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VeryOldMan

4980 excess asset Issue

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I continue to struggle with the excess assets issue in a terminating pension plan. The rules under 4980 seem to permit the maximum 415 lump sum to be exceeded. 

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I will explain with a simple real life example. I have an attorney client with a terminating pension plan covering only himself. His 415 maximum lump sum is $1,050,000 and the assets are $1,200,000. So surplus assets above the 415 maximum lump sum of $150,000 and we just paid out his lump sum this year to satisfy 401(a)(9).

4980 says that I can transfer 100% of this surplus to the QRP plan ( a profit sharing plan) and allocate it out to his account at the rate of $55,000 per year (very high salary) for 3 years to use up the surplus.

Isn't this paying a lump sum that exceeds 415?

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Subsection 415(e), which "co-ordinated" the maximum when the EE is covered by both DB and DC plans, was repealed several years ago.   (Taxpayer Relief Act of 1997?)

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S4980 is very generous to pension plans, and I'm certainly happy about that, it just surprises me. 

You make a good point about the 415(e) repeal and perhaps that's how I should look at it. 4980 treats the surplus as a sum of up to 7 years of annual additions, which goes to your point.

 

 

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Corbel Docs uses the following table in their DC plans for excess asset transfers:

Yrs since transfer    Percentage of suspense account

             0                           14.28%

             1                           16.67%

            2                            20.00%    

           3                             25.00%

 

Etc. I can't duplicate these percentage using the reg requirement of ratably over 7 years. I contacted tech support at Corbel and no-one could explain it. Any thoughts you young guys? 

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I contacted tech support at Corbel and no-one could explain it.

Really?

One-seventh, one-sixth, one-fifth, one-fourth, etc.

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Same answer as david rigby, but to my mind more understandable: 100/7 = 14.286 (year 1); 100 - 14.286 = 85.714, and 85.714 * 16.67 = 14.288 (year 2); 100 - (14.286 + 14.288) = 71.426, and 71.426 * .2 = 14.286 (year 3).... 14.286 * 1.0 = 14.286 (year 7).

They could have just said, 1/7th per year, of course.

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3 hours ago, Luke Bailey said:

They could have just said, 1/7th per year, of course.

If they had, it would have been incorrect.  They could have just said, 1/7th the first year, 1/6th the second year, 1/5th the third year.... 1/2 the sixth year and 100% (1/1) the seventh year.

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3 hours ago, Luke Bailey said:

I meant 1/7th of the original amount each year, Mike. ( 1/7 )* 7 = 1.

But it won't be level dollar. 

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18 hours ago, Mike Preston said:

But it won't be level dollar. 

Good point, Mike. I was just saying that the plan language could interpret "ratably" in 4980(d)(2)(C)(II) as 1/7th of the original suspense account each year, as adjusted for earnings. But then you have to do the math, whereas 1/7th, 1/6th, etc. already does the math for you. For that reason it's better, even though it apparently was not transparent to VeryOldMan. Probably saying 1/7th, 1/6th, etc., rather than the percentages they equate to, would have made it transparent.

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28 minutes ago, Luke Bailey said:

... even though it apparently was not transparent to VeryOldMan.  

I'm much more concerned that it might not be transparent to Corbel.   <wink>

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On 6/11/2019 at 9:35 AM, VeryOldMan said:

I can't duplicate these percentage using the reg requirement of ratably over 7 years. I contacted tech support at Corbel and no-one could explain it. 

 

16 minutes ago, david rigby said:

I'm much more concerned that it might not be transparent to Corbel.   <wink>

No wink necessary.  Just plain old smdh.

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