JAY21

Existing MP plan with 1-year eligibility with rich formula with mostly doctors but a few employees. There is enough room under 25% deduction cap (404(a)(7) to add-on a modest DB plan for doctors only and still pass 401(a)(26), 410(b), and "maybe" 401(a)(4) depending on response to this quiry. The doctors would like the DB plan to have a 2-year wait to delay newly hired physicians into the plan. If both plan have different waiting periods can I still aggregate plans for 401(a)(4) general test for discrimination ? If so, do I use the 2-year wait and treat benefits earned before the 2-year wait (under the MP plan) as a disaggregated plan ? Thanks for any thoughts/opinions.

Can anyone confirm that under 401(a)(9) that even rollover assets from outside plans (say a DC plan) rolled into a DB plan must still be paid out under the DB annuity method instead of the account balance method (I'm aware of the 2 year transition rule on reliance on prior proposed regs but I'm ignoring that for the moment). Thx.

Good discussion. I hadn't heard about the 0 allocation issue either, but can see where that could be a real problem if that's the interpretation the service takes on that (unknown for sure it sounds like).

Blinky, thanks for the info. It makes me wonder then if there's an argument for always going with the "each participant own allocation group" for virtually all PS plan designs. I realize you probably need some ER resolutions on contributions to define the contributions for each employee group, but other than that, would there be any reason NOT to use this as a default PS formula design since you can always fit a pro-rata or integrated contribution within this structure and be virtually assured of passing (same contribution rate for each participant) or some other more elaborate allocation as well.

Our pre-approved Volume SUbmitter plan has the language in it that allows for the selection of "each participant being their own allocation group" (often used in conjunction with cross-testing). Now, if in a given year if client just wanted to do a regular integrated allocation (which normally is a safe-harbor formula) do my allocations have to be general tested given the afore stated plan doc structure (each participant their own allocation group) or can I claim it's still a safe-harbor contribution not subject to general testing ? I guess the issue is whether the plan doc specifically needs the integrated formula specified in the plan doc in order for the integrated contribution to avoid the general test and be deemed a safe-harbor contribution/formula. Since I can "impute" permitted disparity into the general test, maybe the whole issue is a moot point if the general test (w/imputed permitted disparity) pretty much guarantees me to pass anyway using standard permitted disparity contributions. Thoughts ?

I'm trying to put together a general profile of the type of small client that might benefit from a cash-balance plan (assume it's primarily for max tax purposes). I have the following thoughts and would appreciate any comments and additions. 1. Multi-owner situations where partners want same contribution level above 41k. 2. Plans where there are employees who might better understand and appreciate the cash-balance structure. 3. Situations where a cross-tested profit sharing plan would work well a cash-balance plan (general tested) may also but with higher contribution potential. Other thoughts ? Thanks.

Thanks to both of your for your input. Good ideas that I'll put to use.

If I have a cash-balance plan primarily designed to max benefits for owners at their 415 limits, although there will eventually be a couple of staff employees, what should the individual benefit statements reflect for contribution credits to owners where the contribution credits result in a benefit accrual for the year that is restricted by IRC 415 ? Since I cannot fund for more than the 415 limit, or distribute more, would the benefit statement reflect the full contribution credit per the plan document or a lesser amount equal to the contribution credit that is equivalent to the 415 accrual for the year ? Not sure if this is a technical issue or more a communication issue. I hate to show a higher theoretical higher account balance than can be immediately distributed, but maybe that's what I have to do with some appropriate caveat at the bottom of the statement. Any thoughts/opinions/preferences ?

I have a situation where the emloyer has no non-highly compensated employees, but rather 10 highly Compensated Employees that includes the one sole (100%) owner. He wants to put in a cafeteria plan for dependent care expenses only, in which he the only Key Employee will NOT benefit in, only the other Highly Compensated Employees. Given there is NO non-highly compensated employees do I get a free pass on IRC 129(d)(2) HCE discrimination testing ? or is this a problem since I'd fail the 55% dependent care (IRC 129(d)(8)) test ? Thanks for any thoughts/opinions.

Blinky, do you have any idea if the "wait time" to receive a FDL from the IRS on a new cash balance plan is the same as for other "customized" (i.e., not Volume Submitter/Prototype) plans of a different type (e.g., a traditional DB plan) ?

Thanks Pax !

Does anyone know if there was some proposed legislation being pushed that might exempt or reduce taxation on distributions from insurance annuities ? Someone in our office thought they remembered seeing something on that but we can't find anything now. This might be an issue ASPA is concerned about due to it putting qualified plan distributions at a disadvantage. Can anyone set me straight on this ? I realize I may not be stating the issue correctly.

Thanks Andy and MGB. Much appreciated.

