For example, suppose a participant has a brokerage account that contains pre-tax deferrals and employer contributions. Does he need to have a separate brokerage account to contain the Roth contributions or can they be deposited to the same brokerage account. We would, of course track each source of money separately within that one brokerage account.

A small plan sponsor had employees for the first 10 years of his business. He no longer has employees and will not again. However, he does want to keep the plan another 5 years or so. Must they continue to file the full 5500 or could they switch to a 5500-EZ. Also, the plan has non-publicly traded investments of about $300,000 and they would rather not maintain a fidelity bond since there is now only one participant (the company owner). Thanks

Suppose you have a traditional DB sponsored by medical corporation A. Corporation A is owned equally by 3 separate corporations. Each of these corporations employ one physician. They are a related employer group so each of the physician corporations will adopt the plan as a participating employer. I believe that each participating employer is only responsible for funding contributions for its employees. Could the contribution be allocated on PVAB's? Or would this be treated like a partnership where the contribution must be allocated on ownership interest only? Or would any reasonable method consistently applied be acceptable? Thanks much.