JOEL L. FRANK

Retirement Analyst

PO Box 148

Marlboro, New Jersey 07746-0148

(732) 536-9472

New Jersey’s public employEEs are under the mistaken belief that their mandatory 5 percent contribution to their Annuity Savings accounts provides only a fraction of their lifetime pensions. On the contrary, a simple analysis reveals that the employEE may very well fund much more of his or her Defined Benefit pension than led to believe.

EXAMPLE 1: Assumptions: 62 year old member of Public Employees Retirement System (PERS); 35 years of service; starting salary of $8,000 with 6 percent annual increases; final average salary (FAS) of $54,720. The member is entitled to a Maximum pension benefit of $34,822 calculated as follows: 35/55 X $54,720. The Division of Pensions and Benefits establishes a Pension Reserve of $320,361 (9.2 X $34,822) to guarantee this member, beginning at age 62, $34,822 annually for life.

The employEE’s Annuity Savings account balance goes towards the funding of the actuarially required $320,361 Pension Reserve with the State making up the difference. The employEE, however, doesn’t know the balance of his/her Annuity Savings account because the account is never credited with the investment return generated by the multi-billion dollar investment portfolio that his or her Annuity Savings account is co-mingled with. If we assume an average annual rate of return of 9 percent over the past 35 years, at age 62, the Annuity Savings account balance is $177,841 which represents 55.5 percent of the required Pension Reserve of $320,361. The State guarantees the balance of $142,250.

Recognizing this deception public employEEs should, at the very least, have the option of rolling over their Pension Reserves to an Individual Retirement Account (IRA). It is a moral outrage to compel an employEE to accept lifetime annuitization ($34,822 annually for life) of a Pension Reserve predominantly funded by the employEE.

OF NOTE: In the event an in-service member severs employment before attaining 3 years of credited service a refund of his or her Annuity Savings contributions is made with no interest. Should an in-service member sever employment after attaining 3 years of credited service he or she is entitled to a return of his or her Annuity Savings contributions with 2 percent interest. Should an in-service member die after having attained at least 3 years of credited service the employee’s beneficiary(ies) is entitled to a return of the employee’s Annuity Savings contributions with 4 percent interest.

EXAMPLE 2: Assumptions are the same as Example 1 except the 62 year-old employee is a

member of the Alternate Benefit Program (APB). The APB is the primary (401(k) type) Defined Contribution plan for the staff at the State institutions of higher education. The APB requires the employER to contribute 8 percent of salary with the employEE contributing 5 percent. The employEE’s individually owned Annuity Savings account balance, at age 62, is $462,469 which is 44 percent more than the Pension Reserve requirement in example 1 ($462,469 divided by $320,361).

Bob

Sue

Is this a controlled group?

It seems that if Sue is in the tests then it is a controlled group, but if Sue is not in the tests because she owns 0% of A, it seems that it does not meet the effective control test.

Thanks for any input.

An employer maintains two plans; one for union employees and one for non-union employees. I can't find anything regarding coverage for maintaining two separate plans - only information if one plan covers both employee classes. I'm assumming that each plan would be tested separately for all annual testing - is that correct?

How come nobody is talking about whipsaw being eliminated with the enactment of PPA'06 (immediately). I have not had to do any cash balance distributions recently, but someone has......what is being done? What if, for arguement sake, a plan had a 3% interest crediting rate, would you just pay out that cash balance amount, forget about 417(e)? Are distributions being held up until guidance is issued and we are told what "reasonable rate of interest" means? How can you do that? Help!

If the current value of plan assets is less than 70% of the current liability under the plan, the percentage must be disclosed in the SAR [ERISA Sec. 104(b)(3)]. I could use some technical guidance:

1. Is the percentage reported as "Additional Information", or is it disclosed in another section of the SAR?

2. The DOL regulations don't seem to prescribe any language for this disclosure. Can anyone suggest how the disclosure might be worded?

I have a one-participant plan that had $90k at the end of '05. However, the owner made a $42k contribution in March for the '05 plan year.

Does that put me over the threshold to file an EZ?

The instructions aren't very clear on that.

Someone was unaware that DOL will no longer accept a Schedule SSA attachment. That person created an Excel spreadsheet to report several hundred Schedule SSA individuals.

For obvious reasons, I don't want to enter the data manually. I believe it's possible to import data into Relius from an Excel spreadsheet. If I'm correct, does anyone know how to do the import? I can't find any instructions in the Relius user guide.

Small insurance broker has a profit sharing plan and is the broker of record on the self-directed plan assets (their accounts as well as the participants) - therefore, receiving the commisssions.

Is this a prohibited transaction or is there an exemption?

Scenario: Calendar year Non-Safe harbor 401(k). All HCE deferred. Prorata employer allocation method. All contributions are made for the same allocation/plan year.

HCE1

HCE2

HCE3

ADP testing is performed in January. Test is failed and a refund to HCE3 is used to correct. HCE3 is not eligible for catch up contributions. Money is distributed from the plan.

In September employer makes a profit sharing contribution. Allocation to HCE1 and HCE2 exceeds 415 limitations. A portion of their deferrals equal to the 415 excess contributions are then recharacterized as catch up contributions to solve the 415 violation. Because the deferrals to HCE1 & HCE2 are now lower, the plan no longer fails ADP testing and no correction is called for.

The plan has to test early to avoid penalties on the excess deferrals but once all contributions are made there turns out to be no excess deferrals so the correction to HCE3 was not necessary. So what do you do?

