JAY21

For those of us weak-FAS types, where on the typical FASB 87/132 Format does this change show the a difference from prior (old) rules ? We're already using PBO for net periodic pension cost, and it's shown and used on the liability page too, for certain purposes. Is the change in the "Other Liability" category where we now have to recognize at least the unfunded PBO instead of the previous unfunded ABO ? Any other changes ?

Do both of the House and Senate bills contain provisions to eliminated the whipsaw issue with cash-balance plans ?

I would agree with SoCal. If an employee need w-2 wages, FICA taxes paid, and then take her deduction on the Schedule C like any other non-owner employee. I also don't see her being an Co-Owner of a Sole Proprietorship. If it was an LLC or partnership then she could be a part owner and have earned income.

I'm not sure I can think of all issues, but it seems to me that once it's a rollover to the DB plan the account is no longer subject to any mortality forfeiture, and the plan (DB) would need to allow for such a unique situation (rollover by terminated participant and immediate distribution stream from DB plan). IF they used the actuarial equivalence to determine the "annuity" payable, it really is just an optional distribution pattern and not a true annuity since if the participant died earlier than his life expectancy his dependents should still have a claim to the remainder of the rollover benefit, and if he outlived his stream of benefits, he would not have any claim against the DB plan to continue to pay him benefits not covered by his rollover. I don't see any way to convert this to a "true" annuity payable for life given it's really a lump sum distribution/rollover to another plan (DB) with distribution taken from that plan (not a true "purchase" of an annuity).

To me I've always "understood" Corbel Docs Section V to be dealing with the "projected" benefit at retirement and then assuming the Accrued Benefit (Section 1.1 ?) is fractional accruals I'd be voting for the ($500)x(4/25) or whatever the denominator is for the fraction. If the rounding language isn't in the Accrued Benefit section then my vote it that it's applied at the projected benefit level before the fractional accrual is applied.

Is the rounding language found in the paragraph that describes the benefit at retirement, or the paragraph that describes the accrued benefit (if they are different paragraphs) ?

I know you're looking for facts, and not opinions, but I have to say I've never heard of such a thing with a Sole Prop and I've worked heavily with Sole Props for many years. It seems way to good to be true. I'd love to be wrong though, as I have many clients who would love this approach if someone knows of some support to do it.

Kirk, she is an employee as well. I believe she is the President and basically wears all the hats and does most of the work herself for the non-profit.

Andy, would you have a gateway issue if each formula was a safe-harbor formula structure other than the multiple formula issue, but then each formula individually passes 410(b). I don't know if it passes on this basis, but if it did, you're not using cross-testing so do you still have a gateway issue ?

Any chance the formula was intended to be a Safe Harbor plan with uniform points allocation (Treas. Reg. 1.401(a)(4)-2(b)(3). Now maybe with multiple formulas maybe it's not "safe-habor" but as aforementioned if each formula passes 410(b) coverage maybe you don't have to do any further (a)(4) testing if it is a safe-harbor uniform points allocation

Thanks for the input. The news just keeps getting better and better (for a change).

I must admit I had spaced out 401(a)(26) in my HCE def'n zeal. Chester appears to be correct in that special exemption from 401(a)(26). I looks like it is found under Tres. Reg. 1.401(a)(26)-1(b). However, I do know the top-heavy rules, unlike the apparent HCE def'n, can "deem" someone to be a Key Employee even with no ownership, although presumably they still have to also meet the relevant comp thresholds of the Key Employee def'ns which "might" bail me out still (I'll have to check Key Def'n rules and comp thresholds). Sounds like IF this person is deemed a Key Employee it makes it top-heavy, which would mean I don't meet the 401(a)(26) exemption, so then I'd be back to needing to satisfy 401(a)(26) as Effen mentioned using a modest accrual rate for another employee(s) since I don't have any (a)(4) discrimination testing as there's no such thing as a "deemed" HCE who doesn't meet the express def'n of an HCE. ....moving on to "deemed" Key Employee issues and comp thresholds.

A very small non-profit org wants to put in a DB plan but limit coverage to its director. There are only 2 other employees besides the director. The director will only be paid 60k per year and never likely much more than that and of course is not an owner of a non-profit org. I know for Key Employee def'n a person can be "deemed" a Key Employee based upon the specific facts of their position. Anyone know if there is a similar requirement in defining who is an HCE ? Can she be "deemed" an HCE by virtue of her position of power (Director) even though her comp is not sufficient and she has no ownership ?

Wouldn't you still potentially have a transition obligation even with a current transition date (assuming plan isn't over funded) adjusted for any accrued liability they might have on the books from the non-FAS 87 approach ?

Company interested in sponsoring a DB plan may have Affiliated Service Group issues and wants to get an IRS ruling on it before proceeding. What rulings are available ? I assume they can get a PLR -or- request a determination on the ASG issue as part of the initial plan submission. Is this, correct ? are these the 2 avenues available to them ?

You're right that you won't have the "reasonable classification" issue associated with the ABT to worry about in the plan document, though you will need some language to define which employees are being excluded, though this language does not need to be "reasonable" in light of the fact you are passing on a ratio/percentage test basis.

