CuseFan

Companies B & C are domestic subsidiaries of foreign parent A and in a control group. B is not profitable and sponsors an under funded frozen defined benefit plan for its employees. Can sponsorship of this plan be transferred from B to profitable company C such that C can make (tax deductible) contributions toward funding benefits for B's employees? If they were unrelated, I think clearly the answer is no (exclusive benefit rule), but OK for a control group, yes? First thought is why would C be allowed to make contributions for another company's benefit but as part of the control group, if B goes under then C is also on the hook with PBGC for under funding, so why shouldn't C be allowed to fund. If B did fail, or was sold (asset sale) with plan staying behind, C could pick up sponsorship, right, so why not now? Should B remain as a participating affiliated employer, since it still exists and its employees are the participants? I would think so. I also think language should be clear that all contributions from affiliated employers are available to fund benefits for participants employed by any and all participating affiliated employers.

Mike is spot on, and how the participant might think that is unfair is beyond me. The payment option can only be changed if plan terms permit and grant a new annuity starting date.

I'm not an ESOP aficionado (there is an ESOP Guy who regularly contributes in this forum) but I know you do not need to offer shares at distribution and limit share ownership to employees only if corporate bylaws provide for such.

Clearly the design is to allow Pharmacists and Managers into a plan early while keeping everyone else out for a year. Unless a P or an M is hired in as an owner, they would not be HCE for their first year of employment, so why not have one plan where that subset of defined employees (still NHCE at the time) is allowed immediate entry? If you have to aggregate for coverage and NDT, because the Ps and Ms are HCEs, isn't there then a BRF problem? Fishy is an understatement.

Yes, you must protect required provisions with respect to transferred benefits/accounts. Depending on your AA, or more likely the basic document, maybe that is an automatic w/o the need for additional language. If not, there is often a protected benefits addendum on a typical AA or you just use the other provisions addendum to either itemize your protected provisions or (probably not the best practice) state those prior plan protected provisions are incorporated by reference. Any way you slice it, you're probably outside adoption w/o modification unless the protected provisions are also available options in your AA, but don't apply to prospective accruals.

Interesting in that you mention cash in a sinking fund to cover repurchase LIABILITY. So if the company is expecting to shell out half a million dollars, for example, to buy back the shares of upcoming retirees, yes, that cash may be an asset but it is offset by the expected repurchase liability. As EG noted, it's up to the valuation firm to sort out, but the presence of an asset does not necessarily translate into ownership equity.

Also remember the IRS recently reiterated its position that the timing of a participant's negotiation of a check does not impact the timing of its tax treatment. So for IRS purposes you have a 2019 taxable distribution. I find it hard to believe then, that the uncashed/delayed cashed check is still a plan asset in 2019. If it was lost, returned as undeliverable, etc. such that the participant never received it, then that may be a different story and the DOL position is likely you still have assets. Any participants who think delaying their check cashing into next year will also delay tax liability should be reminded/educated otherwise.

A retro amendment to allow early entry is permitted, not required. The plan may contain language already regarding the treatment of an employee mistakenly included, but I think a return of deferral contributions plus income and forfeiture of any employer contributions is perfectly acceptable.

I don't think they can do that, and the employee cannot even voluntarily waive the contributions. Hopefully not everything is finalized - what should have been done is have the total settlement include and subsequent payment be offset by the 2019 contributions. Maybe the settlement agreement has some offset language already. Or maybe the employee (and/or lawyer) was very knowledgeable and agreed to the settlement knowing contributions would have to be made regardless. Just highlights the fact that all the employment related issues should have been/need to be thoroughly examined and discussed with qualified counsel for each (not necessarily legal counsel) before agreements are finalized.

It is not employees - it is active participants.

Mike, what if first year of (new DB) plan has an accrued contribution >$250,000, or say $200,000 but there is existing DCP with $200,000 - do you not file because the DBP has zero assets in its first year on a cash basis and then begin filing in year 2?

All control group participating employers are considered a single employer, so all comp (and contrib) from all employers.

Gateway is required when you cross-test a DC plan, either on its own or in aggregation. Are you having to do that? If not, no gateway, but if so, then yes gateway is required. If plans are part of required aggregation group (for TH) - I assume this is the case - you say Key has no DC account addition for 2018, not that Key has no DC account in 2018 - so you have top heavy at 3% if not aggregated for testing or 5% if aggregated for testing.

