Effen

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.

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?

Tom, all HCE's are owners Andy, ... multiplied by a fraction whose numerator is the Participant's number of Year of Service as of the date of determination, and whose denominator is the number of Years of Service he will have at his NRD assuming that he continues in the Employer's service until such date and completes at least 1,000 hours of service during each future Plan Year.

That was really my original question. Does the fact that NHCE's accrual fraction goes from 3/36 to 3/35 constitute "benefiting"? Also, the plan is TH, but the TH minimum is less than the formula’s benefit. The formula is 100% of comp and this NHCE's current fraction is 3/35 (8.57%) which is greater than 2% per year (6%). Even if I let her have the TH min for a year when she worked less than 1000 hours, it would only be 8%, which is still lower than 8.57%.

The Plan is TH, but it also requires 1000 hours for the TH accrual so it doesn't help.

Let’s say I have a DB plan with 4 HCE's and one NHCE. The DB Plan uses the 1000 hour rule for benefit accruals. The NHCE previously satisfied eligibility and has an accrued benefit. The NHCE goes to “part time” and is working less than 1000 hours per year. Do I fail 410(b) because the NHCE is not "excludable" and therefore my coverage percentage is 0%? Does the Plan need to provide the NHCE with some benefit? What if the denominator in my accrual fraction is the sum of 1) the numerator and 2) expected future years of service, so that technically, the NHCE's accrued benefit IS increasing each year because I am reducing my denominator by one.

I tend to ingnore the balancing equation in this case and don't create any bases. I have seen Wyatt reports where they do it PAX's way. I'm pretty sure Mercer does it the other way. Our software vendors (Wintech) do it our way (or maybe we do it there way?) I just feel that if the UAL is negitive, then you treat it like it's zero. Therefore, if it was negitive at beginning and negitive at the end, for funding standards it's zero - zero = zero, ie: no base.

Did they submit the Plan for approval when they adopted it? I find it hard to believe that the IRS approved the plan without some definition related to the calculation of the benefit. (I know, just because they appoved it, doesn't mean they read it.) On the cash balance plans I work with, the cash out would be based on the cash balance at the time of payout. I understand your question, but if your document is unclear, I think you have a problem. How did you calculate the payouts for terminated participants? Why would you do anything different due to the Plan term?

Was the MP plan doc submitted to the IRS for approval? Has the MP 5500 been filed? Would it be easier to amend the corp. return and forget the MP ever happened, especially if the chances of ever using it again in the future are nil? (Not that I would ever recommend such a thing) He will have admin charges for recordkeeping, 5500's and document work into the foreseeable future for a plan that will provide very little benefit in return. It seems like it may be better for him to cut his losses before he incurs many more. P.S. It's also good to know that the 412(i) salesmen are asking the proper questions and giving good advise to their clients. Maybe "dom firmani" can jump into this discussion an explain why it's ok.

I recall a discussion a few years ago with an attorney regarding the client’s investment of a fine art painting. The attorney concluded that the investment was acceptable as long as the painting was not hung anywhere a plan participant could see it. Because if they could see it, then they were enjoying it (big assumption) and that could be deemed an "in-service distribution" since they were "benefiting" prior to a distributible event.