JJRetirement
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Everything posted by JJRetirement
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401(k) plan terminating 12/31/16. They have a Volume submitter document based on 2010 Cumulative list. We will update for everything on 2015 cumulative list, but of course there will be no 2016 Cumulative list. Can anyone think of amendments that might be required as of Termination Date that are not on the 2015 list? Thanks.
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That design won't meet the minimum match requirements for a QACA. It isn't enough that participants who contribute 7% of compensation receive the 3.5%. You have to match (at least) 100% of the first 1% and then 50% of the next 5. In the proposed design, a participant who contributes 1% will only get half of the match that is required for a QACA.
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Rollover to IRA fbo Trust
JJRetirement replied to luissaha's topic in Distributions and Loans, Other than QDROs
"No can do, while the beneficiary of an IRA can be a Trust the owner of an IRA can only be an individual." I don't think this is true. A trust cannot be a "designated beneficiary" under the 401(a)(9) minimum distribution rules, so the 5 year rule would generally apply for RMD purposes (unless meets requirements for a see-through trust, in which case the trust beneficiary's expected lifetime could be used-- with many exceptions and variations on the rules for sole spouse beneficiaries, multiple beneficiaries, etc) But that doesn't mean that a trust can't be the beneficiary of the IRA or a qualified plan. It may mean that using a trust as a beneficiary often isn't a good idea. -
Has employee terminated employment?
JJRetirement replied to JJRetirement's topic in Governmental Plans
Thanks rcline46 for that thought. In this case, no one is looking to transfer any credits or assets from one plan to another. The current issue is determining whether she could have started pension benefits from the City plan while working for the Board of Ed. My instinct is that even though she isn't working directly for the City when she is teaching, it's still the same Employer ( in a good faith interpretation of controlled group rules as they might apply to a governmental employer) so she needs to wait until she retires from teaching to claim her City benefits. I was hoping for some legal authority or even informal statements from the IRS about this to back up the logic (as I see it), but haven't found anything on point. -
Refund of employee contributions - Defined Benefit Plan
JJRetirement replied to tja's topic in Governmental Plans
Coincidentally, this is closely related to a question I just posted on termination of employment for a governmental plan. I think the definitely determinable regulation and the old rev. ruls. on which it was based does apply to governmental plans, so that in-service distributions wouldn't be permitted before the earlier or 62 or NRA even if the plan were amended to permit them. So I think the question of whether the employee is still employed needs to be answered (unless the participants in question are old enough to qualify for permitted in-service distributions). -
An employee was working for City A and was covered under a union contract hat provided she was an eligible employee for purposes of Plan X (a defined benefit plan). After ten years of service, Employee became a certified teacher and took a job with the Board of Education for (same) City A and is now covered under a statewide retirement system for teachers of State S and no longer an eligible employee for Plan X. Assume that her last day of work with the City was on Friday and she started teaching in the schools of City A on the following Monday. Did this employee terminate service with City A when she became a teacher or has she continued to work for the same employer and just stopped being eligible for Plan X? Must she wait until she retires as a teacher (totally leaving employment with City A or its Bd of Ed or any other subdivision or related employer) in order to commence benefits? The plan does not permit in service commencement of benefits. The plan (which is based on statutes, ordinances and collective bargaining agreements) has very imprecise language so it's really not helpful at all in determining whether or not she terminated employment. If anyone can point me to guidance on how to determine separation from employment or application of controlled group rules as may be applicable to governmental plans in such a case, I would be appreciative. Thanks!
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Very confusing item on form 5307
JJRetirement replied to Trekker's topic in Retirement Plans in General
What did you decide to do with item 3f? I have a few 5307 volume submitters to file and can't figure out how to handle this question. What about plans that have had no amendments (other than the interim amendments that were submitted last time around but not considered in the DL because they weren't on the 2004 cumulative list). There is at least one modification to the VS language, so they should be eligible for 5307, but no discretionary amendments since last letter. Also, what about plans that have discretionary changes that are included in the new restatement (rather than in a separate amendment between restatements). Should the chart list the restatement as an amendment? This question doesn't make sense to me. -
401(a)(17) Governmental Grandfather rule
JJRetirement replied to JJRetirement's topic in Governmental Plans
Sorry - I should have been more specific. I am referring to the special transition rule for eligible participants in governmental plans as set forth in regulation 1.401(a)(17)-1(d)(4)(ii) [rather than the more generally applicable grandfathering accrued benefits based on the pre-OBRA '93 limit]. Under this rule, "if the plan as in effect on July 1, 1993, determined benefits without any reference to a limit on compensation, then the annual compensation limit in effect under this section will not apply to any eligible participant in any future year." -
This is related to a question I posted recently under Defined Benefit plans. Client recently discovered a few participants who appeared to have exceeded compensation limit. Each of these participants was participating prior to 1/1/96, and the plan had no compensation limit in effect on 7/1/93. The plan was amended back in 1995 (the TRA 86 restatement) to incorporate the limit effective 1/1/96 for all participants. Did the grandfather rule for eligible participants need to be set forth in the plan document for the plan to be able to use it?
