I am studying for the 2009 DB exam and have come across a couple items on the sample practice test that are confusing me.

Q. 13: Based on the following information, determine the monthly accrued benefit for a non-key employee at a certain age:

The plan has always been top-heavy

The employee was hired at age 25.

The employee became a participant at age 26.

The employee’s current age is 37.

The plan’s NRA is 65

The employee’s current average monthly compensation is $3,500.

NRB is 2.5 percent of average monthly compensation times years of service maximum of 25; fractional accrual method based on years of service.

A. $656

B. $700

C. $840

D. $963

E. $1,050

A: B

The formula accrued benefit is (12/40) * (.025*25*3500)=$656 since projected service for accrual is 40 even though only 25 years of service earn a benefit.

However, the top-heavy minimum is .02*10*3500=$700.

Q. 15: Based on the following information, determine the participant’s annual accrued benefit at age 36:

The participant was hired at age 25

The employee became a participant at age 25.

High 5 year average pay is $50,000

High 3 year average pay is $60,000

NRA is 65.

The plan has always been top-heavy.

The participant is a non-key employee.

Benefit formula is 50% of high 3 year average pay accrued fractionally on service.

Normal form of benefit is a life annuity.

A. $8,250

B. $10,000

C. $11,000

D. $12,000

E. $13,200

A: B

The top heavy accrual based on 5 year compensation is 10*.02*50,000=10,000. This exceeds the accrued formula benefit of (11/40)*(.5*60,000)=8,250.

In both of the above questions, (#13 and #15) why is only 10 years of service being multipled by the 2% top heavy minimum? Why aren't the actual years of service being used? I can't find anything in the DB study guide or the DB Answer Book that instructs to use 10 years of service if the ppt's years of service are over 10 (I'm assuming that because in the sample question #4 at the end of chapter 4 in the study guide, the actual years of service are used but that actuals years are less than 10.

Employee's child lost state CHIP health coverage on March 1.

Employee applied for coverage for the child and herself under company group health plan in April (more than 30 days but less than 60 days after loss of CHIP coverage).

Does the special 60-day enrollment period under CHIPRA apply if the loss of coverage occurs before April 1, 2009?

Haven't found any official guidance yet. All comments are welcome. Thanks.

Need your help ........

Assume the employer has a roughly 50% subsidized (but frozen $ subsidy) retiree health plan which can be taken in lieu of Cobra, but that the retiring employee does NOT (per the Retiree health Plan Documents) have the option to FIRST take Cobra and THEN switch to the subsidized Retiree Health plan. Also assume that the retiree decides to go with the Retiree health plan (because he needs health coverage to age 65 .... longer than can be provided via Cobra). Then suppose that (say) 6 months after he retires (having entered the Retiree health plan) that the employer unilaterally ENDS the RETIREE health plan (but NOT the health care plan for those still employed).

Must the employer offer the retiree and his dependents Cobra at that time ..... keeping in mind that he has only had 6 months of post-retirement health coverage so far, far shorter than that he could have taken under Cobra?

Specifically, does the ENDING of a "retiree health plan" trigger eligibility for Cobra ?

Any case law or regulatory decisions applicable ?

Thank you !

Is it permissible to write the following in a plan document under the Discretionary Contributions:

Participants entitled to share in an allocation of Discretionary Contributions, if any, shall be those NHCE Participants, and may include HCEs at the employers discretion, who have completed a Year of Service for such Plan Year.

We had one employee who was erroneously excluded from a profit sharing contribution from 2006. (He was a rehire and his previous service and participation was not taken into account upon rehire.) The total contribution is a fixed amount each year and it is allocated as a percentage of compensation with adjustments made for highly compensated employees. All employees who receive a contribution also recieve a share of forfeitures, allocated the same as the annual contribution. Our plan document says correcting omissions can be done through an additional contribution and/or using any available forfeitures.

We have read Rev. Proc. 2008-50 but it is still unclear on how to fix this and if any further action (amendments to returns, changes to others' balances, etc) will be necessary. This does seem like an insignificant operationsl failure but we are not sure.

Any advice?

The 401(k) plan is aggregated with a DB plan for meeting the coverage test. The 401(k) is safe harbor match and NHCEs get an additional 7.5% contribution to satisfy the minimum gateway for testing the DB and DC plans together.

Question: Can the 401(k) plan amend the safe harbor formula mid-year to become a 3% nonelective and then make a 4.5% additional contribution to satisfy the gateway? I think it would be OK to do this as of the beginning of a plan year, but I am uncertain about whether it can be done mid-year.

Thank you!

IRS Notice 2007-28 Q&A 9

Assuming the DB contribution exceeds 25% of compensation, in an owners-only DB/DC situation, is the maximum total deductible contribution for 2009 equal to:

1. the maximum DB deductible under 404(o), plus $16,500 employee deferral, plus $5,500 catch-up (if possible), plus 6% employer match, or

2. the minimum required DB contribution (but not less than the 430©(4) Funding Shortfall), plus $16,500, plus $5,500, plus 6%?

If the answer is 2, is the normal approach to eliminate the 6% match, so that the total maximum is the maximum DB deductible under 404(o), plus $16,500, plus $5,500?

Anyone seen a government draft or final release????

A client of mine, we just recently discovered that we had been filing Schedule B for 10 years with an incorrect Plan Number, though EIN was correct. The client prepares their own Form 5500, and so it look like it is only the Schedule B plus PBGC Form 1/Schedule A that had been filed with the incorrect PN. Do we need to file amended Schedule B for 10 years? How about PBGC Form 1/Schedule A?

