Dalai Pookah

The auditor merely asked for copies of the participants' driver's licenses to verify birthdates. I remarked that this must be a new requirement, since no auditor has boldly, gone there before.

For the first time, in an IRS audit, the auditor requested copies of participants' drivers licenses to verify dates of birth. Has anyone else experienced this? While this is a creative way to verify DoB, it seems to be sort of an itrusion as I don't berlieve most employers capture this information. They may visually verify the license when completing the I-9, but not capture the image. Just curious to see if this is a new ask, generally, or merely confined to one office.

The question is whether one can wait until NRA to get a step-up in vesting. The Basic Pre-Approved Document (relevant to this question) says must be employed at the time of reaching NRA. The regs only refer to a participant reaching NRA to become 100% vested. In my almost 50 years of dealing with this, I never understood that employment was a predicate. Now it seems that view was mistaken.

I've been posed a similar question recently and the regulations do not seem to provide a clear answer. Here, NRA is the later of 65 or the fifth anniversary of participation. Someone leaves at age 66 and after her third anniversary of participation. The question is whether she becomes 100% vested upon reaching her NRA. The only logical thing I can point to is the pre-approved (FIS) document, which defines Normal Retirement Age: "Normal Retirement Age" means the age elected in the Adoption Agreement at which time a Participant's Account shall be nonforfeitable (if the Participant is employed by the Employer on or after that date). Logic says that the IRS would not allow this in a pre-approved document, if it were contrary to the regulations. (I apologize for using IRA and Logic in the same sentence.) I find nothing in any regulation that makes this distinction.

And if that were the only NHCE? So we have to correct the ADP test first. This would be, potentially, a QNEC of 64% of applicable compensation. Same if none of the eligible NHCEs deferred.

The plan is now SH. Only dealing with 2020 and the cost of correction. Maybe a suggestion to revise §401(k)(3) to the effect that if the ADP of the NHCEs are greater than say 6.5%, then the ADP test is satisfied. [Typically, the 402(g) limit divided by the 401(a)(17) limit is roughly 6.7%] This may be the 401(k) equivalent of the Rule Against Perpetuities.

Thanks, Corey. I'm aware of the MDO. I'm focused on the failed ADP test. It may be that the VCP retro amendment is the only way to get a good resolution at a price of $3,000 or less. Either that or a $28,000 QNEC. It seems incongruous that you could have a situation where the NHCEs could defer the maximum and yet still fail ADP (understanding that this fact situation is not that).

Strange situation. Consider a self-employed husband and wife, each deferring $19,500 (2020) Their compensation turns out to be $65,000. Oh, and they have an employee that should have been eligible 7/1/20, but was overlooked an that was the only NHCE. It's too late for a refund, so a QNEC is required. The HCE ADP percentage is 64.93%:NHCE is 0%. 62.93% QNEC would be over $28,000. This would be higher than the §402(g) limit. My inclination would be to limit the QNEC to $19,500, but I can't be sure that this is right. A seemingly paradoxical situation is that had the NHCE deferred $19,500, it still would not pass ADP. Is there a way out of this dilemma?

That makes sense to me Lou. I don't know if it is SCP or VCP, so that question still exists. NRA62 with fully subsidized ERA would solve funding and if we don't otherwise have any VCP issues I might take the position that it is SCP correctible operation issue.

Takeover. Many issues. DB with document stating NRA age 50. This would violate §401(a)(14) and §1.401(a)-1(b)(2). We can correct late restatements under SCP, but can we also change the NRA to 62 under SCP as well? This appears to me to be a document issue, which cannot be corrected under SCP. Thoughts? Also, assuming we have to do this from inception, would we also have to redo the actuarial valuations using the correct NRA (likely resulting in some past non-deductible contributions) or just look at open years?

If a DB plan is non-compliant (either a discriminatory benefit formula or failed 401(a)(4)) may it still terminate under PBGC if the assets are sufficient? We understand that a plan may potentially be disqualified, but does the PBGC care or is it only concerned with sufficiency? Case in point floor/offset plan, but the sponsor did not correctly fund the DC plan to meet aggregated testing. They want to terminate the DB plan. We are reluctant until they get the combo compliant. They dispute the need for additional contributions to the DC plan in order to terminate the otherwise sufficient DB plan. If we warn the sponsor of consequences, will the PBGC allow the termination without regard to testing?

We have a CB plan terminating with excess assets. The CB benefits are offset by a DC plan. Upon plan termination, excess assets will be allocated in a non=discriminatory manner. The question is how we properly account for DC balances in computing the allocation of the excess assets. I would think, that so long as the allocation of the excess could be reflected in a formula that would still pass 401(a)(4), taking into account the offset, it should pass. The alternative would be to allocate assets to all participants, even those who never had a positive benefit in the CB plan due to the offset. Guidance on this seems sparse or non-existent. Thoughts?

