justanotheradmin

Successor Plan Question Related question http://benefitslink.com/boards/index.php/topic/56926-401k-plan-termination-and-startup/?hl=successor#entry249499 First Question: 401(k) with Safe harbor: Plan terminated end of 2014, no distributions have been made while awaiting final deposits / admin/ testing for 2014. Less than a dozen participants. Employer has decided they want to keep having a plan. Don't care if it is a new plan or the old plan reopened. Since no distributions have been made, I don't see doing either 1. establishing a new plan, or 2. reopening the old, would violate the distirbution rules. Am I missing something in that regard? Second Question: Is there a cut-back issue for the right to distirbution for the participants? They would have an expectation/right to a distribution due to the plan termination. The fact that none have been taken seems immaterial. Under either option, I don't see how it can preserve that distribution right for the deferral/safe harbor money sources, given the standard - not before age 59.5 rule. Any ideas?

I think you are confusing what I would call plan termination and plan closure. I explain to clients that the Termination Date is the date that typically benefits stop accruing. Its not uncommon for me to see the final payroll, or safe harbor deposit go in after the termination date. Particularly the employer contributions, which may still need calculations and testing. I use plan closure to explain that is what happens when all the balances are brought to zero. this would be after deposits are made, distributions are completed. I also find it helpful when explaining the Form 5500 requirements. Namely that it must continued to be filed until the plan balance is shown as zero. I realize that plan closure is not a technical term and the above usage does not quite reflect the regs, but for the average client, it seems to help them make sense of it all.

See Appendix A in Rev Proc 2013-12. If using EPCRS - SCP Missed Opportunity to Defer is usually deemed to be the NHCE ADP. Since the missed time period appears to be greater than 3 months, but less than the SCP correction time period (usually two year) then the corrective QNEC is 25% of the MOD plus earnings. See Rev Proc 2015-28. Assuming calendar year: Keep in mind the ADP test does not include the QNEC or the employee for 2014. Per Appendix A of 2013-12 "the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions an receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded."

Thank you Mike and Belgarath for the feedback. You both affirmed what I already knew. The most we can help the owner is with a plan term amendment, prospectively, the same as what we would do for any other plan. We are informing them they still have a plan and that we won't be able to service them any further.

One-person, owner only DB plan document was signed and set up for 2014. Owner has had a change of heart and no longer wants the plan. Would like something written to terminate / undo / close the plan. No deposits were made, nothing exists other than the plan document and I believe a TIN that was applied for the plan. I found this thread: http://benefitslink.com/boards/index.php?/topic/45372-er-changed-mind-no-contributions/ Are there others I should looking at? A colleague seemed to think there was a form that could be filed with the IRS but I'm not familiar with any. Does anyone know or have additional suggestions?

This might be better on another board, if so, I apologize. Companies A and B are a classic controlled group. My question is related to the 50 employee requirement for QSLOB. in all other respected the two companies seem to meet the QSLOB requirements. They want to be able to provide substantially different benefits to each company, and presently, combined testing would fail, hence the QSLOB analysis. Company A has 75 employees, company B only has 25. What happens to Company B when Company A is a QSLOB? Is B treated as a stand-along QSLOB by default since company A is no longer treated as part of the ER group? Does company B need to do anything in particular? Or do they have to do testing on the basis of the full control group, while company A can just do their own testing, ignoring Company B? I apologize if these are really basic questions, I haven't needed to look at QSLOBs in the real world until now.

I know this is an older thread, but I have a question. Is there a PT if the one guy purchases the stock? I'm trying to follow the PT rules in ERISA 406, 407 and 408. Looks like there is an exemption in ERISA §414 if needed to comply with §407, but just trying to get rid of the plan wouldn't be a §407 reason. Or do folks just recommend the assets be rolled over in kind to an IRA provider that can handle it?

Yes. We requested a coverage determination and the PBGC confirmed the plan is no longer covered and noted that 2014 is the last year that the premium is due.

