CuseFan

Was this a case, or one of a number of cases, where airline pilots got divorced for the sole purpose of creating (Q)DROs that assigned 100% of their pension benefits to the AP "ex" which could be paid in an immediate lump sum? I thought that was Delta, but maybe multiple airlines. The case(s) I recall were that the divorces themselves were a sham ("paper" only, with no changes to living arrangements, personal finances, etc.) and hence the supposition for the (Q)DRO being a lie disqualified the DRO as invalid. Agree that plan sponsors (with assistance from qualified service providers) should examine any "scheme" that appears to circumvent qualified plan rules.

See what the plan document says - may need to refer to the basic plan document if it's an adoption agreement - but I doubt you need to SH match voluntaries. And the usual question - why do they want voluntaries? If for owners/HCEs to do VAT/Roth conversion, that rarely works for small plans covering employees.

True, it is not stated in legislation or regulation, but IRS has taken a fairly hard line approach on that position dating back to the 2002 Paul Shultz memo https://www.irs.gov/pub/irs-tege/memo_060602.pdf I would not try to dodge that without a very strong facts and circumstances case that a lower accrual rate should be deemed meaningful.

Sure, why not? It is a defined time frame.

This happens all the time (<0.5% accrual) in CBPs, especially those with a relatively low interest crediting rate. The "worth" is in the large contributions attainable for the business owner(s).

Or a legal separation pursuant to a court order, correct? Which could be quicker?

Agreed

Are they excludable from coverage and NDT or not? That's not clear. Are they excluded from an allocation under the terms of the plan? it seems they are, and that is why an 11g amendment could be needed, in which case you would have to provide some vesting - whether 20% in total, or 100% on just this PS. BUT - Look at the partial termination rules - it is facts and circumstances. Simple 5500 reporting could certainly lead to a letter of inquiry from DOL or IRS as a PT will be presumed. And it might be a tough case to argue that "yes, believe it or not, all of our NHCEs terminated voluntarily before they were vested, totally unrelated to any actions by the employer." That is why all employees terminating in a year of PT must be fully vested, not just those involuntary terminations (handwriting on the wall ideology). Just my opinion, but I would consider steps now to head off possible future issue, unless other circumstances point to a hard line approach, like bad blood because all employees bolted to a better paying competitor.

I think the person goes from active non-vested to terminated non-vested (assuming termination and re-hire) to non-eligible/non-participant (unless/until 1000 hours). So I don't think 5th anniversary of participation happens because not participating. You may also have a 0% vested deemed cash out, check plan language. However, I think this is all assumes an actual termination of employment and rehire. If the BIS was solely due to a reduction in hours, check plan language carefully as that situation may be treated differently.

Thanks everyone for the valuable information. It's stuff like this that makes this such a great forum.

One final thought, looking at the text, it doesn't say that you can't do it (period), it says you can't do for purposes of reducing the average for your correction percentage.

Correct - either apply a plan failsafe that is in place (which must be done if there is one) or do an 11g amendment within 9.5 months of PYE.

Agree that B's former employees that are now in A can continue to be excluded through the transition period provided A's plan is not amended to change coverage or benefits, which you state the Cycle 3 restatement did not alter coverage. Therefore, if the contribution structure hasn't changed, I think your transition period is safe.

7.5% is the maximum gateway required in any combo situation - the gateway can never be higher but a greater contribution may be required to satisfy the nondiscrimination testing. Also be careful if your DB is a CB - the normal allocation rate is NOT the contribution crediting rate, so 3% SHNE + 2% PS + 2.5% CB does NOT equal 7.5% gateway.

Yes.

Yes, you need to have a detailed conversation with the client. Plan sponsors say things incorrectly all the time using retirement plan terminology that they do not understand. I still have many a client that refers to their safe harbor non-elective and/or profit sharing in their 401(k) plan as a match. The only thing that comes to mind for this is quarterly vesting computation periods, for example, you vest 5% for 250+ hours in a quarter rather than 20% for 1000+ hours in a year? Doubt pre-approved plan has specific accommodation, don't know if such a modification would cause it to lose reliance. Regardless, I think you would have to have a 1000 hour annual vesting provision override, so if someone was +250 for only three quarters but still +1000 for the year, they would have to vest 20% rather than 15%. Interesting concept if that's what they're thinking, but have fun administering!

If owner doesn't want to contribute for employees and employees don't contribute enough to let owner benefit much then why have the plan? Dump the plan, have owner do an IRA max and move on. If you wanna dance, pay the piper or get off the dance floor.

Agree w/CBZ. We had similar client with per diem exclusion but it was such a hassle to track and in the scheme of things was much simpler and not a material cost (relative to total ER DC & CB) to include these people, so they eliminated that exclusion. Although my opinion was that it was a permissible exclusion, I think I've seen others opine that this might be a disguised impermissible exclusion of part-time employees regardless of hours. My experience with per diem (on-call) type employees is that they are different than standard part-time employees, but acknowledge this could be a gray area - so safer to include for that reason as well. The weird thing with my client is they had short elapsed time eligibility, so their per diem exclusion was simply because they didn't want to provide benefits to those employees.

Especially the younger the owner(s) compared to NRA, as the difference between the (low) ICR and (higher) funding rate compounds over a longer period.

If the benefit is a J&S where the beneficiary must be a surviving spouse, then I think not, as the ex is no longer the spouse. In this case, I think there would need to be a QDRO stating the ex is still to be treated as the spouse if survivor benefits for the ex are to be preserved. If the form of benefit as defined by the plan simply allows contingent annuitants (spouse or non-spouse) then I think the ex may be locked in and entitled to survivor annuity. Regardless, I don't think the participant can change the form of payment or the beneficiary of the survivor benefit - so that possibly could have been leveraged in the settlement.

Does the plan document not say how to (present) value benefits? If any benefits could be paid as a lump sum there should be a provision stating how such lump sums are calculated, or there may be reference to (and possible offset from) an existing pension plan and such plan's actuarial equivalence may be the proper method. If none of that applies, then I think your NQ plan needs to be amended upon plan termination to provide the basis for determining lump sums.

1. Read the plan document to determine the definition of plan compensation. 2. Determine if the type of new compensation/pay code item is included in that definition or excluded, either categorically or specifically. Since this is a new pay code, it's doubtful it is explicitly excluded. You may need to look up IRC sections or compensation terms to get your answers.

Although SECURE 2.0 may change that.

Employer contributions that are not includable in taxable income of employee as compensation are not subject to FICA. Same for employer contributions to a cafeteria plan (125 et al) - and neither are employee contributions toward those benefits, for that matter.

Agree this should be OK. I mean owner (company) could pay directly outside the plan so why not incur the entire cost to herself inside the plan? I can't see a DOL auditor insisting that the owner has to spread the fee to NHCEs as well, but one never does know what rigid irrational rule applications lurk in the minds of labor laborers!