Effen

I agree with Mike. It's not a testing issue, its a benefit issue. Your Plan doc should contain process to convert the hypothetical cash balance account to a monthly benefit, generally this will use GATT assumptions. Once you determine the value of the hypothetical cb account, you can check it against Paul Shultz's .5% minimum.

Oops, maybe I was confused.... 12 times monthly payment is NOT "Lump Sum" as defined in the Code and would not be eligible for rollover. A Lump Sum is a one time payment equal to the present value of the lifetime annuity. After re-reading the question, I think its about annual vs. monthly annuities. To which I say..... no, I won't say it. If the Plan contains both options, the Plan Admin. must offer both options. It should also clearly define how/when the annual annuity is paid. Again, it is not the Trustees decision.

Blueglass, Any lump sum is eligible to be rolled over, regardless of the amount. I'm not sure I understand your comment about "beginning of year" or "end of the year". The lump sum is simply the present value of the annuity as of the date paid. If I pay it on July 1, 2004, then that is when I calculate the present value as of. "Beginning" and "end of the year" are not relevant.

First, it’s not the trustee’s decision. The decision lies solely with the participant. If the Plan contains a lump sum option, it must be offered along with the annuity. Make sure to read the doc carefully as the lump sum may only apply if the value is < $5,000. When offered, 99% of the participants will take it. Second, the impact on the future contributions is based on the actuarial assumptions used for funding. If you actuary is funding the plan assuming it will be paying annuities at 7.5% and in reality the plan pays a lump sum at 5.0%, then the plan will incur a loss, and the future contribution will increase. If the actuary has been recognizing the lump sum option in the funding assumptions, the payment could produce a gain or a loss depending on how the assumptions relate to reality. Generally lump sums are very expensive options for plans to pay. Many plans are funded ignoring the lump sum option in order to keep the contributions lower. You really need to ask your actuary how he/she is doing it.

If they already made contributions for the current year, then no, they can't do a db, or any other type of qualified plan, this year. If they haven't, just ignore it.

A, C, but then again wdik... Can't an employer (outside a bargaining agreement) pay employees what ever he wants? If they don't like it, they can vote with their feet. If Sally is prettier than Sarah, doesn't Sally often get paid more? If Ted has more testosterone than Sally, doesn't Ted get paid more? If Bill has negatives of the boss and Sarah, doesn't Bill get paid more? Could it be age discrimination.... sure! Does it happen every day.... sure! The same argument is often made with health insurance. If Sally is covered under her husband’s policy, she might make a little more than Sarah whose nine illegitimate kids are covered under the company policy. I think it's much more prevalent in smaller employers. Larger employers have too much to loose. If the client is concerned, they should discuss it with their attorney. As far as I know, we still don't have client/actuary privileges in court.

I have often used a High 3 prior to the inception of a plan and have never been questioned about the practice. I think it's pretty safe. The downside for a sole prop. is that if you base the benefit on a previous high 3 and the required contribution exceeds the current years earnings, part of the contribution may be non-deductible so you need to be careful.

Also, sole propietor can only deduct up his earned income, so if by "salary" you mean net earnings, than his deduction would be limited to 30K and if he deducts 30K, he wouldn't have any income to base his benefit on. 530% of $0 is $0. It becomes a circular function.

I agree with MWyatt. I don't see how you can justify "forfeiting" any benefit. There are lots of ways to find missing participants if the PA gives it some real effort. I suggest that you carry the liability for valuation purposes until the plan terminates, then turn that piece over to the PBGC. I have done this several times and found it to be a very simple process.

Thanks Dave. I was wondering who she was.

I heard Jim Holland at an EA meeting say that you needed to recognize the AB at the time of payment and roll it forward. Do you have any basis for your method Blink? You should know that "equality" is a relative word.

It is your union’s responsibility to represent you. If you have an issue with the benefits provided by your employer, I think you should address your concerns to your union representatives. Because you are represented by a union, who bargains on your behalf, Congress allows your members to be excluded from most discrimination testing because your union represents you. This has advantages and disadvantages. Let’s say you agree to work for me for $20 per hour for the next three. In year two of your contract I hire another person and pay her $30 per hour (or $10 per hour). The fact that I her deal is different than yours doesn't change your deal. You may not like it, but that doesn't change it. Your union bargained your benefits and signed a contract with your employer. What your employer does with people outside your union doesn't change your contract. "It just seems ironic to me that they use our union status to deny us participation whereas if we did not have the union they would have to by law put us in the pension” This is partially correct. They would need to "consider" you as a group, but they wouldn't necessarily have to put you in the plan. It depends on the size of the group and the make up.

Without looking too deep, I vote for option I. There was a time that the IRS was saying that you should use the AB at the time of termination ignoring the actual value received, but I think they backed off this. I'm pretty sure their current thinking is that you should determine the AB based on the amount received, using the assumptions in effect at that time. Since that was an AB, payable at age 60, it should be rolled up to the new RA. If they received 1M in '98, I would expect that will eat up most of their 415 limit, even under the new limits.

You claim that "this is all new" to you, but you use terms like "multi-employer", "HCE" and "NHCE" that generally only "pension" people are familiar with. "HCE" and "NHCE" are defined terms inside the pension industry. They apply to a specific category of employees who earn over $90,000 or are owners of the company. What do you mean when you use them? Are you saying that the office workers union never brought up pensions during their contract negotiations? Do you feel that they should be covered in what you call the "HCE's multi-employer plan"? What trades are you referring to? I'm still not sure what your question is? "Can the office workers be denied the pension at the establishment for the Related Organization?" - yes, depending on a lot of variables: the bargaining agreements, size of the groups, make up of the groups, etc.

