Pension And Profit Sharing

<span style="font-weight: 400;">Starting with the 2025 tax year, the SECURE Act 2.0 requires employers that establish new 401(k) or 403(b) plans to auto-enroll employees in the savings plans.  </span><br /> <br /> <span style="font-weight: 400;">The minimum auto-enrollment contribution rate will range from 3% to 10%.  Each year, the minimum contribution rate will then increase by 1% until the rate reaches 15%.  </span><br /> <br /> <span style="font-weight: 400;">The IRS has released proposed regs confirming that there is no delay--meaning that new plans are currently subject to the auto-enrollment rule starting in 2025.  The rules contained in the proposed regulations will be effective six months after the date that final regulations are published.  In the meantime, a reasonable, good faith interpretation of the law is required.   </span><br /> <br /> <span style="font-weight: 400;">The regulations clarify that there is no provision that excludes any class of participant from auto-enrollment, meaning that long-term part-time employees must also be automatically enrolled if they are otherwise eligible and the plan is subject to the rule.  Participants with an affirmative election to opt out of auto-enrollment on file do not have to be automatically enrolled in the plan.  The preamble to the proposed regulations clarifies that when plans did not automatically enroll participants who were already participating in the plan, yet did not make an affirmative election, they must automatically enroll the participant by the first plan year when final regulations are effective (presumably, 2027).  The participant's default deferral rate must be calculated as though they had been auto-enrolled since 2025.  </span><br /> <br /> <b>Under the law, small business employers who normally employ 10 or fewer employees and new businesses are exempt from the auto-enrollment requirement.  The proposed regulations clarify that self-employed individuals, independent contractors and corporate directors do not count toward the  10-employee threshold (only common law employees must be included).</b>

<div class="Section1"><br /> <br /> The term controlled group is used to determine who makes up the group of employees that will be subject to the IRC’s coverage, nondiscrimination testing, and most qualification requirements that apply to qualified retirement plans. All employees of a single employer generally are included in this testing. The controlled group rules aggregate several entities (e.g., partnerships, sole proprietorships, and corporations) into a single employer for purposes of meeting various qualification requirements of the IRC. All employees of a group of employers that are members of a controlled group of corporations or, in the case of partnerships and proprietorships, are under common control will be treated as employed by a single employer.<a href="#_ftn1" name="_ftnref1">¹</a> In general, the determination of whether a group is a controlled group of corporations or under common control is based on stock ownership by value or voting power.<br /> <br /> A controlled group may be a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> A parent-subsidiary controlled group is composed of one or more chains of subsidiary corporations connected through stock ownership with a common parent corporation. A parent-subsidiary group exists if at least 80 percent of the stock of each subsidiary corporation is owned by one or more of the other corporations in the group and the parent corporation owns at least 80 percent of the stock of at least one of the subsidiary corporations. When determining whether a parent owns 80 percent of the stock of a subsidiary corporation, all stock of that corporation owned directly by other subsidiaries is disregarded.<br /> <br /> A brother-sister controlled group consists of two or more corporations in which five or fewer persons, individuals, estates, or trusts own stock consisting of 80 percent or more of each corporation and more than 50 percent of each corporation when taking into account each stockholder’s interest only to the extent he or she has identical interests in each corporation. For purposes of the 80 percent test, a stockholder’s interest is considered only if he or she owns some interest in each corporation of the group.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> A combined group consists of three or more corporations, each of which is a member of a parent-subsidiary group or a brother-sister group and one of which is both a parent of a parent-subsidiary group and a member of a brother-sister group.