Effen

What is a "PEO"?

I would be highly suspect if a poorly trained auditor pulled out 1.401(a)(26)-3(2) as a challange. The auditors generally don't go beyond their check list, which is why this smells of IRS attempted mission creep. I agree, there should be nothing wrong with the design from a 401(a)(26) perspective. If you can't get the auditor to back off, ask to speak to his/her manager. Then you will find out if it is just him/her, or if it is something deeper.

Because it is for testing results, not for plan design.

Are you an ASPPA member? Even if you are not I suggest you contact Brian Graff or someone in the government affairs committee at ACOPA about this issue. They may help you in your fight. I think the IRS is clearly overstepping here, but then again I believe the overstepped when they defined "meaningful" to be a .5% accrual. They often "legislate" knowing that they can't legally back up their demands, but also knowing it isn't worth your client’s money to fight them.

Can you be more specific about this? Who does the db plan state IS benefiting? In order for the plan to be qualified the benefit must be definitely determinable. In order to be definitely determinable, it must first define specifically who is eligible. If the plan does not exclude certain employees, then most likely the plan covers everyone. If the plan as written covers everyone, I don't think the IRS will let you go back and say you meant to exclude them. They tend to go by what the plan says, especially if it means you are potentially taking benefits away from NHCEs.

Assuming the AFTAP is ok, why would you think this would be a problem? Plans get amended all the time to raise benefits for retired participants and beneficiaries.

In what context does the actuary speak of it?

There are some long threads on the ACOPA board regarding this topic however they also added a statement at the end of all of the threads basically saying that you can't copy/forward the threads. But at the risk of being jailed for the next 100 years, I am passing along this small section of one of the threads with a few edits to protect the writer: If you can't get on the ACOPA board, send me a message and I will try to get you something more complete.

The theory we generally work under is that anything that requires a Plan Sponsor election is a change of method, anything else is an assumption. There really isn't any clear guidance on this, so either way you are probably ok.

So, was there an actuary involved or did he just contribute whatever he felt like?

That is my understanding. Do you think there is some question about it?

Plan termination liabilities literally fluctuate every day, probably every minute of every day, as the market changes and the insurance companies try to work their own internal magic. The best way to find out what the market rate of the plan's liabilities is would be to ask an several insurance companies to quote it - generally they will do this for free, but many brokers are willing to help you for a fee. Most brokers will do all the leg work and will quote the plan for free on the assumption that you will eventually let them broker the deal when it happens at which time they will take their slice of the pie. If the plan pays lump sums it should be fairly simple for the existing actuary to tell you what the plan term liability is based on the current lump sum rates. Other than that, the actuary should also be able to tell you if the current funding target is most likely higher or lower than a plan termination liability. In most instances right now today, it is probably a low estimate since annuity rates are a little lower than the segment rates, but there are always exceptions. SoCal's advise was the best - hire a good actuary, or if you already have one, ask him or her.

Coming onto this train a bit late, but ... Am I correct that the AFN requires a statement that the "Plan’s annual report is available on an Intranet website" which I guess doesn't mean it has to be posted there, but it must be available via the intranet website. However, PPA requires that the actuarial information included in the annual report "shall be displayed on any intranet website maintained by the plan sponsor" which means that the 5500 SB needs to be posted on the intranet website. Andy, is this why you were reminding us that you are from Missouri? Are you arguing that there is no requirment to post the entire 5500 in the intranet website? This appears to be what others are saying, but it is far from clear. Is my understanding correct?

I not get one either.

I don't understand what this means? Are you saying the plan document called for a benefit of 135%, but the policies call for 168%? Are you saying that you have a plan document that does not match the amount of the policy? Who is requesting the valuation and what makes you "feel" it is overfunded if you have never done one? Also, what do you mean by "a valuation"? What is it that you are trying to value?What is your role in all of this? If the client is funding a policy in excess of the benefit provided by the plan document the contributions for the excess may not be deductible. You could amend the plan up now, but that won't help you with the past contributions. Also, you need to make sure you are not violating the 415 limits. You also should look into the "listed transaction" rules and make sure they are not a concern.