Bear with me folks, my post is a bit lengthy, but I would really appreciate any feedback or insight. Neither the IRS nor PBGC had an answer, so I'm hoping someone here will. I didn't know if should post this on the 401(k) board instead. THE QUESTION: When the employer has both a DB and DC plan and the DB plan goes from being PBGC covered to not PBGC covered , what is the deduction limit for the DC plan? If it helps, keep in mind that the employer had to pay full year PBGC premiums per the PBGC instructions, even though coverage was for only part of the year. My analysis so far: When an employer sponsors both a DC and DB plan, the deduction limit as provided in IRC §404(a)(7)(A) generally applies. This provides in part: 404(a)(7)(A) If amounts are deductible under the foregoing paragraphs of this subsection (other than paragraph (5)) in connection with 1 or more defined contribution plans and 1 or more defined benefit plans or in connection with trusts or plans described in 2 or more of such paragraphs, the total amount deductible in a taxable year under such plans shall not exceed the greater of— (i) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, or (ii) the amount of contributions made to or under the defined benefit plans to the extent such contributions do not exceed the amount of employer contributions necessary to satisfy the minimum funding standard provided by section 412 with respect to any such defined benefit plans for the plan year which ends with or within such taxable year (or for any prior plan year).” A defined contribution plan which is a pension plan shall not be treated as failing to provide definitely determinable benefits merely by limiting employer contributions to amounts deductible under this section. In the case of a defined benefit plan which is a single employer plan, the amount necessary to satisfy the minimum funding standard provided by section 412 shall not be less than the excess (if any) of the plan’s funding target (as defined in section 430 (d)(1)) over the value of the plan’s assets (as determined under section 430 (g)(3)). There are exceptions to 404(a)(7)(A) outlined in 404(a)(7)©. Paragraph not to apply in certain cases One notable exception is : 404(a)(7)©(iv). Guaranteed plans In applying this paragraph, any single-employer plan covered under section 4021 of the Employee Retirement Income Security Act of 1974 shall not be taken into account. Well, §4021 of ERISA happens to be the part that explains which plans are subject to coverage under PBGC. It is is also known as 29 U.S.C $1321 if someone is having a hard time finding the code reference. This means that the employer doesn’t have to take into account any PBGC covered DB plan when looking at the deduction limit. Per 404(a)(7)(A)(i) the limit for the remaining DC plan would just be the typical 25%. But what is the deduction limit for the DC plan when the DB plan status changes during the year?

I'm sure this has already been addressed on the message boards somewhere, but I can't seem to find it. So please feel free to just post links of where I should look. Typically if a 401(k) plan wants eligibility to require service of less than 12 months, I offer to set up the document for elapsed time and continuous service, since it tends to simplify administration. A plan really wants to require a month of service, with a specific hours requirement for eligibility. of course the document always falls back on the IRS 1 YOS standard if the plan's eligibility requirements aren't met. Lets say its paired with quarterly entry. What (if any) is the maximum number of hours the plan can require in one month of service? 3 months of service? i.e. 80 hours in the first month of employment? if that isn't met that they don't enter until they satisfy the standard 1 YOS? Are there are regs somewhere that address this?

I understand the work level to mean equal. I don't see anything in the reg or IRC that requires the first payment to be within a certain time frame. What am I missing? Why would the first payment have to be 5/15? Is there something that says it has to be made within 3 months? They are not the same calendar (or plan) quarter. Starting the first payment on say 9/15 instead of 6/15 (or 5/15) would just result in higher, level (equal) payments. Bird, I understand your comment about the 5/15 start, but I just don't see support for it it in the IRC, regs, or other guidance. Maybe there is something more informal that clarified?

