Tom Poje

on old money, it doesn't matter how many years the person had. the old money is a protected benefit. the IRS example is provided below. when the vesting rules switched for match a few years ago, I thought the rule was you could track the vesting on old money under old rules and new money under new rules. Example 4 (A) Employer O sponsors Plan D, a qualified profit sharing plan under which each employee has a nonforfeitable right to a percentage of his or her employer-derived accrued benefit based on the following table: ------------------------------------------------------------------------ Completed years of service Nonforfeitable percentage ------------------------------------------------------------------------ Fewer than 3.............................. 0 3......................................... 20 4......................................... 40 5......................................... 60 6......................................... 80 7......................................... 100 ------------------------------------------------------------------------ (B) In January 2006, Employer O acquires Company X, which maintains Plan E, a qualified profit sharing plan under which each employee who has completed 5 years of service has a nonforfeitable right to 100% of the employer-derived accrued benefit. In 2007, Plan E is merged into Plan D. On the effective date for the merger, Plan D is amended to provide that the vesting schedule for participants of Plan E is the 7-year graded vesting schedule of Plan D. In accordance with section 411(a)(10)(A), the plan amendment provides that any participant of Plan E who had completed 5 years of service prior to the amendment is fully vested. In addition, as required under section 411(a)(10)(B), the amendment provides that any participant in Plan E who has at least 3 years of service prior to the amendment is permitted to make an irrevocable election to have the vesting of his or her nonforfeitable right to the employer- derived accrued benefit determined under either the 5-year cliff vesting schedule or the 7-year graded vesting schedule. Participant G, who has an account balance of $10,000 on the applicable amendment date, is a participant in Plan E with 2 years of service as of the applicable amendment date. As of the date of the merger, Participant G's nonforfeitable right to G's employer-derived accrued benefit is 0% under both the 7-year graded vesting schedule of Plan D and the 5-year cliff vesting schedule of Plan E. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a) and violates section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits with respect to G and any participant who has fewer than 5 years of service and who elected (or was made subject to) the new vesting schedule. A method of avoiding a section 411(d)(6) violation with respect to account balances attributable to benefits accrued as of the applicable amendment date and earnings thereon would be for Plan D to provide for the vested percentage of G and each other participant in Plan E to be no less than the greater of the vesting percentages under the two vesting schedules (for example, for G and each other participant in Plan E to be 20% vested upon completion of 3 years of service, 40% vested upon completion of 4 years of service, and fully vested upon completion of 5 years of service) for those account balances and earnings. [Treas Reg §1.411(d)-3(a)(4) example 4]

this is the actual ASPPA Q and A from 2002 Is a discretionary profit sharing contribution for the prior plan year that is deposited after the end of the prior plan year included in the top heavy determination for the current plan year? Let’s say we have a calendar year plan, effective several years ago. We are determining the plan's top heavy percentage for the 2002 plan year. The determination date is therefore 12/31/01. The employer makes a contribution in February, 2002, which is allocated and deducted as of 12/31/01. There is a question as to whether this contribution is included in the top heavy determination for the 2002 plan year. The question relates to Q&A T-24 of the 416 regulations, which says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. A. The key phrase here is “account balance”. The participants’ account balances, as of (say) 12/31/01, include the profit sharing contribution that is allocated and deducted for the 12/31/01 plan year end. So the guidance regarding “adjustments” does not apply to the receivable profit sharing contribution; it is already part of the participants’ account balances. The following is my analysis: The question as to what contributions are considered due on the determination date is determined under §1.416-1, Q&A T-24, which says that it “is generally the amount of any contributions actually made after the valuation date but on or before the determination date”. It then goes on to say that any amounts due under §412 are considered due, even if not made by the determination date. One could take the position that this is a exclusive statement; in other words, if a contribution is NOT due under 412 and is made after the determination date, it is not considered 'due'. However, the answer to the question (T-24), “How is the present value of an accrued benefit determined in a defined contribution plan” is answered, “the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions...” The term, "the account balance" includes contributions credited to the account of a participant, it does NOT mean only the contributions actually made that have been credited. For example, if a 100% vested participant terminated after the determination date but before the contribution was actually made, the distribution would include that contribution, even though it had not yet been made to the plan. This is because the account balance, as of the last day of the plan year, includes the contribution. So, when the regulation addresses adjusting the account balance for contributions made after the determination date, we must start with the account balance, and then apply the adjustments. Since the account balance includes the receivable profit sharing contribution, the adjustment does not refer to the receivable. The reference to §412 in §1.416-1 is with regard to a waived funding deficiency that is not considered part a the participants' “account balance”, as the term is defined. Q&A T-24 refers to a DC plan with a waived funding deficiency that is being amortized. Such a plan must maintain an “adjusted account balance” (reflecting the amount of the contribution that has not been deposited) which must be maintained until the actual account balance increases to the point where it equals the “adjusted account balance”. It is to this (unadjusted) account balance that the (waived) contribution must be added, since the amortized contribution only becomes a part of the actual account balance as it is paid to the plan. The requirement therefore has the effect of determining top heavy status as though the contribution required under 412 had actually been made. In other words, the “account balance” would not include the waived minimum funding contribution, so an adjustment is required. IRS response: We accept this analysis.

