C. B. Zeller

The effective date of a restatement is generally the first day of the plan year in which the restated document is adopted. However a retroactive amendment, particularly an -11(g) amendment, can be effective back to the first day of the prior plan year provided it is adopted in time. For example you could adopt a restatement in April 2019, effective 1/1/19, then adopt a corrective amendment in September 2019 effective 1/1/18. Are there any issues with adopting an amendment with an effective date prior to the effective date of the document being amended?

The 401(k) and 401(m) features must be disaggregated and tested separately. If there is a profit sharing or other employer nonelective contribution happening in the 401(k) plan, then it may be permissively aggregated for testing with the profit sharing plan and/or cash balance plan. The profit sharing and cash balance plans may be permissively aggregated for testing. It is not required however most common plan designs will not pass without being aggregated. For top heavy, see the mandatory aggregation rules in the 416 regs. In particular, all plans which cover a key employee, or covered a key employee in the last 5 years, must be aggregated for top heavy. All plans which must be aggregated in order to pass coverage and nondiscrimination must be aggregated for top heavy.

What do you mean by "Roth profit sharing?"

Since distributions can commence immediately upon termination, the definition of "earliest retirement age" from 1.401(a)(20) A-17(b)(2) applies. Consequently the definition of QPSA from 417(c)(1)(A)(i) applies. In other words, the QPSA is the survivor annuity if the participant retired and took an immediate annuity the day before death. Which from what you described sounds like it means no subsidy.

If you want to play it safe(r), make it profit sharing only for 2018 and deferrals/match effective 1/1/19. If all employees have the same opportunity to defer, then you could make the 401(k) effective in December, but consider the timeliness of the contributions. Assuming at least some of them are W-2 employees, their deferrals must be withheld from their pay by 12/31 and invested within 7 business days*. Will the investment provider be ready to accept contributions by then? *7 business days is the safe harbor for small plans, and the requirement is that they be segregated from the employer's general assets, not necessarily invested. However it seems unwise to keep the money (which is now a plan asset) uninvested.

The minimum funding standard is equal to the target normal cost plus the shortfall amortization charge. There could be no minimum required contribution in the first year if they obtained a waiver of the minimum funding standard, but in the second year the waiver amortization charge would apply and amortizations of prior funding waivers cannot themselves be waived. Does the schedule SB show a funding deficiency?

Thanks for the reply. It turned out that the employee actually terminated employment with B before the end of the year, so that answered the question for us. I am still curious to know though if there is a definitive answer in the original situation.

If this is a 414(k) arrangement, e.g. voluntary after-tax employee contributions in separate accounts in a DB plan, then "Rev. Rul. 69-277 provides that a pension plan may permit distribution to an employee of amounts attributable to the employee's after-tax contributions prior to the employee's termination of employment." (as cited in rev rul 2004-12) The only other situation I can think of that allows DC contributions in a DB plan is the rare and elusive 414(x), a.k.a. DB-k plan. If you have one of those, then I think 401(k) rules apply.

Company A sponsors a MEP with unrelated company B adopting. During 2018, participant X, who is a non-owner employee of company A and over age 70.5, transfers to company B, .e.g they are terminated from company A and hired by company B. Is this person required to take an RMD by 4/1/2019?

The fact that the plan document does not list any controlled group or affiliated service group is irrelevant. You should determine if a CG or ASG exists, and if one does, then its members are treated as a single employer for most purposes. Compensation from all employers in a CG or ASG is counted, even if those employers have not adopted the plan, unless the plan document defines compensation as excluding amounts paid by those employers.

Mike, Thanks for the reply. We have worked on plans which use the current applicable table, but for CB plans especially I prefer to use a static table to avoid the situation where a participant does not earn a pay credit during a year and then their annuity benefit is smaller compared to the previous year due to the mortality improvement. Do you (or anyone) have any thoughts on a modern, static, unisex mortality table?

What is your usual post-retirement mortality assumption for actuarial equivalence? With the PPA restatements upon us, our company, like I suspect many of you, are re-evaluating our default selections for plan provisions. In the past we'd been using the 94 GAR table projected to 2002 with a 50/50 male/female blend. I'm wondering if it is reasonable to update this assumption, given that the base data is now quite old. On the other hand, for our clients, who are mostly small cash balance plans that pay out almost entirely lump sums, the definition of actuarial equivalence is immaterial, so why change something that isn't broken?

