C. B. Zeller

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.

See Table 1 here: https://www.irs.gov/retirement-plans/funding-yield-curve-segment-rates BBA 2015 extended the 90-110% corridor through 2020. I wouldn't be surprised to see it extended again before then. However the 25-year average now includes 10 years of very low interest rates, this combined with the fact that interest rates are now starting to rise again, means that the HATFA rates are not going to be very much higher than the unadjusted rates for long.

Once the IRS has assessed a penalty, it's too late to go back and use the delinquent filer relief program.

But is it "F. T. William" or "Fort William?" Asking the important questions here.

For what it's worth, Kevin Donovan and Kurt Piper quoted this same section of the gray book in their presentation at the 2016 ASPPA Annual, and argued that (b) is allowed as well. See the last slide here: https://www.asppa-net.org/Portals/2/PDFs/2016AnnualHandouts/WS18 - Deduction Limits for DB Plans and Combined Plans.pdf

The only reasonable way to deal with a single entry date in a 401(k) plan is to reduce the service requirement to 6 months and the age requirement to 20-1/2. Then they enter the plan on the first day of the plan year following. It's going to be up to the employer to decide whether the cost of allowing some additional employees into the plan outweighs the administrative burden of checking who is becoming eligible and handing out SPDs and enrollment kits one extra time per year. Edit: If this were a profit sharing plan, with 100% immediate vesting, he could use the 2-year eligibility rule to keep more people out. But of course that option is not available in a 401(k) plan.

This presentation has some good info: https://www.asppa-net.org/Portals/2/PDFs/2016AnnualHandouts/WS18 - Deduction Limits for DB Plans and Combined Plans.pdf Discussion of deduction year starts on page 24.

The 404 is limit is 25% of compensation paid during the tax year. So unless the sponsor also had a short tax year from 11/1 to 12/31 then there is no problem.

Assuming both of the 2 new owners are >5% owners, all 3 are HCE for 2018 and 2019.