Hewitt翰威特咨询给美国某大机构的HR法律咨询案

1、Problems and Issues with Nondiscrimination Rules - Case StudiesMarch 18, 2003To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of your organization and Hewitt Associates LLC1Agenda Controll

2、ed Group Issues Plan Aggregation Issues Determination of HCEs Determination of Most Valuable Accrual Rates2Controlled Group Issues 3Groups to Include Who knows the group? Are there leased employees? Are there affiliated service group relations? Are there acquisitions?4Issue 1: Who knows the controll

3、ed group?Essential to involve legal counsel HR contacts may not know whether or not they have a parent or sub percentage of ownership if they do that foreign parent owns other U.S. companies whether business relationships constitute an affiliated service group or leasing arrangement Requires interpr

4、etations of corporate law WE DO NOT PRACTICE LAW5Issue 1:Who knows the controlled group?ABCDEFGHKJIUSAUSAUSAUSAUSAUSAUSAUSAFranceFranceCanadaAcquires 80%100%80%40%40%50%50%-acquired prior year85%0%-Leasing grp0%-Mgt Svcs only0%-Svcs onlyExercise: Identify controlled groups in years 0, 1, and 2, assu

5、ming acquisitions admitted to controlled group at end of transition period6Issue 1: Who knows the controlled group?Situation: Company with foreign ownership Family, Inc. family company owner retiring Sells to New Dad, Inc., a large European company so children dont take over Family, Inc. checks and

6、finds other US companies owned by New Dad to include in testing Later Family, Inc. finds that New Dads Canadian subsidiary also owns additional US entities to include in testing, but wonders about finding others7Issue 1: Who knows the controlled group?Situation: Holding company All Alone Company is

7、acquired by a holding company (Hold My Hand But Pretend Im Not Here, Inc.) All Alone is happy it still gets to maintain its own plans, payroll, do its own filings But, now All Alone must figure out who else Hold My Hand owns and how to collect data from who in order to do its testing8Issue 2: Are th

8、ere leased employees?Leasing arrangements Considered leased employee if provide services pursuant to an agreement services performed substantially full time for at least a year services provided under direction of recipient employer not covered by a safe harbor retirement plan9Issue 2: Are there lea

9、sed employees?Situation: Typical leasing arrangements In NDT planning meeting, Who Me, Lease? Co. states they have only 3 leased employees jokes passing a small group in the hall that we had just passed all their leased employees After reviewing a leased employee checklist, Who Me Lease calls back w

10、ith 200 leased employees since the controlled group had only 2000 NHCEs before, the 75% ratio test changes to 68% and now requires an average benefit percentage test 10Issue 2: Are there leased employees?Situation: Company employees work at JV Division J is owned by Bigger Fish Company Bigger Fish C

11、ompany spins off Division J to form a joint venture Division J employees become employees of the JV Bigger Fish Company also has a few employees who remain Big Fish, but work at the JV these employees are tested as employees by Bigger Fish, but also must be included as leased employees by the JV 11I

12、ssue 2: Are there leased employees?Situation: Company acquires employees We Do Everything, Inc. acquires the office staff, their portion of the retirement plan, and the whole building of the We Dont Do Floors Co. The professional staff of We Dont continues to work in the building & control the w

13、ork of the office staff We Do tests the office staff as employees We Dont includes the office staff as leased aggregates office plan as if its own 12Issue 3: Are there affiliated service groups?Affiliated Service Groups No ownership involved, based in part on regular provision of services or managem

14、ent services by a service organization Dont forget affiliated service groups of affiliated service groups IRS will rule via Form 5300 filing whether an affiliated service group relationship exists13Issue 3: Are there affiliated service groups?Situation: Company acquires employees - 2 We Do Windows,

15、Inc. acquires the office staff, their portion of the retirement plan, and the whole building of the We Dont Do Windows Co. The professional staff of We Dont continues to work in the building & control the work of the office staff An affiliated service group relationship exists We Do and We Dont

16、are tested as one controlled group14Issue 3: Are there affiliated service groups?Situation: Attorneys disagree We Do Everything, Inc. now acquires We Do Windows, Inc. The affiliated service group relationship is causing its plan to fail under the new controlled group The attorney for We Do Windows t

17、hinks it should pass since they feel the relationship with We Dont Do Floors should also be an affiliated service group The attorney for We Do Everything disagrees15Issue 4: What about acquisitions?Transition rule application Not much guidance Generally agreed the transition rule cant be relied on t

18、o avoid testing indefinitely if frequent M&A some attorneys suggest testing the company and its acquisition as separate controlled groups until the end of the transition period some suggest testing the company only without its acquisition until the end of the transition period some ignore the tr

19、ansition rule16Issue 4: What about acquisitions?Situation: Separate testing during transition All Together Now, Inc. acquires Not Quite Together Yet, Inc. and instructs Not Quite Together to continue testing as usual until transition ends Not Quite Together tests its multiple employer plan plan prov

20、ides cuts to HCEs After transition, All Together Now attorney gets involved in testing and determines there is a single employer, not multiple employers17Groups to Exclude Are there multiple employer plans? Are there joint ventures? What about the tax-exempt exclusion?18Issue 1: Any multiple employe

21、r plans?Multiple employer plans Each employer adopting a multiple employer plan must test separately from other adopting employers However, failing results for one adopting employer affect the qualified status of all in the plan19Issue 1: Any multiple employer plans?Situation: Plan has adopting empl

22、oyers Wild Blue Company sponsors a profit sharing plan and Limp a Lot, Inc. and Come Fly With Me, Inc. also choose to adopt the plan. Come Fly uses the “top 20%” election for HCEs. Limp a Lot dissolves, but Come Fly hires many of the Limp a Lot employees. Come Fly includes its new employees for test