SF

So this would essentially add a new way to correct a failed ADP test, you could retroactively amend the plan to make it 4% safe harbor nonelective for the prior year. Could be cheaper than QNECs in some situations.

I'm not going to claim that this would (or should) ultimately make a difference, but I'm simply curious: was this reported as a distribution and a rollover contribution on the 2015 5500, and was a 1099-R issued?

Your software is doing the right thing. Despite the fact that they are excluded by class from participation, they are non-excludable in 410(b) terms and therefore are counted in the rate group test. As to your first question, it is certainly permissible to exclude one or more employees by name. The only limitation is that you can not use that classification to satisfy the reasonable classification piece of the average benefits test, but that is never going to be an issue as long as you are only excluding HCEs. The other drawback of excluding people by name is that they are going to have to keep amending their document every time they hire a new doctor that they don't want to be eligible. Of course, this might be a benefit for you depending how your firm charges for plan amendments. ?

Isn't the requirement to use a commercially reasonable rate part of 72(p)? I thought it was but I can't seem to find the reference at the moment. If it is, then a loan made with a non-compliant interest rate wouldn't be compliant with 72(p) and would therefore be treated as a distribution. If the participant wasn't eligible for a distribution, then it is an operational failure, and the remedy is EPCRS. Edit: As far as I can tell, the requirement that the loan bear a "reasonable" rate of interest only appears in 4975(d)(1). So using an "unreasonable" rate would not result in the loan being treated as a distribution, but would result in it being a prohibited transaction. To correct the PT, I would think you would have to re-amortize the outstanding balance of the loan at a reasonable interest rate, and repay to the plan any additional interest that would have been paid if it had been amortized at a reasonable rate from the beginning.

I would look at it this way: 1. The employee is not employed on the last day of the year, therefore they are not entitled to the DC top heavy minimum. 2. The employee is not a participant in the DB plan, due to being excluded by name or by class, therefore they are not entitled to the DB top heavy minimum. 3. The employee is not benefiting in the employer nonelective portion of the plan for coverage purposes, therefore they are not included in the nondiscrimination test. Given these points, I agree that no allocation is required for either the non-key HCE or the NHCE.

I think you should be good in that case. The DC contribution was paid on time, i.e. segregated from the employer's general assets. It wasn't irrevocably designated as a minimum funding contribution for the DB plan (which it would have been if it had been reported on the schedule SB). So the fact that it was mistakenly deposited to the wrong investment account means you just need to move it back where it was supposed to be in the first place. Possibly adjusted for earnings.

This setup sounds very similar to a case we took over this past year. In that case, they made the first plan year a short year 1/1/2015-11/30/2015, so then there were two plan years starting in 2015, and they took the deduction for both in the same tax year. Personally I found this whole setup to be unnecessarily complicated - if you really need an extra large deduction in the first year, then use an opening balance to give yourself a nice big FT - why mess with the plan year? But unnecessarily complicated seems to have been the M.O. of the firm that drafted this particular plan. There were other issues with it too that I won't get into here.

What was reported on the Schedule SB?

Maybe there is some subtlety I am missing here but it seems pretty straightforward. The definition of 5% owner in section 416 references the constructive ownership rules of section 318. 318(a)(2)(B) says that stock owned by a trust is considered as owned proportionally by the beneficiaries of the trust. So I agree that the one person who directly owns 1.6% of the company plus is a 25% beneficiary in a trust owning 15.9% of the company is a 5% owner for purposes of 416.

From the DFVCP FAQ: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/dfvcp.pdf Q12. May plans participate in the DFVCP if they have already received correspondence from the Department or the IRS? Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the Department of a failure to file a timely annual report under Title I of ERISA. An IRS late-filer letter will not disqualify a plan from participating in the DFVCP. A Department of Labor Notice of Intent to Assess a Penalty will always disqualify a plan. So it appears the answer is no, receiving an IRS penalty (or notice of penalty) does not stop you from seeking relief from the DOL by using DFVCP.

Would the DOL be pursuing penalties on a late EZ?

Your guess about the future is as good as mine, but you can see from the table that the 430 rates have been steadily trending down, and the 404 rates have been steadily trending up. So FTs and TNCs for minimum funding purposes have been getting larger, and for maximum deduction purposes have been getting smaller. In all likelihood, market fluctuations and demographic changes (e.g., a participant with a large AB going from 2nd to 1st segment rate) are going to have more significant impacts on your funding requirements than changes in the segment rate.