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News from, April 18, 2012
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The Latest Q&As for TPAs

Q: Can an employer sponsor a 412(e)(3) plan and SEP Plan in the same year? If yes, is the limit on the SEP 6%?

A: Yes, and yes (§§404(a)(7)(D); 404(h)(3)). Note that the SEP cannot use the IRS model Form 5305-SEP as its document.

Q: Can an employee in a C corp. make a deferral from their 2011 W2 pay after the end of year? 

A: Only if the plan document specifically provides for this, and the deferral is deposited to the plan within 2 1/2 months following the plan year end. The deferral must come from amounts that have not yet been paid to the participant. (§1.401(k)-2(a)(4)(i)(B)(2)).

Q: Can pay issued 2012 be considered as 2011 pay and a deferral deducted from that pay?  A client said that they contacted IRS and were told that this could be done. 

A: Only if the amount paid in 2012 is for 2011, and the requirements stated above are met.

Q: We have a client who terminated his DB plan effective 12/31/2011. If all of the plan assets are distributed before 12/31/2012, is the plan exempt from the required EGTRRA restatement by 4/30/2012?

A: An EGTRRA restatement is not required if the plan terminates before the end of its EGTRRA remedial amendment period (in this case, 4/30/12).

Q: Would the EGTRRA restatement be require if the assets could not distributed from the plan by 12/31/2012?

A: If the failure to distribute all assets before 12/31/12 results in the voiding of the plan termination, yes.  Otherwise, the final distribution date would not affect my previous response. The restatement requirement is based on the plan termination date, not the final distribution date.

Q: Are there circumstances where the distribution of assets exceeds a year and that does not result in voiding the plan termination?

A: Yes. The requirement is that all plan assets be distributed as soon as administratively feasible. This requirement is deemed satisfied if all assets are distributed within 1 year following the plan termination date. In addition, distributions are deemed to have been made as soon as administratively feasible if commencement of the distribution was delayed because of circumstances outside the control of the plan administrator. For example, if a plan administrator submits a timely application for a determination letter upon termination, the plan administrator may generally delay the distribution of assets until the determination letter is issued (IRM  (01-01-2003)).


Controlled group questions.  Dad owns 100% of Co A.  Dad also owns 51% of Co B; his 25 year old daughter owns the other 49%.  Eventually she will take over 100% ownership,  but that will be in a couple of years.  Co A has a 401(k) Plan.  Co B does not have a 401(k) Plan. 

Q: Won’t Co B be considered a controlled group of Co A and need to be included in their plan?

A: Yes. The daughter's 49% ownership in Co B attributes to the Dad, making Dad the 100% owner of both companies. The employees of Co B must be taken into account for the 410(b) coverage testing, as nonexcludable and not benefiting. If the test passes on that basis, the employees of Co B do not have to be covered by the plan.  If 410(b) fails, you will have to cover at least some of the NHCEs of Co B.  

Q: The daughter receives compensation from both Co A and Co B. She deferred from her compensation with Co A, but nothing in Co B. In fact, no one has deferred in Co B. They are doing a match of 50% of 6%.  Will I include her compensation from Co B in calculating her match limits, or do I strictly calculate it on Co A earnings since that is the income she deferred from?

A: The safe harbor match is based on the plan document's definition of compensation, as long as the definition does not result in a violation of section 414(s). The plan's definition may include the comp paid from Co B, but it may not. You need to check the plan document.

Q: There are a few employees that work for both companies, I assume I would consolidate their earnings and hours. Is that correct?

A: You would consolidate hours. Whether or not you consolidate compensation depends on the plan's definition of comp, and whether that definition passes 414(s), or not.


A 401(k) profit sharing plan on a volume submitter plan allows for lump sums and substantially equal installments as forms of distributions. Annuities are the normal form of distribution. The QPSA is equal to 50% of the participant's interest in the plan as minimum spouse's death benefit.  The normal form of the QJSA is a joint/50% survivor annuity.

Q: Can the annuity option be eliminated from the plan?

A: Yes. See §1.411(d)-4, A-2(e). Note that the plan would also need to be amended to provide that 100% of the participant's nonforfeitable accrued benefit is payable to the participant's surviving spouse unless the participant elects (with spousal consent) that such benefit be provided instead to a designated beneficiary). See §1.401(a)-20, A-3(a)(1).

Q: If so, what is the effective date (would the amendment only apply to contribution deposits, earnings, etc. after the amendment)? Would the account balance prior to the amendment still be subject to the QJSA/QPSA rules?

A: The amendment would apply to the entire account balance. 

All plan benefits were frozen on 12/31/2009 and the plan was terminated 12/31/2011.  The owner / HCE is received an actuarial increase for late retirement beginning for the 2010 and 2011 plan year.  

Q: Does the actuarial increase for 2010 and 2011 count as an benefit accrual for 401(a)(26) purposes?

A:  No. IRM provides that "if no employee is currently eligible to accrue any additional benefits under a plan formula, such formula will not be subject to the minimum participation requirements of IRC section 401(a)(26)."

Q: Our client has over 100 participants and is interviewing auditors to handle the plan audit.  I've always believed that an accountant would not be considered independent if his firm also does the accounting work for the plan sponsor.

A: Generally, no. ERISA §2509.75-9(3)) provides that "an accountant will not be considered independent with respect to a plan if....a member of an accounting firm maintains financial records for the employee benefit plan...".  However, §2509.75-9 also states that "In determining whether an accountant or accounting firm is not, in fact, independent with respect to a particular plan, the Department of Labor will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between the accountant or accounting firm and that of the plan sponsor or any affiliate thereof, and will not confine itself to the relationships existing in connection with the filing of annual reports with the Department of Labor."

TAG is a technical support service that offers answers to pension questions via e-mail. TAG subscribers have access to an extensive Web site with a full array of links to primary source materials, a database of over 4,000 FAQs asked by pension professionals, tools and much more. Subscribers also receive daily updates on breaking news in the industry. For more information about TAG, go to: TAG is part of Wolters Kluwer Law & Business, which includes CCH, Aspen Publishers, and

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