Hope somebody have had the same experience dealing with the issue.....

We are looking for someone who can help us create a crystal report that can be run in relius. The report will need to have formulas within as well as some graphs. We are attempting to run a gap analysis which can be mailed to participants or saved as a report to the participant website. If interested, please send me a message.

Is anyone familiar with the Public Employee's Retirement Fund that Indiana University has? I am trying to figure out if an employee can roll over their balance from this PERF plan into a 401(k). Any help would be much appreciated.

I was on maternity leave from mid-January to a few weeks ago. While I tried to stay abreast of what was going on in the retirement plan arena, I have to admit that I was slightly pre-occupied with my darling daughter and probably missed a thing or two!

I want to confirm the status of the DOL's three-part fee disclosure initiative:

The proposed regulations for the participant-fee disclsoures under ERISA 404(a)(5) and the service provider disclosures under ERISA 408(b)(2) were not finalized and have been put on hold indefinitely.

Part III of the initiative, which affected the Schedule C attachment to the Form 5500, has been finalized. No changes have been made to the 1/1/2009 effective date or the scope of these rules in light of the new administration.

Did I miss anything?

Thank you!

Laura

Considering the fact that Payroll needs to reduce the amount of taxes paid to the Feds, are you providing a roster of the AEI's or just a total number? Would this fall under the health care operations of HIPAA? Thaks for your thoughts.

Do you think this will fly? A non-profit currently sponsors a 401k PSP. They are having trouble with the 401(k) test. Should they consider amending the 401(k) provision out of the plan (making it a PS only plan), then start a non-ERISA 403(b) that accepts only 403(b) contributions? This would solve the 401(k) test, correct?

Thanks

Changing a model SEP plan to a plain SEP plain; how does one do that? What variations in eligibility requirements occur between the two?

For 1/1/2009 valuations, most of my small DB plans would "normally" use the September, 2008 transitional segment rates of 5.41%, 6.09% and 6.41% (for the 1/1/2008 valuations, we typically used the September, 2007 transitional segment rates of 5.66%, 5.85%, and 6.03%).

What options, if any, does the IRS's March 31, 2009 Special Edition of Employee Plan News give us to use different rates?

For example, could we use the October, 2008 spot rates of 7.35%, 8.61% and 7.26%?

With interest rates used to convert accrued benefits to lump sums in the process of changing from US Treasury rates to corporate bond rates, and being phased in over the 2008 to 2012 plan years, would it not be cheaper to pay out lump sums 3 years from now than it is today, considering bond rates are higher? This would be something to consider if deciding whether to terminate a DB plan or not? yes?

One member of a multiple employer plan maybe purchased soon and they are trying to determine whether to spin off, freeze or terminate current DB plan.

Have a client that has a restrictive eligiblity requirement for the match.

Only 1 (approx. 270 contributing) out of 7 (325 contributing) divisions is eligible to receive the match. They do have hour and last day requirements as well.

As a result, they failed coverage. 410(b) for the match.

Plan has lousy participation, and a very high eligiblity population. 900 accounts w/ balances, approx. 6000 eligible & only 595 participating.

To pass coverage it was discovered that plan needed to bring in 677 newly eligible employees.

-Will retroactively making everyone eligible for the match reflect the plan to be 100% benefiting?

-QNEC only made to those participants that contributed (325)

-does a QNEC still need to be funded for the remaining 352 (677-325) since now everyone is now considered benefiting

Am I way off base? I am by no means a coverage expert. HELP

I rarely ever deal with 11(g) amendments, but I've 3 situations come across my desk within just two weeks that may require these amendments!

Here is the one I am dealing with now:

403(b) plan with discretionary New Comparability feature. 3 groups. Groups 1 & 2 are made up of HCEs. Group 3 is all of the NHCEs. For sake of the conversation let's say Groups 1 & 2 received 12% and Group 3 8%.

We are doing the 12/31/2008 plan year end work, although we did not restate the plan to our document until 1/1/2009.

The document in effect as of 12/31/2008 states the plan will satisfy the gateway rules using the broadly available allocation option. Why it was drafted this way is beyond comprehension, but that is indeed what it says.

The allocation does not satisfy the broadly available allocation option, so cross-testing is not an option. The plan cannot satisfy the rate-group test using the allocation rates or allocation rates with permited disparity, so based on the allocation of 12% to HCEs and 8% to NHCEs, the general nondiscrimination requirements are not satisfied.

Obviously, we could raise everyone in Group 3 to 12% to correct the violation without an 11(g) amendment. But let's say the client wishes instead to retroactively amend the plan.

If we were using the minimum contribution gateway (i.e. lesser of 1/3 of highest HCE rate or 5%) the gateway would be satisfied. The rate-group test would also pass using accrual rates.

Could the plan be retroactively amended to state that the gateway will be satisfied using the minimum contribution option? Or does the amendment have to state that certain NHCEs will be raised to 12% in order for the test to pass?

Hello all,

I have a plan that uses a safe harbor enhanced match, 100% of 6% of comp calculated and paid on a per pay period basis. I am doing the year end valuation and run a quick check of the match and see where the hce's are overfunded by $3000. The plan document does not call for a true up. Is the self correction to consider the excess match as ineligible and forfeit it?