drakecohen

It's gone into here: http://blog.nj.com/njv_johnbury/2009/12/pe..._betrayals.html but it occurred to me a few years ago when I wrote out the example that I've attached as a pdf file. Basically, it's supposed to be fair and it sounds fair if you don't think about it too much (or have a financial incentive to think it's fair) but it's really not. What's ignored is the interest from the time the doctor (A) gets the money (2011) to when the receoptionist (B) gets the money (2041). Age_Weighting_1_.pdf

And that's where your government wonk might say "mmm, why not? We'll take the $21,000, and give $10,000 to the employees in some form of a government-run plan, and have $11,000 left over!" I'm not saying I'm in favor of it (it would probably cost $30,000 in waste to give the employees the $10,000) but if it really costs $21,000 in taxes to get $10,000 to the employees, as a taxpayer, I have to question whether it is worth it. Good point and it hasn't escaped me that this may be a government ploy to get that $21,000. Cross-testing and safe-harbor match 401(k) plans have yielded plan designs that are so abusive (providing the possibility that some rank-and-file employees get either 3%-of-pay annual contribuitons subject to vesting or nothing, respectively) that even government bureaucrats pick up on it. Combine that with the faulty reasoning underlying cross-testing and you have an easy target.

What about the underlying theory behind cross-testing as examined here for a simple age-weighted plan: http://blog.nj.com/njv_johnbury/2009/12/pe..._betrayals.html

Excess assets later is a separate issue and when that hits for everybody maybe we can ASPPA to lobby for relief then. For 2008 when the accountant asks what the maximum deductible contribution is for this plan I'm looking at telling him $1.3 million even though that's all excess assets. Accountants are an odd lot. If you give them a number they tend to move on without a predisposition to chat about it. So is 150% the new 100% for full funding? I expect this is a fairly universal issue for small plans but I haven't seen much discussion on it (though it might have something to do with me not being able to get on the COPA/ASPPA site or PIX, if that still exists).

Thanks, that's what it looked like to me too. But now I have a practical business question (possibly litigation related). I have this real life situation though the numbers are bigger and it's husband/wife. They're both past retirement age. If they put the money they can deduct in ($1.3 million actually) then, barring another stock plunge, they're not likely to be able to take it all out without penalty. I'm very hesitant to just come out with that big contribution number to them now. What are people out there doing?

One person plan - corporation Sole participant at 415 high-3-year salary limit and not accruing more. 12/31/08 Funding Target: $1,000,000 2008 TNC = $0 Trust assets also $1,000,000 Under PPA the minimum is obviously $0 but is the maximum deductible contribution $500,000? - the cushion amount?

Not what I got out of it. Basically, at the IRS dialogue, I interpreted that they were telling me: "Do what you want; just don't bother us." Unless you're in the 6th or 7th District, don't see a problem. Since nothing has to be in writing until the end of '09 and any reasonable interpretation will do, why not interpret pre-retirement mortality as reasonable. Will obviously compare to plan rates, which don't have pre-retirement mortality (though you could amend it in), and watch document language when written but I think we've reached the point where no judge will be able to rule against it because they won't be able to grasp the concept. Maybe if lump sum is less than annual PBGC premium for the person.

I think the lower rate for post 65 would be discriminatory and any participant over age 65 getting lower allocations might be able to sue. But what I'd be curious about is how many documents are written this way.

I have been using the age 65 factor for later ages because it is far easier to program and the discrimination issue brought up here. If you have two peope both at RA but one is 66 and the other is 65 then the 66 year-old would get a lesser percentage of contribution only because of being older. The problem comes with documents which have tables which recaculate MV factor at ages over 65. If document has it then it has to be done that way, discriminating against older retirees.

Treas. Reg. 1.401(a)(4)-8(b)-(1) seems to allow use of age 65 factor for those over age 65 in age-weighted and new. comp. plans. However, according to some documents I've seen the factor tables use actual age maturity value factors after age 65. Are both methods valid? Is there a preferred way of doing it?