Larry Starr

We don't let clients "feel"; they pay us to do that, and they follow our directions or they are not our clients.

Lou S gave you the right answer. But if they are taking RMDs, they are obviously over the NRA. Most plans have (or should have) a provision that allows "in service distributions" to those who are working past NRA. If it was important, this participant could take a full distribution, and roll it over to an IRA (after taking the RMD for the current year). Then, most of his RMD will come from his IRA (where, if there are more than one, he CAN aggregate). Of course, if there are ongoing contributions to the plan, he will still have little RMDs that will be required based on the new money going into the plan.

D.J., Where do you get the justification for the following "rule": If at least one NHCE is affected by the amendment for every HCE affected by the amendment, the amendment does not discriminate in favor of HCEs. We are not allowed to just make up rules; there must be some authority. Do you have a cite for this or an explanation of how it meets some other rule? What if there are just two HCEs affected and all NHCEs are already participants? Are you saying that amendment is, de facto, bad?

Our loans require payroll withholding repayment; if there is no current payroll, I would think no loan would be available. I have not reviewed all our language to see if there is any possible exclusion for active duty folk, but I don't think so. FWIW.

Nope. Fill in box 4 accordingly and you are fine.

But WHY are they doing this? If this were my client (well, if they WERE mine, they wouldn't be doing this), and they did this, they would stop doing it or stop being my client. Yes, we occasionally have to fire clients who don't do things "my way". Kevin has given you the treatment issue and the 415 issue; we don't want a client who does this (others may feel differently).

The decision to make deferrals effective 10/1/19 was not necessary. See Kevin C's comment above.

Amen!

Not in my shop; the -11g amendment can be crafted by me in less than 2 minutes; sent via email to the client to sign and return. Should take about 5 minutes total. No having to mess with allocations among the participants, just properly identifying the extra money for that individual as employer PS allocation. FWIW.

I don't understand the option you present of treating it as one plan or treating each plan separately but taking the entire group in the denominator. What does that mean? Yes, you aggregate for coverage. But plan A covers only NHCEs (they can't be HCEs in their first year of employment unless they are owners, which I assume is not the case), and plan B covers everyone who meets the service requirement. So where is there a coverage issue? So when you say the only HCEs are the P and M, you have to be careful to make sure that you treat them NOT as HCEs for the first year. But, in the second year, you will have HCEs in plan A and you will have to pass non-discrimination taking into account both plans.

No. Controlled group rules apply.

Funny, when you say something like "for whatever reasons, the client doesn't want....", I take that as a definite requirement to find out what those reasons are! I consider it my job to be his advisor; he tells me what he wants to accomplish (and "not merging the plans" is not an objective; something else is what he wants to accomplish) and I figure out the best way to do it. In this case, based on all our discussion, if this were my client, he would be merging the plans (unless you have more info on WHY he doesn't want to merge, and that information makes sense). In my scenario, the end result of the merger seems to be exactly what I think you have said that all the parties want to accomplish. Why wouldn't they do it that way? As to your additional question, if they ARE terminated employees in a plan (not just "treating them" that way), then all the rules apply. If over $5,000, no forced payouts until NRA (see what the plan language says, of course).

Did the participant fill out paperwork that was explicitly correct for converting only part of his account, but the trustee, n executing the transaction screwed up, then there has to be a correction made and the trustee is going to have to work with the fund custodian to get it corrected. Who did what?

Luke, yes, I would agree with you workaround. Of course, I would avoid it! ?

I don't even want to go beyond the initial big problem (but I will, at least somewhat). As you have outlined the plan language, those pharmacists and managers who become eligible for plan B are now in BOTH plans absent a provision in plan A that says otherwise. First, why on earth did they do this? Maybe there is a good reason; maybe (probably?) not. In any case, if I really wanted to do what you say they are doing, we would have a provision in Plan A that excludes any employee who participates in another plan of the employer, so when a P or M enters plan B, he/she is no longer an active participant in plan A. We would also have decided in advance if we want language that would automatically move any money they have in Plan A to Plan B upon that occurrence (which is how I would handle it) or leave their one year of contributions in Plan A. No, no matter what, I'm pretty confident that we could have accomplished all of this in one plan; why are there two plans in the first place? Oh, and the plans ARE aggregated for coverage purposes; that's why we can, theoretically, have every participant in their own plan (just salivating over the fees) and still be ok with coverage. And of course, you haven't spelled out WHICH safe harbor the plans are? There are several types of safe harbor rules that we deal with, including the standard SH 401(k) that has employer contributions and the SH plan that avoids employer contributions and thus, also avoids top heavy. Your last comment is: "I think that the manager/pharmacists are still eligible for Plan A and therefore they will not pass coverage.. It just seems a bit fishy to me." I would suggest that you certainly pass coverage since ALL the employees are in Plan A and a smaller subset are also in Plan B (because the P and M's did not get excluded from Plan A when they met the requirements to also be in Plan B). CORRECTING LAST PARAGRAPH: I would suggest that you certainly pass coverage since ALL the employees (who have met the 1 year requirement) are in Plan B and a smaller subset are also in Plan A (because the P and M's did not get excluded from Plan A when they met the requirements to also be in Plan B).

My way is still an option; what the buyer is demanding is that the B plan "go away". That can happen by merging it into the A plan (all the participants are now in the A plan, so B is gone) and then treating those employees who leave the controlled group (aren't working for A or B) as terminated employees and pay them out. You can do the merger as of 12/31 if you want (and the employees who moved sooner just won't have their existing money follow them into the A plan until the merger is done at the end of the year). What's wrong with that?