What is the latest date repayments can start? I thought there was something that required payments at least quarterly (due to the cure period rules). But I don't see anything that says when the first payment actually has to start by. I don't see anything in IRC §72(p) or Treas. Reg. §1.72(p) that actually address this. Plan document (VS) language mirrors the regs - Cure period is ends at the end of the calendar quarter in which the installment payment was due, after which the loan is in default. The loan policy/plan document do not provide any restrictions on how far out loan repayments can begin. If there is no installment payment due that quarter, then the cure period doesn't start? Example: Loan taken 2/15/2014 First payment due (according to level amortization schedule) 6/15/2014 According to the default/cure period rules, a plain reading would seem that the loan is in default as of 9/30/2014, not 6/30/2014 as I would have thought. Could the participant have put off the first payment even longer? As long as payments are level, and the loan is repaid in five years of the loan start date, I don't see any reason why the first payment can't be really far out. In the example, could the first scheduled payment have been 9/15/14? with quarterly level payments thereafter? Then if the first payment was missed, the loan would be default as of 12/31/2014? I feel like there is guidance I must be missing, that this is a loophole someone else figured out and the IRS would have address it either formally or informally. Can anyone clarify?

Thanks everyone for the feedback. I'll give them their options and as always, its up to them to decide what to do. As to how it got paid out so quickly, one of the other service providers frequently bypasses the step where distributions are supposed to go through us (TPA). I guess the alt payee really wanted to money quickly and the other provider got all the appropriate paperwork signed for the financial institution to make the distribution. We were not informed until well after the fact. The plan's QDRO procedures were not followed. After short conversations with the plan sponsor, and the other service provider, the other service provider and plan sponsor now are reminded that the plan must follow its procedures!

A 401(k) plan payed out a distribution to an Alternate payee (ex-spouse) based upon a draft DRO. Two weeks later the DRO was entered into the court. Assuming the DRO is reviewed and found to a QDRO, what corrective action is needed to make it so that the plan is in compliance? The DRO specifically provides for the amount awarded to be eligible for distribution to the alt. payee after the date of the Order (if the Alt. Payee so elects). Problems The plan paid out a substantial amount before there was a DRO If the DRO is followed today - the participant would get another substantial payment Normally, I would say the plan needs to try to recover distribution #1, Review the DRO, if it is a QDRO, then segregate and make pmt #2 (alt payee wants the $). I don't really see the point in putting the money back in just to take it out, so I think the only other option to avoid that is VCP asking the IRS if they will just call it good. The other alternative is to get the DRO amended so that that payment #1 counts, but then the plan is still out of compliance since it made the distribution prior to the QDROs existence. Any thoughts? Any options other than VCP? I think even if the plan goes through VCP the DRO needs to be amended to account for the earlier payment, probably by taking out the language that the distribution be made after the DRO date.

The employee portion of health insurance premiums is typically run through a §125 cafeteria plan so that it is on a pre-tax basis. This retirement plan, (like a lot of other small plans I know) specifically includes §125 amounts. Weather the participant is taxed on the amounts I think is irrelevant, I think it comes down to what amounts is the employer required to furnish a written statement for. But I'm hoping sharper minds can point out something I've overlooked, or a flaw in my reasoning. Surely someone else has encountered this by now.

Basic 401(k) plan with a 3% Safe Harbor Nonelective contribution. Adoption Agreement defines Total and Plan compensation the same: "W-2 Wages, including Elective Deferrals, pre-tax contributions to a Code §125 cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code §132(f)(4). " Basic Plan Document further defines W-2 Wages as: "Wages within the meaning of Code $3401(a) and all other payments of compensation to an employee by the Employer (int he course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code §6041(d), 6051(a)(3), and 6052, determined without regard to any rules under Code §3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed. " (emphasis mine). This plan does not name any exclusions to compensation. The employer, per the Affordable Care Act, now is required to and does report in box 12 of the W-2, the full amount of the cost of the employer sponsored health care. They report as it as a single sum using code DD. The portion that the employee pays pre-tax and the portion the employer pays are not split. Example Numbers Pre-tax Deferrals $5,000 Other wages taxes $65,000 Health Insurance Costs $15,000 - I do not know what portion is ER and what portion is EE. Lets say $6,000 is EE and $9,000 is ER. What compensation does the employer pay the 3% Safe Harbor on? Prior to the ACA I would have calculated the 3% on $5,000 + $65,000 + $6,000. But now I wonder if the ER portion of the health cost has to be included. I hope not, but I can't see a way around it under the terms of the document. Thoughts?

I don't see why not.

