Effen

Someone was watching TBS last week. If only they could have shaken off those flying monkeys!

Big Company A is owned by Bill. Bill decides to sell Big Company A to Bigger Company B. Since Bill doesn't want to sell widgets anymore, he forms LLC 1 on June 15. LLC 1 has no employees or assets until July 3rd when stock sale to Bigger Company B has closed. On July 2, LLC 1 has 5 employees, 3 highly paid and 2 administrative. All worked for Bill at Big Company A. LLC1 will be in a completely different and unrelated business than Big Company A or Bigger Company B. Bill owns 100% of LLC 1 Also, there is a small piece of Big Company A that Bigger Company B didn't want. On June 30 Bill forms LLC 2 and spins out the employees and assets of Big Company A that Bigger Company B didn't want. LLC 2 has 5 high paid people and 50 low paid people. Bill owns 100% of LLC 2 On July 3rd Bigger Company B purchases the stock of Big Company A (Note, stock sale). So, Bill now owns LLC1 and LLC2. Up until July 3rd, Bill owned Big Company A. Also, note that on July 2nd, Bill ownes Big Company A, LLC1 and LLC2. LLC 1 had no assets or employees, but LLC2 and Big Company A did. Question: 1) If Big Company A funded the 415 max in their DC plan before the sale, can LLC 1 start a new plan and fund the 415 max again? 2) If the highly paid individuals were HCEs in Big Company A, are they HCEs in LLC 1 and LLC 2 or are they treated as new employees? The basic question is, are Big Company A, LLC1 and LLC2 part of a controlled group? I know LLC1 and LLC2 are, but do I need to consider the benefits provided by Big Company A in my analysis? Any sites would be appreciated.

interesting.... have you ever worked on one?

You have a multiemployer plan that has a 401(k) option? Now I'm really confused. How do they handle salary deferrals? Did the employers agree to payroll deductions? Does each member really have the option to defer any amount they choose? Are you sure it is really a 401(k)? Many multiemployer organizations have profit sharing or money purchase plans that they often refer to as "annuity plans". These annuity plans require a set amount of money to be deposited per hour ($.50) for each member. They are often treated like 401(k)s in that the men may have control over the investments, and since they agreed (through negotiations) to the contribution rate, they may even think of it as a 401(k) plan, but in reality the $.50/hour is employer $ and the plan is just a profit sharing plan. I have never heard of a multiemployer 401(k) plan. I would be interested to know more about it, if it really is one.

What is the reason for your question. Why does it matter? Assuming the benefits are collectively bargained, there are generally no discrimination issues within the multi-employer plan.

prior post MRDs apply to the vested benefit. You can keep him non-vested for at least a few years. Regarding your questions, the answer should be in the plan docuement. Since it is a new plan, you have a nice opportunity to make sure it says something you think is reasonable and something that you can calculate.

Because I suggested that they exclude the dead husband. Lame D. pointed out that this would cause the plan to fail 401(a)(26) because it doesn't cover 2 ees. Covering 1 of 1 is fine, but not 1 of 2. 401(a)(26)(A) IN GENERAL. --In the case of a trust which is a part of a defined benefit plan, such trust shall not constitute a qualified trust under this subsection unless on each day of the plan year such trust benefits at least the lesser of -- 401(a)(26)(A)(i) 50 employees of the employer, or 401(a)(26)(A)(ii) the greater of -- 401(a)(26)(A)(ii)(I) 40 percent of all employees of the employer, or 401(a)(26)(A)(ii)(II) 2 employees (or if there is only 1 employee, such employee).

I agree with Mr. Duck. I forgot about the 2 person minimum.

Why not? Is the business entity still valid after hubby's death? Now, if you are suggesting that it is a 412(i) plan and you want to purchase life insurance for the dead spouse, then you may have some issues. But the simple fact that he died, shouldn't have any impact on her adopting the plan. You might want to exclude him to avoid any chance for raised eyebrows at the IRS, or did you want to provide a benefit for him?

I guess I came across a little strong - I'm feeling much better now. Anyway, don't get me wrong, I hope you sell a bunch of them as well; I was just trying to caution you and your manager about selling something without fully understanding it. A lot of people see the $ that can be put in a db plan and want a piece of it. They hook up with an actuary (or not) and start selling. The problem I see quite often is that they forget about the client. They underestimate the complexity and make promises they can't deliver. We have all seen the crap documents that prototypes users can create under that assumption that if it is in a prototype, it must be ok. Most clients have no idea what is legal and what is not. If you jump in, jump in with both feet; learn everything you can, learn what you know and what you don't know. Choose good people to work with and stay within your expertise.

I just want to make sure I understand what you’re manager is asking. He/she would like a sample letter that explains db plans to prospective clients because he doesn't really know anything about them, yet he is willing to "sell" them. And he doesn't really know anything about administration, but he did stay at a Holiday Inn Express? I would strongly urge you to ask your manager reconsider. DB (or any qualified plan) is nothing to be "dabbled" in. Just because you do excellent DC work, doesn't mean you can do the db side. I just spent the last 3 months unraveling a db mess, sold by someone who didn't really do the work, who had an agreement with an actuary. The 100K invested in db contributions turned out to cost them about $300K to settle the law suit and pay all the legal bills. I have several relationships where someone else makes the contacts and handles the investments and maybe the 5500, but we handle the valuations and ben calcs. The relationship works very well for both of us because we both do only what we have expertise in. Your clients will be better served, they will be happier, you will be happier. So, to answer your question, if you are working with an actuary, ask him/her for the explanation. Isn't that his role? If he won't do it, or doesn't have it, I suggest you're probably working with the wrong actuary.

Tom, Any discussion about the possibility of the proposed 415 Regs becoming final? I know they are being heavily criticized and wondered if any changes were coming.

