A pension equity plan (PEP) provides annual percentage accruals according to the following schedule: Age < 30 (4%); Age 30-34 (5%); 35-39 (7%); 40-44 (10%); 45-49 (13%); 50-54 (16%); >=55 (18%).

Accrued Benefit is the sum of these percentages over all all years of service, times highest 3 year average compensation, converted to an annuity at Age 65.

Question: How does such a plan meet one of the 3 tests of minimal benefit accrual rate required of all DB plans? It seems to me that it fails the 3% rule on its face because the Age 65 benefit can be based on >33-1/3 years of service (and percentage accruals). It seems to fail the 133-1/3% test because accruals vary from 4% to 18%, so for example, 18% > 133% of 4%. It seems to fail the fractional rule test because it backloads the accrual so that initially the accrued benefit is less than the fractional method.

What am I failing to understand? (layperson speaking here) How does such a plan meet one of the tests?

I'd very much appreciate your suggestions!

Reg. Section 1.409A-3(b) says generally that a plan provides for payment upon a permissible event (e.g., retirement, death, disability, separation from service, etc.) "if the plan provides the date of the event is the payment date, or specifies another payment date that is objectively determinable and nondiscretionary at the time the event occurs." [emphasis added]

The regulation also provides that "a plan may also provide that a payment . . . is to be made during a designated period objectively determinable and nondiscretionary at the time the payment event occurs, but only if the designated period both begins and ends within one taxable year of the service provider or the designated period in not more than 90 days and the service provider does not have a right to designate the taxable year of payment . . . ." [emphasis added]

Must this be read so literally as to require that the plan cannot say, for example, that "the service recipient may, in its discretion and without input from the service provider, make payment either: (i) within the taxable year following the year of the event, or (ii) within 90 days of the event."? In other words, if the service recipient wishes to take advantage of the flexibility afforded by permitted delay in payment, must the plan specifiy either (i) or (ii) - but not both (because permitting both would insert some discretion into the mix)?

Thanks.

I have a potential client that own two companies - a New York law firm and an NJ accounting firm. He is insisting that by STATE law they cannot sponsor the same plan. He quotes the below. My thoughts are that both sections seem to exclude Profit Sharing or retirement plans and wouldn't ERISA pre-empt anyway? But hey -- he's a lawyer -- maybe he know stuff I don't. Any thoughts?

The underlining below is from me -- not the original source.

Thank you

"

EC 3-8

Since a lawyer should not aid or encourage a non-lawyer to practice law, the lawyer should not practice law in association with a non-lawyer or otherwise share legal fees with a non-lawyer. This does not mean, however, that the pecuniary value of the interest of a deceased lawyer in a firm or practice may not be paid to the lawyer's estate or specified persons such as the lawyer's spouse or heirs. In like manner, profit-sharing compensation or retirement plans of a lawyer or law firmwhich include non-lawyer office employees are not improper. These limited exceptions to the rule against sharing legal fees with non-lawyers are permissible since they do not aid or encourage non-lawyers to practice law.

DR 3-102 [1200.17] DIVIDING LEGAL FEES WITH A NON-LAWYER.

A. A lawyer or law firm shall not share legal fees with a non-lawyer, except that:

1. An agreement by a lawyer with his or her firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons.

2. A lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer.

3. A lawyer or law firm may compensate a non-lawyer employee, or include a non-lawyer employee in a retirement plan, based in whole or in part on a profit-sharing arrangement.

DR 3-103 [1200.18] FORMING A PARTNERSHIP WITH A NON-LAWYER.

A. A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.

DR 3-103 [1200.18] FORMING A PARTNERSHIP WITH A NON-LAWYER.

A. A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law"

Participant deferred $7000 over the 402g limit last year 2013. She terminated and rolled her account over to an IRA. Not sure why recordkeeper did not monitor this excess but in any event, what is the procedure for recordkeeper and plan at this point? Issue participant a letter notifying her of excess and that she should contact IRA to take it out. Is there an April 1 deadline? Do the double taxation rules apply if not distributed from the IRA by 4/15?

