JAY21

I don't believe it matters whether there is an "LLC" between the plan and the real estate ownership. The same issue exists. The LLC would still report the amount of the UBIT to the plan via a k-1 statement (if it's determined to be UBIT). My personal opinion is that you're in a grey area now as to whether you're running a business within a tax qualified plan. I don't believe there is any specific guidance as to how many much such deals the plan could do before running the risk of being deemed a business. It's probably a facts-and-circumstances issue and subject to the Trustees risk tolerance and potentital IRS auditor's take on it. For what it's worth rental income on real estate is expressly exempt from UBIT, although if there's debt financing involved on the deal it's trickier and then could still trigger UBIT in some situations.

I was just trying to avoid the cost of the amendment to clients that signed termination resolutions effective in late 2004 or early 2005 but that are still going through the plan termination process. Just wondering if they needed the amendment with say a term date of 1/31/05.

I can't point to anything more definite, but I like option B as well (terminate the plan but not pro-rate). I'd almost think you'd have to file an amended return later if you didn't. Also, I'm not sure termination resolutions are amendments to the plan per se, so I'm not sure 412©(8) necessarily applies to their revokation, although I realize the plan may have concurrently been frozen which would be an amendment. I'm still voting for plan B.

Anyone know what date a plan would have had to be terminated by in order to avoid needing the mandatory IRA rollover amendment ?

Isn't this more than just a prohibited transaction ? More like a violation of the anti-assignment anti-alienation clauses under IRC 401(a) which could result in a disqualification of the plan ? Seems to me he'd need to go through a Voluntary Correction Program with the IRS and even then hope they don't disqualify the plan.

Thanks jevd for an excellent reference source. Sounds like April, 2006 is about the best this analysis expects a Senate and House bill to be out and reconciled (if then). Not exactly fast track, but the months do fly by. Sounds like if the House Ways and Means Chairman is sucessful in insisting that any House bill also included DC plan reforms, and attached to Social Security reform, we could be in for a delayed but substantial (comprehensive) change in all areas of retirement policy. For brief moment there I thought something was actually happening. Presumably some stop-gap measure will be needed by 12/31/05 regarding the expiring temporary bill (forget the name) that temporarily modified current liability rates (to use a bond index) for DRC and other misc. purposes.

I agree with Blinky's comments.

So we see the senate committees (Finance and HELP) reached a compromise on their respective bills and the result (S.1783) now goes to the full Senate for a vote. What's going on with the House bill(s) ?? Isn't there a fairly similar bill(s) over there ? Is this on the fast track then ?

Frank, I'm guessing that the 5-year paid up policy gives the salesman more (or accelerated) commissions, but I could be wrong. It just seems a little to accelerated for my taste but maybe there is nothing wrong it with.

I'm not an insurance fan in DB plans per se, but is there any cite that prevents us from deducting the full premium on say a whole life policy (split funding) if the policy is a paid up policy in say 5 years, but the assumed future working lifetime of the participant is say 20 years ? Would this be an unreasonable funding method if this accelerated full premium was deducted ? There's probably a Revenue Ruling or Rev. Proc. on this but not sure where. Both opinions and cites welcome.

But there is no requirement that vesting be modified, right ? so it seems the forfeiture does occur.

I probably haven't tried hard enough to get out of the 7.5% gateway on DB/DC permissively aggregated plans. It seems the "primarily DB in character" exception to the 7.5% gateway usually defeats what I'm trying to do (keep most NHCEs out of the DB plan) and I've tended to just think of "broadly available" perhaps overly simplisticly as simply two plans standing on their own for discrimination testing as normal (i.e., no special relationship between them). However, I noticed the blurb in the (a)(4) regs under the "broadly available" option that states it's applied "assuming that the Average Benefit Percentage test of 1.410(b)-5 were satisfied". Is this of much value from a practical standpoint ? I guess this eases the standard somewhat so it's not just the full normal coverage and discrimination applied to both plans separately as there is a built in ABP "pass". Anyone get any bank-for-the-buck using this approach ? Any example ? (just trying to see what situations it's helpful for).

I believe that's true if the FSO is a corporation (must be professional svc.).