I thought this might be helpful. From CCH: NEWSLETTER, PENSIONPLANGUIDE, Letter No. 1603, October 24, 2005, Showing of good cause for failure to make timely election allowed IRS to consider Form 5310-A to be timely filed for 2002 Showing of good cause for failure to make timely election allowed IRS to consider Form 5310-A to be timely filed for 2002 A corporation's Form 5310-A, Notice of Qualified Separate Lines of Business, was considered to be timely filed, and the corporation was treated as operating separate lines of business for purposes of passing the ADP test because the corporation showed good cause for its failure to make the timely election, the IRS has privately ruled. A consulting firm had suggested that the corporation, which was engaged in a diversified agribusiness and retailing business, make a qualified separate line of business (QSLOB) election, and advised it of its need to file Form 5310-A. The consulting firm, however, which did not yet have the responsibility to prepare the company's Form 5500, failed to further advise the corporation to file the Form when the consulting firm ran an ADP test on the plan. When the corporation realized that the Form 5310-A had not been filed, it filed immediately, in 2004, long after the required filing date. The IRS reviewed the corporation's affidavit describing the events leading up to its failure to timely file notice of its intended 2002 plan year QSLOB election, and based its conclusion that the corporation had shown good cause for its delay in filing on the fact that the failure could partly be attributed to the corporation's unusually high turnover rate in its tax department, as well as to a split in tax-related responsibilities between the corporation's department and outside firms that assisted the corporation in dealing with the IRS. Because the Form 5310-A will be considered by the IRS to be timely filed, the company will be treated by the IRS as operating qualified separate lines of business under Code Sec. 414®. IRS Letter Ruling 200534027 is reproduced at ¶17,422I.

The Plan will be Top Heavy and therefore must use either a 6-yr. graded or 3 yr cliff vesting schedule. You can exempt the Key EE's from the minimum 2% accrual, but not the vesting schedule. Therefore, the participant will either be partially vested after 2 yrs or 100% vested after 3 years. Since they are vested, this will trigger the MRDs.

I think the DOL gave some guidance on expenses. there are lots of old threads on the various boards that you might want to read. Search for "Settlor" and you will find a bunch. My initial reaction is they can't, but I don't have anything to back it up.

benefits link This might help, but as you will see, there can be wide swings depending on the type of plan. The fees quoted in the post were most likely "small plan" type plans i.e.: 20 participants and may not be applicable to larger, more traditional, db plans. That is just my opinion, I didn't post the schedule. Your fee is impacted by # participants and complexity of the benefit formulas (retirement, early, disability, death). Assets generally have nothing to do with the process, so be careful of anyone who wants to charge an asset based fee. The RFP process doesn't have to be involved. Most firms just need a copy of the last valuation report to give you an estimate.

I assume you won't share the actuaries name, but the ABCD might be interested in his "solution".

Is this it? benefitslink

My understanding is that you can not use a waiver to avoid a required contribution. Therefore, if the HCE signed a waiver and then funded the plan based on the reduced benefit, you may have a problem. I don't think you will find anything to support your position, since the IRS has been pretty consistent with their position. The IRS will accept waivers in order to deem a plan sufficient upon termination, but I believe that is the only time. Even then there logic is a little suspect. Also, I'm assuming your HCE was a majority owner. If not, he/she wouldn't be allowed to waive even on plan termination.

Did you start the QDRO process at the time of divorce or at the time of death? I have never heard of a "QDRO firm", but I thought you had to be a lawyer to practice law? I would assume the QDRO firm has lawyers. If not, this could be a problem. Just because it was expensive, doesn't mean it's worth something. Assuming you have a valid QDRO and are entitled to a portion of the death benefit, you will get what you are entitled to. This may be less than the entire benefit. QDRO's typically only assign a portion of the benefit earned during the time of marriage to the alternate payee. If your marriage was relatively short, this can be significantly less than the total death benefit. You have a very complex case and I strongly urge you to seek out a lawyer who has good ERISA counsel.

Ya, 2005 forms should go to Detroit. Funny thing about instructions, I don't read them much either, but I make sure someone else does. Sometimes they are actually useful. I hope you read the 5500 instructions; they tend to move their locations around as well.

Who controls the employer contribution rate? Some funds the union decides how much of their increase they will allocate to the plan. Other funds, the employers tell the union how much will go into the plan. Ultimately the Employers are responsible. If the Plan becomes deficient, the Employers will owe the excise tax, plus the contribution. I don't know specifically how the Trustees force the employers to contribute more, but if the Plan is close to deficiency, the employers will have to pay it one way or another. This is why projections are critical.

Sorry to say, but "what does the document say?" The Plan document will define how the early retirement benefit is determined. It could be the actuarial equivalent of the $100,000 account balance (ie:100,000 / immediate annuity factor) or it could be the actuarial equivalent of the age 65 monthly annuity. It may be calculated using a set interest rate and mortality table, it could be determined using plan factors (ie:4% per year reduction), it could have a subsidy or a supplement, bla bla bla. Only the document knows for sure. Whatever is says, be careful of the relative value disclosure requirements. If the ER benefit is subsidized, the monthly annuity might be worth more than the LS. If it is not, it will most likely be worth less.

What I wrote is exactly the way it is stated. According to the document, the entry date is the fist day of the plan year following 1000 hours of service. I know a plan that uses dual entry dates can require 1000 hours in an employement year before an employee becomes a participant. I also know that if you use a sigle entry date, you can't require more than 6 months of service. What I didn't know is could you one entry date AND require 1000 hours. Saeissler, are you saying you think this is ok?

I agree, that ruling applied only to DC Plans. The IRS was very clear about this at the 2004 EA meetings. I don't believe you can charge db participants a processing fee.