Effen

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.

Your right, I don't think I ever noticed that before. Thanks for the correction.

Even though you think they have an "opening account balance", I think 415(b)(5) prohibits it. If they have 0 years of participation, the numerator of your 415(b)(5) fraction is 0 so your maximum benefit is $0.

What do you mean "we won". Could you give some specifics?

Gary mentioned early on in this thread that "the courts have not been so generous on this issue as of late" referring to the suspension of benefits notice issue. Does anyone know of any recent court cases that specifically deal with this issue?

I assume you have a "tax shelter" type cash balance plan? Paul Schultz wrote a memo about a year and a half ago expressing the opinion that in order for a benefit to be meaningful for the purposes of 401(a)(26) it should provide at least .5% per year of participation. If you search this board, you should find some good threads and a link to the memo. If you don't have any luck, email me your fax number and I will send you a copy. You won't find any cites in the law because they don't exist. This is just another case of the IRS trying to make law. They figure that the .5% doesn't cost very much and would be cheaper than fighting with them over the legality of their position.

By "Precedent" I was referring to the fact that any change from past practice could be challenged in court. Similar to a funding method, the method used to determine a particular employers withdrawal liability should not change without examining the impact. Lets say the Trustees have always used the valuation interest rate and the actuarial value of the assets to determine withdrawal liability. Now, when fixed income rates are low and the market value is generally below actuarial value the Trustees decided to change. If I were a contributing employer, who is considering withdrawing, I would argue that the change unfairly penalizes me. I think the Trustees would have to justify their decision to change their method in court. So, all I was suggesting is that you shouldn’t just come in blind and establish a method. You really need to look and see what was done in the past, especially if you have had a previous withdrawal, with or without a liability assessed.

You might want to search the multiemployer board for this. I know there have been a few threads addressing this. Basically, the assumptions can be all over. Many actuaries use the valuation rate as the basis for the calculation, but a floating index is also popular. I believe Segal uses the PBGC Plan Termination Rates for all of their clients. Regarding assets, I think most people use Market, but I have seen a few that use the Actuarial value. It generally comes down to past precedent. The Trustees should have a written policy that defines the methodology. It's possible that they don't remember doing one, but it may exist

I agree with WDIK, I don't see how dom gets from point "a" to point "b". Talk about a childish response. Just because you get challanged you take your ball and go home? And what the heck does "Mission Accomplished" mean? dom, I was very serious in my request for a "real life example" to debate. Isn't that the point of these boards? To debate ideas and concepts? Your lack of response does nothing but to solidify my position. Apparently you can't come up with anything to offer so you respond like Iraq's previous Information Minister. You can't change opinions by simply spouting your own opinion. You need to present facts so that we can choose to agree or disagree. What is the motto of the Society of Actuaries.... "substitute facts for impressions"

I have read many of the arguments and tend to come down on the con side of the argument. Not because I have some built in bias created by ASPA (which I am a member, but disagree with many of their positions). My anti 412(i) bias comes from real life experience. I keep hearing people like dom firmani say that there are places where they work, but as of yet I haven't seen one. The only 412(i)'s I have seen presented lately are jamming round pegs into square holes. Andy asked directly "Can anybody envision a scenario in which it would be a good idea to convert a traditional db into a 412(i)?" and he got no response. Blinky asked "Just curious, but what is the situation that makes this client want to switch to the 412(i) plan? " and he got no response. Well, if dom feels so strongly that "we" aren't giving 412(i)s a fair shake, how about giving us some real life examples to debate. You present your ideal 412(i) client and we will either agree it works, or demonstrate a better, cheaper way to accomplish the same thing. Please provide all the specifics including premiums, accumulation amounts and distribution strategy.