JAY21

Belgarath, I certainly don't disagree with having an attorney look at it, but if you do file the 5300 for a determination letter can you only ask for a determination letter on the Affiliated Service Group as a stand-alone issue or is part of the request to ask for a qualification letter on the plan. The problem with the latter is that I think you are supposed to file within your "cycle" or jump through some hoops to file your plan doc with an off-cycle procedure that I think puts you to the end of the line anyway. I guess I'm still not clear if any IRS ruling on an ASG issue has to be tied to plan doc submission or can it stand alone (kind of like a PLR).

Existing DB client has some ownership in another entity that may or may not constitute an Affiliated Service Group (yes, it would have been nice to know that upfront, we did ask). The plan has been around a few years already. Will the IRS issue a PLR on just an Affiliated Service group issue by itself ? Or does it have to be part of a plan doc qualification submission ? Thanks.

Perhaps a positive spin might be to still put the DB plan in at a very modest level due to 404(a)(7), just to get the YOP for 415(b) limit, then ratchet the formula up dramatically in the 2nd year and you've now got the extra YOP in for 415 limit purposes that should increase your 2nd year and thereafter contributions.

Are the rules the same for retirement plans and IRAs in regards to when Unrelated Business Taxable Income when there is debt-financing ? I believe under IRC 990-T and regs "some" structure of debt-financing will not automatically trigger UBTI on the rental income, but if the debt is not structured in standard fashion (i.e., variable interest rate tied to profits, or seller carry-back agreements) then it will trigger UBTI rules and not be exempt. Is this the same for IRAs ? or is any rental income earned from debt-financed property in an IRA going to be subject to UBTI.

Did the final 415 regs lock us into using the prior plan accrued benefit vs. the amount distributed ? If so too bad as I believe at least informally before that they were allowing the actual distribution amount to be used but I haven't had this issue come up since proposed/final regs were issued.

I don't personally believe it's unreasonable, but our new software vendor for our DB funding has the valuation system set-up to automatically run any salary related benefits using PUC. They have told me verbally that's their interpretation of Rev. Proc. 2000-40. I disagree but figure I could be wrong and hence this post.

I realize that traditional unit credit funding is associated primarily with non-pay related formulas and projected unit credit with pay-related formulas. That said, is there any argument or ability to still use traditional unit credit with a DB "accumulation" plan where the formula is a certain % of each year's compensation. While I assume I could, maybe should, use projected unit credit in this situation I'd prefer not to due to budget constraints. I realize the ER pays more on the back end if a salary scale is not used. Anyway, any thoughts on whether I still have a reasonable funding method if I use traditional UC funding in this situation ?

I used a few of those tricks myself, though not to the extent of having different HOS req between benefit accruals and vesting. However, that said, I can't poke any holes in your approach.

If a DB & DC plan are permissively aggregated then under the (a)(4) regs does the vesting schedule have to expressly be the same under both plans, or just tested as non-discriminatory on the current avail/effective avail test ? I don't see in the (a)(4) regs where it states that they have to be the same. I would assume though that having only NHCEs in the DC plan and it having a lesser vesting schedule than the DB plan, though still a statutory schedule, would be discriminatory ? any thoughts ?

Thx WDIK. Is there is a simple answer to how VEBAs are taxed (mjb's last post) or is this a more complex question that has to be looked into as well ?

Does anyone know if a DB plan has 401(h) accounts for post-NRA medical benefits, are the benefits ultimately distributed to the retirees considered taxable income to the participant ? or is it more like an employer-paid benefit that is non-taxable ?

Let me piggy-back on J4f's question and ask if anyone sees any problems with this DB-offset design which I think is fairly typical (but I'm new to DB-Offset arrangements): DB plan has 2 accrual rates; one for Owner (high) and lower accrual rate for staff (e.g., 0.5%). PS plan has uniform allocation formula and assume it's 7.5% of pay for all employees including owners. Let's assume 7.5% is sufficient for (a)(4) testing (and gateway; plans combo tested), does this structure passs 401(a)(26) if some/all of the participants DB accruals is fully offset by their DC balance ? Also, I assume the "offset" can be done on a benefits basis and therefore can be converted to EBARs before being offset against the DB accruals, correct ?

Struggling to think the following situation through. Client has father in DB plan and plan provides for the greater of (a) 10% of Average Mo. Comp (career avg.) or (b) the 10k Deminimus benefit allowed under IRC 415(b) (pro-rated for years of service less than 10). Standard Form of benefit is a 100% J&S. Since father's avg. comp is only 2k per year times a 10% benefit formula, the 415 10k deminimus benefit is the greater benefit. Father is over age 70.5 and has begun minimum required distributions with no formal election as to final form of benefit since still working, but now dies. Question, what is the death benefit available if the spouse does not want the J&S annuity benefit but rather wants a lump sum as allowed under the plan (but 415 may not allow it based on the 10k) ? I don't think the 10k deminimus benefit under IRC 415(b) has an ancillary death benefit feature available other than the J&S if this is the standard form of payment (which it is), so I'm thinking if the spouse does not take the 10k as a continuing J&S benefit the death benefit available for a lump sum option could only be based on the regular 10% benefit formula using actual comp paid ($2,000 * 10% x 2 YOS/P). Any thoughts ?