Bird, we have a special psychotherapy session to the ASPPA annual for just this situation; it's always a big fun party!

D.J.: yeah, Mike nicely asked for a cite, but I (just as nicely) say there is no such rule.

My believe is that it is about a 90%/10% split on the issue Luke mentions (I am in the 90%), and of course I believe that the 90% are correct! ? Also, I know that from my days chairing the IRS Q&A sessions with IRS, that our major IRS folks from those days were also in agreement with the 90%. Part of the reason is that there is no way of knowing for sure that you actually failed 401(a)(4) or 410(b) since there are almost an infinite number of ways that you can try to pass, particularly (a)(4). I am convinced that an -11g amendment is perfectly proper to accomplish what you want, but your mileage may differ.

Not the first time I've disagreed with an ERISA attorney! ? That interpretation is clearly not required in a normal SH plan adoption on 10/1. It really does turn on the language in the plan and I would want to read it, but I tend to agree with Bri given the way you have described the document. Of course, I have no idea why you set up the EE deferral and SHNE component of plan with a special effective date of 10/01/2018 when you made the plan effective 1/1/18. Why did you do that? What were you attempting to do? Is there anything in the plan document that, by making the SHNE component effective 10/1, special language limiting the considered comp actually comes into play? When we set up such a plan, we see no need to have any special effective dates because that is true by definition (employee obviously can't defer BEFORE 10/1 if that is when the plan is actually adopted). What is the meaning of "making the SHNE component of plan" effective 10/1? Of course, as long as the plan was adopted by 10/1, it met the SH rules and was a SH plan even though they obviously could not defer until 10/1. No special effective date was necessary, as far as I can see. What was the purpose? I can't imagine we would want to limit the the Doc and spouse comp to only 3% of 3 month's comp, but I could be wrong. I'm curious as to the additional details as to why this was done.

While I have no idea what a "guaranteed hours bonus" is, you say it is intended to incentivize the employee to do something special. When I went out as an agency manager for Ct General in 1980, I had a salary and then I was "incentivized" by certain production goals which provided WAY MORE income than my base salary. There was no question that that additional compensation was a bonus (in my mind or my boss'). As presented above (albeit, minimally explained), I don't see any difference, so I am not particularly concerned that it is a misclassification which appears to be your concern. Having said all that, I am 100% in agreement with Belgarath that this is the call of the client; it appears they have asked you if they are properly classifying it as a bonus (it appears that's the way they have categorized it), but if THEY have a question, it belongs to their (either) labor or ERISA atty. Feel free to share my response if you wish, but recognize that they are no paying me and I am not their advisor, and it's worth every penny they paid. ?

Thankfully, the code makes no sense in many areas; that's why many of us have had successful careers in this industry all these years! ? How about the famous ones of the non-involvement exception for attribution between husband and wife is destroyed just by the presence of minor children (because of the attribution through/via the children back to the parents). Insane result, but fully logical under our IRC. Are you referring to the option agreement I provided as being very sparse? Would be interested in knowing your concerns (since we have spent a pretty penny with a very competent law firm developing that document). I would also suggest that no one who operates in this business can afford to be without several resources including the ERISA Outline Book (published by ASPPA), Natalie Choate's book Life and Death Planning for Retirement Benefits, and Derrin Watson's book Who's The Employer which is now published online by ERISApedia and can be ordered here: http://www.employerbook.com/. Full disclosure, I (and others) helped Derrin develop this book and originally market it and are given credit in the dedication but I have ZERO compensation from the sale of the book. The other two resources are also available as on line publications and while I own both the hard copy and the electronic versions, I almost exclusively use the electronic versions of all three publications.

Without dealing with the original question, but just the dating of the replacement document, I don't think it should be a new plan; it is a continuation of the same plan of the employees, just a different format. The effective date of the plan should be the effective date of the original adoption for this employer, and the date of the amendment should be the first day of the current plan year, IMHO.

And here is the commentary from Sal: 1.a.8) Who vests when a significant reduction in participation occurs?. The law says that employees who are “affected” by the partial termination become vested. Who is considered “affected” by a partial termination that arising from a significant reduction in participation? In Rev. Rul. 2007-43, the IRS states the following: “f a partial termination occurs on account of turnover during an applicable period, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or, in the case of a defined contribution plan, in the amounts credited to their accounts.” (An “applicable period” for this purpose means a period for which a partial termination has occurred.) Since the IRS refers to all participating employees who had a severance from employment, apparently, the IRS believes that even employees who voluntarily sever from employment during the applicable period get the benefit of the accelerated vesting triggered by the partial termination, even though voluntary terminations are not taken into account in determine whether the reduction in participation is significant. This apparent interpretation is borne out in an FAQ posted at the IRS website stating such a position. See http://1.usa.gov/1xZ6TWc. The IRS’ position seems to be contrary to the intent of the partial termination rules, but we are not aware of any successful challenges to the IRS’ position. At one time, it was reported that the IRS had been training agents to require only the involuntarily-terminatedparticipants in the applicable period to become 100% vested on account of the partial termination. However, more recently, the IRS has apparently started enforcing this interpretation. Unfortunately, many employers have accepted the IRS interpretation on the basis that the funds involved are not significant and the cost of fighting the IRS is not worth it.

Thanks Bill. Yes, on going back to re-read, the emphasis on the "mid year" change is not in the body of the question, and the subtlety of the change being mid year was missed. On that basis, I certainly agree with you. I wouldn't call it aggressive; I would call it a big no-no!