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Unfortunately, 401(a)(17) is applicable to governmental plans. I don't think it comes up much because so few governmental employees run up against the limit. It was unexpected in this plan, but it happened in a few unusual cases. We aren't planning to utilize VCP for this, but there isn't any overall prohibition for governmental plans to use VCP. I know that correction for governmental 457 plans is only available outside of EPCRS, but in this case, it's a traditional defined benefit plan qualified under section 401(a) that has the error.
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It was discovered that a few participants in a governmental defined benefit plan had compensation over the 401(a)(17) limit. Benefits were within 415 limits. This resulted in an overpayment for a few participants who have retired but also in employer pick up contributions that were higher than they should have been. There seems to be a good amount of guidance (including last year's revenue procedure) and opinion out there on how to correct the overpayment. BUT How can the pickups be corrected? Assume that they involve years prior to 2015. My immediate thought was that the appropriate correction would be to 'forfeit' under the plan - meaning the employee would not have credit for them - which in this case really boils down to whether contributions would be paid out to a beneficiary if the participant died before receiving annuity payments at least equal to his or her contributions. Then the "Employer", in this case the municipality, would need to make the employee whole for the deduction that was taken from pay in error. The payment to the employee would be reported on a revised W-2 for each applicable calendar year, and the employee would need to re-file taxes for those years. Is there a better (easier) answer? Something that doesn't involve re-filing individual income tax returns? Also, could it be possible - consistent with EPCRS principles - to offset the overpayment by the over-contributions? For example, the plan overpaid you $5000, but you overpaid the plan $2000, so you need to pay back $3000 to the plan. Errors are very small relative to the plan size and involve only a few plan years. The intention is to self correct, not to submit under VCP. (It's understood that the plan wouldn't have reliance on the correction method without VCP compliance statement.)
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Thanks. I need to submit a streamlined VCP tomorrow to correct for late adoption of an interim amendment. We have an operational error we are also working to correct, but it's not ready to submit. The fee for the first is $375 and the fee for the second is $10,000. We aren't too concerned about the extra $375 as long as we get the amendment corrected by the end of the RAP when we submit our 5300, and we are still eligible to correct for operational error.
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Is there anything that prevents a plan from submitting a VCP for an operational error while a VCP for a nonamender failure is pending? The plan isn't "under examination" according to the definition in EPCRS.
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Just wondering - when submitting form 5300 for Cycle E, are you submitting new IRS reference lists that are encouraged but optional? They don't seem particularly useful - most of the items seem to be N/A, either not applying to the DB plan I am submitting or not requiring an amendment at all for anyone.
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I'm not sure that there has been guidance that specifically answers your question. Under Rev. Proc 2013-12, section 6.05(2)(a), a determination letter application is required because you are correcting an operational failure by plan amendment during an "on-cycle" year based on the 6 year cycle for pre-approved DC plans. But if the plan is a M&P plan or a word for word adopter of a VS plan, you are correct that you can't submit on 5307. I fear that the answer may be that you need to file a 5300, and the plan would be reviewed using the current cumulative list. You raise another potential issue- Was the contractual provision a one-time irrevocable waiver to not participate in any qualified plan? That would be a stickier situation than failure to exclude someone in an excluded category identified by something like job title.
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What kind of retroactive amendment are they requesting? Is it to correct an operational error, is it a late interim amendment? Would it change the pre-approved language so that the plan would not be a word for word adopter?
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I'm sure this has been discussed before, so if someone could point me to earlier discussions, I would be grateful. I know that 'retire' isn't defined under the 401(a)(9) regulations. Is there any guidance out there that might help determine whether someone who has greatly reduced his work schedule and responsibilities has retired for RMD purposes? He hasn't ever stopped working for the employer completely and has no plans to stop. Thanks
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I think I have the correct answer to this, but getting it wrong would be costly, so I'd appreciate other opinions. Is a cycle E restatement and submission for the following plan timely if complete by 1/31/16 (cycle E)? For EGTRRA, Plan X was Cycle E plan based on employer EIN. Plan X applied for and received Cycle E letter for EGTRRA. MERGER #1 In 2012, sponsor merged into another organization with EIN ending in "4". So post-change, applicable cycle is D. (Not sure of the merger date within 2012, but this shouldn't matter because neither D nor E was open or expired at any time in 2012). MERGER #2 1/1/15, sponsor merged into another organization with EIN ending in "0". Pre-change cycle is D Post-change cycle is E Unless one of the exceptions in section 11.03 of Rev. Proc. 2007-44 applies, then the post-change cycle (E) will be the applicable cycle. Consideration of 11.03 exceptions... (1) N/A Post-change cycle is not open (2) N/A Post-change cycle has not expired (3) Post-change cycle (E) ends later than the pre-change cycle (D) and and pre-change cycle (D) is open (yes), the plan is permitted to treat the pre-change cycle as the applicable cycle. This sounds optional to me - meaning there is also an option to use the post-change cycle. (4) N/A pre-change cycle is not expired (5) N/A one of the cycles is currently open I think the plan is now cycle E plan again and will be in compliance if restated by 1/31/16 in accordance with the 2014 cumulative list. We intend to file for a letter. The plan could have elected to use Cycle D, but wasn't required to. Anyone disagree? Input appreciated!
