SadieJane

Thanks, I think that's the ticket.

Does anyone know if the "high 25" rule (certain distribution restrictions to HCEs in a DB Plan) applies to a collectively bargained plan? I have an actuary who is suggesting it does not apply but am not finding any authority for that.

Upon termination of a DB pension plan, surplus pension assets may be transferred directly to the employer's DC plan to avoid or reduce the excise tax otherwise applicable under Code Section 4980. Is there any reason that the surplus assets cannot be transferred in-kind to the DC Plan? Thanks.

A client claims that some ESOPs freeze the share value on termination of employment for the terminating participant. That participant's share value/account balance would not change in the future, regardless of how long the participant waits to receive distribution. There would also be no interest credit or any other adjustment to the account balance at termination. The purported rationale is that a terminated participant should neither share in the upside of future stock increases nor bear the potential risk of share price decline in the future. I can find nothing on this. Seems dubious to me. Has anyone heard of this?

Question about the interaction between the 401(a)(17) limit and a 401(k) Plan that has one or more exclusions from its definition of compensation -- e.g., bonuses are excluded. In figuring out Plan compensation, which applies first – the Plan’s definition or the 401(a)(17) limit? Example (for 2019, in which the 401(a)(17) limit is 280,000). Total compensation is 300,000, which includes a bonus of 10,000. If I first apply the Plan’s definition and then apply the limit: compensation is 290,000 and compensation for the Plan is the lesser of 290,000 and 280,000, so: 280,000. If I first apply the limit and then apply the Plan’s definition: compensation is the lesser of 300,000 and 280,000, so 280,000, then back out the bonus, so comp would be 270,000. I have looked for guidance/authority and the only thing I have found so far is one ASPPA Power Point that says apply the Plan’s definition first, then apply the limit, but no citation for that. Anyone?

Does anyone have experience with 'post-Appeals mediation' with the IRS? I am wondering if the mediation might possibly result in over-turning the Appeals Office position altogether or would it only be likely to reduce the liability assessed by Appeals (or affirm the Appeals position).

The DOL penalty for failure to distribute auto enroll notices is $1700 per participant per day, if I am reading things correctly. This failure is not eligible for relief under the Voluntary Fiduciary Correction Program, so was hoping to find an overall penalty cap, at least. Is anyone aware of a cap on this penalty? Since VFCP is not available, simply provide the notices ASAP, include the error as an operational error in a VCP, and hope for the best?

Regarding Code Section 409(p) “prohibited allocations.” An S Corp ESOP provides that HCEs who are disqualified persons for 409(p) purposes (or reasonably likely to become disqualified persons) are not eligible for the annual ESOP allocations. This helps the Plan with 409(p) compliance. Can the Plan Sponsor give an HCE affected by this provision a taxable bonus, in an amount equal to what would have been the ESOP allocation, without any effect on the 409(p) test? The Plan Sponsor could not provide for the allocation under a different qualified plan (it would be treated as an allocation under the ESOP, affecting the 409(p) test), but if it is a taxable bonus—no tax-deferral element at all—thinking it might have no impact on the 409(p) test. Thoughts?

Good point...although who does the work of explanations/claims procedures steps when the Social Security Administration is the entity making the decision? (sincere question, not sarcasm)

For retirement plans that provide a benefit due to disability (e.g., accelerated vesting, earlier distribution than otherwise available) ...many employers would prefer to avoid the new disability claims Regulation, if possible, but may not find it practical to leave the determination to the SSA or an LTD carrier. What your thoughts on whether the following would work. Amend the plan to provide that a licensed physician will make the disability determination; the physician would be presented with the Plan's definition and would have to certify the individual satisfies that particular definition. Plan Administrator will not take any action other than confirming that the certification has been signed by a physician. In this scenario, is the Plan Administrator sufficiently removed from the determination process such that the disability claims Regulation does not apply? There are several related issues. Does the answer differ if the plan provides that the physician must be acceptable to the Plan Administrator (a common term and one that is often preferred by employers)--meaning would this approach work but only if the Plan Administrator has no discretion as to the physician? Does it matter if the plan is a qualified plan or a non-qualified plan (both are subject to the claims Regulations)? Some plans use this approach if the sole reason for a disability determination is whether there is a disability for purposes of a "qualified distribution" for Roth purposes; however, that is essentially a tax issue, not a Plan benefit issue, so the fact that it works in that scenario may or may not have relevance for the broader question. Thanks in advance.

