CuseFan

Accrued to date for 401(a)(26)?

So the document says, "if the plan fails minimum participation, then...." My contention is the plan doesn't fail because this particular benefit is meaningful. Furthermore, the plan limits participation to owners and spouses, and we have enough for 40% participation, so it's not a situation where NHCEs are not hitting that 0.5% threshold. I also read a reputable actuary's article about the problem with low interest rates and minimum participation issues, and I agree that can happen, especially with a plan covering NHCEs. The article was followed up by an attached statement/comment by another actuary in same firm that the 0.5% threshold does not apply to shareholders, but he gave no specific cite or reason for backup. Given that the IRS memo was written in the context of providing low allocations to NHCEs and claiming such to be benefiting, which they view as abusive, I can see not having to apply the threshold to owners. This was blip for 2018 because interest was negative and so we project at zero, so we may just increase this owner to 6.5% or 7% of pay to avoid "actuarial controversy" in the future, which is ironic in the context of the IRS memo and the abuses it is trying to attack.

If you have it, the Cash Balance Answer Book shows exactly how to convert the contribution credit/accrued benefit to an equivalent contribution. You may be able to restructure and pair old NHCE with young partner, testing on contribution basis, and older partner with younger NHCE on a benefits basis.

For nondiscrimination testing we have to project at zero. I agree that assuming all future years are zero is not reasonable, but I don't see a basis for using a different rate for 401(a)(26) so the math works out. My argument is more that assumption is unreasonable so ignore it and look at the facts and circumstances, which how can a 5% allocation not be considered meaningful? Just wondering if anyone out there is making that case or toeing the 0.5% line arbitrarily determined by IRS in a different world over 15 years ago?

Maybe, depends on how plan is written to calculate lump sum, usually it is calculated as the PV of the deferred NRB not the immediate annuity. Also be wary of the actuarial reductions on the 415 limit which affect the lump sum. Eliminating the plan's actuarial reduction for early commencement doesn't get rid of the 415 reduction (only the plan rate comparison), but it does buy you 3 years (65 to 62) w/o reduction.

Having a discussion with a colleague regarding minimum participation under IRC Section 401(a)(26), the IRS memo-induced 0.5% accrual rate threshold and cash balance plans that use actual rate of return interest crediting rates (ROR ICR). HCE with comp of $260k and $13k contribution credit (5% of pay) in an ROR ICR plan has a 0.39% normal accrual rate due to negative return in 2018 and zero percent projected interest, causing the plan to fail 401(a)(26) if one applied the IRS memo as if it were law or regulation (which it is not), whereas I argue that in what facts and circumstances universe (which is the law and regulation) is a 5% annual credit not meaningful, and why should a one-year interest rate hiccup/blip turn a very meaningful credit into one that is not? By that standard, every ROR ICR plan that does not have a contribution credit in excess of 6% for 40% or 50 employees would otherwise fail 401(a)(26) every year they experienced an investment loss and would be required to increase contribution credits. I find that ludicrous, and it ultimately creates a de facto (albeit indirect) interest credit floor so to speak, which you could not do directly because of the market ICR rules. So ROR is good, employee wins, ROR is bad, employee still wins - yes, that's kind of the DB premise, but it's not the market rate premise. Thoughts from those with experience on ROR ICR plans and dealings with IRS on the issue, including the 0.5% accrual rate line in the sand. Thanks

Maybe a typo? I would see what the prior version of the document had.

Exactly. Partners in a partnership don't get a W-2, but if they are in partnership retirement plan they are not eligible for deductible IRA either (assuming over income thresholds).

Plan itself was in effect for full year, just the match provision was added 7/1, correct? The plan document and it's definition of compensation should provide guidance, this isn't a Code cite issue. If pre-participation compensation is excluded with respect to a plan component (i.e., money type) and the plan clearly states the match is effective 7/1 then you should count compensation from there. Whether client wanted to base on pay from 7/1 or include full year pay should have been discussed in advance and made clear in the document.

Exactly - either way you have a correct rollover eligible amount to report and then, depending on repayment or not, an excess amount not eligible for rollover that may need to be reported.

Then you have an operational error to correct and forfeiting contributions to which they were not entitled, and attributable earnings, is the proper correction. Regarding the owner that left and rolled over the distribution - correction is not complete unless/until they inform that person and attempt to retrieve the distribution (and earnings) and correct the tax reporting.

