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The owner of a business with a DB plan is past normal retirement age. He received a lump sum of $2 mil based on the maximum 415 benefit limit on 12/31/05. The lump sum was calculated using 5.5% and 94 GAR. The owner has continued to work. His compensation is 250,000. He is entitled to an accrual for 2006. The plan is being terminated as of 12/31/2006. Question: How is the owner's accrued benefit as of the end of 2006 determined?

How is the valuation and funding standard account handled for two plans that merge into one plan mid-year? Any help is appreaciated!

We have a client that has contributed $200,000 to their DB Plan during 2005. The minimum required is $100,000 and the maximum is $250,000. The client wants to only deduct $100,000 for 2005 and deduct the remaining $100,000 in 2006. The contribution range for 2006 should be the same. Is this possible?

We have a client that sponsors two DB plans, one for hourly employees and the other for salaried employees. Both plans are underfunded on a termination basis (417 interest rates). The client wants to merge the plans into one plan. In order to comply with 414(l) what do we need to do? What type of statement needs to be attached to the form 5310-A?

I am preparing the allocation for an age-weighted 401(k) plan. The plan requires a 3% non-elective safe-harbor contribution. First, all participants that have met eligibility requirements and are eligible to defer under the 401(k) must receive the 3% nonelective safe-harbor contribution. This includes participants that terminated prior to the end of the year and worked less than 500 hours. Next, the employer discretionary contribution is allocated on an age-weighted basis. The plan requires employment on the last day of the plan year or completion of 500 hours. We have one employee that met participation requirements and terminated prior to the last day of the plan year and worked less than 500 hours. Should he receive the 3% nonelective safe-harbor? (I believe yes) Given the 3% nonelective safe-harbor contribution, is the plan still considered an age-based plan for gateway relief?

We have a client that sponsors a DB plan. The DB plan excluded service prior to the effective date of the plan. It is my understanding that service prior to the effective date of the plan may be excluded as long as the sponsor does not have a predecessor plan. A qualified plan becomes a predecessor plan if it is "Terminated" within a 5 year period of the effective date of the new plan. The client also sponsored a PS plan and a MP plan. The MP plan was merged into the PS plan. The PS plan has not been terminated. Upon the merger of the MP plan into the PS plan, does the MP plan become a predecessor plan for vesting purposes?

I guess once the initial unfunded liability got wiped out, the funding method was basically aggregate. I just don't know what happens when you change assumptions or amend the plan after the initial unfunded is wiped out. Has anyone reestablished the initial unfunded liability base?

We have a takeover plan that uses the Frozen Initial Liability Cost Method. The initial FIL base is considered amortized due to the ERISA FFL in past years. The plan was amended to freeze benefit accruals. This amendment reduced the unfunded accrued liability. Do you set up a base for the reduction in the accrued liability?

We have a small plan that did not make the 2003 minimum required contribution of $50,000. When we prepared the 2004 valuation, the ERISA Full Funding Limit is $0. Does the employer have to make the prior year contribution of $50,000?

The life insurance premium is deductible becaue it is being used to fund the death benefit of the plan. However, the death benefit of the plan is based on the amount of life insurance in place. If the life insurance was not purchased, the benefit which justifies the deduction does not exist. I believe the IRS would disallow the deduction since it is not funding a benefit. I also don't believe the IRS would view the contingency of the purchase of life insurance or not as an assumption. I believe the purchase of the life insurance is more of a method to fund the benefit rather than an assumption as to the amount of the benefit, although, the benefit is contingent on the purchase of the life insurance. Around and around we go.

The effective date of the plan was 1/1/03. The death benefits under the plan are equal to the present value of the accrued benefit plus the face amount of life insurance less the cash value of the life insurance. The purchase of life insurance is optional. For 2003, the "Split Funding" method was used. Under this method the side fund normal cost is the amount needed to accumulate to pay the present value of retirement benefits at normal retirement less the accumulated cash value of the insurance at normal retirement. The mortality cost is the annual premium for the purchase of the life insurnace. The insurnace policies were never purchased. The mortality cost or the annual premiums has remained in the plan. The prior actuary has been fired (a Schedule B was not filed) and we have to redo the valuation for 2003 and prepare the 2003 Schedule B. Since the life insurance was not purchased, it is my opinion that the portion of the normal cost attributable to the annual life insurnace premium is unreasonable. In preparing our 2003 valuation and Schedule B, we are not going to include any life insurance. The employer did not purchase life insurnace for 2003 or 2004 and has no plans to purchase any in the future.

We have a takeover plan that has life insurance. The plan document says that the administrator may purchase life insurance in a non-disciminatory manner. The death benefit payable from the plan is based on the amount of life insurance in effect. The 2003 contribution to the trust included a side fund amount and a mortality amount. The plan administrator did not purchase life insurance. Since the plan administrator did not purchase life insurance, is the mortality amount deductible?