We're seeing this issue, too. Query: If a defined contribution plan has a favorable (to participant) definition of disability and amends to a less favorable (to participant) definition, is that a 411(d)(6) cutback? I have done some research and not found anything definitive. dv13, what do you see as the disadvantages of having SSA make the determination?

I believe Form 8950 must also be submitted -- it asks for dollar amount of Plan assets and number of participants.

SIMPLE IRA arrangements may use the VCP Procedures. However, some items on the VCP Forms seem inapplicable. For example, an employer with a SIMPLE IRA arrangement does not typically have access to the total Plan assets or the current number of Plan "participants." The employer would know the number of individuals it is currently contributing for and could, perhaps with a lot of work, aggregate all past individuals it contributed for, which still would not necessarily be the same as all current participants. The instructions do not address exceptions for SIMPLE IRAs for these items. Any thoughts other than to include an attachment saying something along the lines of 'Because this is a SIMPLE IRA arrangement, the employer does not have the amount of plan assets or the number of plan participants." ?

That was uncalled for. By definition, this correction is available only if the failure has lasted three months or less. In practice, this is typically an extra payroll cycle to get a new employee's deferral set up or an employer turning off deferrals when it is notified of a termination, with one payroll cycle to yet to pay for that employee. We're just trying to discuss how to deal with a gap in the IRS guidance.

Anyone have any further thoughts / developments on this topic? I, too, have heard the argument that if the affected employee terminates before three months is up from when the error began, the 'no-QNEC-required' correction should still be available because as of the correction deadline, the correct deferral of 0% is implemented.

The DOL comments I refer to in the OP are in informal staff comments to a May 3, 2006 ABA JCEB meeting (Q&A 5): "Staff believes that the principles set forth in [FAB 2003-3] applicable to determining the permissibility of allocating specific expenses to the account of an individual participant, rather than the plan as a whole (i.e., among all participants) would apply to QDRO determinations in a defined benefit plan. Staff noted that the Department would be willing to consider providing further guidance on this subject if specific issues were submitted and, since there may be qualification and anti-alienation issues within the jurisdiction of the IRS, the Department would coordinate with the IRS on such guidance." I personally would not rely on this, but was surprised by it. In the May 2009 JCEB meeting, they were asked if a defined benefit plan could charge for QDRO determination outside of the plan and they declined to answer but said they may consider it.

The vast majority of DOL guidance about when it may be appropriate to pass through eligible administrative expenses to the participant directly affected by the administrative action is limited to defined contribution plans. Question has come up whether you could do the same under a cash balance plan (assuming the expense is reasonable, it's reasonable to assess it to the particular person involved, etc.), which is, of course, a defined benefit plan but does have individual accounts. The only thing I can find on whether you could pass through expenses in a DB Plan is an informal DOL staff comment saying yes, specifically for the expense of QDRO administration, but would need DOL and IRS guidance on the issue. Has anyone seen any other guidance or comments on the issue?

The Instructions to Form 5500 state that an amended return should be filed to correct errors or omissions. In informal guidance or best practice, is there a materiality standard -- i.e., if the error or omission is immaterial, an amended return is not required? I realize this would introduce all sorts of subjectivity, but also hard to believe that DOL would want amended returns for inconsequential errors.

We timely filed a determination letter application but forgot to attach the user fee. What is IRS policy? Will it be treated as not timely filed? Or will they contact us with an opportunity to send the user fee?