23、ing, but ignores them for HCE determination.20Issue 1: Any multiple employer plans?Situation: Continues benefits after sale Wild Blue Company sells its Flap Your Wings division, but allows the employees to continue in its plans for one year. The new Flap Your Wings Company becomes another adopting e

24、mployer for the year. The Wild Blue Company will test including Flap Your Wings employees/benefits up to sale Flap Your Wings will do its own testing of the plan from the sale date until benefits cease21Issue 2: What happens with JVs?Joint Ventures When there is not an 80% ownership relationship for

25、 a joint venture, each group becomes a separate controlled group As stated previously, there may be some employees included in testing for both, as a leased employee in one entity22Issue 2: What happens with JVs?Situation: Continues benefits after JV You Complete Me, Inc. and Ditto, Inc. each spin o

26、ff divisions to form a joint venture. The employees from each company remain in their respective plans and the JV becomes an adopting employer of both plans. Neither plan passes testing with respect to the JV23Issue 3: What about tax-exempt exclusions?Tax-exempt exclusion Only allowed for 401(k) pla

27、n testing Requires no tax-exempt employees benefiting in 401(k) Requires 95% coverage of non tax-exempt employees in the 401(k) plan If requirements met, 401(k) plan testing for 410(b) can exclude tax-exempts from the controlled group24Issue 3: What about tax-exempt exclusions?Situation: For Profits

28、 have own 401(k) plans You Keep It Company is “not for profit” and acquires Well Take It, Corp., a “for profit” company Smaller Well Take It has four divisions, each with its own 401(k) plan Even aggregated, 401(k) plans fail 410(b) no other employees left to offer 401(k) to improve results No divis

29、ions 401(k) plan covers 95% of Well Take It employees to exclude tax-exempts25When to Aggregate Plans 26Issue 1: Cant Pass NCT?Situation: Two plans with different BRFs Company has two plans with identical formulas One plan is discriminatory alone, so desires to aggregate with second plan BRFs are di

30、fferent, but the second plans BRFs are more generous, so can be aggregated with first plans BRFs to pass Frequent requests to improve first plan benefits and BRFs are monitored to ensure testing compliance27Issue 1: Cant Pass NCT?Situation: Plans amended to be identical We Are All Individuals, Inc.

31、has a discriminatory plan The plan aggregates with a second plan First plan requires cuts to HCEs to ensure passing and can eliminate 401(a)(4) cuts if aggregated plan is safe harbor First plan wont give up accruals for terminations, and company insists on last-day for second plan28Issue 2: Aggregat

32、ing to Avoid ABT?Situation:29Issue 2: Aggregating DB and DC?Situation: DB/DC plan cant pass gateways PS plan for Over There division employees and defined benefit plan for Over Here division Over There PS provides 6% to rank and file, 3% to executives (rank and file includes some HCEs) Over Here is

33、a discriminatory group providing defined benefit plan with 1% of pay formula Highest HCE allocation is a DB participant with 38% Average NHCE rate for DB is 2.5%30Issue 2: Aggregating DB and DC?Situation: DB/DC plan cant pass gateways DB/DC plan fails Minimum Allocation Gateway 1/3 of 38% 2.5% 2.5%

34、7.5% DB/DC plan fails Primarily DB Gateway DB group couldnt pass NCT, so wont have 50% NHCEs DB/DC plan fails Broadly Available Separate Plans if DB group could pass the NCT, there would be no reason to aggregate 31Issue 2: Aggregating DB and DC?Situation: DB/DC plan cant pass gateways Consider impl

35、ications under proposed cash balance regulations if DB plan converted to a cash balance plan with 6%/3% allocations as in PS, but provided DB/CB choice to all in DB plan provided “greater of” formula to all in DB plan provided CB with frozen DB minimum to all in DB plan32Issue 3: Aggregating vs. Mer

36、ger?Situation: Merger of target plan and MPP Safe harbor target plan participation was frozen several years ago All employees hired since then participate in a safe harbor money purchase plan To save money, trusts were combined, plans merged Target and MPP tested by restructuring until cross-testing

37、 regulations now is supposed to pass Gateways without restructure 33Issue 4: Different plan years in ABT?Situation: One employee, two plan years Not really an aggregation issue Employee benefits in a calendar year 401(k) plan and in a 4/1 plan year MPP plan Employee is HCE for 2003 testing of the 40

38、1(k) plan No testing done for the MPP since no HCEs benefit would have been NHCE for plan year ending 3/31/2003 Average benefit test required for 401(k) plan 34Determining HCEs 35Issue 1: Acquiring HCEs?Situation: New member of controlled group BuyCo acquires NewCo assets on November 1, 2002 NewCo e

39、mployees immediately join BuyCos DB plan As part of transaction, certain senior NewCo execs will lose their jobs in early 2003 Can the BuyCo DB plan provide the execs with annual normal retirement pensions equal $16,000?36Issue 2: Collecting the right pay?Situation: Average benefits test with differ

40、ent plan years Plan A is being tested for its 12/31/2002 plan year Plan B (10/31 pye) is also in the testing group HCEs for the ABT are either Plan A (12/31/2002) or Plan B (10/31/2002) HCEs Does Plan A keep track of fiscal 10/31 employee compensation? Or Plan B 12/31?37Issue 3: When are snapshots n

41、ot enough?Situation: Required to cross-test a defined contribution plan Minimum allocation gateway requires each NHCE to receive an allocation at least 1/3 of the largest HCE allocation The highest allocation rate is likely to belong to an HCE with partial year of pay Snapshot testing identifies HCEs on the snapshot date, so could miss HCEs who leave mid-year38Determining Most Valuable Accrual Rates 39Issue 1: Dont forget to close windowsSituation: Plan offers an early retirement window Window benefits