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VCP fee paid from plan assets
JJRetirement replied to JJRetirement's topic in Correction of Plan Defects
Thanks Peter. I really appreciate the input. The municipality has agreed to pay the fee. Although the plan is 'administered' by a board of trustees that is (at least arguably) separate from the municipality, this was really an error in permitting ineligible employees to be enrolled. The enrollment process is handled by city employees. -
For a non-ERISA (governmental) plan, can anyone point me to published guidance that would indicate that payment of a VCP fee from the trust would violate the exclusive benefit rule (or for another reason would not be permitted)? I've always understood that correction expenses should not be paid from plan assets, but I am having trouble documenting that. Thanks! I do see in the IRS manual that if there is an indication that the compliance fee check came from plan assets, that the application will not be reviewed until it has been demonstrated that the plan has been reimbursed. This is EPCRS policy, but is it grounded in law?
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X, owner of company A (with no employees) has maintained a defined benefit plan P for 4 years. Exempt from PBGC coverage as plan that exclusively benefits substantial owners. Plan P is substantially overfunded. X also owns (enough of) Company B so that A and B are under common control. Company B was established 7 years ago, but first had employees in 2013. in 2014, total of 6 employees with at least one year of service. After looking at controlled group, X is informed by his actuary that Plan P fails 401(a)(26) for 2014 and 2015. Surprise! I am expecting that an 11(g) amendment to extend eligibility to three employees of company B will be the correction for 2014 failure. Coverage and nondiscrimination will be tested based on controlled group assuming retro amendment was effective 1/1/14. Required contribution and max deduction will not be changed to reflect amendment. Along with the thousand other questions running through my head on how to best help X with this issue, What happens with regard to PBGC coverage for 2014? Plan P will no longer be exempt. Do they need to pay premium for 2014 based on retro amendment? Other facts: Plan P frozen effective mid year 2014. X would like to terminate Plan P and possibly establish a qualified replacement plan (DC) to which it would transfer excess assets and avoid reversion. So bringing more people into the DB will likely result in accrual of small benefits that would end up being fully vested.
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Reportable Event After Plan Termination Date
JJRetirement replied to JJRetirement's topic in Plan Terminations
As I recall - and it was quite a while back now, the termination premiums were not paid and the company ended up filing for bankruptcy in the end. There was no notice specifically provided to PBGC of any reportable transaction in connection with the sale of assets of the company. The sale was conducted within the bankruptcy proceedings and PBGC as a creditor received notices throughout the process. -
I posted this issue in EPCRS and didn't get a response so I'm trying again here. Governmental employer with a defined benefit plan that includes mandatory employee contributions picked up by the employer. Handful of employees in an excluded class have been erroneously treated as eligible and pick-up contributions have been made for them for many years. How can we correct? (The employer will need to pay social security taxes for these employees, so we don't want to do a retro amendment to include them in the plan. This would also require a VCP since this isn't early inclusion of otherwise eligible employees) Thanks!
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Client is a municipal plan who recently discovered that a few employees who should have been excluded has been making employee contributions. One employee has been erroneously included for about 15 years and the others for less time. Mandatory employee contributions have been picked up by the employer since 2003 and were after tax prior to that. Note: This is not an early entry of an otherwise eligible employee - this employee would never become eligible for this plan. Can the plan distribute the contributions to the employee to correct? Can this be done under SCP (assuming insignificant failure) or would a VCP application be required? Would the distribution be taxable in the year distributed as an excess amount or be taxable in the year in which each contribution was made? I am not aware of any formal guidance that addresses this issue specifically. However, I have read the transcript of an IRS phone forum from 2/21/13 on EPCRS changes and the last question asks what should be done with 401(k) deferrals for a participant who was not eligible. Janet Mark stated that the deferrals should not be forfeited and should not be treated as excess amounts, but should be distributed back to the employee and the employee would take that dollar amount into his taxable income. Further, this might required that the participant file an amended tax return to take into account the deferrals. This situation seems to be analogous - so would a participant have to re-file 15 years' worth of tax returns in order for the plan to make this correction? Any thoughts are appreciated!
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I see your point. I shouldn't think of the ownership in the partnership by each P.C. as having any importance in the determination of 5% owners. Thanks.