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I have a client that adopted a plan in 2001. The maximum tax-deductible contribution was $50,000. They contributed and deducted $60,000 for 2001. How does this effect the 2002 deductible amount. I am using Individual aggregate. I think the extra $10,000 was a non-deductible contribution and they must pay a 10% excise tax. The 2002 asset value for 404 must be offset by the $10,000 non-deductible amount. The maximum tax-deductible contribution for 2002 will be reduced by the non-deductible carryover amount. Finally, they should amend their tax return for 2001. Is this the way others handle this situation?

Ok, Rev Proc 79-237 does only address the charges and credits to the 412 FSA, but does'nt 404 require you to use the same assumptions and methods as used for 412? Would this requirement to prorate under 79-237 be considered a method that must also be used under 404? Has any one had problems with the IRS on this issue?

oops, the valuation mentioned above was the October 1, 2001.

A corporate resolution was adopted to terminate the plan effective February 25, 2002. The plan was filed with the IRS and the owner wanted to wait as long as possible to pay out the benefits.

I have a client that has a defined benefit plan with a September 30 plan year end. The client's fiscal year also ends September 30. The plan was terminated on Febuary 25, 2002 and the benefits were paid out in April 2003. The owner had to forego his entire benefit and had to contribute an additional $70,000 to fully fund the non-owner benefits in April 2003. The plan was covered by the PBGC. There were no unfunded guaranteed benefits (IRC 404(g)). For the October 1, 2002 actuarial valuation, we prorated the charges to the funding standard account as required by Rev. Proc. 79-237. The maximum tax-deductible contribution was $45,000, which was contributed in April 2003. When and how can the remaining $25,000 be deducted. Can the owner deduct the $25,000 for the fiscal year ending September 30, 2003 under IRC 404(a)(1)(D), unfunded current liability?

Yes the plan is new for 2002, business commenced January 2001. The client had low pay, $10,000, for first year. In 2002 he paid himself $150,000. If business conditions allow, he will pay himself $150,000 each year until retirement. I do not think it is reasonable to fund for a benefit based on $10,000 compensation. for 2002. Has anyone had a similar situation?

The plan document defines compensation, it does not state what should be used to project the retirement benefit at the assumed termination date. We are valuing a small plan where the owners can control the amount of their plan compensation. For 2001, one owner made $10,000, for 2002 the same owner made $150,000. In calculating the 2002 minimum required contribution, what compensation amount should we use to project the retirement benefit?

Does anyone know of any guidance regarding what compensation must be used for valuation of a defined benefit plan (i.e. for a 1/1/2002 valuation date, should we use 2001 plan compensation or 2002 plan compensation).