If you have a PS only AA then it won't have SH language because you don't have 401(k) provisions. I would say that the document of the plan accepting the SHNEC must have that specific language because of the various requirements and restrictions (vesting, distribution, etc.). Why are these two separate plans anyway?

yes, you can have a general in-service withdrawal feature before age 59.5 for vested funds that are not 401(k), safe harbor, QNEC, etc. - but it doesn't mean you should.

We've set up a few of these with advisors - our VS documents allow for after-tax voluntary contributions. Is the intent to distribute after-tax amounts annually and roll into a Roth IRA? Because that will incur annual distribution processing and reporting fees in addition to normal annual administration.

Thanks people. New comp/cross-testing doesn't work well with the demographics. Two separate plans to cover 5 people isn't cost effective. Who would have thought it'd so difficult for a doctor to provide benefits for employees which he doesn't have to provide! Maybe just giving the <1000 people a bonus they can put in an IRA if desired will be sufficient for him.

I found this answer - yes - and it looks like my document will not allow an integrated formula for non-excludables and something different for otherwise excludables. I could probably exclude the <1000 hour people from PS but add a 401(k) provision with immediate entry for current employees and then they are entitled to 3% top heavy. Any other suggestions?

Background: I have a relatively young doctor who has one older >1000 hours employee, another older <1000 hours employee, and two younger <1000 hours employees. Already has max 401(k) elsewhere (no CG, ASG or 415 aggregation concerns), so looking at doing PS only and getting $56k max. Including all and cross-testing doesn't work well because only one of the two younger employees are substantially younger than the owner. The one >1000 hours employee is fairly low paid, so an integrated formula at the lowest threshold, excluding the <1000 hours people, works very well. HOWEVER - and hold onto your hats because how many times have you seen this with a doctor - he wants to include everyone. In that scenario, whether integrated or cross-tested, the contribution rate required for employees is substantial, not an issue with one low paid employee but a different story including everyone. Questions: I know I can include in the Plan and essentially carve out from testing the <1000 hours people as otherwise excludable employees, but can I have the integrated formula for the >1000 hours people and something else, TH minimum or greater, for the <1000 hours people? If the only way to do (or mimic) this is individual rate groups and testing on contributions with permitted disparity, must I use the SSWB? I assume I cannot arbitrarily pick something lower even if allowed formulaic if designed that way, but wanted to confirm. Any other thoughts are appreciated.

https://www.lordabbett.com/en/perspectives/retirementperspectives/how-to-reject-retirement-account-inheritance.html Check this out. There was also a long BL conversation on this back in 2009. Regarding getting the mother to complete required paperwork, the following encouragement should do the trick: Mrs. X, under the terms of the ABC Plan, you are the default beneficiary and your son's death benefit must be paid to you unless you take immediate formal actions to reject the benefit. Note that if you fail to properly and timely complete these actions, the Plan will issue payment to you as required. Also please note that the distribution will be reported to the IRS as a taxable payment to you and your decision to cash or not cash the check will not impact such reporting or tax treatment. (and you can provide a copy of the recent Rev Rul that states as much) That should pretty much guarantee she either completes required paperwork or changes her mind and accepts payment. And then the plan must move on to the sister, regardless of what the mother says.

One might think the existing plan actuary would be in the best position to do such a study, having the data and first hand knowledge of the plan's experience in terms of mortality and other relevant factors. However, might that actuary also be conflicted and predisposed to endorse the status quo? If the actuary was originally involved in helping the sponsor determine the AE assumptions or never commented on their potential lack of appropriateness over a protracted period or simply doesn't want to deal with the legal requirements and system changes necessary to implement a change, that is a possibility. Might an outside actuary be predisposed to find issues that discredit the incumbent? I would hope not, but in either case is there total independence and unbiased determination? I don't know if there is a right answer or a best practice, I only know there are lots of questions, and it's not only mortality but mortality and interest. Depending on the size of the plan and the desired comfort level, as well as cost concerns, maybe the best alternative is for the incumbent to run the study and, if the actuary says everything is just fine as is (and as is has been in place for 20-30 years or more) without further comments, clarifications or suggestions, then engage an outside actuary for a second opinion.

or Dear Agent Montoya

As these knowledgeable practitioners know very well, there is often a wide chasm of warnings between "can" and "should".

seconded

Agree, and I was surprised as many others I'm sure, that they even needed to issue this ruling for clarification. The clarification that was/is still needed, and the question has already been raised, is how is this all treated and reported if the check was not received for whatever reason - person moved w/o forwarding address, is incapacitated in some way (hospital, nursing home, etc.)? And unless you incur the expense of certified return receipt mail (probably a best practice) how can you prove the person received the check?