Assume I am calculating the varible rate portion of the PBGC Premium for the plan year and premium payment year beginning 1/1/04. The client made a contribution of $100,000 on December 15, 2003 for the 2003 plan year (reported on the 2003 Schedule B). I am using the alternative calculation method, therefore, I use the actuarial value of assets and current liability as of January 1, 2003 (reported on the 2003 Schedule B). Can I include the discounted value of the $100,000 contribution on line 3©? The $100,000 is not included in the value of assets as of January 1, 2003, but it was deposited prior to the PBGC filing date and is for the year preceding the premium payment year.

In order for a death benefit under a DB plan to be "incidental", the maximum benefit is limited to 100 x "anticipated monthly retirement benefit". What exactly is the "anticipated monthly retirement benefit"? I suppose it means the accrued benefit projected to the normal retirment date based on anticipated service at normal retirement and projected compensation at normal retirement. In the projection of compensation, can the current compensation be projected based on the valuation salary increase assumption or should the current average compensation be used?

Thanks for the replies. Is it possible to freeze the insurance level at the 2003 level? In other words, the 2003 projected benefit is $10,000 per month for the key employee, so the plan has purchased insurance policies with a total face amount of $1,000,000 at the end of 2003. At the end of 2004, the projected benefit is $11,000. Is it possible from a non-discrimination standpoint and does it make sense to freeze the level of insurance and the death benefit at the $1,000,000 level? There are a few non-highly compensated employees in the plan. If it is possible, the plan can still provide a substantial death benefit and not pay the surrender charges. Any thoughts? I have very limited experience with life insurance in DB plans so any suggestions would be helpfull.

In calculating the reduction in the 100% of compensation limit for a DB plan under IRC 415, what are the requirements for a year of service. The plan requires 1000 hours of service for a year of vesting service but only 500 for a year of accrual service. The owners daughter worked 700 hours.

We have a client that has been purchasing life insurance in it's DB plan. The client has been purchasing up to a face amount of 100 times the projected accrued benefit. The client has decided that the principal has enough life insurance and wants to stop purchasing. What are the clients options? Obvisously the plan must be amended to eliminate the use of life insurance, but what can be done with the life insurance in the plan now? Any suggestions?

The maximum tax-deductible contibution for 2003 was $95,000. The client contributed and deducted $100,000 (return filed). We told the client that $5,000 was not deductible and the matter should be discussed with his tax advisor. Is there anything else we should do?

Participation was not frozen, therefore the employee became a participant in the plan on July 1, 2003. I guess the question is when does an employee accrue a benefit in the plan. Benefit accrual service is defined as all service not service as a participant.

We have a plan that ceased benefit accruals effective March 1, 2003. The plan defines accrual service as service since date of hire. The plan requires a year of service (1000 hrs in first 12 months) for eligibility. An employee was hired June 1, 2002. He worked 1000 hours in 2002 and was eligible to participate in the plan on July 1, 2003. The employee has a year of accrual service as of March 1, 2003 when benefit accruals were frozen but was not a participant. Is this employee entitled to an accrued benefit?

We have a client that sponsors a defined benefit plan. An employee of the client is entitled to an accrued benefit under the defined benefit plan. The employee has committed fraud against the client. The client is pursuing both criminal and civil action against the employee. Can the client deny the employee his accrued benefit from the plan?

The money purchase plan was a calendar year plan and terminated September 30th. An integrated allocation (15% plus excess) was made to the plan based on compensation received through September 30th. The profit sharing plan, also calendar year, was adopted January 1. The client wants to make an additional contribution to the profit sharing plan to get a total $40,000. He wants to give himself and one other HCE approximately 1.5%. The only other participant is a NHCE. Of course he does not want to give the NHCE any additional allocation (other than the 15% money purchase). My questions are: 1) Can the two plans be aggregated for testing given the fact that the money purchase terminated September 30th? 2) Can the 15% allocation to the NHCE be used to satisfy the gateway requirement? Any input is appreciated!

We have a client that terminated their money purchase plan on Septermber 30. They adopted a profit sharing plan on January 1. We are going to calculate the money purchase contribution based on compensation through september 30. A cross-tested profit sharing contribution will be made. The amount of the PS contribution will be based on testing. Can we aggregate the money purchse contribution with the profit sharing contribution for the minimum gateway and testing?

I am cross-testing a profit sharing contribution to a plan that has a 401(k) safe harbor match. There are employees (nonexcludible) that terminated during the plan year that did not meet the 1000 hour requirement for an allocation and they did not defer any compensation (ie no match). Do these employees have to receive a gateway contribution? My understanding is that they did not benefit under the plan and no gateway is required. If the safe-harbor was a nonelective 3% and they were eligible to defer, then the gateway would be required.

I am preparing an allocation for an age-weighted profit sharing plan. The plan has two participants that terminated in the plan year who earned 1000+ hours. In an age-weighted plan, should these terminated participants who are not excludible under 401(a)(4) receive an allocation? The plan document requires employment on the last day of the plan year, however, in order for all the participants the have the same EBAR, should these two receive an allocation?