Demo 6 on cross tested PS plan

[Belgarath]

Just wanted to see what other folks do or have encountered. We frequently have cross-tested PS plans that terminate without having had a contribution for the year of termination, and often previous year or years as well.

In the past, we have had them pay the higher fee on the 8717, and sent a Demo 6 for the last year the cross-tested formula was utilized, on the assumption that there's obviously no point doing it for the year of termination when no contribution is made, but important to receive approval for the last year it WAS utilized.

The IRS has never questioned or commented on this approach. Recently we have had reviewer feedback in some cases to complete the 5310 with the formula default provisions, not send the Demo 6 and have the Employer pay the lower filing fee of $1,000.

Wondered what y'all do, and if you have received similar comments/feedback. If you have, have you changed your method? We've had so many terrible experiences and wasted so much time with plan termination reviewers who know almost nothing that we're very hesitant to adopt this approach based upon limited reviewer feedback. Maybe we are being too conservative, but I'd appreciate any opinions. Thanks!

[KJohnson]

I just submitted on the way you propose. I put this as an addendum to Line 14.

Line 14 – Explanation

Line 14 was not completed. The Plan provides for a discretionary profit sharing formula. Although the Plan provides for a cross-tested allocation formula for this contribution no such contribution was made in the years 2007, 2008 or the year of termination. The only contributions that were made were deferrals, matching contributions and the top-heavy minimum.

I also put this in my cover letter:

Wth regard to Line 14, Form 5310, the Plan provides for a discretionary profit sharing formula and a cross-tested allocation formula for this contribution. However, no such contribution was made in the years 2007, 2008 or the year of termination (other than required top heavy contributions). Since the general test and Demo 6 is required only for the year of termination (or the year that §410(b) coverage is based) and since no profit sharing contribution was made for the year of termination or the prior year, Question 14 was not completed.

I'll let you know what I hear but I think it only makes sense to do it this way based on the instructions.

[KJohnson]

The IRS just got back and said they wanted to see Demo 6 for the last year that a contribution was made. Seems contrary to the instructions for Line 143.

Line 14e. Plans that use a nondesign-based safe harbor for the year of termination must attach a Demo 6...

Belgarath, are you saying that the IRS reviewer actually suggested not submitting the Demo 6 if no profit sharing contribution had been made for a couple of years? Did you get any more feedback on this?

[Belgarath]

KJohnson - yes, that's what was suggested by the reviewer. So we tried it on the next one, but it hasn't had the initial review yet, so I can't report either success or failure. Based upon your experience, it sounds like one of those items that will depend upon which reviewer you get.