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Carve-out DB Plan


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I am restating a DB plan for EGTRRA. In reviewing the file containing hte original document and subsequent amendments, I noticed that the DB (#002) plan was originally a 412i Plan which is a carve-out plan (401k plan is #001) and was later amended to a traditional DB plan. The second thing I noticed was that the original document excluded several people by name and then a few more by plan amendment. I assume that the reason for the exclusion was that it was a carve out plan.

I would like to gather opinions on:

#1 - a conversion of a carve out 412i/401k plan into a carve out traditional DB Plan/401k plan; any issues on this type of conversion?

#2 - a carve out 412i plan/401k plan - I do not see many of these in the industry so what would be your opinion of this type of arrangement?

"Great thoughts reduced to practice become great acts." William Hazlitt

CPC, QPA, QKA, ERPA, APA

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"#1 - a conversion of a carve out 412i/401k plan into a carve out traditional DB Plan/401k plan; any issues on this type of conversion?"

Like what? Can a 412i be converted into a traditional db - sure. Can it have carve out provisions - sure, assuming it is passing all of the applicable non-discrimination tests (410(b), 401(a)(4), 401(a)(26), etc...)

"#2 - a carve out 412i plan/401k plan - I do not see many of these in the industry so what would be your opinion of this type of arrangement?"

Since you asked for my "opinion" I would say that around 90% of 412i plans are "sold" by insurance agents and not "purchased" by plan sponsors. They are very expensive and often illegal (see VEBAPLAN's propaganda), however the agents/ins companies make lots of commissions dollars so they will continue to be sold. Once the client sees the light, they are often converted into traditional db plans.

Very common design to use employer money contributed into a 401(k) profit sharing plan to allow a db plan to pass the applicable non-discrimination rules, especially in the small plan market.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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I'll add that these "carve out plan" descriptions are not exactly defined in the Internal Revenue Code.

What is a "412i/401k plan"? Is this a two headed animal or two animals?

A 401(k) plan with a 412(i) plan don't mix together unless there is employer money in the K plan, which is not stated. And as Effen references a (presumably) small DB/DC combination that excludes some individuals requires careful analysis.

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One thing to particularly watch out for on the carve out plans in general. Those blessedly few I've seen tend to be "tweaked" to the ultimate degree to favor the HC while giving the absolute minumum to the NHC. While this is fine in the first year, it is also not uncommon for them to explode with a change of even one person on the census. So for your own protection, make sure the client knows this!

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One thing to particularly watch out for on the carve out plans in general. Those blessedly few I've seen tend to be "tweaked" to the ultimate degree to favor the HC while giving the absolute minumum to the NHC. While this is fine in the first year, it is also not uncommon for them to explode with a change of even one person on the census. So for your own protection, make sure the client knows this!

That's exactly what I'm afraid of. It it dangerously close to failing now. Thank you for the advice.

"Great thoughts reduced to practice become great acts." William Hazlitt

CPC, QPA, QKA, ERPA, APA

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In NASCAR, the NBA, the PGA Tour and other fields, the top professionals can do things at the very edge of the allowable physical limits. They have the training and the nerve. They have the responsibility for their actions.

In pension consulting, the same analogy holds. If you plan to provide the designs that go to the limit, then you also take responsibility to know how it is done. If you fail, you also take responsibility for the result. :blink:

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Yeah, it's only politicians and weather forecasters who get to screw up all the time and keep their jobs. :lol:

Something about economists?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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If you want to really cry, try rooting for the Pirates...they are being forced give Ohlendorf a $1.4m raise because he won ONE game last year!... then again, it doesn't have anything to do with 401(a)(26) ....

PHOENIX -- Pitcher Ross Ohlendorf has defeated the Pittsburgh Pirates in the first salary arbitration hearing this year, even after going 1-11 last season.

Ohlendorf was awarded a raise from $439,000 to $2,025,000 Wednesday by arbitrators Steven Wolf, Fredric Horowitz and Robert Herzog, who heard the case a day earlier. The Pirates had argued he should be paid $1.4 million.

The 28-year-old right-hander had a 4.07 ERA in 21 starts for Pittsburgh last year, and his record on a team that went a major league-worst 57-105 was down from 11-10 the previous year.

Ohlendorf's ERA was lower than the 4.31 of Cincinnati's Edinson Volquez, who will make $1,625,000 this year. Volquez was 4-3 last year after returning from elbow surgery and a 50-game suspension following a positive drug test.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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  • 1 year later...
Hi, I'm new to this group and would like to introduce myself. My name is Lance Wallach and I'm an author and expert on finance. I have many different websites in regards to finances and I would love to help you out.

Visit www.financeexperts.org and feel free to ask me any questions you may have in my forum: http://tiny.cc/ryubdw

I would be happy to answer any questions you may have.

Thank you

New? :wacko:

Last I heard, combo-crosstest plan designs need an experienced actuary, not a veba guy.

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Hi, I'm new to this group
:lol::lol::lol: Ha ha, You funny man!

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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