JAY21

Andy, why aren't they deductible ? If a sole prop gets 2 extensions to 10/15 and elects to deduct the contributions (404) for the prior year instead of current year, then it would seem to me they are deductible. What am I missing ?

Andy, don't you still have to present value the integrated piece though using 417(e) rates ? or is that the part you are saying is exempt ?

I think Penman is right, there is any issue there, although I don't remember if it necessarily took it out of the safe-harbor or if it just required an "override" using the interest rates he mentioned (7.5%-8.5%). However, when payable as a lump sum the integrated piece is still subject to 417(e) rates, which does legitimately overide the 7.5-8.5% (without taking it out of safe-harbor), so if the 417(e) rate is lower than the 6.5% then for lump sum purposes it effectively takes care of this issue I believe.

I have a client that wants to roll an old SEP-IRA into his DB plan that he is actively funding at high levels. His main motive for doing this is to invest in a broader range of investments than can easily be done through an IRA (yes, I'm aware of some of the self-directed IRAs out there but he wants to do it this way). Some of the investments he wants to do from the SEP rollover seem to have high return potential and if that occurs I don't want the investment performance to impact the DB funding which I believe it would if I just used a "pooled" approach and allocated earnings pro-rata. Is this a good situation for a 414k account where the SEP-IRA rollover funds get separately tracked and investment returns tied specifically to that account ? I do realize we could put in a new frozen MP plan and maybe roll into that and accomplish the same thing.

Death benefits are "ancillary benefits" not accrued benefits subject to IRC 411(d)(6) protection. I agree they can be eliminated down to the required QPSA (50%) for married participants.

My experience is the same as Belgarath's.

To me, more than an age issue, it's just the difference of being eligible to receive an "insured" death benefit (active paticipant) vs. an "uninsured" death benefit (terminated participant). Age doesn't appear to have any thing to do with it other than it's certainly possible to have an insured death benefit for a young "active" participant that is greater than an uninsured death benefit (PVAB) for a "terminated" participant. However, that's just the benefit (perk) of being an "active" participant. I don't think the terminee gets the policy proceeds even though there may be a policy still on his life, as the plan is the beneficiary (not the terminee), and the terminee is not eligible for an "insured" death benefit since the plan states it's not going to pass along the policy proceeds to a terminee, just the PVAB. I think the key here is the plan owns the policy and is the beneficiary and the plan can choose what situation/criteria the plan will use to determine who is eligible to receive the proceeds of any policy upon death that the plan owns vs. the plan retaining and receiving the proceeds to its trust and reducing future contributions to the plan. I believe this is fairly common language.

Right. I realize that 1099s are just issuers best guess on taxation implications and they can be ignored if not accurate, but personally if I could set it up so the 1099s are consistent with reality (i.e., tax deferred) that would be my preference. That being said I like your approach as I've fought the same battles with banks to end up with what appears to nothing more than the exact minimum you are proposing (except possibly the 1099 issue) but having been bounced between 3-4 individuals at the bank to get it done. I might be an easy convert to this approach even if the 1099s don't get issued with accurate info.

I like the simplicity of this approach, and I realize the Tax ID# given to the bank is assigned to a tax deferred entity (i.e., the trust) but does the bank know it's tax-deferred under this set-up approach ? so as not to issue 1099s showing taxable income ? Even though it later could be proved to be a tax-deferred account (if IRS inquired) it seems like you'd want to avoid this hassle.

If the owner is willing to consider eliminating post-NRA increases for himself, then it seems likely he would be willing at some point to waive some portion of his benefit to terminate the plan earlier. Under PBGC rules this can only happen if he's a majority owner (50% or more) and once all other participants' benefits are fully funded, so it appears he still has a ways to go and the timing will partly depend on just how much of his own benefit he's willing to forgo. Given that it sounds like he might be willing to accept less than 100% of his full benefit on the back end, you might not even want to try to eliminate post-NRA actuarial adjustments (which I think probably is a 411(d)(6) issue) but rather just focus on funding the non-owner participants' benefits plus whatever % of the owner's accrued benefit he wants funded for himself (if any). The rest can be "waived" by the majority owner (although the IRS likes different terminology than "waive" maybe "election to limit distribution to the amount funded" or something like that).

I don't see where a controlled group exists here, so presumably you're looking more at Affiliated Service Group rules. Be careful to check the family attribution rules under ASG carefully as I believe they use IRC 318 references instead of IRC 1563 as used for Controlled Group rules. I think those family attribution rules are important since if they require no family attribution the only ASG "trap" you probably could fall into would be if one of the entities has a captive management relationship over the other entity (the 3rd of the the ASG "traps"). The other 2 ASG traps (A-org and B-org relationship) all require some minimal common ownership in both entities by either one or more individuals, or one or more entities that own some part of the other entity. I "thought" the IRC 318 family attribution rules were a bit broader (more inclusive) than IRC 1563, so it's possible it could cause there to be some "attributed common ownership" between the father-son, although there are still other facts and issues under IRC 414(m) to consider before you necessarily have an ASG situation, so you could still be ok depending on the facts of the relationship between the entities, even if family attribution exists.

