Dougsbpc

A participant mistakenly made 1 additional loan repayment on her participant loan to her directed account. We will have the plan distribute the extra payment to her along with applicable account earnings for the period the additional payment remained in her account. Does anyone see a problem with this? Thanks

We know a qdro award to an AP must be taken into account for the participant's 415(b) limit. Must it also be taken into account in the participant's 415 compensation limit? Thanks.

Thanks John I did not find any timeframe when researching this. Does anyone think there would be a problem to first make an in-service distribution to the participant now, leave the excess in the DB plan for a few months and then have them adopt the QRP in a few months?

A 1 participant DB will have excess assets of $50,000 (above his 415 limit). Can: 1. A 1 participant corporation establish a qualified replacement plan (QRP)? The allocation(s) would only be made to the 1 participant of the DB who remains an employee of the corporation. 2. If #1 is possible, is there any time frame in establishing and transferring assets to the QRP? Would like to have him take an in-service distribution now (he is age 62) and leave the excess $50,000 in the DB for a few months until a QRP can be established. Our understanding is that at least 25% and up to 100% of the excess can be transferred to the QRP. Then it must be either allocated in the same year transferred or over up to 7 years. If #1 is possible, he may be able to take a $50,000 salary and allocate $50,000 in a profit sharing plan to himself and be done. No deductible problem as it is not deductible anyway and no 415 problem as up to 100% of salary can be allocated. Thanks.

A 401(k) plan had a participant with a participant loan. It turned out she made one extra payment on her loan and an additional $410.00 is in the plan. She was not making repayments through payroll deduction but by personal check. This seems like it should be correctable through self-correction. If so, I would think the additional $410.00 plus earnings would be refundable to her. Does anyone disagree? Also I would think earnings should be based on actual plan earnings between the time of the additional payment and the refund. Anyone disagree? Thanks.

Took over a small DB plan that excluded two physicians by name and highly compensated nurse practitioners. For the past 5 years, they have only had 4 physicians who met the eligibility requirements. All were HCEs and Keys. The plan passed 401(a)(26) in past years as 2/4 = 50%, which is greater than 40%. They now also have 3 nurse practioners who met the eligibility requirements. All happen to be HCEs and are therefore excluded from the plan. One NP was given a 1/2% of pay accrued benefit to pass 401(a)26. This was done with a corrective amendment. The employer also happens to sponsor a profit sharing plan. In this plan all the NP's are excluded (they are all HCEs) so no problem with testing across both plan. The DB plan indicates that the top heavy minimum is provided in the profit sharing plan. Question: By bringing in the 1 HCE Nurse practitioner, they passed 401(a)26. Since she was not covered under the PSP she received no Top heavy minimum in that plan. Must she get a 2% top heavy minimum in the DB?

It is interesting. They have enough forfeitures to make the safe harbor match contribution. The document indicates that forfeitures shall be used to reduce employer contributions. It is very unfortunate that apparently forfeitures cannot be used to fund safe harbor contributions.

Suppose an employer cannot fund the 2013 safe harbor match by September 15, 2014? What happens? I would think they would need to run the ADP and ACP tests and provide a top heavy minimum since the plan is top heavy. Any other horrible consequences?

In the past, we have designed plans to provide minimum vesting of 20% for this reason. Then if a corrective amendment is needed and the only available participant is a terminee who would otherwise not be vested, we would automatically have a corrective amendment that had substance. But maybe this is not needed if the corrective amendment itself could indicate that Joe Smith shall be provided a contribution equal to 7% of his salary to meet the requirements of 401(a)(4) blah blah blah. And, Joe Smith shall be 100% vested in this contribution.

Tom Thanks for your reply. I think the corrective amendment allows us to single out any participant and provide them with the contribution necessary to pass 401(a)4. Would this also be true of a QNEC? Would you have the ability to provide a QNEC to just one participant for purposes of the corrective amendment or would we have to follow the targeted QNEC provisions of the document (involving more than one participant)?

Have a small 401(k) plan that will fail 401(a)4 test. They can pass by providing a profit sharing contribution of 7% of salary to an employee who terminated employment during the year. The plan does have a last day requirement. This employee would not be vested. Can the 11g amendment make the participant vested. The ERISA Outline book points to an example of where this was done and not challenged by IRS.

I don't want to beat this to death, but by lowering actuarial equivalent interest rates and preserving any other forms of benefit that could be higher under prior rates, I would think all participants (not just HCE's) potentially benefit. For example, suppose they decided to terminate this plan and distribute benefits in early 2016. Also, suppose inflation started to heat up and the Fed created a higher interest rate environment that led to much higher 417(e) rates. Since most/all participants would elect lump sums, all would benefit from the lower rates.

Effen Thanks for your reply. We would run this by our attorney before going forward with anything. If the actuarial equivalent assumptions were ever amended, we would make sure all forms of benefits under the prior assumptions were preserved. Do you think lowering act equiv interest rates would be an amendment that needs to comply with 1.401(a)(4)-5?

A traditional DB plan has a special 415(b) provision that limits it to the pre-EGTRRA $140k. Would amending this be considered discriminatory? No participant was ever affected by this lower limit. The owner of the business reached NRA 65 and accrued his full benefit two years ago. His benefit has been adjusted for post-NRA increases. This year, his adjustment will be affected by the lower limit. In this case, increasing the 415 limit will only serve to allow him his age 65 accrued benefit equivalent. Would amending the 415 limit be considered discriminatory? Also, they would like to amend actuarial equivalent interest rates from 6.5% pre and post to 5.5% pre and post. I know this is a 411(d)6 protected benefit, but in this case all current participants will have higher lump sums not lower. The participants who received lump sums in the past all received lump sums that were based on 417(e) rates that were lower that what the new 5.5% actuarial equivalent rates. Would this change be considered discriminatory? Thanks.

