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News from, October 26, 2011
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The Latest Q&As for TPAs

Q: With regard to a controlled group, can you explain the difference between "actual" and "identical" ownership?I am confused about the applicability of QJSA waivers in an RMD.  I have seen an article that indicates the waiver (consent) is required and another writing that seems to be making a distinction about whether the participant has reached the NRD at the time the RMD is required.  I have assumed a plan must make the RMD regardless of the participant’s or spouse's consent.  What if the participant or spouse refuse to consent to anything? I thought the RMD was forced. 

The consent requirements of sections 411(a)(11) and 417(e) are deemed to be satisfied if the plan has made reasonable efforts to obtain consent from the employee (or spouse if applicable) and if the distribution otherwise meets the requirements of section 417 (§1.401(a)(9)-8, A-4).0

Q: A company has a SEP plan and makes an annual contribution every year.  Can the contribution amounts for a SEP plan be a uniform dollar amount instead of a uniform percentage amount?  

A: Yes (§1.408-8(c)(1)), but only if the SEP plan document is amended to provide for this new allocation formula.

Q: A cash balance plan terminated. The employer also sponsors a 401(k) plan that includes a Roth feature. Can a participant rollover the proceeds from the cash balance plan into a designated Roth account in the  401(k) plan?

A: Only an eligible rollover distribution made from the 401(k) plan can be rolled over to a designated Roth account.  So the short answer is no. However, if the cash balance plan distribution is rolled over to the 401(k) plan, it may then be possible to roll over that amount from the 401(k) plan rollover account to a designated Roth account under the plan. Guidance issued to date does not directly address this, but there is nothing in the available guidance that would prohibit it.  Depending on the plan document's current provisions, an amendment may be necessary.

Q: Client has a 401(k) plan with owner participation and all employees participate. Client establishes new profit sharing plan and defined benefit plan. Both new plans will cover owner and a limited number of participants. Both new plans satisfy 410(b) and 401(a)26 by combining just these two plans and excluding 401(k) plan. Owners now waive out of 401(k) plan in 2011 and pull their account balances into the profit sharing plan.

A: The owners cannot "waive" participation in the 401(k) plan.  The plan document would have to be amended to exclude the owners effective 1/1/12.

Unless there is a distributable event, the owners cannot simply pull their account balances into the profit sharing plan. In theory, the employer could transfer the owners 401(k) balances to the PS plan. The PS plan document would have to include provisions for this. I'm not clear how IRS would view a plan to plan transfer for the purpose of avoiding the top heavy rules, though.  In this particular case, I do not believe it matters; transferring the 401(k)  balances to the PS plan does not buy them anything.

Q: The two new plans are top heavy. The 401(k) plan on a stand alone is obviously not top heavy by itself. For 2011, since owners participated in 401(k) plan, all participants in this plan must be eligible (either through this plan or the other plans) to receive the top heavy minimum. Can they exclude this plan (and participants) entirely for 2012 on the basis that no owner participated or had a balance on 12/31/2011 in this plan?

A: If no key employee receives any contribution in the 401(k) plan for 2012, a top heavy minimum contribution is not required to the 401(k) plan, based on the information provided.  The 401(k) plan will remain part of the required aggregation group.  However, since top heavy minimums will not be required to the 401(k) plan, this should not have any negative effect; the new plans are top heavy on their own.

Q: For 2012 and later, must the 401(k) plan be aggregated into the top heavy group, or can it be excluded entirely? What about for subsequent years?

A: It must be aggregated for 2012 and all years thereafter.

Q: Assume same situation, but owners never participated, nor were ever eligible to participate in the 401(k) plan. Same questions. For 2012 and later, must the 401(k) plan be aggregated into the top heavy group, or can it be excluded entirely? What about for subsequent years?

A: The 401(k) plan is not a member of a required aggregate group.  Again though, since the new plans are top heavy, whether or not the 401(k) plan is part of the aggregate group does not really matter.

See  also §1.416-1, T-6, T-9, M-1, M-7, and M-7.

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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