Effen

From Page 8 of the instructions: Plans exempt from variable-rate premiums. Three types of plans are exempt from paying a variable-rate premium: ♦♦Plans with no vested participants; ♦♦Insurance contract plans described in section 412(e)(3) of the Internal Revenue Code; ♦♦Plans that have issued a Notice of Intent to Terminate (NOIT) in a standard termination (see Chapter V. Plan Terminations) where ...

Plans that were once called 412(i) plans, are now properly called 412(e)(3) plans, and are exempt from PBGC coverage.

And just how do you think the other 99.99% of 412(i) sponsors would react to the PBGC required premium to insure a fully insured product?

Very well put Mike - much better than calling the idea "asinine" or "nefarious".

Ok, maybe "asinine" was too strong of a word, but really, what does your client want protection from? He is in complete control of his situation and the plan investments. He can be as conservative as he wants and stay in all cash. If he is ultra conservative and spreads his money around to various financial institutions, the chances of the plan failing due to bank or insurance company failure is pretty small. Granted, they can fail, but if they all fail at the same time, why does he think the government would fare any better? He worries that the entire financial system will fail, yet believes in the government will be around to bail him out? There are no guarantees in this world, and Walking Dead is only fiction.

Just to make sure I have this straight, a sponsor of a 412(i) plan (that is a plan that is fully insured and back up by the reserves of an insurance company), would also like to be covered by the PBGC who would double guarantee a portion of the benefit? You already have an insurance company guarantee that some may argue is stronger than a governmental guarantee, and on top of that, your client also wants a governmental guarantee? Are they concerned the insurance company will go out of business? If so, why did they purchase the contract? They are already most likely funding the plan at extremely conservative rates, putting in much more than is really necessary (my opinion) and they want to give even more money to the government for a 2nd guarantee? Maybe Ned is convincing them of the advantages of even more deductions? Even if the PBGC guarantee was available, it would only cover a relatively small portion of the benefit. Benefit caps and phase-in provisions are designed to limit the guarantee for owners of the company. Also, just because you sent the PBGC a payment doesn't mean they will honor the guarantee. Lots of history where the PBGC determined plans were not covered after years of premiums being paid. Typically the PBGC will just refund the premium and wish you luck. If the PBGC covered one life plans, what incentive would sponsors have to adaquately fund and invest prudently? If the PBGC will just pick up the tab, why would I bother to fund it? This thread is so asinine; I can't believe I just wasted time posting a response.

Thanks Dave - and thank you to all who post. Congrats on 17 years!

I would agree. However, make sure the original calculation was not just an estimate. It is possible the fund estimated they would not have a liability, however when the actual calcuation was done, it turned out they did. In general, once the number is determined, it shouldn't change unless there is a mass w/drawal.

my understanding is they are exclusive "problems".

Ha ha, You funny man!

Is it a plan year which he worked less than 500 hours? If yes, then yes.

Only assuming the sponsor wants them to be allocated in a way they can demonstrate to be nondiscriminatory and in a way that complies with their plan document.

I say years, months, and days for both calculations. Never understood people who argue 417(e) calcs. should not be done to the day, but their calcs are not my issue. Although I suppose as long as you round everything up, you are ok.

Nothing prohibiting it, but you need to offset the benefit in the new plan by what he received from the old plan for 415 purposes. Since he is the same employer, his prior distribution counts against the 415 limit in the new plan. So if "no more deductible contributions could be made" under the old plan, the only thing he could fund would be the COLA increase in the 415 limit, which most likely is not worth the pain at this point.

Also, look at Q/A 39 from the 2009 Gray Book. Here is a link to previous discussion that contains the Q/A. prior discussion

Yes, unless your plan automaticly provides for an actuarial increase, however it is still probably good practice. Maybe, it depends on what the document says. You are permitted to give the greater of an actuarial increase or the age/service. In the past it was assumed that you could do this as standard practice, however the IRS has been saber rattling lately that you must have explicit language in your document for this, and lacking explicit language, you must provide both the rollup and the age/service benefit. Either way, you should make sure you are following the document, or amending the document to clarify. You must give at least the actuarial increase.Obviously, these are legal issues and your fund counsel needs to make the call. I have seen a wide variety of interpretations, so make sure the attorney is presenting the solutions.

Ouch! I am feeling a lot of negative waves about db plans on the db board. We don't come on the 401(k) boards and talk about how bad 401(k) plans are for society. Just like any other types of plans, dbs are not for everyone, but where they fit, and where they are understood, they offer a great benefit. Obviously different markets and different types of plans, but in the micro market vesting is generally 3-yr cliff, or 6 year graded - just like the dc world. And I would point out that most money flowing into 401(k) is deferred comp, not employer money. Micro db plans are generally designed as tax shelters for selected individuals, just like micro dc plans. We can debate pro/cons and all the social implications you want. Both types of plans have advantages and disadvantages, both types are often "sold" to people who don't understand what they are buying, both types have problem situations. Bad consultants produce bad plans. Where they fit, they can offer power tax advantages, however if sponsors can’t fund them, you end up with a bad situation.

FWIW, look for the SOA to come out with a "BB" projection scale to replace the current "AA" table before the 2014 tables are released. Apparently mortality improvement has been better anticipated and therefore they are creating a new projection scale.

Ft. Williams does nice job for a reasonable fee.

If you are asking, for a 2011 actuarial valuation, what is the maximum benefit I can fund for participant who is expected to retire at age 55, then I would say the answer is somewhere near $120,886 as a annual life annuity. (I don't think the expected retirement year is relevant.) This assumes the actuarial equivalents in the plan document use 5% interest and the applicable mortality table. It also assumes there is no forfeiture on death. There are lots of other issues to consider, but I think this is what you are looking for. This also assumes your participant will have 10 YOP and YOS. If the plan pays lump sums, this opens up a whole new set of issues where the answers depend on the actuarial equivalents stated in the document. I am sure you will get other opinions, but that is what I would generally use.

I am a little confused by your question. You said he was retiring at 12/31/15, but then you asked for the maximum benefit as of 12/31/11. Is this a valuation question or a benefit calculation question? The benefit at 12/31/15 can't be determined until we know the 415 max for 2015.

PBGC coverage isn't optional (except maybe for church plans). You either are, or you are not, covered.

From the IRS website: From the 5305-SEP instructions: Is it a prototype SEP or an indvidually designed SEP? If not, then it can't have a db plan at the same time.

you can't deduct a SEP contribution and a DB contribution during the same plan year, so one of them is improper. Seems to me if he funded the SEP, then it clearly exists and would be hard to claim it was a "mistake in fact", but that is a legal question. What fact did he mistaken? I guess I would say the db never existed because it was not permitted because the SEP existed first. That said, if the accountant and attorney agree that the SEP was improper, I guess you could go the other way as well, but I wouldn't want to be the one to make that call. You also need the IRA Trustee to agree as well that it was a mistake, which isn't always easy. Don't know why you are suggesting 6% would be permitted? Safest play is revoke the db since nothing has been contributed or filed, and make it effective in 2012.

You are correct, however you still project to retirement for the At-risk liability and the determination of the maximum deductible contribution. I beleive that is a PUC calculation, not a UC.