Is it a plan defect to use a cash basis rather than an accrual basis t

[John A]

If a plan uses a cash basis to determine a Required Minimum Distribution (and there is an accrued contribution), is there a plan defect? The proposed regulation clearly states that an accrual basis should be used, but the regulation is neither temporary nor final, only proposed - so would the fact that the regulation is only proposed be enough to prevent using a cash basis from being a plan defect?

[Guest]

I don't think it matters how the plan is run (cash or accrual) the 70 1/2 distributions have to follow the rules as laid out - temporary regs is all we have.

in other words, it is not a 'plan defect' - in fact I doubt the plan gets that detailed in how to calculate the minimum distribution (e.g. accrual vs cash)- just that it has to be done.

Therefore, I would say its more of a miscalculation on the required amount rather than a defect.

[John A]

Tom,

Thanks for the reply, but what does that mean in practical terms? Would you say that using a cash basis rather than accrual basis is an operational defect (probably what I should have asked in the first place rather than plan defect)? Does a 50% penalty apply to the participant for the amount of the underpayment? If it is not a plan defect, does that mean it is not a qualification issue? Are you saying that no correction program (APRSC, VCR, etc.) would need to be used?

[Guest]

under APRSC you can make corrections for opeartaional defects which is what would say you have.

document says to pay minimums, you 'tried' but didn't calculate enough, as a result, the amount is porbably insignificant, you have the procedure in place to pay the ee, etc.

when you said 'plan defect' I thought you referred to 'form defect' which would kick it out of self correction