CuseFan

So now I'm told this was a different plan versus my original question which still remains relevant - so the $64,000 question is whether the plan termination distribution date for all benefits (the ASD) is essentially a PYE and therefore creates an Interest Credit Period under the terms of the Plan? If so, then an interest credit should be provided. Does the presence of excess assets which will be transferred after all benefits are paid make a difference? Technically the plan has not ended because assets are not zero, but there is nothing on which to credit interest so does that still create a (short) Interest Credit Period. These are relevant AA items. The BPD does not elaborate other than say that the ICR will be prorated for any ICP < 12 months. 15. Interest Credit Period: a.  Each Plan Year 22. If a Participant's annuity starting date occurs before the end of an Interest Crediting Period, the Interest Credit for the partial Interest Crediting Period will be: a.  Zero I welcome any further thoughts or direct experience you may have had with this issue. Happy Friday afternoon for a holiday weekend!

Pennies! If you can find enough of them.

Thank you everyone for your input. I could see interpretation here that the earlier plan termination ASD is tantamount to the last day of the plan year and therefore requires an interest credit allocation. There are some other factors (allocating excess assets up to 415 limit) in my case that make this a moot point now that I think about it. As Emily Litella said after her diatribe on eagles' rights, "never mind."

It's a pre-approved document provision so IRS has no issue with it.

Great advice from @Paul I

CBP has fixed 6% interest crediting rate and (per pre-approved plan document selection) does NOT provide interim interest to the annuity starting date. Plan terminated, effective 12/31/2025 (also PYE) and will pay out on 6/1/2026, the ASD - there is no requirement to override the plan provision and provide interim interest (5/12 of 6%), correct? That's true even if we had to average prior 5 years of variable ICRs, yes? I see in the basic document the averaging requirement but nothing requiring an interim credit. Thanks

It isn't. DCPs must have vesting at the TH schedules or better - 3-year cliff or 6-year graded.

Agreed.

Profit sharing is likely the best option, and yes, amounts allocated for tax year 2026 would not be deposited until 2027 after 2026 is over and everyone's compensation is known. However, whether this can fix everyone depends on how the profit sharing provision is structured (plan might even need to be amended to provide) and for who and how much needs to be contributed. If anyone is a highly compensated employee (HCE) by IRS definition, such person may need to be restricted. Yes, this delays the fix, but it gives your consultant time to ensure proper construction of the provision and see if these "make-up" contributions can be accommodated this way and satisfy all the various IRS requirements. Cutting checks for these, like a bonus payment, which employees could defer into the plan might work but incurs payroll taxes (FICA and Medicare). If the plan didn't have/allow special bonus-only salary deferral elections, then to defer it all people would need to change their deferral election before that payment and change back after, kind of a hassle. Presuming your consultant knows your plan best, press him/her for guidance on this. Good luck.

That only creates a problem if you need to satisfy reasonable classification to satisfy 410(b) coverage using average benefits.

No exclusions, so you pass coverage 410(b) on ratio percentage. Need to pass 401(a)(4) nondiscrimination testing your rate groups. Rate groups for that purpose are based on your NARs and MVARs, not how they are defined in the plan for allocations. Each rate group on that basis must satisfy coverage, could be ratio percentage or could be average benefits. If you need average benefits for this, then yes, you need to hit the SH/USH midpoint.

Wow, where was the actuary all that time? Or did they not even have one? Here are my general suggestions - not formal advice. 1. Can? Yes. Should? Maybe - the filings must reflect the facts, making up the funding deficiency now doesn't erase it from those prior years. 2. Yes, a funding deficiency for multiple years will certainly draw attention. Waiting to file until they can afford to make up everything? if that's a month or two, maybe that's reasonable. I'm guessing this is a new plan that hasn't filed a 5500 yet or would have expected this to have triggered a notice with that many delinquencies. 3. 5330 has due dates tied to the year of deficiency, so a delay in filing increases interest and penalties as noted above. Again, making up now doesn't change any of this for the past, and kicking the can down the road will serve to increase interest and penalties (and my recollection is that IRS cannot waive interest). 4. 5330s are late regardless. I would file concurrently with 5500s. 5. Excise tax is 10% on the deficiency each year and can go to 100% if not corrected before IRS sends a notice. I have no idea how quickly that could come. IRS can waive the 100% but not the 10%. See IRC Section 4971. This might be reason enough to correct the deficiency first, especially if this plan isn't in the EFAST system (new/never filed). You say this is a plan with employees. That brings up a host of other compliance questions - is the plan covered by PBGC and, if so, have those filings and premiums been made? Has an AFTAP been issued for each and every year? Has the Annual Funding Notice been issued? These all carry their own ramifications and turn into Nightmare on Elm Street 3, 4 and 5. My formal advice: get the actuary, accountant and legal counsel involved ASAP.