Datair does have the capabilities to dump in insurance rates for use in calculating 412i projections/premiums, etc.., and it can handle the 412l additional funding req's for plans with over 100 prts, but it still is definitely a small plan system with minimal pre-retirement decrements. However, it's the lowest priced system that I've seen. The reports are uglier than heck (even for actuarial reports) and not easily dumped into after market report-writer software reports (there seems to always be some glitch or two). ASC as of 5 years ago required a lot of overrides in balancing bases, especially using career avg. plans with traditional UC funding if you ever use that combo. However, they may have improved since then and I heard they definitely "tweaked" their career avg. option. Their (ASC) reports are somewhat better looking than Datair and they (ASC) are windows based whereas Datair has been promising to move to windows for the past 5 years or more. I keep asking questions about Quantech/Relius for DB vals, but no one ever seems to use it for DB work even if they use it for DC work. So I don't know about them. OK, sorry for the interuption......back to Yachts and sailing on the 412i river of gold.

It is a change in accounting method that requires IRS approval. I don't know the reference offhand on where you would find the procedure for such a submission.

Logistically, I've found these types of Bonds very difficult to find. If/when you go that route and find such a Bond I'd appreciate knowing the insurance/bond company you got it through.

Do they carry more weight ? I always took notices and such to be intepretive guidance on existing finalalized code and reg issues (i.e,. minor issues usually not breaking any new ground, at least in theory). Seems too that not all proposed regs are created equal like the new 415 regs which state you "cannot" rely upon them in proposed form. When you can't even rely upon a propose reg, but you can on other IRS notices, it doesn't sound very strong to me, yet I certainly agree that on some proposed regs we hung our hat on them for years (e.g., 401(a)(9). Perhaps we can't blanket categorize "proposed regs" as they seem to have different acceptance levels and approved reliance levels.

Amen to Andy's comments. I've always been supportive of any honest question that is raised for learning purposes is not a dumb question. I don't think the problem is with the questions asked on the board here, just that sometimes the questionaire may not have the necessary actuarial resources available (either on-site or offsite) and that may be evident in the question, but it may not be the fault of the person asking the question, and the person asking the question is arguably learning and improving and may someday be an actuary themselves. Let's not discourage or intimidate anyone from asking honest questions here.

QDROphile's comments are valid but I think it would be a bit of a stretch for the IRS to prove the "enabling" theory you've got going. We've had audits with co-investments before like this and although they got a close look they never had the "enabling" theory thrown at them. To me it would seem a bit of stretch for the IRS to prove that ONLY the plan's trustee could have been used as a co-investor to enable this transaction to occur which also benefited the participant/son and therefore it's entirely for personal benefits.

Thanks WDIK. Much appreciated.

Can anyone confirm whether we can use current 5500 forms (e.g., 2004) for past years delinquent filings (e.g., 2000) and just hand-correct the year (i.e., cross-out "2004" and write in "2000"). I've had someone tell me the IRS will accept this method, which would be great, but would appreciate it if anyone else has either had experience or at least heard that this approach will work.

Upon a plan termination if the plan was insufficiently funded.

Andy's invokation (amen) appears to require that DB benefits get tested on a benefits basis (not contribution basis) and that the other plan type (DC) are tested on a contribution basis (not cross-tested to benefits basis), is that correct ? I guess that's a trade-off that works in some situations but not in others (e.g., where you want to cross-test one of the plans).

Pat, since you're hot on the research trail on these issues, what did you conclude about leveraged real estate where there will also be rental income derived from the property ? still exempt from UBTI if structured properly ? That's always the one I hesitate the most about although I still think it works if the restrictions and proper structure of the loan conditions are met.

Thanks mwyatt for the TRA 86 cite. Still a rule unenforced for 19 years would often be unenforcable under other bodies of law, and arguably should go through another round of discussions, since plans have been designed under the existing regs and even if the accrued benefit is grandfathered under these new proposed regs I'm sure the projected benefit (which includes future years of service) is not. I guess I'm just barking at the moon since apparently the IRS has this unfulfilled mandate from Congress (19 years old) on the high-3 avg., so perhaps the only fight available is on the 401(a)(17) issue.

Thanks for the link on past discussion. However, aren't we outraged and going to burn our bras or something ? Oh.....guess I don't wear one, but some form of great outrage still seems in order ! Seriously though, I often use prior high-3 comp for a new small plan and now to not be able to also use it for 415 limits will be a very limiting factor for the small plan owner with limited income/cash flow.

My experience is the same as Roman.