For the benefit of the group, could you share the answer. Thanks

Why not ask the agent who sold him the policy? What do you mean he "made contributions"? Did the contributions go to the insurance company? How did he determine how much to contribute? Who should he have consulted with before making the contributions? If it is a 412(i), all payments should be going to the insurance company based on the amount they are billing. If he made contributions to a trust (and not the insurance company) the 412(i) status is most likely blown and you have some bigger issues. I think we need more specific information.

Thank you. That is exactly what I was looking for.

Can a QACA safe harbor match be applied to deferrals over 6%, assuming the statutory requirements are met? In other words, can I have a QACA safe harbor match that provides 100% on the first 1%, plus 50% on the next 9%?

Was that like Dragnet..."the following conversation is true, the characters were changed to protect the innocent"

Assuming the plan document permits such a form of distribution. Most plan's only give one bit at the apple and won't let you change from an annuity to a lump sum at a later date. Personally, I think the 415 limit is determined at the time the benefit is paid, which may result in a lower lump sum than it was on the date the plan was terminated.

You need to check the plan document to see what it says. Also, I would ask about past practice. I have seen it done many different ways. - Absol-fn-lootly. That is what the "relative value" requirements and the "consequesnces of failure to defer" are all about. You are required to put this information into the benefit illustration package. 0 another absol-fn-looty. All of your assumptions need to be your best estimate, including retirement rates and expected form of payment. Depending on your system, these may or may not be possible. If they are not possible using your current software, you may need to rethink your software vendors. Typically on a plan like this we would look at the recent experience to see what percentage retire at what age. For example, you may have an assumption that 75% retire when they are eligible for the rule of 80 and the other retire at various rates. Of those retiring 60% will elect a lump sum and 40% will elect an annuity. This may change with age and service.

Don't know, but their cabana is the hottest spot north of Havana.

It would depend on how the amendment is worded. If the plan is amended effective 1/1/2010 and simply increases the formula from 50% to 75%, how can you argue someone who is an active participant on 1/1/2010 would not be entitled to it? I suppose the amendment could be written to exclude people who terminated before the adoption date, but then I think you would need to test it for discrimination. If the person that termed is an HCE, probably no issues, but if you they are a NHCE it seems like it would be difficult to prove that the timing of the amendment was not discriminatory.

From 2011 Grey Book - Q/A - 4 QUESTION 4 Funding: When to Reflect a Plan Amendment Adopted Within 2-1/2 Months After Year End The final §430 regulations provide that a plan amendment is reflected in FT and TNC if adopted no later than the valuation date for the plan year. In the case of an amendment adopted after the valuation date, the amendment is reflected in FT and TNC if the plan administrator makes the election in §412(d)(2). However, in both cases, the amendment is taken into account only if it takes effect on or before the last day of the plan year. Assume a discretionary amendment (i.e., an amendment that is neither required for qualification nor integral to an amendment that is required for qualification) is adopted within the §412(d)(2) period of 2-1/2 months after the end of the prior plan year to increase the benefit formula for prior service for all participants that worked at any time during the prior plan year. If the plan administrator makes the §412(d)(2) election, can the amendment be reflected in FT and TNC? Does the answer depend on whether a §436 contribution is required? On whether plan operations had actually reflected the amendment in the prior year? On whether the amendment is reflected for coverage and nondiscrimination purposes? RESPONSE In this situation the amendment is only reflected if it is adopted and takes effect by the end of the prior plan year. In general, if a discretionary amendment is adopted after the plan year that provides for increases in the prior year, there is no legal right to the increased benefits until adoption. Such an amendment takes effect when adopted (assuming §436 permits), and could be taken into account for the adoption year if a §412(d)(2) election is made for that year. If a discretionary amendment is implemented operationally during a plan year (thus creating a legal right in the plan year) adoption is required by the end of that plan year [see Rev. Proc. 2007-44]. Any corrective amendment that meets the requirements of §1.401(a)(4)-11(g) that is adopted after the end of the plan year is treated as being effective in the year preceding the year the amendment is adopted for purposes of coverage and nondiscrimination, but that treatment will not apply for minimum funding (or deductions) as noted above. 2011 -4 The above Response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the Response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.