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Ultimately you aren't saving any money by adopting a new plan, you are just doubling your admin expense and PBGC premiums. You still need to fund the increase in the new plan. In 7 years you will be in the same place, except under your solution, you will have twice the expenses. If you can't afford to pay it all at once, borrow the money on a 7 year loan. With interest rates where they are, it may actually be cheaper than the funding requirements. If you can't afford the loan, you probably shouldn't be increasing the benefit.

You can adopt the benefit in the existing plan if you make the special Section 436 contribution (which would have to be paid over and above the minimum required contribution). I believe that the special contribution would be based on the amount by which the Funding Target would increase as a result of the amendment (the plan already being less than 80% funded). Doing it that way is much more straightforward. If your plan is already under 80%, you really would need to plan to get the new benefits funded right away. Having the funding being below 80% is not a healthy situation, and adopting an increase in benefits without taking action to keep the increase from making things worse is the best way to go.

They are deducted on your 1040, line 28.

I am not sure that one can transfer (as opposed to roll over) amounts from an IRA to a qualified plan. Confusion abounds in the discussions, but I think you should find some authority for a transfer. An interesting test will be to instruct the IRA custodian/trustee to transfer to the plan, with insistence that it be a transfer and absolute clarity that it will not be a rollover. I expect resistence, bewilderment, or disregard by the custodian. By disregard, I mean that the custodian will report the transaction as a rollover despite talk of transfer.

Like many things here, the plan document often has the answer. How does the plan define a Year of Service?

Thanks. I received a private reply from someone else saying: "Just a reminder that the one per year rollover rule does not apply to rollovers from IRAs to 401(k)s.." Also, it's worth noting that the IRA one rollover per year rule applies only to rollovers, i.e., not to trustee-to-trustee transfers. Quote from IRS website, and link, follow. The link is a very useful summary of IRS guidance on this issue. "You can, however, continue to make as many trustee-to-trustee transfers between IRAs as you want. You can also make as many rollovers from traditional IRAs to Roth IRAs ("conversions") as you want." http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule If anyone else sees a problem with doing annual transfers from a SEP IRA to a 401(k), please reply. I see no problem with it at this point.