JAY21

Thanks for the input. So if the values are to be the same then I guess it begs the question whether you use the monthly adj. factor or the annual factor for both. If the answer is follows the terms of the plan doc (i.e., whether the plan's benefits are described as monthly vs. annual benefits) then I'm going to change future docs to annual benefits.

This may seem to be splitting hairs but it does have some value. Plan Doc provides for benefits payable monthly so annuity factors reflect the monthly mortality adj. approximation (the m-1 / 2m adj.). The 415 limits are payable annually, presumably on the 1st day of the year, so technically I don't believe you need to apply a monthly mortality adj. Is it ok then to use an beginning-of-the-year annual annuity factor for the 415 limit limit present value but apply the monthly mortality approx. adj. for the plan's present value of accrued benefit ? Years ago I did this on a plan term submission and the IRS inquired about the difference in annuity factors for these different purposes but ultimately accepted it. I realize that's the approach to go again (submission) but am curious as to what most practioners are doing out there and what you feel is reasonable.

So I guess because this is an "age discrimination issue vs. an HCE/NHCE discrimination issue it won't matter that all participants are HCEs.....it's still an issue I guess. Seems funny that you could do this with a traditional DB plan (tiered formulas) by defining an accrued benefit with a present value equal to the desired PVAB, but not CB. But maybe that's the PPA 06 trade-off along with the 3-year vesting. I'm hoping to use CB plans more but there seems to still be some undesireable trade-offs (resticted plan design, 3-year vesting, no Volume Submitter plans, higher User Fee on FDL, etc....).

So any other ideas on how to use a tiered CB plan formula or are we basically stuck with a one-size fits all formula if we want to use a CB plan ?

Good input. I do have a couple of Docs that don't want to participate in the plan so a $0 formula for them may cause the problems you suggest (I'll review what it would take to pass at the 70% level).

Doctor group wants 3 tiered CB formula (10k, 25k, 50k) where each doctor will initially choose which formula they want to be under and plan doc will be drafted accordingly. Only Doctors will be in the plan as plan easily passes 401(a)(26) as they're emergency room docs with few staff ee's. Plan is aggregated with existing PS plan using permissive aggregation, staff ee's under the PS benefit under rich formula 16% formula (this level of contribution has more to do with their historical benefits package than discrimination testing though it is sufficient to pass 401(a)(4) on an aggregated basis). Anyone have any problem with naming names in the CB plan doc in a case like this. Maybe something like: Group A will get 10k and consists of: Dr. A, Dr. B, Dr. C Group B will get 25k and consists of: Dr. D., E., F. Group C will get 50k and consits of: Dr. G, H, I, etc... I assume I can use a flat dollar amount instead if % of compensation, so I guess I'm mostly wanting to check on using names instead of job classifications. Do I need to pass the 401(a)(4) using the 70% test instead of ABPT ?

I'm not aware of any Rev. Rulings or Regs to support the IRS position on this. I've always just seen their prohibition and postion on no lump sums for De Minimus benefits in their audit guidelines and verbal comments.

Mike, is it not an issue due to the fact in operation it has still been uniform or is it not an issue even if the allocations would have been done on different employment classifications ?

#1 Scenario looks fine to me. #2 Scenario I'm not sure how you accomplish it logistically. If the land were/could be legally sub-divided then that would work (each spouse takes their piece). Perhaps if it (land) were held in an LLC and each spouse took an in-kind distribution/rollover equal to their respective separate interest in the LLC, and the IRA accepts LLC interests, that might work as well. That's all I can think of but maybe others have better ideas.

mjb, would that also apply to land in Mexico ? Any specific cite for that as I have a client (non-ERISA plan) wanting to do that same thing with land in mexico and willing to do a domestic trust I suspect.

SoCal, aren't they getting some tax advantages by virtue of the interest/gains earned on the non-deductible contribution ? Wouldn't that argue against having a cost basis ?

Well if we must pick sides I'm with mjb on this one, though I'm appreciative of the fact this discussion is continuing on quite professionally with no snide comments (very refreshing). I thought mjb's point about non-profit entities participants' don't have any tax basis in their non-deductible contributions was a good practical point. It seems hard to believe that absent clear guidance (which appears a bit lacking) the IRS interpretation of existing laws would allow the cumulative combination of the Sole Prop to stuff in large contributions, potentially way beyond the current net Schedule C (say by using a high-3 year comp formula based on prior higher comp years) and let these contributions generate the extra tax deferred earnings in the plan as non deductible, and allow the contribution to automatically become an "employee" cost-basis by saying there is no bright line dividing employer and employee taxation issues, and continue to allow the normal exemption from the 10% penalty tax on non-deductible contributions on unincorporated entities. Don't get me wrong, I like the result, but it seems potentially abusive and a bit too good to be true.

I'd agree with D Syrett as that's my general "understanding" as well, though I must say I've ever seen a cite for this per se.

In small plans it's common in our firm to use NRA of 55 for those owners with compensation less than the 415(b) dollar limit at age 62 ($180,000) so as to increase the value of the accrual and thereby the funding cost. So the final regs on phased retirement put the onus on the employer to choose an NRA that is "reasonable" in their industry. 62 is a safe-harbor, between 55-62 is a facts and circumstances and the client is on the hook to provide supporting data that something like 55 is reasonable in their industry. I'm not sure just how concerned to be here. While the Reg deals primarily with in-service (post NRA) distributions and what's a reasonable NRA for that purpose, It also presumably affects funding for those scenarios above. Anyone disagree or see any way around having to use NRA of 62 for funding for small employers who can't easily provide supporting data for an earlier NRA ? Any thoughts out there as to whether some of the existing plans with NRAs of say 55 will be amending them to say 62 ? It seems in some small industries finding supporting data will be difficult.