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> Special rules apply for determining stock ownership, including special constructive ownership rules, when determining the existence of a controlled group.<a href="#_ftn5" name="_ftnref5">⁵</a> Community property rules, where present, also apply.<a href="#_ftn6" name="_ftnref6">⁶</a> For purposes of qualification, the test for a controlled group is strictly mechanical; once the existence of a group is established, aggregation of employees is required and will not be negated by showing that the controlled group and plans were not created or manipulated for the purpose of avoiding the qualification requirements.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC §§ 414(b), 414(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Treas. Reg. § 1.414(b)-1; IRC § 1563(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  <em>U.S. v. Vogel Fertilizer Co.</em>, 455 U.S. 16 (1982); Treas. Reg. § 1.1563-1(a)(3).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  IRC §§ 414(b), 1563; Treas. Reg. § 1.414(b)-1.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.  IRC § 1563(d); Treas. Reg. § 1.414(b)-1.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.  <em><em>Aero Indus. Co., Inc. v. Comm</em></em>., TC Memo 1980-116.<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.  <em><em>Fujinon Optical, Inc. v. Comm</em></em>., 76 TC 499 (1981).<br /> <br /> </div>

<span style="font-weight: 400;">Under the 2024 final RMD regulations, the surviving spouse will automatically be treated as the participant (without the need to make a special election) if all of the following are true: (1) the surviving spouse is the sole beneficiary, (2) the original participant died before their required beginning date and (3) the surviving spouse will receive payments under the life expectancy rule (rather than the ten-year rule).<a href="#_ftn1" name="_ftnref1">¹</a></span><span style="font-weight: 400;">  </span><br /> <br /> <span style="font-weight: 400;">If the original participant died after their required beginning date, the surviving spouse must make a separate election to be treated as though they were that participant.<a href="#_ftn1" name="_ftnref1">²</a></span><span style="font-weight: 400;">  </span><br /> <br /> <span style="font-weight: 400;">This election is only available when the surviving spouse’s first RMD would be in 2024 or later.  If the original participant would have reached their required beginning date in 2024 or later, the spousal election is permitted.</span><br /> <br /> <span style="font-weight: 400;">Whenever an election to be treated as the original participant is in effect, the Uniform Lifetime Table factor will be used to determine the amount of the surviving spouse’s RMDs up until the year of the surviving spouse’s death.  Generally, this will result in smaller annual RMDs when compared to use of the Single Life Table.</span><br /> <br /> <span style="font-weight: 400;">Also assuming an election to be treated as the original participant is in effect, upon the surviving spouse’s death, that spouse’s beneficiary must continue to receive distributions based on that spouse’s remaining life expectancy using the Single Life Table if the surviving spouse dies on or after the date they have begun to receive required distributions.  The factor is determined using the surviving spouse’s remaining life expectancy in their year of death (based on age), and then reducing that by one for each subsequent year.  The surviving spouse’s beneficiary has ten years to empty the account (i.e., they are not treated as an eligible designated beneficiary).</span><br /> <br /> <span style="font-weight: 400;">The proposed regulations also propose that, although the spousal election allows the spouse to be treated as the participant for purposes of the RMD regulations, that treatment does not apply in all situations.  It would, however, apply so that the spouse would not be subject to the 10% early withdrawal penalty for pre-age-59 ½ distributions.  The surviving spouse’s RBD would also be determined by reference to the original participant’s age, rather than the surviving spouse.  The proposed regulations also provide that when determining the account balance for RMD purposes, all amounts held in a designated Roth account and any other account under the plan are included for purposes of calculating the RMD for the year.<a href="#_ftn1" name="_ftnref1">³</a></span><br /> <br /> 1.   Treas. Reg. §§ 1.401(a)(9)-3(d), 1.401(a)(9)-3(e).<br /> <br /> 2.  Treas. Reg. § 1.401(a)(9)-5(g)(3)(i).<br /> <br /> 3.  Prop. Treas. Reg. § 1.401(a)(9)-5(g)(3)(ii).

