PS contributions to be "recurring & substansial"-what if they're not?

[doombuggy]

I have a p/s plan that has not made a contribution since 2000. Again, he is not making one for 2004, which will be the fourth year in a row with no contribution. I could swear that there is a lenth of time (ie # of years) that can go by with out a contribution, but I am having a difficult time trying to find an answer. With Sal's book in my lap, I have some regs I am looking for - Treas. Reg. Section 1.401-1(b)(2) and IRC Section 411(d)(3) - but I can't seem to find them of the web.

Any thoughts? Thanks!

[mbozek]

R & S applies if the er has a profit- if there is no profit then er does not have to make a contribution. Better Q is why er continues to maintain a PS plan if no contribution has been made for 4 years. Why not term plan and save costs?

[doombuggy]

I assume that the practice turns a profit, if he can pay himself 1/4 of a million (lol).

I guess my safe bet is to mention to him about the "recurring & substansial" and have done with it. It's like pulling teeth to get any info from him anyway.

[QDROphile]

One possibility is tha the plan will be treated as frozen, which will cause full vesting.

[GBurns]

Get his acknowledgement of your position in writing and sit back and wait. Either he does something (freeze, make the contribution, or continue as is) or he gets away with it or the IRS comes auditing and recharacterizes his income so then he has a profit.

[Guest Pensions in Paradise]

The issue is whether there has been a discontinuance of contributions which would require full vesting as of the date of discontinuance. My understanding is that the IRS takes the position that there is a discontinuance if you do not make contributions for three out of five years.

In your situation, the IRS would say the discontinuance occured as of the last day of the 2000 plan year (which was the last plan year they made a contribution). Thus, all participants would have to be 100% vested as of such date.

[doombuggy]

I knew there was some period of time somewhere for p/s contributions. Thanks for your help!

[mbozek]

See Rev. rul 80-146 for 5 year period before discontinuance will occur if there are no current or recurring profits. As a practical matter this issue is rarely reviewed by IRS.

[Guest Pensions in Paradise]

I beg to differ. The IRS specifically raised this issue on two of our 5310 submissions last year.

[E as in ERISA]

We should distinguish between ongoing and terminating plans. The main issue in regard to the "recurring and substantial" contributions is really vesting. The IRS doesn't look at that issue while its ongoing because the participants are continuing to earn vesting service. But vesting is one of the main issues they look at on terminations. And if I recall correctly, they'll potentially go back and look at the past five years of partially vested?

[KJohnson]

Two issues arise on 5310s. The first is that suppose you terminate in '05 after not having made a contribution in '03 and '04. The date you last made a contribuiton will show up on the 5310. To the extent that you have forfeited amounts for anyone who terminated in '03 or '04 (which they also can tell from the 5310) you better believe that the IRS is going to raise this issue and say that everyone was fully vested at 12/31/02 (assuming a calendar year plan).

Although not relevant to this topic, they will also look at your list of employees who terminated without full vesting for the last five years to determine whehter there may have been a partial termination.

[E as in ERISA]

What I'm trying to get at is that on a termination they'll go back five years on all vesting related issues, including this one.

The distinction I'd make is that if the last contribution was in 1995, then they'd make sure that there wouldn't be any partially vested terms during the last five years. But they won't go back to 1995 on the issue, would they?

[KJohnson]

I guess they could. Question 18 requries you to list all contribuitons and amounts for the current plan year and the last 5 years. However, the only time I have ever had it come up if there were no-contribution years immediately preceding the year of termination. I have never seen them "back it up" any farther than the time the last contribution was made. Suppose you had an '05 termination and no contribution in '04, a contribution in '03, but no contribuiton in '02, '01 or '00. I think they would reuqire full vesting as of 12/31/03 but I don't know if they would question the earlier years because fo the '03 contribution.

[Guest Pensions in Paradise]

We may have got an overly aggresive reviewer, but for our plans they did ask for information back to the time of the last contribution. One plan hadn't made contributions since '94, and they asked for vesting confirmation for all participants from '94 on.