My take on it is that mass submitter plans would include: Volume Submitter Plans, Prototype Plans (both standardized and non-standardized), and Master Plans/Trusts (usually a bank type of doc). I think non-mass submitters are those that don't have an IRA pre-approval letter on the qualification language part of the plan doc, presumably these are mostly or all customized plans.

Sal Tripodi's book states it (safe-harbor non-elective) can only be done under another DC plan of the employer, not DB. Oh well.

I'll probably get laughed off the boards here, but is there any ability to provide the safe-harbor 401k non-elective contribution under the DB plan in a DB-DC combo arrangement (permissive aggregation). I need some staff in the DB plan to pass 401(a)(26), but don't want them in the DC plan too in order to avoid a common participant triggering the 404(a)(7) 25% combined deduction limit. I'd like to still provide the 401k deferrals to the owners under the 401k plan, as I believe this has been clarified as NOT triggering the 25% deduction limit if they get no other employer contributions under the 401k plan. ADP testing is unlikely to provided desired results. I guess I was hoping maybe if the present value of the DB accrual for the portion of staff in the DB plan was valued on standard interest/mortality rates and was at least 3% of pay, and fully vested, it may qualify as a safe-habor for 401k deferral purposes ? The staff in the DC plan are easily getting the 3% and fully vested (if we design it that way). This is probably just a unrealistic hope, but isn't trying to have it all the American way ?

I probably can't summarize the entire Rev. Ruling as I was just skimming it for a specific mention of discrimination within different types of insurance policies. The relevant paragraph that to me seemed to address it is below: Revenue Ruling 2004 – 21 (select paragraph) An other right or feature is any right or feature applicable to employees under the plan (other than a benefit formula, an optional form of benefit, or an ancillary benefit) that can be expected to have meaningful value. Under §1.401(a)(4)-4(e)(3)(i), a distinct other right or feature exists if a right or feature is not available on substantially the same terms as another right or feature. Under §1.401(a)(4)-4(e)(3)(iii)©, the right to a particular form of investment, including, for example, a particular class or type of employer securities (taking into account, in determining whether different forms of investment exist, any differences in conversion, dividend, voting, liquidation preference, or other rights conferred under the security) is a distinct other right or feature. Similarly, differences in insurance contracts (e.g., differences in cash value growth terms or different exchange features) that may be purchased from a plan can create distinct other rights or features even if the terms under which the contracts are purchased from the plan are the same.

Never mind, I found the answer in Rev. Ruling 2004-21 (even cash growth feature in insurance policies is a benefit, right, and feature subject to discrim testing). I think that about wraps it up.

Is there any exception from 20% withholding on distibutions on account of disability ? Presumably most disability distributions are still eligible for rollover treatment (except the rare very severe ones that may be excluded from income altogether) so I'm inclined to think they are subject to the 20%, but would appreaciate any opinions/thoughts. THx.

Advisor wants to put in whole life policies for owners and term policies for staff. No doubt this flies in the spirit of the (a)(4)-4 regs on discrimination within benefits, rights, and featurs. However, is there something "explicit" that states the polcies have to be of the same type ? Did the guidance on insurance that the service issued a year or so ago (mostly directed at 412i policies) address this issue ? Just looking for something specific if it exists to show the advisor.

So what happens under a "deemed" termination ? Does the money just sit there until the PBGC takes it over at some point ? Presumably they still can't pay out just on the extent funded unless all PBGC guaranteed benefits are funded (net of any majority owners' waivers) but with a notice to the PBGC of inability to pay benefits I guess the PBGC steps in and the plan sponsor just leaves plan intact until then?

Amen to Effen's comments. It's the best you can do.

I'm quite sure there is no such DB parallel to the DC top-heavy rules as far as not having to provide more than the key(s) employees benefit, so you're stuck with 2%. However, I don't know how you get an cite on a something that's probably not addressed (i.e., the regs probably don't say what NOT to do).

Thanks for both comments. It's appreciated.

If you have a 3% non-elective safe-harbor contribution that you're also utilizing in the cross-testing calculatins, can you still impute permitted disparity for the general test ? If you can't for the safe-harbor portion, can you still impute for the regular profit sharing piece ? (I realize logstically it might be a nightmare to impute for one piece but not the other, but still curious if it's available).