Late in 2020, the DOL finalized a rule that would limit consideration of environmental, social and governance (ESG) factors when retirement plan fiduciaries are selecting plan investments without violating their fiduciary duties. Plan fiduciaries are obligated to act solely in the interest of plan participants and beneficiaries when making investment decisions. Under the final rule, the DOL said that plan fiduciaries must select investments based on pecuniary, financial factors and that it would apply an “all things being equal test”--meaning that fiduciaries were not prohibited from considering or selecting investments that promote or support non-pecuniary goals, provided that they satisfy their duties of prudence and loyalty in making the selection. This rule was seen as limiting fiduciaries’ ability to consider ESG factors in investing. However, earlier in 2021, the EBSA announced that it would not enforce this Trump-era rule, so that plan fiduciaries may once again consider ESG factors in making investment decisions.<br /> <br /> On November 22, 2022, the DOL released a new final rule on ESG investing.  The rule retains many prior elements, yet is generally expected to make it easier for plan fiduciaries to consider ESG factors in determining investment strategy. According to the rule, a plan fiduciary’s determination with respect to an investment or investment strategy must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis. The DOL further states that the analysis should use appropriate investment horizons consistent with the plan’s investment objectives and should account for the funding policy of the plan established under ERISA. Under the final rule, however, fiduciaries will not be prohibited from considering collateral benefits aside from investment returns when there is an essential “tie” in the context of the investment analysis. Fiduciaries will also not violate their duty of loyalty merely because they take participant preferences into account when building their menu of otherwise prudent investment options.  The new rule does not contain any separate standard for QDIAs.<br /> <br /> This ESG investing rule continues to generate controversy, so practitioners should pay close attention to developments in this area.

Under pre-SECURE 2.0 law, two spouses who each have ownership interest in separate businesses often ran into problems trying to pass nondiscrimination testing due to the family attribution rules.  This often limited the flexibility of businesses offering retirement benefits solely due to state community property laws or the existence of minor children—and unintended consequence.  SECURE 2.0 created two important exceptions that can now help closely held business owners offer retirement plans without running afoul of the IRS.<br /> <br /> The government prohibits business owners from establishing retirement plans that primarily benefit highly compensated employees (HCEs) while excluding other less highly compensated individuals.  To prevent businesses from using multiple entities to provide benefits primarily to HCEs and pass the anti-discrimination tests, the law treats certain related entities as a single entity for nondiscrimination testing purposes.<br /> <br /> These “controlled group” rules evaluate the ownership structure of related entities.  If enough common ownership exists, the entities are deemed to be a single business for retirement plan testing purposes.  Similarly, when applying the law, individuals may be deemed to own business interests owned by certain family members—including spouses and minor children.<br /> <br /> Under pre-SECURE 2.0 law, one spouse was always deemed to own the business interests that were owned by their spouse unless a spousal exception applied.<br /> <br /> Under IRC Section 414, the spousal exception applies if all of the following are true: (1) the spouse has no direct interest in their spouse’s business, (2) the spouse does not participate in management of their spouse’s business, and is not a director, officer or employee of that business, (3) no more than 50% of that business’ income is passive (meaning derived from rents, royalties, dividends, interest and annuities), and (4) the spouse’s ownership interests are not subject to restrictions on the spouse’s ability to dispose of them that favor the other spouse or their minor children.<br /> <br /> Ignoring the attribution rules can expose the sponsoring business to steep penalties and potential disqualification.<br /> <br /> Couples who live in community property states were previously unable to qualify for the spousal exception.  In community property states, each spouse is deemed to own 50% of their spouse’s assets acquired during the marriage.  SECURE 2.0 overrides and disregards community property laws for purposes of the Section 414 spousal exception.<br /> <br /> Example: Assume David and Judy are a married couple residing in Texas, a community property state.  During the marriage, each spouse established their own separate business (each owning 100% of the interests in their respective business).  The two businesses are completely unrelated.  However, under pre-SECURE 2.0 law, David was treated as owning 50% of Judy’s business and vice versa under Texas law.  The couple was unable to qualify for the spousal exception because they could not satisfy the “no direct interest” requirement.<br /> <br /> Post-SECURE 2.0, no controlled group is deemed to exist because Texas’ community property laws are disregarded.  Beginning in 2024, David and Judy can each establish individual retirement plans for their business.  Each plan can be structured to pass the nondiscrimination testing rules considering only the individual company’s employees.<br /> <br /> Under pre-SECURE 2.0 law, minor children (under age 21) were treated as though they owned 100% of their parents’ business assets when determining whether a controlled group existed.  Therefore, if two individuals each owned separate businesses, a child in common would be deemed to own 100% of each parent’s business.  That’s true regardless of whether the two parents were ever married.<br /> <br /> Considering the example above, assume David and Judy had a seven-year-old child, Meredith.  Pre-SECURE 2.0, Meredith was deemed to own 100% of David’s business and 100% of Judy’s business.  David and Judy were unable to qualify for the Section 414 spousal exception solely because of Meredith’s existence.<br /> <br /> SECURE 2.0 changed the rules to disaggregate ownership of two businesses where common ownership was based solely on the existence of a minor child.

