JAY21

1. I agree, how are they passing 401(a)(26) with only 6 in the plan ? This test can't be aggregated with the DC plan so that's a big issue. 2. Yes, you can combine the discrimination testing if the DB plan somehow passes 401(a)(26). 3. You can use either the annual method, accrued-to-date, and projected method, whichever you prefer. The equivalent allocation methods sounds like "cross-testing" to me (maybe the DC contributions), but I don't use Datair to run discrimination testing so I'm not sure of their "vernacular" language they use to describe their test . 4. I'd focus on the 401(a)(26) issue first and then if you're convinced it passes, focus on proof the discrimination testing passes the 1st year as it either has to pass on a stand-alone or combined basis the 1st year, you can't just defer it to a later year. It wouldn't seem it would pass discrimination testing on a stand alone basis.

I'll offer some thoughts. I would have thought it was clear that the employees are common law employees of Company A given the "control test" you mentioned, were it not for the comment about the employees having to sign employment contracts under each new LLC (and maybe that shouldn't change anything). I would wonder what the purposes of having them sign individual employment agreements for each LLC project is, maybe because they want them to be clearly employees of the LLC for all expense/tax/profitability and liability purposes ? but now not so for qualified plan purposes ? Maybe they're unintentionally mudding the waters if they're playing the compensation/benefits game different ways. I guess you could have each new LLC co-adopt the retirement plan (supplemental participation agreements) to cover the employees of the 50% LLCs. However, it probably doesn't resolve everything as you still need to know whose employees they are as now you probably have a multiple employer plan where discrimination testing is applied on a controlled group basis, and not evey LLC is presumably in the same controlled group. I guess I'm coming back full circle and thinking that establishing that Company A is the employer is the natural way to go, but if they're playing the game otherwise for other non-retirement purposes, it seems at cross purposes. For example, who gets the tax deduction for the retirement contribution when the LLC paid the compensation for the employees, doesn't the IRS generally look at retirement contributions as deferred compenstion ? (presumably of the entity paying the wages). Yeah, I know, you asked for help, not more questions.....

Thanks Blinky, I'll check them out. I'd welcome any other comments as well.

Our firm has primarily small DB plans (under 100 lives) but we're picking up more takeover plans which I defined as "mid-size" (100-500 participants) plans. We currently use Datair which we're generally happy with for small plans (except for the look of the reports), but it doesn't handle multi-decrements which some of our takeover plans have. I've searched prior threads and have gleaned some info, but does anyone have any recommendations on software that handles multi-decrements and does the 412(l) add'l funding calc for 100-500 lives sized plans without being too outrageously expensive ? thanks for any thoughts.

I certainly agree there is nothing wrong with a split-funded plan. My concern was more that the numbers shown on this particular proposal seem far in excess of the incidental death benefits using the 2/3rds of ILP funding approach, which I always understood to be the DB algebraic equivalent of the old insurance Rev. Ruling for DC plans stating you could apply up to 50% of the contributions for purchase of whole life insurance. If there is another way of getting substantially more insurance into a DB plan other than the 2/3rds rule or 100 x mo. proj. benefit approach, I would appreciate knowing about it, at least so I don't criticize something legitimate.

This is partly commentary and partly a question. A financial advisor brought us a brochure from a firm touting a type of traditional defined benefit plan that "almost" gets contributions similar to a 412i plans, but with a 50-50 mix of trust investments (stocks, bonds etc...) and life insurance. The contributions to the trust are typical maximum DB contributions, plus there is an exact matching level of deductible contributions to purchase life insurance (i.e., total contribution double the normal max DB contribution level when life insurance premiums are considered). As best I can tell from the brochure commentary, it appears this is a response to recent IRS promulgations on 412i plans and valuation of insurance in general. As you would expect with this arrangement, it appears to be a split-funded DB plan, but the life insurance premiums appear heavily front loaded (they are payable for 5-years) and more important the death benefit appears to be far, far, in excess of the incidental death benefits even using the 2/3rds method. They name an individual person as the beneficiaries (not the plan/trust) so It appears all death proceeds go directly to a named beneficiary without restriction. Given the insurance premium is an exact match of an un-rounded DB contribution figure, it seems too coincidental to be anything but an intentional matching figure. I think they may be taking the old revenue ruling on insurance limit that states that 50% of the contribution can be used to purchase whole life insurance, and trying to apply that directly to a DB plan without using normal 2/3rds derivative of this limit. My question is, is it clearly established that the insurance limit Revenue Ruling (50% method) only applies to DC plans and cannot be used directly (without 2/3rds derivative) to DB plans ? (I think so, but I don't want to kabosh someone else's design if I'm just missing something).

Thank you.