Carol, I believe 404(a)(1)(A)(i)- the amount necessary to fund the minimum funding if greater than (ii) is still deductible. The issue is like SoCal mentioned one of "too hot to handle". It's just one of those take a deep breath and wait for the audit and hope you didn't miss anything large or small as you know you're painting a target on the client's chest (and mine) and service wil be looking to poke holes in something or everything, though ultimately I believe we should be ok. Yes, the benefit formula was recently amended to a much higher formula and with only a few years to assumed retirement (yes, realize that's a critical assumption) the minimum funding is very large.

Anyone had any issues or problems with a scenario with a client (one man plan) funds relatively modest amounts for his age and compensation (currently age 64 and over 200k comp) for 7 years and then in his final 3 years wants to max his funding. Using an Ind. Aggregate funding method I'm getting some pretty huge numbers given the past service/participation on the 415 limit where he previously was no where close to accruing at the 415 limit, but now essentially is "catching-up" to the 415 limit via huge accruals (amendment)and contributions. I guess I get a little nervous about this level of contribution (around 400k) though I don't see anything wrong with the math or funding method. Just curious if anyone has had any similar experiences and/or audit issues with such an approach. In the end he'll have the same maximum distributable 415 limit as someone funding more level amounts over a 10 year period, but it's just not a very smooth approach.

This client really wants the best of all worlds doesn't he. Given the client's motives I have to backtrack on my previous comment of their being other approaches, as I'm now agreeing with you in that I don't see how to accomplish the goals of (a) avoiding audit requirements AND (b) having assets pooled for both plans. It's definitely trying to have your cake and ice cream too. Perhaps the Master Trust approach would work in this regard but I'm not seeing anything else.

I don't think you need a master trust in this situation. An employer can set up 2 plans if they wish and each plan/trust will cover the assigned participants to that plan (e.g., specify by job site) and only the participants in that plan/trust share in the earnings from that plan/trust. Alternatively, if you want a shared trust approach, just have one plan but with different benefit formulas (or other features) specifying the eligible participants for each formula and feature (e.g., or per job site). It probably won't be a safe-harbor plan, and it's a little more customized from a plan document standpoint, but if the general test is used to pass discrimination testing and it passes then it's fine. However, I doubt the employer would be able to do his own discrimination testing unless he has a background in plan administration. I guess that's the downside to this approach. It might help if we knew what different features he/she is looking for between the two job sites.

Periodically I get the question whether our firm has a program to run a benefits-cost analysis with illustrations showing the impact of the DB deduction (and associated employee pension costs) compared with the after-tax savings if the the small business owner just keeps the income himself and pays taxes on it. I realize this is the typical analysis many small business owners go through. Does anyone know of a good "canned" program for this (commercial or otherwise) where you could show multiple assumptions (tax assumptions and investments) and illustrations. I can do something rough in Excel but would be interested in something a little better if there is something out there. Maybe this is something we normally expect the CPAs to provide for the client but I seem to get the question fairly often.

Yes, I agree that large of a lump sum (more than 415 limit) doesn't look good. However, if the owner participant's accrued benefit is projected to be capped by the 415 limit at NRA then of course the Qualified Disability Benefit payable unreduced at a younger age is more valuable as an annuity. The lump sum just reflects that on a present value basis (assuming a healthy mortality table can still used). Let me be clear I'm not trying to champion the approach, just trying to probe its soft spots so I can give some feedback.

Yes, presumably it would be the unadjusted benefit using normal mortality tables. It's a one man plan (no employees) and there's an ERISA attorney involved so I've just been requested to give my input. In the past I have seen some plan docs where the disability is a flat amount (e.g. $100,000) for say losing a limb and maybe something different for eyesight. It always struck me a little morbid to put a value on each part of the body but these were plans with determination letters drafted by a different ERISA attorney. I can't find anything that states the benefit can't be paid as a lump sum equal to the present value of unadjusted benefits (even if it exceeds the 415 limit), but Effen's comment about a potential recovery is a good point, though in a one man plan I guess there would be no one to ask for a refund upon recovery and presumably the plan would subsequently terminate. I do believe a lump sum settlement (conversion) of disability benefits in pay status is sometimes offered by insurance companies to certain disabled beneficiaries outside of qualified plans, presumably on those with rather permanent disabilities. Perhaps it comes down to how permanent the disability is, to justify a lump sum if no recovery can be reasonably expected, and whether the type of disabiliy is such that a special disability mortality table should be used.

I believe a Qualified Disability Benefit can be an unreduced annuity benefit payable at the disability age (say 40) that that would have otherwise been paid at NRA including the future service/participation through NRA. Does anyone have any thoughts or opinions as to whether the present value of such unreduced Disability Benefit (annuity) can be paid out as a lump sum ? If the lump sum exceeds the present value of the current 415 limit, is that an issue ? I'm leaning towards thinking the Qualified Disability Benefit could be paid as a lump sum, even if greater than current age 415 limit, given it's an ancillary benefit not an accrued benefit subject to 415 limits (much like life insurance that complies with the incidental death benefits limits may be greater than the current 415 limit). However, I don't find much discussion or passages in our various reference sources on this topic so I would appreciate any thoughts or opinions on this.

Yes they can. Only the contribution formula is a DB-like formula, beyond that, everthing is else is the same as MP plan (415 limits, individual accounts, etc...).