JAY21

Thanks to both of you. When EF Hutton speaks I listen.

Andy, I was thinking the DB plan would be the only plan of the employer. Does my 0.5% accrual group satisfy 410(b) using restructuring by virtue of no HCEs being in that component plan (i.e., a deemed pass) ? I'm assuming each component plan (each benefit formula) does not have to pass 401(a)(26) individually.

Plan has 51 NHCEs and 8 HCEs. A DB plan is proposed to primarily benefit 2 HCEs (other HCEs excluded) and the required minimum number of NHCEs needed to pass discrimination testing. I think my NHCEs coverage on a 410(b) ratio/percentage basis is 17.5% (2/8 * .70) which is about 9 NHCEs. However, 401(a)(26) will require 24 employees (.40 * (51 + 8)). Since my 410(b) coverage requirements is much less than 401(a)(26), can I give the 9 NHCEs required for 410(b) the same accrual level as the two (2) benefiting NHCEs to pass 410(b), but give the remaining NHCEs only a 0.5% accrual rate (or something like that) sufficient to have a meaningful accrual for 401(a)(26). Do I then have to general test it or is this a component plan (restructuring) opportunity where each accrual rate can be tested as a separate plan and presumably the lower 0.5% passes since no HCEs are in that component plan. Any issues ?

I have to agree that's not as clear of language as you'd like. I could almost read it either way (requires a full 12 mos of employment or does not require it). Any precedent and history established with this plan in similar situations ? If no prior precendent was set you might need to have the employer make the interpretation and note the decision and apply it consistently in the future. At least that way no one will have an "abitrary and capricious argument" against how the eligibility was interpreted and applied. They'd have to convince someone in authority (judge, DOL) that it was just plain mis-interpreted, something probably difficult to do with unclear language. Of course there's no reason to take a hard-line here if the employer doesn't mind being generous.

I agree with Archimage that's a very common plan doc provision (immediate rentry), but depending on how the plan defines it's 1-year eligibility, the dates in this thread suggest that maybe the employee did not meet the 1-year of service if the plan defines 1-year of service as as completing a full 12-months of employment (with or without the add'l requirement of 1000 hrs). If that's the case I don't see where he/she would "re-enter" immediately upon re-hire given a failure to initially qualify for the plan (about 3-months short). Following my assumption (12 months required) then maybe the question is when does he enter in 2005 ?? (e.g., after 3 months of add'l service or does he need to totally work another full 12 months). Again, it's document specific, I'm sure there are provisions in some plans that allow the earlier service to be disregarded entirely, but don't remember if the regs use the same standard for intial eligibility service as they do for vesting service, where the break-in-service rules generally require you to count all service earned within 5 years before the re-hire date (or the same period as the initial service period if longer). If that same vesting service standard is also required for eligibility service he probably needs to work another 3 months and enter on the next entry date. If it's not the same requirement as vesting service, then your plan doc might tell you to ignore that earlier 9 month service period (given a 4 year break in service) and then there's a reasonable chance he isn't going to be a participant until another 12 months are worked. Check the Doc.

Do all plans need an amendment for Retroactive Annuity Starting Dates (by the end of 12/31/05 I believe) or is a RASD an optional design feature to where if the plan doesn't provide for a RASD there is no amendment required ?

If the ownership is as you say it makes sense to me that they get both types of comp (w-2 and k-1) personally, but now the situation begs the questions did all entities adopt (or co-adopt) the plan. Under a pension plan all members of an Affiliated Service Group or Controlled Group are jointly liable for the minmium funding I believe, so I have heard some people feel formal co-adoption in that case may not be necessary (I disagree), but generally I think most practioners feel all entities should co-adopt the plan for clarity in taking deductions for the contributions. Presumably part of the contribution would be a deduction to the corporations likely based on the share of total comp provided by the w-2s, though I don't believe there are specific rules on this split. This would then affect the k-1 income of the partnership due to add'l deductions on the corporate return (if not already anticipated) and part of the contribution would be a keogh deduction (self-employed) taken on each partner's personal tax return. I think the issues has evolved from types of compensation to (a) who are the plan sponsor(s) (b) and how is the tax deductions taken and/or split, © what impact on the k-1 income is there if not already reflected due to corporation deduction for part of the contributions.

I don't see how they could make it retro-active when the law now is back to the 417(e) rates (Due to expiration of the prior bill). I'm doing the 417(e) rates too if any come up before the next pension bill is passed. By the way, do we even know if either/both the Senate or House version of pension reform includes the 5.5% to again be used for 415 limits ? I don't recall hearing anything about this.

SoCal, if it doesn't include early retirement subsidies in it's calcs, how about GATT-417(e) subsidies in the MVAR when a plan offers lump sum distributions upon employmente termination ?

Anyone done discrmination testing using Permissive Aggregation with DB-DC plans in ASC ? Does it work well and what if any outside calcs do you need to do in Excel and then dump in the system ? (hopefully none).

What if you had each sole prop co-adopt the same plan (to keep costs down). That may mean it's a multiple employer plan for the first year but that mostly just entails filing multiple Schedule T's w/the 5500 I believe. Then if they're a corporation for the next year they can change the adoption (or add) to the corporation. That's one thought you might consider.

I think you disclose the very facts you just mentioned (e.g., unintentional result) and then let them decide. That's about all you can do as you can't offer any guaranteed protections but can offer you haven't seen the IRS try to penalize anyone on this unintentional result. I suspect this is a much more common scenario that we often even know about, even with the due deligence of asking appropriate questions.

