1.401(a)(4)-5(a) ?

[Penman2006]

I was asked to do a DB proposal for a company that as of March 2010 terminated all of the rank and file employees and now only the two owners remain. The owners want to set up a plan for themselves effective 4/1/10. If the plan was set up with no past service credit I am wondering if there could be any issues with respect to 1.401(a)(4)-5(a) nondiscriminatory timing of amendments (which includes the establishment of a plan)? Any input is appreciated.

[AndyH]

Potential, sure. Facts and circumstances, right?

[David MacLennan]

What's that old saying about pigs vs hogs? I would benefit the employees in 2010, at least a little. Otherwise it is a -5 issue IMO. Tell them it is the cost of having the plan. And, you can charge more for your creative plan design and ERISA admin! If they want to take a risk, insist they get legal counsel, put your advice in writing, etc., etc.

[Andy the Actuary]

I was asked to do a DB proposal for a company that as of March 2010 terminated all of the rank and file employees and now only the two owners remain. The owners want to set up a plan for themselves effective 4/1/10. If the plan was set up with no past service credit I am wondering if there could be any issues with respect to 1.401(a)(4)-5(a) nondiscriminatory timing of amendments (which includes the establishment of a plan)? Any input is appreciated.

Suggest you establish the plan in a non-overlapping plan year. Also, benefits in new plan must be aggregated with benefits from old plan for 415 purposes. E.g., assuming calendar year plan, establish as of 1/1/2011.

[David MacLennan]

I don't think establishing the plan in 2011 will solve the -5 issue. Giving benefits in 2010 is not guaranteed compliance either, but is reasonable approach IMO.

[AndyH]

We still don't know the "circumstances" of the situation. The cautions are appropriate, but this could be a non-issue if there is no past service grant and nobody that is not covered is non-excludable statutorily. It seems to me to be a legal matter best left to legal advice.

[Penman2006]

Thanks for the responses!

[David MacLennan]

My position on this dismisses the past service grant and the service eligibility, at least as a way to pass -5 (the past service grant I concede would make it look much worse). The lack of a past service grant does not make it compliant with -5. Neither does the situation where no ees are eligible in 2010 (if no ees past or present would ever have been eligible, that would be a different matter though). Giving benefits to ees in 2010 just gives a nod to the regs, a middle of the road approach, since not allowing any plan seems way too harsh IMO.