Earl Posted November 25, 2016 Posted November 25, 2016 New employee (1st non-owner employee) will enter a DB Plan 7/1/2017. Can I terminate 6/30/2017 and give only the owner a benefit for the year? Thank you CBW
SoCalActuary Posted November 28, 2016 Posted November 28, 2016 If they accrued the required hours, I believe you have to include that service in the benefit unless you amend prior to the 1000 hours. But how do you plan to pass the non-discrimination testing?
Earl Posted November 28, 2016 Author Posted November 28, 2016 Maybe the better question. My thought was the plan terminated before the employee entered so there would be no testing since they never entered. CBW
AndyH Posted November 30, 2016 Posted November 30, 2016 Does the testing year include post-termination time or is the employee ineligible for the year? (I don't know the answer off hand). But even if the employee can be excluded on the basis of failing to complete the minimum service or age, the timing of the amendment presents a potential discrimination issue itself, which is a facts and circumstanced determination. I don't see how you pass that.
Earl Posted November 30, 2016 Author Posted November 30, 2016 The employee will enter 7/1/2017 if Plan is not terminated. The only reason for plan termination would be to avoid employee earning a benefit/having a corp expense. I am not really seeing the discrimination issue. What if employee was scheduled to enter 1/1 and the plan is terminated 12/31. Not the same thing? I guess not due to being within the year? CBW
shERPA Posted November 30, 2016 Posted November 30, 2016 1.401(a)-5 spells out the discrimination issue. Have the numbers been run to see the impact? The plan might still make sense. I carry stuff uphill for others who get all the glory.
AndyH Posted November 30, 2016 Posted November 30, 2016 1.401(a)-5 spells out the discrimination issue. Should this be 1.401(a)(4)-5? I think my point is moot anyways, since there does not appear to be any special "year of plan termination" rule in the nondiscrimination or coverage regulations. So yes there is a numerical testing issue if the plan year is calendar. If the plan year ends 6/30/2017, -5 could possibly be a question raised by the IRS.
Earl Posted November 30, 2016 Author Posted November 30, 2016 1.401(a)(4)-5(2) Facts & Circumstances would be the problem, it seems. Plan is a calendar year plan. What would be the numerical testing issue? Thanks again. CBW
shERPA Posted November 30, 2016 Posted November 30, 2016 1.401(a)-5 spells out the discrimination issue. Should this be 1.401(a)(4)-5? Yes, thanks for the catch, phone rang when I was typing this, can't multi-task like I used to. I carry stuff uphill for others who get all the glory.
AndyH Posted December 1, 2016 Posted December 1, 2016 What would be the numerical testing issue? A coverage ratio of 0% for 2017.
SoCalActuary Posted December 2, 2016 Posted December 2, 2016 Consider a plan year ending 6/30/17, with a short year filing, and test on that basis. Any thoughts on this variation?
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