Well, I had a similar experience on the TRA 86 restatements (1994 ??) where we did exactly what you are proposing and then when the IRS asked for the original document the client could not find it nor could any of the prior advisors that had been associated with the plan. The IRS started to threaten to disqualify the plan and wouldn't let us withdraw our request (not sure why) and then in an 11th hour miracle the client found the original document and the order in the universe was restored. Still it was a quite a scare to the client and ourselves that I personally would not recommend proceeding until you have the prior doc in hand.

A non-profit entity (Credit Union) with an under funded DB plan has been approached by an outfit that claims they have some approach/structure that given the entity is a "non-profit" will somehow "remove" the dividing lines of the plan and the credit union so that assets of the credit union are somehow available to the plan and now the plan is fully funded and has none of the typical under funding issues (restricted lump sums, high PBGC premiums, etc..). I'm getting vague info but it sounds like maybe because both the plan and the credit union is non-profit that somehow the suggestion is that there need not be clear "firewalls" between the plan and the general assets of the CU. Has anyone familiar with non-profits heard of this approach and is there substance to it ? (I know this is vague but I'm hoping someone familiar with non-profit orgs may have heard of this).

We have a husband and wife plan with no employees that want to fund for post-NRA medical benefits. They still have 10 years before the assumed NRA so as I review some of the summaries available on these medical accounts I'm not sure how to fund for these benefits since they must be "reasonable and ascertainable". Probably the "ascertainable" issue bothers me the most as I'm not sure how future medical benefits are easily ascertained, unless maybe I just fund for the current medical insurance premiums with maybe a COLA assumption (not to exceed the 25% aggregate cap). I'm assuming the discrimination rules don't preclude them since they have no NHCEs. Does this type of funding typically take an actuarial funding approach or more of a pay-as-you-go approach for only those in retirement ? From the limited info I've provided can anyone suggest whether it's even reasonable to continue to pursue and research this, or am I'm blown out of the water for some reason from the limited facts given.

Then I'd probably hold off on the election forms so they're not be signed before the FDL is received, just to be safe and consistent with your interpretation and application of the term resolutions as being the ASD for determination of QPSA benefits.

I'm not sure the Favorable Determination Letter is the appropriate "line-in-the-sand" that determines all this. FDL are optional upon plan termination, not required, and I doubt there's language in the plan document that requires it or ties any distributions issues to it. In my opinion everything ties to the Election Form. If they die before they sign it they're under the normal QPSA rules. If they sign it and die afterwards then the beneficiaries get the lump sum regardless of the FDL status. I'd be interested if anyone thinks the term resolutions themselves accelerate anything, but since term resolutions can be revoked, I wouldn't think so.

I'm pretty sure nothing has changed on those rules. Under a different scenario with a parent-subsidiary (not brother-sister) a common (i.e, 1) 415 limit would be shared if the parent entity ownership is only 50% (not 80%). This is under IRC 415(h). Although that's not your question, I've seen this confused with the brother-sister 80% threshold before, so just in case that's part of the confusion.....

Some IRS district offices upon receiving a plan term submission (Form 5310) with partially vested (and paid out) terminated participants within the last 5 years may attempt to try and require you to go back and fully vest everyone terminated and paid out within the last 5 years. However, there's at least one IRS nat'l memorandum that supported the 1 year BIS approach for full vesting, and we usually dig that out for support, and it seems to take care of the issue by allowing us to only fully vest those not with a 1-year BIS criteria. I believe the issue is that there's not a clear defined rule on who is an "impacted" participant (beneficiary) upon a plan termination. Only impacted participant need full vesting. Therefore, there have been some differences between the Nat'l office and even between the District offices in defining who is an impacted participant (beneficiary).

Thanks Effen, sounds like the topic has been vetted pretty good. Thanks for the link.

Some clients and referral sources are getting a pitch from a company that takes other company's employees in conjunction with them joining a union, which supposedly has collectively bargained for flex benefits where the now "union employees" can choose which benefits they want "purchased" for them under an ala carte menu of benefits (say $500 per month). Since they're union and collectively bargained the client can now exclude them from their pension plans using the union employee (w/collective bargained benefits) exception to 410(b). It will shock you to know that most of this is being offered to doctor groups. Anyone seen this ? I have a hard time seeing the "good faith" collective bargaining here. It doesn't appear the union employees hired their own attorneys for the "collective bargaining". Also the employees were not approached by the union to join the ranks, but rather the employer basically tells the employee you "will" join this union as we're only hiring from this "union" now. Brilliant idea ? or one step ahead of the IRS to be closed down next year ?

Our company also believes interpretation #1 is the correct interpretation.

Can you roll a existing Roth IRA to a Qualified Plan (QP) ? Although I'm not talking about new contributions to a "deemed IRA" within the QP, if that language is also relevant to it being able to accept Roth IRA rollovers, we'd of course put it in. However, I want to be clear that in this case the money is truly non-deductible contributions made to a Roth IRA (not in a QP) that they now want to roll into a QP for broader investment purposes (yes, I know there are self-directed IRAs available too). Thx.

I'm not sure if you'll get a consistent answer on this issue. I've seen it applied both ways (e.g., an AB pop-up the next year when 415 limit increases even though plan frozen).

The several qualifications to remain exempt under subsection B was what I meant by "tricky".