As @david rigby said, check the plan. If she rolled to an IRA then rolling back into the plan is unquestionably OK. If she took a direct payout and taxes were withheld, without the issue of having a forfeiture restored, there aren't a lot of advantages to repaying if even allowed by the plan. There is no deduction, so it's after-tax basis with only earnings tax deferred.

I don't know why they wouldn't allow but maybe he can accomplish this by jumping through a few hoops: take a distribution via a direct rollover to an IRA, the loan would be distributed/offset but without any taxes (or cash) withheld; then come up with the cash equal to loan offset (which he wants to do) and roll that into the IRA as well (may need to provide some documentation regarding the loan offset to the IRA custodian. If he wants everything consolidated in his employer's plan, he could roll that IRA into the plan, if allowed. There would be a 1099R on the loan offset but he'd report as rolled over on tax return and rollovers are reported to IRS, so there is a trail.

Thanks @BG5150, LOL - I'm old and not as well versed in text-speak as others!

Schwab, probably the other big asset houses as well. Google pulled up some specialty firms as well that mention they specialize in outside the box investments. Good luck.

Correct.

I agree in thinking there is a problem with forfeiting the vested balance rather than debiting it for fees. However, does that then create a problem because a fee was charged for a service that was not provided (distribution processing)? Maybe the generation of a (form) letter to the participant stating because your balance was less than the distribution fee (in the words of an angry Willie Wonka to Charlie) "you get nothing!" Hence a service (letter) to substantiate a fee. If forfeitures are used to pay fees then you get to the same place, but when IRS/DOL like you to go A to B to C under their rules, they often don't take kindly to jumping from A to C. Operating Procedure? Was forfeiture a selectable option or written in? These are not in the AA or a formal part of the plan, so are they blessed/pre-approved by IRS? If not, I'd rethink the procedure.

What do you mean? Thought they were covered, filed for a determination from PBGC, found out they weren't? Or was this owner + employee = PBGC coverage then employee left (paid out or forfeited) so now owner only and PBGC-exempt? If the former, then really never covered and always 6% to avoid combined deduction limit. If the latter, covered to start 2025 and paid PBGC premiums for 2025, then I do not think the combined plan deduction limits apply until 2026 and 25% is allowed for 2025.

If that is what the document allows then you are OK and it should be applied whether person is HCE or NHCE. If HCE and lump sum is available, remember restricted employee funding related limitations.

And Happy Star Wars Day - May the Fourth be with you!

The 62 or NRA is statutory - but you say the plan uses 55, correct? I don't think there is anything wrong with that, but maybe I'd ask why they have it that way. What is the operational failure of which you speak? Are they cashing out after age 55? Not at all?

That 40 hours per month "rule" is with respect to suspension of benefits provisions, if the plan provides, where those working more than that can be "suspended" from getting their pension after NRA and where the plan need not provide actuarial increases. I'm not aware of any different treatment for owners or HCEs, and it would/should be in the plan if there was. You need to carefully read the document. You say no in-service even after NRA, but .... is (2) specific to a retiree who returns to work or is a simple reduction of hours enough? Just a reduction in hours does not constitute a separation/termination from service and that may be needed to trigger commencement.

These questions usually come from a checklist and are likely generic and all the same for a type of plan. Just provide the information requested - even if obvious, like meaningful benefits and a safe harbor formula (remember, compensation definition must be a SH as well). Then the auditor can check off their boxes.

The employer's portion of the MEP is considered the same as a single employer plan for coverage, nondiscrimination, 415 limits and tax deductions, yes? If so, either scenario works, I think, that is if the MEP provisions support what you need to do for profit sharing. If the CBP is PBGC-exempt remember you have combined plan deduction rules/limits to navigate.