Since discrimination testing only applies between Highly Compensated Employees (HCEs) vs. Non-Highly Compensated Employees, and you don't have any HCEs, I can't see any reason why this would cause a problem under pension laws. I don't know if there are any outside DOL issue the "always" non-BU could claim if they're unhappy with the arrangement, but people can always complain about anything. Presumably there wouldn't be disparate impact on people who could claim discrimination based on religions, race, sex, etc... I wouldn't think there would be a problem even from the DOL standpoint.

I agree the delinquent filer program is the best way to go, but the question the client has asked is if the 945 and 1099-R filings themselves will link (tracking wise) to the fact that the 5500 have not been filed. I think not but would like other opinions. Obviously he's weighing his risks.

New client for 2007 wants DB plan and reveals fact that he has an old MP and PS plan still in existence but currently terminating through other advisor (legal) but he has never filed 5500's on these plans. He's wondering if 1099-R filing and 945 filing on those plans by investment company as part of plan term will trigger 5500 tracking/red flags. I've suggested the voluntary correction approach of course on late 5500 filings, but since it's his decision, does anyone think the IRS receipt of 1099-R/945 would trigger an inquiry into 5500s ? I kind of think not especially given 5500s are now filed through PWBA (DOL) but would appreciate other opinions. As best I can tell it seems to be limited to 5500/Disclosure issues as plan doc has been consistently updated by national investment company, CPA apppears to have handled the easy contribution calcs correctly, small office hasn't had any distributions previously.

I'm not a CPA either, and can't provide an exact cite, but it seems to me if the only reason the S-Corp. is extending their tax return is for more time to make the DB contribution (i.e., all other expenses and deductions of the corporation have been calculated for 2006) and the DB contribution amount has been calculated and is known, then I don't see any reason why the 1040's would have to be extended.The 1040's should be able to be filed early and reflect the impact of the 2006 contribution on the S-Corp tax return and subsequent flow-through of any remaining net income to the respective 1040's. The S-Corp. is the sponsor of the plan (not the individual) and the contribution need only be made by the due date of the S-Corp tax return (including extensions) to be deductible (and by 9/15 for Min. Funding requirements). I just don't see any tie in with the 1040 due date if the 1040 has all the net income reflected properly.

The amount you put in is determined by your funding assumptions just like a traditional DB plan. If you're designing this from scratch and if you're talking about the theoretical account balance for the owner, I guess you have a decision to make as to whether the CB formula you are putting in would immediately produce a theoretical account greater than the current 415 limit accrual, or equal to or less than. Obviously they couldn't immediate distribute the full CB account if currently greater than 415 limits, but if he's not expected to terminate anytime soon you probably could feel reasonably confident of future COLAs on the 415 limit and the 415 limit present value will of course increase with age as well. Bottom line is the 415 limit is calculated the same as a traditional DB plan and then compared to the CB theoretical account balance to see if it's fully distributed. That said; maybe a 1st year 415 DB limit pv accrual for someone age 45 (NRA of 65) under current interest rate environment, and given your plan A.E. are GATT (i.e., interest less than 5.5%), might be in the ballpark of: (1.055^-20)(135.75926- 94 GAR (blended), SLA, 65))(180,000/12)(1/10)=$69,793. That doesn't mean you're restricted to funding this amount if your funding assumptions produce a higher number (with projected and accrued benefits limited to 415 limit). Under PPA 2006 if the interest rates change OR if/when your plan doc interest rates (GATT) become higher than 5.5% you will have a different 415 result. You are not going get a definite limit here that anyone can tell you as it's still subject to your funding assumptions and funding method though knowing where the 415 limit is at currently might help you in some respects in design decisions.

hmmm......Treas. Reg. 1.410(b)-7(d)(5) states they must have the "same plan year". It doesn't state "same plan year end" so maybe permissive aggregation isn't available here given the lack of a 12-month period in the plan year of the PS plan. I was hoping for a way to still aggregate them but maybe it's not looking too good.

Existing PS plan was sole plan for plan year ended 6/30/06. It then changed it's plan year for a short plan year 7/1/06 - 12/31/06 to match a change in the company's fiscal year. A new DB Plan was then adopted for 12/31/06 with an effective date of 1/1/06. Since both DB and PS plan have the same plan year end I believe I can permissively aggregate them. However, can I only use compensation and contributions from 7/1/06-12/31/06 for the DC side given the short plan year end ? Thanks for any thoughts/opinions.

I think the attached insert (file) explains what I mean about the model SEP doc. SEP.pdf

Carol, I could be wrong but I thought what you said is true only if the SEP is on the IRS Model SEP Form (Form 5305 ???) but if it's on say an investment prototype doc then it doesn't have to be the only plan sponsored by the employer. However, I'm unable to comment on the 6% deduction contribution whether a SEP can be utilized for that.

I thought PPA 2006 over rode the proposed regs on pre-participation comp and said you can use it. I thought that was one of ASPPA's lobbying effort's that paid off. Check the 415 section changes under PPA 2006.

So PPA 2006 requires full vesting within 3 years on new cash-balance plans. Does that mean if we permissively aggregate a new cash-balance plan with an existing profit sharing plan, and the HCEs are the ones primarily benefiting under the cash-balance plan that we're likely to have to make the profit sharing plan vesting schedule match the cash balance's vesting schedule ? Seems like we would need to but I'd love an out. Any thoughts ??