<div class="Section1"><br /> <br /> The 2019 Tax Certainty and Disaster Relief Act extended the rules governing qualified disaster distributions from retirement accounts, discussed below for victims of disasters that occurred in 2018 through 60 days after enactment of the bill (December 20, 2019). The distribution itself must be made within 180 days after enactment of the law to qualify. <em><em>See</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id=""></a>. <em><em>See also</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id=""></a> for a discussion of how the CARES Act expanded the retirement plan distribution rules for 2020 in response to the COVID-19 pandemic.<br /> <br /> The 2017 tax reform legislation,<a href="#_ftn1" name="_ftnref1">¹</a> the 2017 Disaster Tax Relief and Airport and Airway Extension Act,<a href="#_ftn2" name="_ftnref2">²</a> and the Bipartisan Budget Act of 2018,<a href="#_ftn3" name="_ftnref3">³</a> include special tax relief for taxpayers affected by certain presidentially declared disasters that occurred in 2016 and 2017.<br /> <br /> A 2016 qualified disaster is a major disaster that was declared in 2016 by the president. A 2016 qualified disaster distribution is any distribution received from an eligible retirement plan in 2016 or 2017 if the recipient&rsquo;s main home was located in a 2016 qualified disaster area and the recipient sustained an economic loss from the disaster.<br /> <br /> A 2017 qualified disaster is limited to Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, and the California wildfires. To be a 2017 qualified disaster distribution, the following requirements must be met:<br /> <br /> 1. The distribution was made:<br /> <p style="padding-left: 40px;">a. After August 22, 2017, and before January 1, 2019, for Hurricane Harvey or Tropical Storm Harvey (both referred to as Hurricane Harvey);</p><br /> <p style="padding-left: 40px;">b. After September 3, 2017, and before January 1, 2019, for Hurricane Irma;</p><br /> <p style="padding-left: 40px;">c. After September 15, 2017, and before January 1, 2019, for Hurricane Maria; or</p><br /> <p style="padding-left: 40px;">d. After October 7, 2017, and before January 1, 2019, for California<br /> wildfires.</p><br /> 2. The recipient&rsquo;s main home was located in a disaster area listed below on the date or any date in the period shown for that area.<br /> <p style="padding-left: 40px;">a. August 23, 2017, for the Hurricane Harvey disaster area.</p><br /> <p style="padding-left: 40px;">b. September 4, 2017, for the Hurricane Irma disaster area.</p><br /> <p style="padding-left: 40px;">c. September 16, 2017, for the Hurricane Maria disaster area.</p><br /> <p style="padding-left: 40px;">d. October 8, 2017 to December 31, 2017, for the California wildfire disaster area.</p><br /> 3. The recipient sustained an economic loss because of Hurricane Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires<br /> <br /> None of the Acts define economic loss. Examples of economic loss include loss, damage, or destruction of real or personal property; loss related to displacement from a home; and loss of livelihood due to temporary or permanent layoff.<a href="#_ftn4" name="_ftnref4">⁴</a> There is no requirement that the amount of the qualified disaster distribution relate to the amount of the taxpayer&rsquo;s economic loss from the disaster or be made on account of the disaster.<br /> <br /> The Acts provide special rules for distributions from retirement accounts (qualified plans, 403(a)s, 403(b)s, governmental 457(b)s, and traditional, SEP, SIMPLE, and Roth IRAs). Distributions from retirement accounts made because of a qualified disaster are exempt from the 10 percent early distribution penalty (or 25 percent early distribution penalty for certain SIMPLE IRA distributions) if the penalty would otherwise be imposed under IRC<br /> Section 72(t). Qualified disaster distributions are treated as meeting the applicable plan&rsquo;s distribution requirements. The amount that may be treated as a qualified disaster area distribution is limited to $100,000 (the amount for any given year must be reduced by the amounts treated as 2016 disaster area distributions in prior years).<br /> <br /> If a taxpayer is affected by multiple qualifying disasters, the $100,000 limit is applied separately to each disaster distribution. Taxpayers may recognize income attributable to a qualified disaster distribution over a three-year period beginning with the year the qualified disaster distribution was made (unless an election to the contrary is made).