Exempt from $1,000 user fee?

[D Syrett]

Trying to figure out if my client is exempt from the $1,000 Form 5310 user fee.

Small DB plan terminated 7/31/08. Current participants are doctor, spouse. Only NHCE was paid a lump sum in May 2008.

Form 5310 will be filed Aug 2008.

Rule says you must have an NHCE "Participating" and that the determination is made at the time of the 5310 request.

If I'm out of luck above, what if we argue that the NHCE is due a few more dollars of interest because the lump sum was figured based on 5/15/08 payment and actual payment was made at the end of May.

[Mike Preston]

If the NHCE is due more money, then there is no question that he/she is participating.

[Guest Sieve]

Is it really that obvious? Do you think receiving earnings only (the interest payment) will cause an individual to be considered participating for this purpose? This may be apples & oranges, but it doesn't for 410(b) (although there we're talking about "benefiting").

[Mike Preston]

We are talking about arguing with a reviewer here. No reason not to float the argument.

[Guest Sieve]

Notice 2002-1 details when the User Fee exemption applies. You may want to read it to see if you meet all the requirements, but here are a couple interesting issues discussed in the Notice:

"Q–9: When is an employee treated as participating in a plan for purposes of determining if at least one employee who is not a highly compensated employee participated in the plan . . .?

"A–9: For this purpose, an employee is treated as participating in a plan for a plan year if the employee benefits under the plan (within the meaning of § 1.410(b)–3 of the Income Tax Regulations) for the plan year. . . ." [That's the "benefiting" under the plan language, which means that there must be a benefit accrual for a defined benefit plan participant.]

That's not good news for you, since this individual did not accrue a benefit in 2008. But, here's one matter that works to your advantage, assuming there was an NHCE who accrued a benefit in 2007:

" . . . at least one employee who was not a highly compensated employee for the plan year immediately preceding the plan year in which the determination letter request is filed ("preceding plan year") must have participated in the plan for the preceding plan year."

Go for it . . .

[D Syrett]

Mike & Sieve, thanks for the replies. I will check Notice 2002-1. NHCE did not benefit in 08 but did in 07.