amend the plan to make that ee eligible. per EPCRS. see appendix B 2.07(3) interesting, the IRS made a typo and the paragraph heading is (3) Early Inclusion of Otherwise Eligible Employee Failure I think that should be 'ineligible' rather than 'eligible' full text can be found at: http://www.irs.gov/irb/2006-22_IRB/ar13.html#d0e2927

It still boils down to what date range you put on the 5500. regardless of whether the plan terminates. this would hold true the first plan year (if you chose an effective date other than the normal full year), if you amended the plan year (e.g. to match your fiscal year), or to the date assets were paid out.

by law, if a participant recives any non elective contribution then they must also recevive the gateway. if your document does not contain the gateway language, then you would have to put in a corrective amendment to bump the individual up to the gateway. if you are past the deadline for a corrective amendment then....

not according to 1.401(m)-1(f)(6) employee contributions .....any contribution...that is treated as after-tax employee contribution 1.401(k)-1(a)(2)(ii) adds A designated Roth contribution is not treated as an after tax contribution...

its in 1.410(b)-5(d)(3)(i) ..."All plans...." 1.410(b)-5(d)(5) ...."if all plans .... 1.410(b)-5(d)(6)(ii) ....and adding it to the allocation rate for the 401(k) plan...

ah ha. if you change your situation from 3 yr cliff and 5 yr graded to 5 yr cliff and 7 yr graded you have the example provided in the regs I mention this because even those who have less than 3 years of service are still deemed to have a protected benefit - old money has to be protected with the old vesting schedule. in your particular case it is a moot point since their is no old money, but it is food for thought. Example 4 (A) Employer O sponsors Plan D, a qualified profit sharing plan under which each employee has a nonforfeitable right to a percentage of his or her employer-derived accrued benefit based on the following table: ------------------------------------------------------------------------ Completed years of service Nonforfeitable percentage ------------------------------------------------------------------------ Fewer than 3.............................. 0 3......................................... 20 4......................................... 40 5......................................... 60 6......................................... 80 7......................................... 100 ------------------------------------------------------------------------ (B) In January 2006, Employer O acquires Company X, which maintains Plan E, a qualified profit sharing plan under which each employee who has completed 5 years of service has a nonforfeitable right to 100% of the employer-derived accrued benefit. In 2007, Plan E is merged into Plan D. On the effective date for the merger, Plan D is amended to provide that the vesting schedule for participants of Plan E is the 7-year graded vesting schedule of Plan D. In accordance with section 411(a)(10)(A), the plan amendment provides that any participant of Plan E who had completed 5 years of service prior to the amendment is fully vested. In addition, as required under section 411(a)(10)(B), the amendment provides that any participant in Plan E who has at least 3 years of service prior to the amendment is permitted to make an irrevocable election to have the vesting of his or her nonforfeitable right to the employer- derived accrued benefit determined under either the 5-year cliff vesting schedule or the 7-year graded vesting schedule. Participant G, who has an account balance of $10,000 on the applicable amendment date, is a participant in Plan E with 2 years of service as of the applicable amendment date. As of the date of the merger, Participant G's nonforfeitable right to G's employer-derived accrued benefit is 0% under both the 7-year graded vesting schedule of Plan D and the 5-year cliff vesting schedule of Plan E. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a) and violates section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits with respect to G and any participant who has fewer than 5 years of service and who elected (or was made subject to) the new vesting schedule. A method of avoiding a section 411(d)(6) violation with respect to account balances attributable to benefits accrued as of the applicable amendment date and earnings thereon would be for Plan D to provide for the vested percentage of G and each other participant in Plan E to be no less than the greater of the vesting percentages under the two vesting schedules (for example, for G and each other participant in Plan E to be 20% vested upon completion of 3 years of service, 40% vested upon completion of 4 years of service, and fully vested upon completion of 5 years of service) for those account balances and earnings. [Treas Reg §1.411(d)-3(a)(4) example 4] (I have this handy only because I have to update a book, and this was in the final regs issued Aug 9, 2006 so I am readily aware of it!)

