Trekker Posted February 23, 2012 Posted February 23, 2012 Even though a Cash Balance Plan has complied operationally with the meaningful benefit requirement and all participants received the proper allocation, the amendment to increase the NHCE by 1% was never done. Should have been adopted for the 2009 year going forward. Calendar year plan. This is a very small plan. The increase for each year was probably less than $2000 spread among 6 NHCE. There is one HCE. The EGTRRA restatement was submitted to the Service, Cycle E. Acknowledgment received but no contact from an agent. The demo submitted with the restatement reflects the correct percentage, but the plan document does not (off by just 1%). Any suggestions on how to fix? All participants are whole. Thanks for any suggestions.
Effen Posted February 23, 2012 Posted February 23, 2012 I don't really understand your question. You make a statement that the plan "complied operationally with the meaningful benefit requirement", but then say "the amendment to increase the NHCE by 1% was never done". What is the significance of "an amendment to increase the NHCE by 1%"? Since you say "the" amendment, was this something the IRS required? Increase the NHCE what? by 1% of what? I'm just a bit confused. When most people talk about meaningful benefits they talk about the need to provide a .5% of comp. accrual for each year, but this is based on an internal IRS memo and is not statutory or "required". "Meaningful" is never actually defined in the code or regs. You ask how it should be "fixed", but if you "complied operationally with the meaningful benefit requirement", why do you think it is broken? The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
AndyH Posted February 23, 2012 Posted February 23, 2012 When most people talk about meaningful benefits they talk about the need to provide a .5% of comp. accrual for each year, but this is based on an internal IRS memo and is not statutory or "required". "Meaningful" is never actually defined in the code or regs. Well said. Not sure this is widely understood.
Trekker Posted February 23, 2012 Author Posted February 23, 2012 The CBP has two allocation groups. Group 1 is the HCE with a dollar amount specified in the plan. Group 2 is the staff, all NHCE, with a hypothetical allocation of 3.75% specified in the plan. The actuary advised that, in order to satisfy 401(a)(26), Group 2 needs to be increased to 4.75%. The allocations reflect that increase, back to 2009 and going forward, but the plan document does not. All NHCE's were allocated what they were entitled to. Does the question make more sense now? Thanks for replying.
SoCalActuary Posted February 23, 2012 Posted February 23, 2012 Sounds like a document issue. Do the amendment now, retroactively to when it was required. Review the deduction issues with the actuary, because there might be no problems.
Effen Posted February 23, 2012 Posted February 23, 2012 I agree with SoCal - this is a document issue. Amend now with retro effective date, maybe consider VCP. I don't necessarily agree with your actuary that 3.75% cash balance is not "meaningful" under a(26) (regardless of whether or not it produced a .5% accrual), but that is between you, him, and the IRS. I think it would be very difficult for the IRS to argue that 3.75% is not meaningful; especially considering the TH min in the DC plan is only 3%. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Trekker Posted February 23, 2012 Author Posted February 23, 2012 I may have misspoken in using the term "meaningful benefit" or even 401(a)(26). I don't speak the actuarial lingo, but I'm thankful for those who do. The increase might have been necessary to maintain the desired level for the HCE. I can confirm that with the actuary. In any event, these message boards are invaluable. Thank you for your replies. More are welcome if they are out there!
AndyH Posted February 23, 2012 Posted February 23, 2012 Thank you for your replies. More are welcome if they are out there! Live long and prosper.
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