Thanks for any help!

Forgive my ignorance--I'm an employee/plan participant, not an actuary.

Accrued benefit is defined under my plan by the fractional method. Suppose accrued benefit (defined as the normal Age 65 benefit) is $1000/mo. Suppose retiring at Age 55 yields $700/mo. Suppose retiring at Age 56 yields $650/mo. (I pulled these numbers out of thin air so don't pay much attention to them specifically). If I'm reading the IRS code right, you are entitled at Age 65 to the higher of the Age 65 accrued benefit or the early retirement benefit at any earlier age. Thus, the benefit in this example would be $1000 if you retired at Age 65.

But, suppose you want to retire at Age 56. Why should you receive a lower benefit than if you had retired at Age 55? Yet, the plan administrator says that because the Accrued Benefit--defined as the normal retirement benefit at Age 65 by the fractional method--is the same for both of these, there is no cutback of accrued benefits between Age 55 and Age 56. Is this correct? It just seems wrong to me that you should receive less after another year of work!

Beyond the fact that there is an absolute dollar reduction from Age 55 to Age 56, you also have one less year of receiving the benefit. Why shouldn't you at receive the actuarially equivalent benefit? i.e., why wouldn't you be entitled to the greater of either (a) the actuarial equivalent of the Age 65 Accrued Benefit at your early retirement age, or (b) the actuarial equivalent of the highest early retirement benefit? (In this example, then, if you retired at Age 56 you would be entitled to the actuarial equivalent of the Age 55 benefit. Or if it was higher, the actuarial equivalent of the Age 65 benefit. But you wouldn't get stuck with the low-ball Age 56 benefit).

Is the law/plan just stupid, or is it me? I'd be grateful if you could clarify/explain the rationale for this to me.

Thanks for the help!

have been contacted about a one person plan where assets>250K in 2012 for first time. filing has not been done. question is whether filing late with a reasonabe cause of reliance on third party professional who failed to advise client has any merit. or would it be better to go dfvc using 5500sf and pay the $750...that woud be my recommendation.. any thoughts are appreciated.

Anyone had experience with the IRS disqualifying an entity that sponsored a DB plan?

DB plan was established in 2012, funded in December 2012. The IRS reviewed the company in 2013 and determined that the entity was a nullity for tax reporting purposes due to changes in tax law requirements. They went through a Voluntary Disclosure program for the entity to make the corrections, pay taxes and penalties.

Not sure if 1099's need to be issued for the gains in 2012 (very nominal amount), and 2013 (large amount)? Taxed as ordinary income or can it include capital gains?

Any thoughts/guidance on this issue appreciated!

I probably won't even ask the question right, but here goes, using, as you will see, grossly hypothetical numbers just for the sake of illustrating the concept. I'm used to exposing my ignorance when it comes to DB calculations.

Suppose you have a sole prop, who had a defined benefit plan that was terminated in, say, 1999. At the time, his income was much highr than now, and he had accrued a benefit that was close to the 415 limit. Let's just say that his 415 limit at the time was 1,000 per month, or $12,000 per year, which equated to a lump sum of $100,000. His accrued benefit was $950 per month, or $11,400 per year, leaving him under the 415 limit by $50 per month, or $600 per year, and his lump sum payout was $95,000. This $95,000 lump sum amount was paid to him and rolled to an IRA.

Now fast-forward to 2013. He is still a sole prop, and has to be considered in a DB plan due to controlled group/minimum participation. His salary is now quite low.

When calculating his 415 limit under the new plan, I know that the old plan must be taken into account for 415 purposes. If the new plan 415 limit, (assuming he never had a prior plan) based upon age, salary, participation, etc., is, say $150.00 per month, or $1,800 per year, how do you calculate his 415 limit in the new DB plan? Is it only $50 per month, because his "old" 415 limit was higher than what his new limit would be, and there was only $50 per month available under the prior plan? Or is it done in some other manner - for example, since his prior benefit was higher than the current 415 limit based solely upon his current income, is his 415 limit in the new plan zero? Or is something altogether different from either answer?

Thanks!

