Dougsbpc

Yes. That is what I am saying. In this particular case we did not get a letter, but in every future offset DB we certainly will.

We know better now to get a DL on any floor offset plan. If the method of correction is to provide .5% after the offset for that first year, that would not be so bad as there are only 7 eligible participants. I could be wrong, but I would think providing .5% after the offset to three participants would allow the plan to pass 401(a)(26) as 40% of eligible participants would benefit. I know this issue is still not settled, but I cant imagine the IRS ever allowing no offset for certain participants (HCE's in this case).

We administer a floor offset DB that provides 5% of pay per year to group A (stockholders) and .5% of pay to all others (group B). The offsetting plan (a 401(k) plan) provided a 10% uniform nonelective contribution for all years except the first year (5 years ago). In that first year, the two stockholders (who are group A participants in the DB) received no nonelective allocation in the 401(k) plan. All benefits except those in group A are fully offset. Therefore, the DB plan fails 401(a)(26) for that year because a uniform allocation was not made in year 1. We are looking to correct this through VCP. Should we attempt to provide a .5% benefit AFTER the offset to group B in the DB or provide the 10% nonelective contribution in the 401(k) to stockholders, thus creating a uniform allocation. Our understanding is that any additional contributions for a closed year are not deductible. Thanks much for any comments.

Does anyone think just having cross-tested language in the DC plan would prevent the DB from passing 401(a)(26)? The last sentence in the memo indicates "or an amount necessary to provide a uniform benefit". Suppose your DC had allocation groups 1 and 2, but in operation you always provided 10% of salary to both groups 1 and 2 (i.e. all participants receive the same percentage of salary). Would this fail 401(a)(26) just because you have different allocation groups in the DC document?

Mike and Jay, thanks for your comments. In this case it is simply a matter of the employer originally just wanting a cross-tested profit sharing plan. They signed the document and a few months later (within the same taxable year) they decided to adopt a floor-offset DB. We never changed the allocation method in the psp whereby each eligible employee was his/her own group. Each year the employer contributed 10% of salary to all eligible employees (uniform allocations). The DB plan provides 6% of pay per year of participation for group A and 1% of pay per year for group B. The plans have passed 401(a)(4) and 410(b) each year. The DB plan covers more than 40% of all eligibles. Mike, out of curiosity, suppose as Jay mentioned, a non-uniform allocation were made in year 1 to the profit sharing plan in a situation like this. Also, suppose the 1% of pay benefits are fully offset. I would think then 1.401(a)(26)(5)(2)(iii) would not be satisfied and the DB plan would fail 401(a)(26). Would this type of failure ever be correctable?

Has anyone ever received a DL where DB benefits were offset by a profit sharing plan that has tiered language? In this case, the employer originally had the intent of just having a profit sharing plan but then adopted a floor offset DB plan later that year. The PSP was never amended to have comp to comp allocations. However, in operation, the plan always provided uniform allocations each year.

I know this has been beaten to death, but my understanding is the following: An employer may deduct up to 150% of UCL in its defined benefit plan for the plan year beginning 1/1/2006 even though it also maintains a 401(k) Profit Sharing plan. However, only salary deferrals were made to the 401(k) plan in 2006. Also, the DB has been in existence with all HCE's participating for over two years. Also, there has been no HCE benefit increase in the DB plan in the past two years. Does the fact that the 401(k) plan contains profit sharing money from 5 years ago disqualify the DB from the 150% of UCL deduction?

The intent here is to simply provide better benefits to employees. The only HCE is the 100% stockholder of the corporation that sponsors the plan. They are now a very profitable company and the owner wants to reward past employees as well as future employees by having more rapid vesting.

We have a client that sponsors a small DB plan with 15 participants. They have a 2-20 vesting schedule and would like to provide a more generous schedule (1 year 25%, 2years 50%, 3 years 75%, etc). In addition, they wish to make this schedule effective back to 2002. Is it possible to amend a plan to provide more generous vesting retroactively? They have only ever had 4 terminess who were all partially vested and dont mind paying additional benefits.

An employer (company A) sponsors a 401(k) plan that has always been top heavy. They have always made the 3% top heavy minimum. Their last plan year end was 6/30/2006. 100% of the company was purchased on 8/31/2006 by another larger company (company B) that also sponsors a 401(k) plan. The company B 401(k) plan is not close to being top heavy. Company B now sponsors two 401(k) plans, the former company A plan and the company B plan. Both plans are required to be aggregated for 416 purposes since both plans are now sponsored by one company. If they are aggregated they are not close to being top heavy. Question: is a top heavy minimum contribution required in the (former company A plan)? We think yes because the top heavy determination date would be 6/30/2006 and the company was not purchased until 8/31/2006. Does anyone disagree with this? Thanks much.