Does anyone have the January 1, 1995 120% Annual Federal Mid-Term Rate for purposes of accumulating a prior distribution to re-purchase vesting service. I can find the 1996 and beyond rates via benefitslink article and/or IRS.GOV but I can't seem to find the 1/1/95 (Jan.) rate.

The way that I understand it and would do the calc is 1st: calc and compare greater of present value using actuarial equivalence and 417(e) [if different}, then 2nd: Calc 415 limit as lesser of actuarial equivalence or using 5.5% for the lump sum value only (but not for annuity dollar limit calc if NRA less than 62). If the result from step 2 (lesser of act. equiv. or 5.5%) is less than step one (1) then "yes" your 415 limit is cutting off your otherwise payable present value based on (or at least considering) 417e rates. 415 "trumps" 417e. Note that a recent ASPA ASAP "re-cap" mentioned that there is a "transitional rule" for 2004 that basically states that the above result cannot be less than the lump sum that would have been payable under the old law provisions using the interest rate in effect under the plan as of the last day of the 2003 plan year. Sounds like for 2004 there's this extra step to consider and no one will be any worse off for 2004 than they would have been under the old rules. 2005 doesn't appear to have this same transitional rule protection (i.e., fully-phased in at that point).

Blinky, do you think there is any wiggle room here ? I know there's a Revenue Ruling (forget the cite) that states something to the effect that a waiver cannot be used for funding since it would be "unreasonable" to believe someone would not revoke it and accept something less than their full benefit. However, I swear I heard a former ASAP Technical Director state informally that only revocable waivers were precluded under this Rev. Ruling, infering that perhaps Irrevocable waivers might pass muster. Maybe I misunderstood him though. Anyone think there's wiggle room here for an irrevocable election, maybe in conjunction with a Election to Limit Distribution under a plan term ?

I working my way throug IRC 514 on debt-financed property but not sure if I'm understanding it correctly. Ignoring other reasons why a trustee should not invest in real property, if a qualified trust (plan) purchases real property (improved) and obtains a mortgage that meets the structural requirements of 514©(9) (i.e., fixed price, not depedent on future revenues, no lease-back, reasonable terms..etc..) is the rental income earned on the property subject to UBIT ? There are so many exclusions and exceptions in this code section I'm doubting if I understand it right.

If we have a DB & DC plan that is aggregated for 410(b)/401(a)(4) and general tested together for (a)(4) discrimination, do the 401(k) deferrals get reflected in the DB's MVAR at all ? I believe the deferrals are included in the NAR for ABT (unless there some disaggregation option available ??) Thanks for any input.

MGB, for us slow folks, is the only bill version that could possibly extend DRC relief to all plans (w/over 100 prts) the House version of H.R. 3108 ? The senate version of same bill and the H.R. 3521 bill does not provide across-the-board relief to all. Is this correct ? I guess I'm hoping that one version has some chance of extending broad relief.

Thanks Mike. That's a great case law cite even though It does seem overly protective. We'll take the cautious approach and issue the 204(h) notice.

The same amendment make changes that impacts future benefit accruals in opposite directions: (1) One part of the amendment changes the def'n of compensation (in a non-discriminatory manner) to exclude certain components of compensation previously included (a reduction) and (2) another part of the same amendment increases the benefit formula. Both changes are contained in the same amendment and have the same effective date. When viewed in its "totality" the net impact of the "entire" amendment on each participant is either an increase in future accruals or a negligible decrease, although one component of the amendment viewed by itself (comp change) is clearly a reduction. Is the 204(h) notice based upon the amendment's overall impact or based on each individual component of the amendment ? Also what guidance do we have as to what constitutes a "significant" reduction in future benefits ? (I recognize to be safe we may want just do a 204(h) notice as there may be some minor reductions in a few participants' future accruals).

Thanks for the additional clarification on the deadline.

Mike is that schedule part of the Rev. Proc. 2003-44 (haven't worked my way through all of if) or is it found somewhere else ? Thx.

Does anyone have any current practical experience on a late Volume Submitter amenders for GUST (just discovered a plan was missed). Has anyone recently submitted a late amender for GUST to the IRS under their closing agreement program ? (forget the revised names of these programs). I believe Rev. Proc. 2003-44 is the appropriate guidance, and I know the penalty sanction is supposed to "consider" part of what the max sanction amount would be (e.g., 40% of amount if trust was disqualified or something like that), but practically speaking, the last time we did restatements for TRA 86, it seemed like in the immediate 6 months or so after the deadline most late amenders were getting slapped with some fairly modest fees ($1,000 - $2,000) as a practical matter. Anyone have any current experience with what late Volume Submitter amenders are receiving as penalties in general currently ?