An attached Q&A blurb confirms the interaction of top-heavy between SEPs and qualified plans (i.e., the top-heavy contribution "may" be provided in the other plan). Therefore, in addition to SoCal's comments I would think the DB plan could be drafted to contain language, if it isn't already in there, that top-heavy will be covered under any DC plan (SEP for this purpose) or added to benefits earned under DB plan to meet top-heavy. Top_Heavy_SEP.pdf

Thx Pax. I agree that Q&A addresses it head on.

SoCal; that does seem the path we are going down. Pax, is there a sub-paragraph to your cite ? (not sure what sub-section the Q&A #3 is in) under (a)(4) regs), however, if you're talking about the an employer not being allowed to have discretion these days as to whether to make lump sum distributions then I agree that's a concern to me despite the language in the plan (i.e., I didn't think that discretion was allowed anymore). The plan is a major vendor's Volume Submitter plan with GUST II determination letter and all the various good faith EGTRRA and other misc. amendments adopted. I was suprised myself to see the "subject to the consent of the administrator" language in there. The participant is not an HCE. It sounds like the DOL isn't going to help the employer, I didn't think so, but had to ask.

This may be an unusual question but I want to explore all avenues. Underfunded PBGC covered DB plan has lump sump provision "subject to consent of the administrator" and has only paid out lump sums under 5k although there is no cap on the lump sump option per se (just the subject to consent of administrator language). Recent terminee has 40k lump sum benefit he's requesting. Plan Administrator (employer) is balking at paying the lump sum given severe under funding of plan and fears adverse impact on remaining participants (about 6-7 participants including 1 owner). Plan does not qualify for distress termination and not sufficiently funded for a standard termination (majority owner not willing to limit personal distribution at this point to allow plan to terminate in standard termination). Employer will continue to fund plan as able but is struggling so immediate funding not likely to help a lot. Terminee engaged attorney to pursue lump sum, stand-off has occurred between participant's attorney and employer over interpretation of language in plan regarding lump sum availability. Unsure if lawsuit will be filed or not. This is all background info for the question of "is there any ability to pro-actively solicit the DOL's help (from the employer's side) to act as a mediator in this process ? I assume the DOL normally just responds to participant's complaints but do they ever act on an Employer's request for help ? None of this will preclude legal action I realize, but assuming it moves to the DOL's court first, client is wondering if a pro-active request from help from the employer to the DOL might be helpful and if such an avenue is even available. I've never heard of this approach but wondered if anyone else knows if the DOL would respond to an employer's request for help in a situation like this.

Hmmmm.....so the employer is on the hook to "guarantee" a potentially negative market return. They can probably live with that !

I thought I read 2008 and even then subject to a "revenue review" by some gov't agency. For what it's worth it seemed fairly restrictive to me on a first blush basis on both the match structure and the DB formula structure required.

I believe Blinky is right. I've since found a hand-written note I jotted down during the Vegas conference regarding a "forthcoming" TAM on the issue.

MVAR_just_QJSA_per_IRS_comment_at_ASPPA.pdfAndy, I thought it was regarding the testing of the lump sum (including GATT subsidy) on the MVAR. However, it is me asking the question here on benefitslink so obviously I'm not positive. However, I have found the forum the issue was discussed in at the ASPPA Vegas conference, it was the Actuarial Q&A class with Tom Finnegan & George Taylor asking questions to Martin Pippins from the IRS (or is it Treasury ?). Anyway, attached is the Q&A #2 which asks the question under subparagraph "C" and my own brief cryptic hand-written note next to it on the response I heard. I came away with the impression that Marty Pippin said we could treat the QJSA as the most valuable accrual rate for the MVAR purpose and not need to test the 417(e) gatt impact on the lump sum. However, that is the confirmation I am requesting on this board to make sure I heard it correctly. I thought Marty also said the service felt they needed to be consistent in their reviews of the general testing submissisons with other sections of treasury regs that state the QJSA is the most valuable benefit.

Thanks for the confirmation.

If anyone went to the Vegas WPBC/ASPPA conference last month, I thought I heard a comment from one of the IRS speakers that the service had come to a decision that in their reviews (I think determination letters) that they needed to be consistent with previous treasury guidance in confirming the QJSA is the most valuable benefit under a pension plan. I'm trying to remember the context of of this statement, assuming I'm even remembering it correctly. Was the context regarding the calculation of the MVAR under general testing ? If so, I assume it would apply to all plans subject to QJSA requirements so maybe we wouldn't need to test the 417(e) GATT subsidy under the MVAR ? just the QJSA subsidy. I could be totally wrong on how I took the comment though so I'd appreciate if anyone can confirm or correct me on this.

Would attaining the target retirement age by itself mean no additional contributions ? I wouldn't think that would be the case, though it's been several years since I did much with target benefit plans. I would think that if the participants are beyond the target retirement age they can still accrue benefits under the formula if they haven't earned the max years of service/participation allowed under the formula, then I would think their "target retirement age" would just increase by 1 each year of deferred retirement (e.g., 66) and the calculation done on that basis. I suppose that could still produce a zero contribution in some situations but not necessarily so. If I'm missing something or am incorrect just put me in my place. Certainly considering a change to another type of DC plan seems like a good idea as well.

I think if you're passing each rate group under the general test at 70% or more, without relying upon the Average Benefits Test, then you don't have the reasonable classification of employees issue in the plan doc and you should be ok. If you are using the Avg. Benefits Test, then I'm not as confident of your odds of success, though you mightly certainly still try it and see.