A defined benefit plan purchased an annuity from Prudential for one of its participants. The plan is terminating and the participant is willing to either take a distribution or purchase the annuity from the plan. The annuity has a Highest Daily Lifetime 6 Plus Rider, which Prudential is saying will terminate if the annuity is transferred to the annuitant. this rider provides the major value of the annuity. Examining the rider, there is nothing to indicate that a transfer to the annuitant is not allowed. I have little experience analyzing these annuities, but it does not make sense that an annuity sold to a qualified plan would have provisions negating its provisions if the ownership of the annuity is changed from the Plan to the annuitant. This is what we expect would happen either upon termination of employment or termination of the Plan. Prudential is being opaque. They keep saying the transfer will not be allowed to maintain the rider, but will not offer language in the rider (or elsewhere) that supports this assertion. Can anyone offer insight and guidance here?

Thank you. That's what I thought, but there was precious little to confirm. I just wanted to be sure I wasn't missing anything. Belt and Suspenders (for us old timers).

This regulation, published in 1991, purports to have us consider HCEs together with those who are HCEs by attribution considered as a single HCE for purposes of 410(b). The regulation refers to §414(q)(6). §414(q)(6) at that time was removed from the Code in 1995. The regulation was not updated. We have a plan with and HCE and his two children, who are also employees, but do not benefit. For 410(b) purposes must we consider them as one HCE or can we consider 1/3 HCEs as benefiting? Please cite any references. Thank you.

That was my stumbling block. I read that clause as changing the larger paradigm, not the formula. It's still not clear, but if I can stop a match mid-year and adopt a non-elective mid-year, shouldn't it follow that I can do them back-to-back?

The question has come up whether a plan currently using a safe harbor match can mid-year amend the plan to provide for a 4% safe harbor non-elective contribution. The request is prompted by the sponsor considering adding a DB plan for the current year realizing that the non-elective form of SH would be a better fit for a combo plan. Notices 2016-16 and 2020-86 don't seem to address this specific situation. I think it should be allowed. Any other thoughts?

Plan is terminating 12/31/XXX0. Files 5310, but much later (more than 180 days after termination date) files Form 500 with PBGC. IRS approves 5310 submission, with 12/31/XXX0 termination date in XXX2. PBGC comes back and says termination date must be 12/31/XXX1 because Form 500 was filed more than 180 days after termination date. How do we reconcile this? There may be 4019a)(26) issues with the XXX1 year due to the additional of additional employees. What is the cure for filing Form 500 late? Do we need a XXX1 valuation?

We are using Relius Volume Submitter documents. The EGTRRA version clearly labelled the section 401(a)(26) and 410(b); the PPA version only referenced 410(b). I would agree that, in practice, -11g amendments are preferred. In this case, we are dealing with a frozen plan that was non-compliant with 401(a)(26) in 2010-2013. We will need VCP to correct. To me a retroactive amendment to apply the fail-safe would not lead to a question of whether the plan was unfrozen during that period, then needing to be immediately refrozen to protect SECURE Act reliance on frozen plans. (possibly TMI 😉) I couldn't find any reference in the Cumulative List or other guidance that would require this change.

The EGTRRA volume submitter DB plan had a failsafe provision that covered both 410(b) and 401(a)(26) failures. The PPA document only addressed 410(b). I couldn't find any guidance from the IRS in the Cumulative List that addressed this change. Does anyone have any cites or guidance as to why the reference to 401(a)(26) was eliminated from the VS document?

We are facing the same situation, so let me breathe life into this request? Any thoughts on how to apporach? We can contact the trustee in bankruptcy, but will that person know how to handle? After 17 years somebody must have a thought.

But could we not, in this instance, do it for the period while an ASG, and then for the period when it wasn't? That would solve any "shortness of breadth".? I would not suggest using daily testing chronically.

So, if we used the daily method under 1.410(b)-8(a)(2), we could bifurcate any benefits between those while a CG/.ASG and those after via restructuring. Admittedly, this may be difficult, but theoretically it could be worth a look.

An attorney has a P.C. (100% owed). he also owns 50% of a CPA firm with which he is associated. No doubt, this is an A-Org/FSO ASG. Sometime in 2020 he sells his interest in the CPA firm. He still works there, but is no longer an owner. Does this break the ASG in 2020? When do we make that determination? First day of the year? Last day of the year? Any day of the year? I don't see any guidance on this. If this were a controlled group issue, does the determination date differ?

I will agree to disagree with the discourse above. the benefit to the client is that as a fiduciary he is not wasting plan assets on long-term insurance contracts for the benefit of largely non-long-term employees. Belgarath makes the point that the odds of finding identical provisions in different contracts rather poor. So, this escalates the question to not be limited by whole life/term, but rather if I buy contracts from two different companies or if the original contracts are not being offered by the same company. Someone may want to split hairs on a specific provision, but if we could treat the essence of life insurance as fungible, then it is hard for me to see, practically, what the offending BRF might be. Thanks to all for the insight. Thank you to QDROphile for the compliment. Moving on to a thornier issue in the same vein, in a combo CB/401(k), could the insurance be purchased in the DB plan for all participants, even though not all employees participate in the CB plan? This would avoid the issue of creating a separate insurance premium bucket in the DC plus taking into account that most DC documents do not handle this situation elegantly (neither do most DB/CB documents). If we had to draft individually designed language, where would you go. To complete the circle, could you freeze the purchase of new policies at any point (could raise discrimination issues) or would a plan have to divest itself of the insurance?