Required minimum PS not made!

[mefrancis1729]

I have cross tested Profit Sharing and Cash Balance plans. The plan sponsor did not make the minimum required contribution by 9/15, so they will be paying the 10% excise tax on the unfunded minimum. Now, the plan sponsor is also saying they are unable to make the minimum required profit sharing contribution for their employees- safe harbor, top heavy, and gateway. What happens if they do not make this? Are there penalties like the CB plan or is the plan disqualified?? 

[My 2 cents]

I am assuming that the Cash Balance plan is subject to the jurisdiction of the PBGC in making the following comments. 

Failure to satisfy the minimum funding requirements is an event reportable to the PBGC.  Have they submitted a Form 10 yet?  Being unable to afford contributions to the defined benefit plan (presumably the reason for not making the minimum required contribution by September 15th) is a matter of great concern to the PBGC, particularly if the sponsor is also unable to make the contributions required for the Profit Sharing plan.  Any time there is an action called for in the plan document (such as making the contribution the Profit Sharing plan calls for) and that action is not taken, it could become a qualification issue.

I don't have expertise with defined contribution plans, so I am not sure that failure to make a required contribution is a qualification matter, however.

[mefrancis1729]

It is a small plan, so the form 10 notification is waived.

[Mike Preston]

Not for failure to satisfy minimum funding, is it?

[mefrancis1729]

you are correct. it is only waived for missed quarterly payments. 

[CuseFan]

If the plans are aggregated for nondiscrimination (and coverage) to enable the CBP to pass, and the contributions required in the DCP to pass the NDT are not made, then it is the CBP that fails 401(a)(4) nondiscrimination and w/o correction would be disqualified. The DCP would not be DQ'd on its own if there is no discretionary PS contribution because that plan does not need to be aggregated. However, if there is a SH and/or other type of contribution required under the terms of the plan and not made then that is a qualification issue. Note that not making the CB contribution does not mean that the plan defined contribution credits do not get allocated - so there's no "out" here by claiming HCEs didn't get any allocation/benefit.

[AndyH]

2 hours ago, CuseFan said:

If the plans are aggregated for nondiscrimination (and coverage) to enable the CBP to pass, and the contributions required in the DCP to pass the NDT are not made, then it is the CBP that fails 401(a)(4) nondiscrimination and w/o correction would be disqualified.

Unless you do a corrective amendment and add benefit accruals sufficient to pass a(4) and 410(b).  By 10/15 that is, under the normal rules.

[Tom Poje]

some thought (on Friday the 13th)

this can get ugly. the Cash Balance is required so has to be made. the profit sharing is discretionary so if not made you haven't done anything 'wrong'. except this will result in a failure to satisfy 401(a)(4)

however

a failure to satisfy 401(a)(4) is a demographic failure.  Section 5(c) of EPCRS

but under EPCRS

section 4 .01 (2) VCP - ....for demographic failures

in other words, you can't self-correct except using VCP

[My 2 cents]

3 hours ago, Tom Poje said:

some thought (on Friday the 13th)

this can get ugly. the Cash Balance is required so has to be made. the profit sharing is discretionary so if not made you haven't done anything 'wrong'. except this will result in a failure to satisfy 401(a)(4)

however

a failure to satisfy 401(a)(4) is a demographic failure.  Section 5(c) of EPCRS

but under EPCRS

section 4 .01 (2) VCP - ....for demographic failures

in other words, you can't self-correct except using VCP

The impression I got from the original post was that the profit sharing contributions they were unable to make were NOT discretionary (some combination of safe harbor and top heavy).  I think failure to make a mandated defined contribution plan contribution is worse than not making a minimum funding contribution to a defined benefit plan.  Cash balance formula or not, failure to make a plan contribution in a defined benefit plan does not cut into anyone's actual plan benefit (there being no direct correlation between the formula accrual and the actual cash contributed to the plan), whereas it certainly does if it is a defined contribution plan since no contribution means that the account balance does not go up as it is supposed to.

[Lou S.]

You have the potential to disqualify both plans. 401(a)(4) failure on the CB plan, failure to make SH contribution on PS plan.

Sounds like these plan should be amended to freeze the CB ASAP and change the SH to a maybe notice for 2018 at the least.

Doesn't solve your 2016 problem and very likely similar problem coming for 2017 but gets you out in front of it for 2018.

[My 2 cents]

30 minutes ago, Lou S. said:

You have the potential to disqualify both plans. 401(a)(4) failure on the CB plan, failure to make SH contribution on PS plan.

Sounds like these plan should be amended to freeze the CB ASAP and change the SH to a maybe notice for 2018 at the least.

Doesn't solve your 2016 problem and very likely similar problem coming for 2017 but gets you out in front of it for 2018.

Sorry, I don't see any connection between failing to make a cash contribution to a defined benefit plan (which, whether cash balance or not, has no impact on the accrual of benefits) and Section 401(a)(4).  There may be a qualification requirement associated with meeting the minimum funding requirements or a failure to carry out the plan provisions (assuming that the plan demands that minimum funding be met), so I am not saying that failing to make the minimum contribution to the cash balance cannot have an impact on qualification, but I am saying that if it did it would not be a matter of failing to meet the non-discrimination rules.

[Lou S.]

That's true. You might just create an underfunded DB plan with some potentially large excise taxes but it's not a disqualification issue in and of itself.

I do agree with you that not funding the DC contributions could raise larger problems quicker with respect to potential plan qualification and potentially for both plans as it looks like not funding the DC plan will cause the DB accruals to fail 401(a)(4) in addition to the already mentioned issues in the DC plan such as failure to follow terms (Safe-harbor contributions) and failure to comply with top-heavy. I would also guess the top-heavy minimum is being satisfied in the DC plan which could also indirectly impact the DB plan qualification.