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News from, June 8, 2011
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The Latest Q&As for TPAs

We have a 401(k) SHNE New Comp plan that wants to exclude commissions from the definition of compensation for all purposes. 

Employees would then not be able to defer money from commissions nor would the New Comp/SHNE be based on any commissions, correct?

Correct. Note that compensation used for nondiscrimination testing purposes must be nondiscriminatory, regardless of the plan's definition. Compensation for nondiscrimination testing does not have to be defined in the plan document, and generally is not.

When you are determining if an employee is an HCE due to compensation, would commissions then be excluded?

No. Commissions cannot be excluded for HCE determination purposes.

401(k) plan is top heavy on determination date 12/31/2009, therefore a top heavy minimum is due for the 2010 plan year (calendar year plan).  The employer intends on depositing the top heavy contribution by corporate filing deadline of 09/15/2011. An ESOP plan is being implemented with an effective date of 01/01/2011.

Can a top heavy 401(k) plan with an allocation due for the 2010 plan year deposit the top heavy contribution into an ESOP plan with an effective date of 01/01/2011?

No. The plan document must provide how the top heavy requirements will be satisfied. As of 12/31/10, the 401(k) plan document states that the top heavy minimum contribution requirement will be satisfied through a contribution to the 401(k) plan. It is too late to amend the 401(k) plan for the 2010 plan year.

In trying to determine a partial (profit sharing) plan termination, we need guidance on the following assumptions or questions:

In calculating the turnover rate, we use the number of participants at the beginning of a plan year plus any employees who become eligible during the year. 

It depends.  It could be for a longer period if there were on whether there were related employer-initiated severances in a preceding period.  Rev. Ruling 2007-43 provides: "The turnover rate is determined by dividing the number of participating employees who had an employer-initiated severance from employment during the applicable period by the sum of all of the participating employees at the start of the applicable period and the employees who became participants during the applicable period. The applicable period depends on the circumstances: the applicable period is a plan year (or, in the case of a plan year that is less than 12 months, the plan year plus the immediately preceding plan year) or a longer period if there are a series of related severances from employment."

Count vested and non-vested participants (Matz v, Household). 


Do not count voluntary terminations, including death, retirement or early retirement, or disability, or employee initiated voluntary terminations. 

Rev. Ruling 2007-43 says, death, disability or retirement on or after normal retirement age (not early retirement age) are employee initiated voluntary terminations. Note that terminations are generally considered employer-initiated unless that can be shown to be purely voluntary from personnel records, etc. Per Rev. Ruling 2007-43: "In certain situations, the employer may be able to verify that an employee’s severance was not employer-initiated. A claim that a severance from employment was purely voluntary can be supported through items such as information from personnel files, employee statements, and other corporate records."

Count RIF or position eliminations as Employer initiated terminations. 


Do we count participants who were terminated due to Performance issues as Employer initiated terminations towards the total turnover rate? 


For this plan, no divisions or departments were eliminated. 

That's not needed for a finding of a partial termination.

No Plan amendment has frozen or terminated the Plan contributions. 

That's not needed for a finding of a partial (PS plan) termination.

In calculating the turnover rate, do we use one year or 3 years (RIF began in 2008) as the applicable period?

Assuming these were a series of related severances of employment, the "applicable period" would start in 2008. See answer to #1.

20% reduction in participants still considered a "significant % test”?  

Yes. Per Rev. Ruling 2007-43: "If the turnover rate is at least 20 percent, there is a presumption that a partial termination of the plan has occurred."

If participant reductions fall below 20%, do you recommend the Plan apply for an IRS determination?

If it's unclear whether a partial termination has occurred, it may be advisable for the client to request an IRS determination letter.  

Do the minimum distribution requirements under 401(a)(9) apply to a 457(b) plan?  

Yes, Section 457(d)(2) specifically states this:

§1.457-6. Timing of distributions under eligible plans  
(d) Minimum required distributions for eligible plans. In order to be an eligible plan, a plan must meet the distribution requirements of section 457(d)(1) and (2). Under section 457(d)(2), a plan must meet the minimum distribution requirements of section 401(a)(9). See section 401(a)(9) and the regulations thereunder for these requirements. Section 401(a)(9) requires that a plan begin lifetime distributions to a participant no later than April 1 of the calendar year following the later of the calendar year in which the participant attains age 701/2 or the calendar year in which the participant retires.    

§1.457-2.  Definitions  
(e) Eligible employer. Eligible employer means an entity that is a State that establishes a plan or a tax-exempt entity that establishes a plan. The performance of services as an independent contractor for a State or local government or a tax-exempt entity is treated as the performance of services for an eligible employer. The term eligible employer does not include a church as defined in section 3121(w)(3)(A), a qualified church-controlled organization as defined in section 3121(w)(3)(B), or the Federal government or any agency or instrumentality thereof. Thus, for example, a nursing home which is associated with a church, but which is not itself a church (as defined in section 3121(w)(3)(A)) or a qualified church-controlled organization as defined in section 3121(w)(3)(B)), would be an eligible employer if it is a tax-exempt entity as defined in paragraph (m) of this section.  

(f) Eligible plan. An eligible plan is a plan that meets the requirements of §§1.457-3 through 1.457-10 that is established and maintained by an eligible employer. An eligible governmental plan is an eligible plan that is established and maintained by an eligible employer as defined in paragraph (l) of this section. An arrangement does not fail to constitute a single eligible governmental plan merely because the arrangement is funded through more than one trustee, custodian, or insurance carrier. An eligible plan of a tax-exempt entity is an eligible plan that is established and maintained by an eligible employer as defined in paragraph (m) of this section.    

457(d)(2) Minimum distribution requirements. - A plan meets the minimum distribution requirements of this paragraph if such plan meets the requirements of section 401(a)(9).

TAG is a technical support service that offers answers to pension questions via email. TAG subscribers have access to an extensive website 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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