I have a question on filing for fringe benefit plans, and am still confused by the filing requirements. Client has plan #1 - self insured medical with stop loss coverage, covers over 100 participants. Plan # 2 - separate cafeteria plan collecting pre-tax contributions for medical "premiums" and unreimbursed medical expenses. Contributions are sent to general assets of the employer and again has over 100 participants.

Rules seem to indicate that the medical reimbursement feature of the 125 plan makes it a welfare benefit plan that must file a 5500 if over 100 participants. Is this correct? Also appears that if it is, we would only be filing 5500 and Sch. C, as no insurance and no audit/Sch. H required.

The prior posting seemed to indicate that the 125 filing could be combined with the other plan, even though they were separate plans. Did I read that correctly? Thanks for any assistance.

Hi-

Is there ERISA guidance for when or how often a Plan Sponsor request RFP's with respect to due diligence?

Thanks,

G

I get to be one of the first to draft church plan language making the 415(b)(1)(B) compensation limitation inapplicable except with respect to "highly compensated benefits." My joy is compromised by the lack of clarity in the second and third sentences of the new 415(b)(11) language. The second sentence restricts "highly compensated benefits" to accruals during or after the first year of HCE status. But the third sentence states that all benefits are taken into account in applying the limit to the highly compensated benefits.

As I get over thinking that it's nonsense, this language seems necessary to avoid giving the HCE the whole (b)(1)(B) limit just for benefits accrued after attaining HCE status--the intention being to stack the highly compensated benefits on top of previous accruals to apply the (b)(1)(B) limit, but not to cut anything but the highly compensated benefits.

For example:

Assume that X's high 3 years compensation at retirement is $80,000. At the beginning of year 1, when his accrued benefit is $70,000, he becomes bishop and thus a 5% owner of the corporation sole that sponsors the plan. By the end of year 5, when he retires, his accrued benefit is $100,000. Under 415(b)(11), his benefit is limited to his high 3 years compensation of $80,000.

However, if the facts were the same except that H had accrued a benefit of $90,000 at the beginning of year 1, then (b)(11) would only reduce his $100,000 accrued benefit to $90,000 by eliminating the $10,000 in highly compensated benefits.

Are there other interpretations for these two sentences? Or other thoughjts or comments?

Thanks!

Company offers a straight profit sharing plan. Assets are managed and are not employee directed. Assets are split into 5 different brokerage accounts. Each account has a different investment philosophy so that when combined offers a diverse investment portfolio.

Each time there is a sell of an asset the brokerage houses turn around and buy shares in a Liquid Asset Fund (MM fund) to house the money instead of leaving it in cash. Then when they buy a new asset they sell the Liquid Asset Fund to generate the cash needed to pay for the new asset. This is all automated....

Auditor is claiming that these buys and sells of the Liquid Asset Fund constitutes a series of transactions and are reportable.

This can't be right, is it??? Trust is 10 million so it only takes 500k in transactions throughout the year to reach this point...only a few buys and sells plus a bond maturing to hit it.

A gov't entity is considering terminating a pre-erisa money purchase plan that contains salary defferals. Are there specific rules to follow to shut down this type of plan? What other factors need to be considered?

Also, the client is considering immediately establishing a 457(b). Would this be considered a successor plan?

Is anyone aware of any publications/literature referencing pre-erisa money purchase plans.

Thank you

I am new to the 403(b) plans and I have a couple of questions I hope someone can answer:

1) Can a plan exclude an employee from contributing and receiving the employer contributions (match and non elective) if they are employed on an as need basis? The eligibility requirements are age 21 and entry upon hire. Would this fall under reg 89-23?

This particular employer does not offer the plan to these types of employees.

2) For hardship distributions, are the participants limited to just contributions for w/d or can they w/d the gain also?

3) If a person is eligible for the plan but elects not to make a salary deferral would they be eligible for the nonelective contribution from the employer?

Any input would be greatly appreciated.

I received an email from a client who was told that PPA has caused onerous taxation from 403(b) plans. Has anyone seen information on this?

anyone seen growth of their 401k retirement savings like that of what this article claims http://www.research401k.com/401k-longterm-growth.html ?

"A study carried out by 2 Washington DC state organizations revealed that 401k participants who contributed payments towards their employer sponsored 401k retirement plans over the past 7 years have seen growth rates of over 50%. This is inspite of the tech boom bust of 2000 and market declines in 2002."

A U.S. employer maintains a 401(k) plan under which 10 employees who provide services to the employer work and reside in Mexico. Their compensation is considered non-U.S. source income as 100% of the services provided by these individuals are performed in Mexico and these individuals are non-U.S. citizens. If they were U.S. citizens they would be taxed on their world-wide income.

Is the Employer required to withhold employment taxes if these individuals participate in the U.S. employer's 401(k) plan?

Thanks in advance.

Ed

Can anyone tell me - in a nutshell, if at all possible - the benefit of purchasing life insurance in a DC plan (other than being able to pay the premiums with "pre-tax" dollars)?

Follow up: What are the ramifications and remedy/ies when a participant's life insurance (DC plan) premiums exceed the IRS "incidental benefit" limits (Doc, of course, who I think got sold a "bill of goods"!)?

Thanks!

Can anyone help me come up with a reason for my client, why they can't allocate HRA excess to the 401K as PS contributions?

They have 1 ppt who has met the HRA contribution cap and they want to make sure that guy still gets his money so give it to him as PS in the 401K plan.

I tried explaining that the plans are not covered by the same laws and are not the same plan and each have their own defined set of rules which must be applied appropriately but I'm looking for a more "professional" answer.

Any help is appreciated!