In order to offer a compliant health FSA in 2014 is it enough that the FSA participants be offered ACA compliant group coverage or do they have to actually be enrolled in the group coverage?

Has anyone seen, or had personal experience with, a plan change where it was decided to do away with a profit sharing contribution only to increase the match formula? What was participant behavior after the change? Did many participants increase their deferral to the new match max?

We're doing analysis now to do away with the 3% PS but to increase our match from $/$ on 4% to 125% up to 6% but to cost it out for our finance group, it's nearly impossible since participant behavior is tough to predict.

Looking for guidance on whether a 5500-SF can be filed even though a Schedule A is available. Example - John Hancock plans

A friend visiting his physician was told (by the receptionist) that the physician does not participate in the insurance plan that covers the patient. The patient is ready to pay the physician's full fees (and to do so without seeking a reimbursement from the insurer), but the receptionist said that the Affordable Care Act prohibits the physician from accepting any cash payment from someone who is insured. Is that right? If there is a restriction, does it apply differently between those who are Medicare-covered and those who are younger?

SIMPLE plans are not my bailiwick, with that said here is my question...

I have a financial advisor who has a few SIMPLE plans and he asked me what he needs to do to move the assets of the plan from one custodian to another. What he has been doing is placing his SIMPLE plans with a large mutual fund who prepares all the paperwork for the plan. These simple plans are not going to essentially change at all. He simply wants to move the assets from the mutual fund to individual investment accounts somewhere else to offer a wider range of investment choices.

Thoughts... suggestions?

Thanks

The SB instructions state that "minimum funding standards apply until the end of the plan year that includes the termination date." Is this true for a plan that terminates on the first of the year, where, clearly, the minimum funding requirement will be $0?

Any help would be appreciated!

The SB instructions state that "minimum funding standards apply until the end of the plan year that includes the termination date." Is this true for a plan that terminates on the first of the year, where, clearly, the minimum funding requirement will be $0?

Any help would be appreciated!

Partner in a Partnership has SE Income of $200K before deducting his $50,000 PS contribution. CPA wants to deduct the 50K in the year funded. Does that mean that for testing purposes I get to use $200K for nondiscrimination testing (only a 25% contribution vs. a 33% contribution)?

Or let's say the Plan has a 3% Safe Harbor Contribution only. Will the owner get 3% of $200,000 instead of 3% of ($200,000 - Safe Harbor)?

In year, it might well pay to take the deduction in year 2. Is there a requirement that Earned Income be reduced for the current year contributions?

Think I'm right that if a class of employees is excluded from a plan (assume no 401b problem) they don't get top-heavy minimums or 3% non-elective safe harbor.

But what if an employee make an old fashioned irrevocable waiver of participation, same result?

Thanks

A plan currently is stated using only the adoption agreement and other standard documents of a preapproved volume-submitter plan.

An employer would like to amend its plan to specify a time limit on a claim for a benefit - a provision not stated in the volume-submitter base plan, and not available as a choice in its adoption agreement.

If the employer makes the amendment, does doing so end its reliance on the volume-submitter IRS approval?

Or is there an argument that this added provision is "administrative" and so does not end reliance?

An individual would like to buy an individual health insurance contract that does not cover physician visits. She pays her physician an annual retainer. Her physician never accepts any payment from a person other than his patient.

Is such an insurance contract available now?

Will such an insurance contract be available a few years from now?

(Assume that a premium tax credit is unavailable. Assume that the individual does not object to incurring the IRC section 5000A tax for failing to maintain minimum essential coverage.)

This is probably a simple question with a simple answer, but I wasn't able to find it anywhere else. I am submitting several cash balance plans for favorable determination letters using Form 5300. Our document system still uses the April 2011 revision although the 5300 was revised again in December of 2013. The instructions to the new 5300 don't give a date on which I need to begin using it. I did find a guide on the IORS webiste, Tips to Expedite the Determination Letter Process, that says to use the current form. Since it is easier for us to use the form generated by our document system, am I still able to use the 2011 form or must I use the 2013 form for these dubmissions? Thanks for your help and advise.