Andy, for some reason I thought the immediate annuity had to be the actuarial equivalent of the PVAB (including any GATT subsidy on the lump sum). So am I wrong in that thinking ? It seems you'd get a different result than the actuarial reduction scenario you described.

I believe if a plan offers a lump sum distribution option before retirement age (e.g., upon termination of employment), and the lump sum amount is over $5,000, then an immediate J&S annuity must be determined/offered at the current age. If the lump sum is base upon GATT (plan provides for lump sum equal to greater value of (a) actuarial equiv or (b) Gatt mortality/rates) does the GATT PVAB at the current age get divided by an immediate annuity factor based on plan's normal actuarial equivalence (used for alternative forms of annuity distributions) - OR - by an immediate GATT annuity factor using the Gatt table/required interest rate ? Thanks !

I think Kurt Piper did a seminar talk on this some time ago. Not sure if he's on this message board or not but he might be a good source for info. I thought he went through the same analysis that Blinky did but I thought he came up with a different result, or maybe the facts were just different. Either way you might see if he still has his seminar outline if you can track him down.

I agree that IA funding methods and Normal Cost aren't terms normally found in a non-qualified plan, but I've seen a few cases where "structurally" the non-qualified plan is set up and funded similar to a qualified DB plan, in which case a qualified plan DB software may have be used and resulting reports generated for a non-qualified plan. The structure of his "earnings" is what sounded like a non-qualifed plan to me. I realize we're still trying to ascertain the facts here (pre-tax, after-tax contributions, type of plan etc...) so I'm probably jumping ahead by mentioning if it's determined to be a qualified contributory DB plan he should received his contributions plus interest at 120% of the Federal Mid-Term rate (assuming that hasn't changed in recent years) at a minimum. In addition, there is a strict ERISA formula for excess asset allocations when there are employee contributions (certain employees must get a share). However, I'm not convinced it's such a plan just yet so I'm probably getting ahead of the facts.

Bob, any chance this is a "non-qualified" plan ? Would make a difference.

Good comments both. Thanks !

Actually I guess I only have to cover 50 employees for 401(a)(26), but the question still stands if this approach (2 formulas) works.

Large medical group has 1 owner (100% of stock) and 34 doctors (all HCEs) and around 100 NHCEs. Owner wants a DB plan that EXCLUDES all HCEs other than himself and only covers the minimum NHCEs required. I think given my 410(b) ratio is 1/35 x 0.70 = 2% times 100 = 2 that this is easy to pass by covering only a small number of ee's. Obviously 401(a)(26) is my bigger issue by needing to cover 40% of 135 employees (i.e., 54 participants). Can I put in 2 benefit formulas in the plan doc so as to pass 401(a)(26) with one formula being 0.5% accrual rate for the bulk of the 54 participants, and then a 2nd formula being a high accrual rate (say 10%) to cover the owner and 2 NHCEs ? If I test each benefit formula separately I think each passes 410(b), one due to only having NHCEs in it, the other using the (1/35 x 0.70 x 100 = 2 NHCEs). I'm not sure if this is what people call restructuring or not (terminology wise). I know I have a lot of flexibility here so I want to make sure I maximize it. Any thoughts/concerns/suggestions ?

I agree it seems a little "idealistic" to get a new 415 limit. Still the ownership of these 2 entities, if they could have existed simultaneously, would not have been a Controlled Group given the Vogel Fertilizer decision that would have eliminated the partner with 0% ownership in the new entity from the Controlled Group analysis. I'm not saying controlled group criteria is the main or only criteria relevant here, just that it makes the answer less obvious to me. The fact that it's not a continuation of the same plan also muddies the water for me. I note that Sal Tripodi's book (page 5.129 of 2004 ERISA version) seems to say that the IRS hasn't provided specific guidance on the "treatment of prior employer as the same employer" and he suggests using other IRS guidance on "Severance of employment" issues as a proxy.

An LLC previously sponsored a DB plan when it had 3 owners (33%-33%-33%) but then terminated the DB plan when close to maximizing their 415 limits. A few years have passed and now 2 partners bought out the 3rd partner so the LLC is owned between the 2 partners 50%-50%. They've inquired recently about sponsoring another DB plan. Does the ownership change afford them a fresh-start on the 415 limits ? (i.e., is it the same entity). Nothing about the entity has changed except the ownership percentages.

Belgarath, or anyone else, it appears this "Single Employer" treatment for 404(a) purposes is for Controlled Groups only and not Affiliated Service groups, agreed ? (I do realize though that 415 does apply on a "single employer" basis for Affiliated Service groups though which could cut down on plan options).

Thanks Belgarath, I obviously did not continue reading the paragraph until near the end where the 404 cite appears.