<br /> <br /> In addition, taxpayers are also permitted a three-year period from the day after the distribution is received to make a repayment of qualified disaster distributions that is eligible for tax-free rollover treatment to an eligible retirement plan or made on account of a hardship. These repayments may be made at once or via a series of payments and will essentially be treated as though they were rollovers made within the 60-day window. A repayment to an IRA is not considered a rollover for purposes of the one-rollover-per year limitation for IRAs. The following types of distributions cannot be repaid:<br /> <ul><br /> <li>Qualified disaster distributions received as a beneficiary other than as a surviving spouse</li><br /> <li>Required minimum distributions</li><br /> <li>Periodic payments other than from an IRA that are for 10 years or more, the recipient&rsquo;s life or life expectancy or the joint lives or life expectancies of the recipient and their beneficiary.</li><br /> </ul><br /> Plans that make such a distribution also are protected against potential disqualification. Plans that permit qualified 2016 disaster distributions must be amended by the last day of the plan year beginning on or after January 1, 2018. Plans that permit qualified 2017 disaster distributions must be amended by the last day of the plan year beginning on or after January 1, 2019.<br /> <br /> Taxpayers who received certain distributions from retirement plans to buy or construct a principal residence but did not buy or construct the residence because of Hurricane or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires had the opportunity to recontribute the distributions to an eligible retirement plan. The distributions had to be repaid before March 1, 2018 for repayments as a result of a hurricane or July 1, 2018 for repayments due to the California wildfires. A distribution that was not repaid before the applicable date may be taxable for 2017 and subject to the 10 percent additional tax on early distributions (or the 25 percent additional tax on certain SIMPLE IRA distributions).<br /> <br /> Individuals affected by a qualified disaster (as extended by the 2019 law) qualify for relaxed rules on loans from qualified plans. The plan administrator may increase the regular $50,000 limit on plan loans to $100,000 and the 50 percent of vested benefit limit to 100 percent. For individuals affected by a hurricane, the loan must have been made between September 29, 2017 and December 31, 2018. For someone affected by the California wildfires, the loan must have been made during the period beginning February 9, 2018 and ending on December 31, 2018. In addition, loan payments due during a specified period ending on December 31, 2018 may be suspended for one year by the plan administrator. The period begins on:<br /> <ul><br /> <li>August 23, 2017 if the recipient&rsquo;s home was located in the Hurricane Harvey disaster area</li><br /> <li>September 4, 2017 if the recipient&rsquo;s home was located in the Hurricane Irma disaster area</li><br /> <li>September 16, 2017 if the recipient&rsquo;s home was located in the Hurricane Maria disaster area; or</li><br /> <li>October 8, 2017 if the recipient&rsquo;s home was located in the California wildfire disaster area.</li><br /> </ul><br /> Casualty losses associated with a qualified 2016 or 2017 disaster are deductible regardless of whether total losses exceed 10 percent of the taxpayer&rsquo;s adjusted gross income (AGI), so long as the loss exceeds $500 per casualty. Taxpayers who do not itemize their deductions may increase their standard deduction by the net qualified disaster loss.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Section 11028, 2017 Tax Act, P.L. 115-97.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Title V, Disaster Tax Relief and Airport and Airway Extension Act of 2017, P.L. 115-63.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; Subdivision 2, Title I, Bipartisan Budget Act of 2018, P.L. 115-123.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; 2017 IRS Publication 976, Disaster Relief.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> A plan satisfies the ratio percentage test when benefits apply to either 70 percent of all non-highly compensated employees (i.e., the percentage test) or a percentage of the non-highly compensated employees that is at least 70 percent of the percentage of highly compensated employees benefiting under the plan.<a href="#_ftn1" name="_ftnref1">¹</a> A participant generally is treated as benefiting if he or she receives an allocation under a defined contribution plan or who has an increase in a benefit accrued or treated as an accrued benefit.<a href="#_ftn2" name="_ftnref2">²</a> Individuals are treated as benefiting for deferral purposes if they are eligible to defer, even if they choose not to do so.<a href="#_ftn3" name="_ftnref3">³</a><br /> <p style="padding-left: 40px;"><em>Example:</em> Smith Steel Company has a profit sharing plan that allocates a contribution to cover nine of its 10 non-excludable highly compensated employees and 160 of its 200 non-excludable non-highly compensated employees. Under its plan, otherwise eligible participants do not receive a contribution unless they are employed at year-end. One of the highly compensated participants and 40 of its non-highly compensated terminated and did not receive an allocation. The plan’s ratio percentage is determined by dividing the percentage of the non-highly compensated employees who benefit under the plan (160/200, or 80 percent) by the percentage of the highly compensated employees who benefit under the plan (9/10, or 90 percent). Smith Steel’s ratio percentage is 80/90, or 89 percent; thus, it passes the 70 percent ratio percentage test.