I have a self-employed individual who has a solo-401(k). Typically, I perform the classic circular calculation involved with SE-tax to arrive at plan compensation and contribution amounts. This particular individual has a written exemption to US Social Security taxes because of employment activities and coverage in the Canada Pension Plan. How does this affect my SE-Tax calculation? Anyone have any links to reading material on this? IRS website?

Unfortunately no, not $20,000 worth. The client doesn't like our answer so I think she may be looking for another provider. It is her decision. Belgarath, thanks for the links! I had found the IRS newsletter, but not the charitable planning link, so I do appreciate it.

All of the deposits in question actually occurred in 2013. Any that occurred in 2014 have already been counted towards 2014.

Does anyone know where I can get a copy of Rev. Ruling 80-155? A client dumped a whole bunch of money into her plan in 2013 and now is upset that we are allocating all of it towards 2013. It is a cross tested plan, so the principals reach their 415 long before the entire amount is allocated, so the NHCE end up getting a really large profit sharing to use up all of the deposits. The deposits do not exceed the 404 deduction limit. She is the kind that need the source material, so from what I can find, Rev. Ruling 80-155 is what I need to send her. I can only find a couple of IRS items that reference 80-155, not the actual text itself. The plan document says that participants are limited to 415, and if the 415 excess is due to a discretionary employer contribution, that the contribution is simply limited to not violate 415 for those participants. If not Rev Ruling 80-155, then some other good source material? Thanks!

I have a similar situation - the client has a 401(k) Safe Harbor (3%) cross-tested plan, paired with a Cash balance. This year the testing happens to blow up and large contributions are needed to the NHCE as profit sharing because of the benefit provided in the CB plan. the actuary wants to do a corrective amendment under 11(g) to add in a recent hire who is younger and would improve the required contribution to pass testing quite a bit. I have reservations about this since the 401(k) plan is safe harbor. Do others think the 11(g) amendment would be permitted in this circumstance?

Thanks ESOP guy, sounds like your experience is in-line with what I thought was common. The distribution question is one that came up already, but I don't have an answer to as to how involved they are in that process. Could someone correct me if I'm wrong, but I thought part of the audit process was to look at the plan's processes and procedures, including those of the service providers, hence the need for a SAS70 or processes/procedures questionnaire in lieu of a SAS70. In this circumstance, wouldn't the CPA be auditing its own firm's practices as they relate to services on the retirement plan? The CPA firm is a good sized local company, not tiny, but even if there is clear delineation between departments, I don't see how that makes it independent under the DOL rules. There would be a huge chance for bias, and inadvertent partiality, no? Am I misunderstanding the processes/procedures portion of the audit? Maybe the SAS70/questionnaire doesn't actually do much good? I am probably beating a dead horse.

Has anyone seen any guidance from the DOL on what "financial records" means as it relates to item 3) in the DOL bulletin on independence? http://www.gpo.gov/fdsys/pkg/CFR-2011-title29-vol9/pdf/CFR-2011-title29-vol9-sec2509-75-9.pdf I've been reading some of the material here: http://www.aicpa.org/interestareas/employeebenefitplanauditquality/resources/accountingandauditingresourcecenters/auditorindependence/pages/auditorindependenceresource%20center.aspx and it seems the AICPA might take a rather narrow view of what financial records means. But I am not a CPA, so maybe this is typical? A plan is looking to bid out its TPA services, and one of the companies submitting a proposal is the CPA firm that provides the IQPA services for the plan since it is audit sized. The plan is wondering if it is a problem that the auditing firm would also be the firm to provide administration services. The TPA firm has clarified that they would not be providing recording keeping, just things like 5500 preparation, compliance testing, distribution assistance, etc. Maybe I am over thinking this. but I was wondering if I could get people's thoughts since in my experience small TPA firms shy away from providing audit services and small CPA firms shy away from providing TPA services on plans that they audit, because it violates the DOL rules. Can anyone clarify?

Thanks for the suggestions, particularly Effen, for the explanation. I don't know what the client will go with, just want to make sure whatever it is, that it will actually work.