Client is interested in a lump sum window - they did one a couple of years ago with limited success, but want to consider "sweetening the pot" to improve the take rate. Is there a way to enhance the lump sum value without also increasing the annuity benefit? My thought is no, because the QJSA must be as valuable as any other option except a lump sum determined using applicable mortality and interest. So I don't think I can just use better AE assumptions, like an artificially low interest rate, to drive up my lump sum, correct? Can I use different overall assumptions and/or calculation methodology just for the window period - as it is not considered part of the accrued benefit? For example, could I add 3 years to a person's assumed age and/or decrease the actuarial reduction for early commencement, and calculate the lump sum as the present value of the immediate annuity rather than the annuity deferred to NRA? I'm sure I can do the first part, but not sure about changing the lump sum calculation methodology. The goal is to enhance the attractiveness of the immediate lump sum compared to the immediate or deferred annuity. Thanks

Google "taxation of VEBA withdrawals" and you'll find a lot, including this, which indicates that distributions for qualified medical expenses should not be taxable. However, just because distributions were reported to IRS does not mean they were reported as taxable - double check your 1099. If you still have questions, contact the plan administrator, which should be listed in your Summary Plan Description. Hope this helps, good luck. https://www.investopedia.com/terms/v/voluntaryemployeesassoc.asp

I don't recall when it became effective but do know it's been that way for a while, so 2007 wouldn't surprise me.

no issue, this gets done all the time and the exact reason you have individual allocation groups, so you can adjust individual NHCEs as needed to pass testing rather than increase everyone or do an 11g amendment.

Really, and I thought Oregon's neon green unis were obnoxious. But they played a great game so I have to give them their props and harbor no animosity to the Hokie Pokies!

It never ceases to amaze me how the IRS, DOL and industry practitioners have generally absolved the participant of any and all responsibility with respect to their contributions and retirement accounts. If I'm over age 50 and knowing/expecting/wanting to save more than $18,500 then I'm going to be damn sure my contributions continue. Or people who elect a contribution change and don't recognize (for months or even years - not a lie) that their contribution (or take home pay) never changed - hello, McFly! Yes, plan sponsors are responsible to properly administer their plans, but I think participants should incur some responsibility as well, especially if they have received multiple sources (pay stubs, quarterly statements, etc.) that clearly show any errors. Sorry, just my grumpy Monday rant because the 'Cuse got toasted Saturday at Va Tech and the wrong two teams are in the Super Bowl.

Basically, hitting the 415 limit prohibits the required actuarial increasing of delayed benefits, which results in an impermissible forfeiture of benefits under the plan and therefore requires the commencement of benefits. Plans that provide for suspension of benefits (and issue the required notices) can avoid actuarial increases for delayed commencement between NRA and age 70 1/2, but not after age 70 1/2.

ii) All other letter ruling requests (including accounting period and method of accounting requests other than those properly submitted on Form 1128, Application to Adopt, Change, or Retain a Tax Year, Part II of Form 2553, Election by a Small Business Corporation, or Form 3115, Application for Change in Accounting Method) (except as provided in paragraph (A)(4)(a) or (b), or (5)(a) of this appendix) $28,300 $28,300 I did see all other requests and $28,300 as the fee, which is a huge jump. Thanks

Agree with you - they were not the sponsor of the MEP and this is a brand new plan. There is no basis on which to use that as effective date. Furthermore, doing that would show a 2016 effective date for a plan for which you started filing 5500's in 2020 (for 2019 - the actual start date) - an invitation for IRS/DOL questions.

For what it's worth, I recall years ago a unionized hospital client had a similar issue with respect to such hours and credited hours were a direct factor in the determination of benefits. I think they got a legal opinion that those hours had to be counted, not sure if pursuant to DOL rules or the CBA, and went through a massive correction process to correct accrued benefit calculations.

Being nondiscriminatory is not automatic here because your HCE comp threshold is determined on the lookback year but you are excluding based on a current level of comp, hence the requirement that it apply only to HCEs.

The IRS User Fee Schedule (Appendix A, IRB 2018-1) does not show the user fee for an application to waive minimum funding and the Rev Proc refers back to 2004-15 which refers back to 2004-8, which shows user fees of $2,290 (waiver <$1M) and $5,415 (waiver =>$1M). It doesn't look like any of these rules have been updated. Are these still the fees or am I missing something? Thanks

Yeah, you can always general test for nondiscrimination, but if you do cross-test, make sure your gateway is satisfied on the basis of nondiscriminatory compensation (e.g., gross).

Yes, adding a DBP would make a lot of sense, the max contribution would depend on his age, but his profit sharing would need to be limited to 6% of W-2 pay because of combined plan deduction limit rules. If current plan is just profit sharing, a 401(k) provision should be added to get the extra $19k or $25k salary deferral in addition to the 6% PS.