<a href="#_ftn4" name="_ftnref4">⁴</a></p><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 410(b)(1)(A), (B).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Treas. Reg. § 1.410(b)-3(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  Treas. Reg. § 1.401(k)-6.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  <em><em>See generally</em></em> Treas. Reg. § 1.410(b)-4.<br /> <br /> </div>

<div class="Section1"><br /> <br /> A corporation may establish a qualified plan even though it has only one permanent employee and that employee owns all the stock of the corporation. If the plan is either designed or operated so that only the shareholder-employee can ever benefit, however, it will not qualify. Provision must be made for participation of future employees if any are hired.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> A pension plan will not fail to qualify merely because it is established by a corporation that is operated for the purpose of selling the services, abilities, or talents of its only employee, who is also its principal or sole shareholder.<a href="#_ftn2" name="_ftnref2">²</a> The plan of a corporation&rsquo;s sole shareholder was disqualified for violating the coverage requirement after it was shown that the only two hired personnel of the company, who had been excluded from the plan as independent contractors, in fact were employees.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> As to which individuals must be treated as employees and what organizations make up an employer, <em><em>see</em> </em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3928">3928</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3929">3929</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3933">3933</a>, and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3935">3935</a>.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Rev. Rul. 63-108, 1963-1 CB 87; Rev. Rul. 55-81, 1955-1 CB 392.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Rev. Rul. 72-4, 1972-1 CB 105 (amplifying Rev. Rul. 55-81).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; <em>Kenney v. Comm.</em>, TC Memo 1995-431.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Precise top-heavy ratios need not be computed every year so long as the plan administrator knows whether or not the plan is top-heavy. For this purpose, and for the purpose of demonstrating to the IRS that a plan is not top-heavy, an employer may use computations that are not precisely in accordance with the top-heavy rules but that mathematically prove that the plan is not top-heavy. Several such methods are provided in the regulations.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Treas. Reg. § 1.416-1, T-39.<br /> <br /> </div>

<div class="Section1"><br /> <br /> The requirement that a plan provide the qualified joint and survivor annuity (&ldquo;QJSA&rdquo;) and qualified preretirement survivor annuity (&ldquo;QPSA&rdquo;) forms of benefit ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3882">3882</a>) applies to all defined benefit plans, to all defined contribution plans that are subject to minimum funding standards (e.g., target benefit and money purchase pensions), and to profit sharing plans that include annuity provisions as the normal form of benefit.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> The automatic survivor benefit requirements also may apply to any participant under any other defined contribution plans unless, (1) the plan provides that in the event of the participant&rsquo;s death, his or her non-forfeitable accrued benefit will be paid in full to his or her surviving spouse or to another designated beneficiary if the spouse consents or if there is no surviving spouse; (2) the participant does not elect payment of benefits in the form of a life annuity; and (3) with respect to such participant, the plan is not a direct or an indirect transferee of a plan to which the automatic survivor annuity requirements apply.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The automatic survivor benefit requirements will not apply to the portion of benefits accrued under a tax credit ESOP or leveraged ESOP if the participant has the right to demand distribution in the form of employer securities or to require repurchase by the employer of non-publicly traded securities.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect; 401(a)(11)(B).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect; 401(a)(11)(B); Treas. Reg. &sect; 1.401(a)-20, A-3.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&sect; 401(a)(11)(C), 409(h).<br /> <br /> </div></div><br />