well, my guesses on the songs are as follows 80 My favorite ornament is broken 81 christmas carol 82 birthday of the king 83 old fang nine auld lang syne 84 ding dong merrily on high (King Kong is the rhyme) I had no clue but the one guy in the office suggested 85 hard candy christmas? (candy canes are in the picture????) 86 here comes suzy snowflake 87 over the river and through the woods 88 youre a mean one 89 visit from saint nicholas?????? 90 christmas in caribbean 91 santa needs a vacation (looks like he is on vacation already) 92 carol of the birds 93 from the eastern mountains 94 man with all the toys?????? 95 maker of the sun and moon 96 while shepherds watched 97 decorate the cristmas night 98 born on earth divinest child (or any of the other titles that mentions a bay) 99 caroling with elves 100 all my heart this night

if you only have 1 plan, then they would be 0% which never helps. based on Andy's comment (bottom statement) - it sounds like he was thinking suppose there were 2 plans plan 1 gave x% plan 2 gave y% to the divsion (rather than 0) in that case, the ees in the division in plan 2 would still be 0, unless you permissively agregate the 2 plans, and then you would count the y%. but I don't think that relates to your question. its getting near Christmas, Andy needs time off............??????

fascinating. the puzzle downloaded 29 times more than the sheet providing titles to choose from. I would never have solved (much less heard of) something like Christmas in Texas. but then, you people are better at these than I am, apparently.

if the document says 'use calendar year election' then you would use the comp from 1/1/05 - 12/31/05 and 95,000 as the limit.

there is something called a one-time irrevicable waiver, but according to your comments the plan has existed for 10 years, so it is a little late for that. if plan has a last day provision, then you could amend the plan to exclude the individual from the discretionary profit sharing, but that is about the only way I know how to handle it. if there is no hours requirement or last day provision, then the person in question has already accrued the money. If there was a way to do it, I would be more than happy to accept the money, but I don't think you can do that either.

well, I am looking at a copy of the Thompson/RIA book (which is simply a reprint of the Code and the Regulations. - no commentary, nothing extra) or you could use CCH, which is the same the same thing. I imagine there are others. I was not referring to any of the Pension Answer Books or the ERISA Outline Book. sorry about that - I certainly didn't mean to be confusing

that might not be true any longer. I vaguely recall an ASPPA session that said since deferrals no longer are counted toward the maximum deduction, you can't use ees who get no other contributions. but it is after my 4:15 limit on a Friday as well, so I am not about to try to look that up at this point in time.

I'd recomend getting a new book! 1.401(a)(4)-12 was amended way way back (TD 6/29/2001) the last sentence now reads The applicable mortality table under section 417(e)(3)(A)(ii)(I) is also a standard mortality table.

speaking of eating during the game, back in 1967 the Tigers had a player named Gates Brown. he was eating hot dogs during the game, which was against the manager's rules. this would include a fine if you got caught. He got called on to pinch hit, and in order to avoid getting caught stuffed the food in his pants. got a hit off the wall, slid into second with a double, stood up to brush himself off and there was mustard stains all over his uniform.

last sentence of 1.401(a)(12) definitions of Standard Mortality Table

when Janet says 'coverage', I think she is referring to BRF, which could fail the effective test, since, in effect, few NHCEs may be able to defer amounts above 4%

WDIK- more like I never heard of many of them, but how can you solve the puzzle without knowing them? in fact one of the answers wasn't on the list - last year I wrote the guy who put the thing together and he corrected that problem.

interesting, puzzle downloaded more often than the helpful list of songs to choose from. I would have hoped the two would have been equal!

this is a repeat of last year's puzzle, but now there are 21 new pictures to identify. (last year had 80, and #80 has changed) in all fairness (who me?) I have included the answers on sheet 3 of the excel sheet for the first 79. those didn't change from last year (or at least as quick an eyeball I gave them. a list of 180 Christmas songs from which to make your selection. 100 'pictures' to identify. ho ho ho.

here is the notice. it is 2006-107, not 2007 of course.

at the ASPPA conference this year, Q and A #6 pertaining to DC plans, it was indicated that a QNEC can not be used for gateway e.g. perform triple duty (unless the plan was safe harbor). I have always been unclear on that, would have leaned the other way, but that shows what I know about some of that stuff. of course IRS statements at such conferences do not necessarily represent an exact position. once the NHCE receives a QNEC, then she has received a nonelective, so gets involved in the gateway. and based on the IRS statement she would have to get the gateway in addition to the QNEC. as for testing involving QNECs, you have to run one test with QNECs and another one excluding QNECs. I am not sure whether the system does that yet or if that is the next update. read something about Relius doing that, but I don't remember if its 11 or 12(whenever that may be released) I think, since she had less than 500 hours, when you test nondiscrim excluding QNEC, you could exclude her. When testing with a QNEC she would have to be included, but maybe plan would pass using allocation method and so gateway wouldn't be an issue. well, I think that is how it would work, but I haven't worked on any plans that actually end up with a QNEC, so I could be wrong. you definitely have to run two tests, but what happens when one person is not eligible for the profot sharing or top heavy is unclear. as for who is benefiting, if ee received QNEC then they are benefitting.

one possible set of changes would be http://www.irs.ustreas.gov/pub/irs-tege/lrm_crosstest.pdf but that might depend on the type of document since this is an LRM