JAY21

If a client has been consistently contributing and deducting DB contributions for the plan and fiscal year that coincide (both calendar year), but now wants to change so that the 2003 minimum funding contribution (made in 2004) is deducted for the 2004 fiscal year (2003 tax return would show zero contribution), is this a change in accounting method that requires IRS approval ?

A single employee (owner) plan terminates in late 2003. Plan is under funded. Since Funding Standard Account stops in 2003 is there any way to make a contribution for 2004 and claim a 2004 tax deduction ? The 2003 contribution was made and the 2003 corp. tax return filed, although he didn't contribute the 2003 max contribution available. He has since found more money he'd like to contribute in 2004 and deduct. What deduction options does he have for 2004 (if any) ? Thanks for any thoughts.

SoCalActuary, what is the turnaround times you have been seeing on getting a FDLR on cash balance plans (with no conversion issues) ?

Yeah, but can you get a IRS determination letter on the cash-balance plan in any sort of reasonable time frame, if at all these days ? I like the idea, but I don't believe there are any cash-balance Volume Submitter/Prototype plans out there (to my knowledge) so I'd definitely want an IRS determination letter, but wouldn't know what to tell the client on the approval wait at this point.

As a practical matter I have seen a few investment companies that have been willing to reclassify the current SEP contribution as a DB contribution (i., open a new DB account and transfer the money in). You certainly don't want them treating it as a distribution and issuing a 1099, but if you can get them to reclassify the contribution and the client is comfortable with that it might work. I'm not making any judgements on this approach, and whether it would withstand an audit, just stating that I've seen it done a few times. Even if the client wants to do this the investment company may balk at it though.

What is the Pension Online website for those of us that might want to check it out. Thx.

Thanks MGB.

Thanks Blinky. I am feeling the same way, that it's not a highly feasible option unless/until some insurance company finds a way to provide this specialized bond at some reasonable prices, which may never happen.

In the small plan world an HCE might be hitting the 415 limit and if electing a lump sum optional form of benefit the L.S. value is based upon a single life annuity even if the normal form is a J&S. Do you think that the HCE would then need to get this notice that his/her lump sum benefit is financial less valuable than a J&S annuity ? (let's assume actuarial equivalence for all purposes are the 417(e) rates so no difference there for various optional forms).

I've always understood that a restricted HCE in an under funded DB plan could obtain/post a bond to cover his benefit in the event of a "pre-mature" plan termination so the plan would have recourse (presumably against the bonding company) if under funded at plan term date. Is this a realistic avenue ? Does anyone know of any insurance coverage that would offer such a specialized bond. I've seen some type of IRA-escrow account used in a situation like this, and also a segregated account (within the same plan), but have never pursued the bond option until now. Any thoughts or opinions are appreciated.

Thanks WDIK, that was exactly what I needed.

I'm having a hard time laying my hands on the tax brackets for Unrelated Business Income Tax. I thought it used the Trust Tax rates which I thought was about $7500 for the highest tax bracket. I'm not sure if anything has changed on this in recent years and was wondering if anyone knew the highest tax rate is for UBIT and at what threshold (net income) it kicks in at ? Thx for any help.

Client withheld the 20% Federal Tax withholding on several 2003 distributions. However, the client never remitted the taxes to the IRS. We just found that out and are trying to gauge if there is a special approach to take at this point (any IRS correction programs) or just deposit the late taxes with a 2003 tax coupon and wait for the IRS penalties/correspondence on the issues. Anyone have any good ideas/opinions on how they might proceed in this situation. Thanks for any thoughts.

Thanks Pax. Good input.

Thanks Andy for the input. It was very helpful. I like the 25k L.S. idea too.

I'm just looking for an "Amen" or "no you idiot" comment(s) here, preferrably the former. Isn't one of the strategies with DB/DC combo tested plans (aggregated for both 410(b) and 401(a)(4)) not to offer a lump sum under the DB plan (or limit it to 5k only) so to keep MVARs for HCEs as low as possible and eliminate most/all of the 417(e) subsidy ? Has anyone had good experience with this. I guess I always wonder what happens down the road when the plan terminates and then they want the lump sum, would amending the plan to "then" offer lump sums work or does it "unravel" prior year testing that did not take 417(e) into account ? Thanks for any thoughts.

A participant's spouse left him 30 years ago without a divorce or legal separation. The participant has since died. In his will he left all to his parents. Obviously the will does not supercede federal law QJSA requirements but no one can find the spouse and they've hired detectives (multiple) to track her down and even other search organizations that can't find her. IRC 417(a)(2)(B) and Treas. Reg. 1.401(a)-20, Q&A #27 seem to provide that a plan can distribute benefits in a form other than a QJSA when it has been established to a Plan Representative that the spouse cannot be located. They have tried to do this but the Plan Representative is hesistant still despite some strong evidence of a thorough and lengthy search for the estranged spouse. Does anyone know of any court cases on this isses beyond the statute & regs cited above that might lend some support/comfort to the Plan Representative that they have the ability to pay death benefits out in a form other than a J&S in this situation ? Thanks for any thoughts as well.

So except for "possibly" the 2003-2005 years (if client feels comfortable with it) the account balance method cannot be used for a DB participant if they are not currently receiving a lump sum distribution, right ? In other words, some sort of special 401(a)(9) election stating a lump sum distribution will "ultimately" be taken (but is not currently being distributed) will not change the requirement that 401(a)(9) benefits be taken in annuity form (except for possibly the 2003-2005 years,...maybe) ? All opinions welcome.

I would think if the plan just loaned money to the company (note) with a standard fixed rate of interest loan that there probably is nothing wrong with that. However, if the transaction is structured different and they receive income based upon the performance of the ATMs that doesn't sound as good (UBIT vibes).

Thanks MGB. That was very helpful.

Could I sneak in a question as to what actuarial table IRC 7520 uses for private annuity calculations (estate tax planning) ? I apologize for the blatant misuse of this forum for non-DB plan purposes and accept my 20 lashes (or more !!).

Good points Dave. That's interesting that Datair's prototypes have explicit language stating DB 415 limits don't apply. It would appear that Datair has researched the issue and taken a position on this w/supporting language. We don't use Datair, but I'll have to check out the doc language more thoroughly to see there is anything comparable in our volume submitter docs under the 414k langauge.

Thank for the cite Kirk. It appears the preamble to 415 regs state that 415 limits must be applied at ALL times and they clearly address that converting a DB benefit into a segregated account does not make it a DC like account for 415 purposes, and therefore DB 415 limits will still apply to the segregated account. I'll need to monitor 415 limits on the segregated account if client decides to go this route. Thanks for the help.

Client (owner) wants to segregate his account in DB plan and he is beyond NRA and plan allows for post-NRA distributions. He does not want to terminate plan due to various illiquid investments in plan that an IRA would not easily hold. Is there any legitimate argument that I can apply 415 limit check only at time of segregation vs. at future distribution date (from segregated account), or must I apply the 415 limit check even on the segregated account when it eventually is paid. I have some concerns that the trust investments might grow enough to exceed his 415 limit sometime down the road.

I believe you are correct Earl. Assuming for the moment that it's a prudent investment and all the asset diversification issues are otherwise met, I believe this can be done and has the result you indicated. I suppose this could cause some fairly large gains to the trust, which under a DB plan would impact contributions, but that may not be a bad thing depending on plan's funded status (e.g., if it doesn't over fund the plan) and client's funding objectives.