Did you have a question or are you just making a comment? Your post is a little confusing. A "multi employer" plan is generally only for collectively bargained employees. In a multi-employer Plan, the union generally bargains the contribution rate or benefit with the company and the multi-employer Plan provides the benefit. HCE's generally have their own plan since the bargaining group does not represent them. If you are unhappy with the disparity between the retirement benefits provided to the HCEs and the bargained employees, you should address your concerns to the bargaining committee. Could you supply more specifics?

In an effort to put a bow on this thread.... From the 1997 ASPA Pension Actuaries and Consultants Conference in Washington, D.C., on October 9, 1997: ASPA: Corporation is established in 1995 with a calendar fiscal year. A 25% money purchase plan is set up effective 4/1/97. The plan year and the limitation year end on 12/31. Plan covers one individual hired in 1995 whose compensation 4/1/97-12/31/97 exceeds $160,000. Compensation for plan purposes is 75% of $160,000 ($120,000) due to short plan year, therefore the plan's contribution appears to be $30,000. Is the 415 limit reduced for a short plan year in this case (if no, the plan may provide the full $30,000 for this individual)? Then, if the individual's hire date is 4/1/97, is the answer the same? IRS: The 415 limit is not reduced for a short plan year and this individual can receive the full $30,000. There is no short limitation year which would reduce the 415 limit, unless the document defined plan year to equal limitation year. If that were the case, then it would appear that the design of the plan would be faulty. In this case, the limitation year should be the 12 month period ending 12/31/97. If a prototype requires that the limitation year be equal to the plan year, then you would have a reduction. The individual's hire date is not relevant. ASPA: A second question is if it is permissible to have a plan's effective date precede the existence of the plan sponsor or a predecessor entity of the plan sponsor. Thus, if we have a brand new entity set up on 3/1/97 with a calendar year fiscal year, can we establish a PS plan with an effective date of 1/1/97, have a full 12 month plan year, and use all compensation paid during that 12 month period (which would be limited by the fact that there is no payroll prior to 3/1), and not need to pro-rate any of the regular limits? IRS: It seems reasonable that with proper attention to the details of the plan design (including effective dates and plan years as outlined above), the issues that are of concern in this question can be avoided. We know of nothing that prohibits provisions such as outlined above. ASPA: Assume a new defined contribution plan. If a plan document defines the limitation year as the plan year and the initial plan year is a short plan year, is the document defective because it is not permissible to have a "short limitation year" ? If this is a defect, would such a drafting defect be sufficient to jeopardize the plan's qualified status. IRS: As a practical matter, this is most likely not a problem. We are not aware of ever saying that you cannot ever have a short limitation year.

Thank you for the response Andy and sorry to have been "snippy" Blinky. It sounds like there probably aren't any sites and it's just something representitives of the IRS have said in public forums. Has anyone actually done this? If you can do it, why would anyone do a short plan year in the first year?

That is completely different. The Regulations clearly state that you can have a retroactive effective date as long as it is all done with-in one plan year. I guess I'll just have to add, "Blinky said so" to the list of infallible resources. I can put it after "I heard Jim Holland say it at an ASPA meeting", but before "I overheard Ira Cohen in the bathroom".

OK, I've looked everywhere I can think of, I spoken to 4 or 5 ERISA attorneys and 5 or 6 actuaries and no one thinks you can do this. I'm not doubting you all (well maybe I am), but some site other than "I think Jim Holland or Dick Wickersham said it a recent annual ASPA meeting" would be helpful. The general response I get from the attorneys is "how can I have a plan effective when no entity existed to sponsor it?"

http://www.benefitslink.com/boards/index.php?showtopic=14462

This seems like a risk vs. reward issue (plan administrators risk/reward). If they are telling you that the spouse was an employee and they have some basis to prove this (without pay stubs I'm not sure how they could) and they send you a letter stating that they forgot to report this person in the past, then I guess I would include them. I would also get the blessing of their ERISA attorney, in writing. What advantage does counting the past years offer? I don't think I would count the prior years as "years of participation" for 415 since they didn't accrue any benefit. How does the document define "employee"? Seems like a fairly big risk on the plan administrators part and I would definitely make sure it's their risk and not yours.

Just to confrim dsyrett, are you saying that it is ok to make your plan's effective date PRIOR to your corporation's effective date? Pushed to the limit, I could establish my corporation on 12/31/03 and create a plan effective 1/1/03 and take a full accrual and full deduction for the year (assuming my document allowed a full accrual for 1 minute of service). I could also accrue a full $40,000 DC allocation? (ignoring combined dc/db deduction limits) Do you happen to have a site?

Is there anything that would restrict the amount of contribution that a "non-profit" employer can contribute? For example, lets say I have a nonprofit that made lots of money. The min/max (if taxable) is $100K. The entity wants to put in $600K. Is this a problem? If they don't pay taxes, do they owe any excise taxes?

I think it is fairly common to use the GATT rate as the funding assumption. When the rate changes, some actuaries call this an assumption change and others just let if flow through gain/loss. I think if you state your funding assumption as a specific rate, it would probably be considered an assumption change, but if you state your funding assumption as the gatt rate as of a specific month then you may be able to argue it's just gain/loss. I've seen it done both ways. I tend to use the gain/loss approach. P.S. Not to be insulting, but these designs are not as simple as many people think. There are a ton of issues (top heavy, 415 limits, gateways, funding, communication, etc). You really need to have a firm grasp on the issues before you agree to do one. Doing just one will most likely cost you several times your fee quote as you unravel the issues.

418(b)(7) states that the Unfunded Vested Benefit is the difference of the value of the vested benefit, less "the value of the assets of the plan". I couldn't find anything else defining "value of assets". Is this actuarial value or market value? P.S. I know this probably belongs on the mult-employer board, but it wasn't seeing much action over there.