New Comparability in Prototype Plans

[buckaroo]

We (along with the most of the rest of the retirement world) received the approval of our EGTRRA prototype document in the past couple of weeks. During the process, we attempted to make the section on New Comparability a bit more restrictive than LRM94 outlined. However, our modifications were rejected at every turn. Therefore our document contains the exact language from LRM94. Now that we are re-reading it for the 100th time, we have come up with a new view.

From our reading, it appears that the LRM allows for two options. One is divided between HCEs and NHCEs. The other appears to be each participant in his/her own group. There does not seem to be any other options. Is this the way others are interrpreting the language? (This differs from the volume submitter which allows for specific groups of participants to be named in the document.)

If this is the case, I am concerned on a number of levels including:

a) My recollection is that some sort of corporate resolution is to drafted each year detailing each group and the contribution amount allocated to each group. Does anyone have a suggestion how this should be done for a plan with each person in their own allocation class?

b) An oldie but goodie, the deemed CODA issue. It certainly appears now more than ever that this type of arrangement would lend itself to being a deemed CODA? Any thoughts? How do we help clients avoid this issue? (Especially is each person is in their own group.)

c) We plan on billing our clients on an hourly rate for processing the New Comparability allocations and associated testing. Even with the billing, we are concerned that clients will request multiple re-runs by making changes to one or two individuals at a time. Again, any thoughts?

d) From reading LRM94, it appears that there can be upto 25 allocation rates for the HCEs (one per HCE) and upto 25 allocation rates for the NHCs (based on the chart). My guess is that a number of clients will either use way less for the NHCs or simply say each percentage up to 25% is a allocation rate. Is this what anyone else has heard? Also, does 0% have to be considered an allocation rate? (If on the off chance that the plan can pass on allocation rate?)

e) Are the counts for the allocation rates based on total population or Statutory employees vs. OEE employees? Do they each get their own number of groups where, in the aggregate, they cannot exceed 25 (for NHCEs)? Pertaining to D above, if a client wants to give 0% to the OEEs, does this then reduce the allocation rates available by 1?

My apologies for the length of the post (and I am not sure that all of it makes sense.)

Any help would be greatly appreciated. Also, if anyone has more information (or where to get it) I would appreciate the source.

[Tom Poje]

as for your item "a)"

I did some research awhile back to see where this item even came up. All I could find was the following:

"To meet the definitely determinable requirements, the employer will annually notify the Trustee in writing the amounts of the contribution it is making for each classification of participants for the Plan Year. "(3/13/98 IRS memorandum)

Somewhere I believe at a Q and A at an ASPPA conference the IRS personal indicated this was not essential. It certainly is n't in the regs or the Code. I use Relius and generate a report indicating each person (as well as the division or class total) and a spot for the employer to sign indicating this is indeed the contribution for the year.

The corporate resolution issue has come up (also at ASPPA conference Q and As) in cases where partners were involved, as if to say, "well, if you have a corporate resolution, then for the partners it can't be deemed a CODA because you have this resolution which 'proves' each partner received a 'contribution' and not 'what they wanted to put in'. And this area is one the IRS would have a hard time proving one way or another. consider a one person profit sharing plan. how come that is not deemed a CODA since the owner can vary the contribution each year?

what you didn't mention but is described in the LRM is that...

In order for plan benefits to remain definitely determinable, the plan document should specify which gateway minimum is used. It is not sufficient for the document merely to specify that one of the gateways will be used.

I only mention that because I have seen documents which describe all of the gateways - these would seem to be in violation (even if they are not prototypes) I cant fathom that particular requirement only applying to prototypes.