A covered defined benefit plan was frozen in 2005. The plan is now failing the prior benefit structure test of 401(a)26 with current participants. The plan does not have sufficient assets to pay benefits given 417(e) rates. An exception applies for an under-funded plan. This exception is all about not forcing a plan with insufficient assets to terminate just to comply with 401(a)26. Problem is this exception only applies if the schedule SB indicates the plan does not have sufficient assets to pay benefits. The MAP-21 rates indicate this plan is just over 100% funded although in reality it is about 82% funded when applying the 417(e) rates. It seems that with most issues in life you get at least a random 50/50 chance of a positive outcome. With DB plans, you have an 85% chance of the worst possible outcome even with the greatest of care. Apparently, we can go back before the plan was frozen and add former participants to prove the prior benefit structure meets the 40% threshold. So I guess we can go back to 1988 and add former participants. This should work as all participants accrued at least 2% of pay before the plan was frozen. Anyone see a problem with this? Thanks.

Supposedly, a plan or plans that fail the general test can provide contributions or benefits to current participants or provide contributions or benefits to those who are not yet eligible as long as the contribution or benefit has substance. I have always been a little uneasy about the order of this. For example, suppose you are testing a DB and PSP and the PSP has a last day requirement and a current NHCE participant terminates employment 4 days before the plan year end and the plans fail 401(a)4. However, the employer has 4 new employees who have yet to meet the eligibility requirements. If the youngest of the 4 is brought in and given a 10% of salary contribution, the plans easily pass. With the few of these we have done, we always had some criteria such as the ineligible employee with the most / least hours is chosen, or all those hired before a certain date. Is it possible to simply cherry pick? Any comments / agreements / disagreements on this?

Small 401(k) Plan is sponsored by an LLP and has 7 participants. One of the 7 terminated October 2013 but has not returned his benefit elections until now. The employer informed us today that they are being acquired by another firm who does not have a plan and does not want a plan. This will be an asset purchase so the LLP will remain. The two partners will remain but the 4 employees will terminate employment with the LLP. So clearly the 4 employees will be 100% vested as this would be considered a partial plan termination. What about the one employee who terminated in October 2013 long before this happened? Would he need to be made 100% vested even if the plan will be on-going and will not terminate until next year? Thanks

A company maintains a calendar year SH 401(k) with 3% Nonelective safe harbor contribution. They just informed us today that their firm will be acquired tomorrow (always nice to be informed at the last minute). If they terminate the plan now, our understanding is as follows: 1. They do not need to provide advance notice. 2. They need to provide the 3% SH contribution based on compensation through the termination date. 3. Participants do not need to be given the opportunity to change salary deferrals. Questions: 1. Are they required to pass the ADP test from 1/1/14 through the date of termination? 2. Since the firm that is acquiring them also sponsors a 401(k) plan, would there be any problem with distributing salary deferrals (the one year rule)? Thanks.

We have a client who has a small defined benefit plan and 401(k) plan. Only he and his wife are participants. He wants to invest in Austrailian real estate. Can this be done? Thanks.

A sole proprietor does business from 1/1/2007 to 12/31/2010. He then forms a corporation on 1/1/11 and also hires an employee on that date. On 1/1/2013 the corporation adopts a SEP that requires 3 years to be eligible. Can the business owner be eligible for the SEP by counting years with his sole proprietorship? Thanks.

Have a very unusual scenario. A prospective sole proprietor client sponsors a traditional DB plan with 3 participants. His girlfriend is also a sole proprietor (in the same field) and sponsors her own traditional DB plan. Believe it or not, they just got married and she now merged her business with his. Apparently, when they met some years ago they each set up a prototype DB plan at a fund company. Is it possible to merge the traditional DB plans?

We have a 401(k) plan client that had been a 9/30 C-corporation. In late February they filed to be an S-corporation. As such, their accountant is filing a tax return for the period 10/1/2013 - 12/31/2013. Their 401(k) plan currently has a 9/30 year end. Question: can the plan be amended now (April 8, 2014) to change to a short plan year for the period 10/1/13-12/31/13 or must the amendment be prospective? Thanks

Suppose you have a safe harbor 401(k) plan with a safe harbor match. This year the employer wants to also make a profit sharing contribution. Each participant is considered their own group. Also the plan has no hours or last day requirement for a profit sharing allocation. An employee terminates 9 months into the year. Can he receive a $0 profit sharing allocation or must he get the gateway because he was entitled to the safe harbor match? Thanks.

For what it is worth, we just had an IRS audit of a floor offset DB plan and everything was fine. In this case, 7.5% of salary profit sharing was allocated to all but one participant in their 401(k) plan every year. The one participant who usually received a 15% allocation was excluded from the DB plan. In addition, the DB plan document had special language indicating that the defined contribution plan offset is the actuarial equivalent benefit resulting from employer allocations of a uniform 6% of annual salary and accumulated earnings for those eligible employees who participate in the Defined Benefit Pension Plan. I would be curious to hear what others think about carving a 6% of salary contribution offset from the 7.5% contribution allocation.

It appears there is no special treatment for RMD's from Roth accounts. So for example, if a participant has reached their RBD and they have $10,000 in a Roth salary deferral account and $5,000 in a traditional match account, the entire $15,000 is used when determining the RMD. Suppose the RMD is $600. Can they choose to: 1. Take it all from Roth? 2. Take all of it from Traditional? 3. Take some of it from Roth and some of it from Traditional? Thanks.