Thanks everyone for all the replies. In reading the final regulations (specifically 1.415(f)-1(f)(2)), it appears that a participant considered to be "in control" of the contract is aggregated for 415 purposes. The 403(b) is considered a defined contribution plan. I can see where this would impact an employer who sponsors a DC plan. Since 415(e) was repealed several years ago, how would this have any impact on a DB? For example, suppose a University prof retired 5 years ago and now started a profitable business. He had a 403(b) at the University and now wants to adopt a DB plan through his new corporation.

Are benefits accrued under a govermental pension required to be aggreated with pension benefits under a private sponsored DB? It would be great if anyone had a site on this.

Can attorney fees be paid from qualified plan assets? This employer really needs direction / opinions from an ERISA attorney. The company may not have the resources to pay those fees but the pension plan will have excess assets.

We only administer 401(k), PSP, DB plans and are not familiar with 403(b) plans. We really dont want to get involved with 403(b)'s but have a small local non-profit that is concerned about a 403(b) they have had for many years. The plan had salary deferral and match but was discontinued in favor of a 401(k) plan about 4 years ago. No contributions have been made to it for 4 years. They have been filing a 5500 all along. Do they need a restated document for GUST and EGTRRA? They have two insurance companies that provide annuity investments for participants. The non-profit contacted the insurance company that provided the original document and asked about a restated document. The insurance company mentioned that they no longer provide documents. Is there a document provider that is not associated with investments? Are they a candidate for a voluntary compliance program? Thanks much.

Suppose you had a similar example except the plan was a 401(k), a key employee made S/R in excess of 3% of salary and therefore had a top heavy minimum requirement. What if the employer missed making the deposit by the extended tax filing deadline, but did make the deposit before the end of the next plan year end?

The final 415 regs posted by J4FKBC is timely for this question. Suppose a county employee retires with full pension benefits and then establishes a very profitable business at age 68. If his corporation adopts a DB plan, must the 415 limit be adjusted for the benefits he accrued under the county plan? I would think not because the two entities are not related in any way. Thanks much.

Thanks much for all the replies. In this case the 100% owner who died has about 85% of the benefits, so the plan has plenty in the way of assets to pay all non-owner / non-key employee benefits even if the remainder of the contribution cannot be funded. To clarify, the company will go out of business. We are in the preliminary stages here and just wanted to see if others had experience with this. We will likely recommend they hire an ERISA attorney to provide guidance in the matter. There are other complicating factors. Yes, spouse much younger (separated but divorce not final) vs. the children from a previous marriage. It seems though that terminating the plan through IRS and paying the 10% penalty makes sense. Again, the plan can easily pay all non-owner benefits. However, the spouse (as primary beneficiary) will likely contest this action, so the attorney must be hired by the estate.

Mike Thanks for the cite on this. Sorry I wasnt clear. The plan year end in this case is 9/30/2006 so we are already past the 2 1/2 month deadline for the amendment.

We administer a small non-pbgc DB plan for a company with 10 employees. The 100% owner of the corporation recently died and the company will no go out of business. It appears the company will only have the resources to fund half of the 2006 pension contribution. We know there is a 10% excise tax and if the deficiency is not corrected the IRS could potentially impose a tax of up to 100%. It appears we could ask for a waiver of the 100% if we can show it would cause a hardship. Has anyone had experience with this?

I believe there are special IRA custodians that do accept real estate as part of a roll over. Their fees may be a little higher than most IRA custodians, but it might make sense for your client rather than forcing a sale.

Suppose you have a pooled profit sharing plan with a 9/30 year end. When determining the 2007 minimum distribution for the age 72 owner-participant, must we adjust his 9/30/06 balance to 12/31/2006? If so, by what interest rate? The 10/1/05-9/30/06 rate of return for the plan?

Probably nothing. We have had a few plans over the years that did not get around to getting a trust Id number until the following year. You really must have a trust id # when a former participant gets paid benefits.

Thanks Andy

Suppose an employer sponsors a safe harbor unit benefit DB. If the same employer adopts a safe harbor 401(k) are we required to general test accross two plans?

Yes. That is correct. This is applicable beginning in 2008.