JAY21

Do you think it is necessary that the "accounts" all be 100% vested to have a strong argument to treat the 100% of the hypothetical account balances as the "at risk" funding target ? I'm inclined to use the hypothetical account balance as the Funding Target under the at risk rules, but it seems like in one or more seminars I thought I heard that if the "accounts" aren't yet fully vested then it wasn't entirely at risk. Thoughts/opinions ?

I don't have a great solution to accomplish what you want to accomplish, but maybe the next best thing..... I wonder if the IRC 4980(d)-Qualified Replacement Plan option might be a good Plan B option in this situation (though you'd still have to allocate some of the excess assets transferred to a group of employees that pass discrimination testing). One of the requirements of the QRP option is you have to cover 95% of the same participants that were in the prior DB plan, which in this case I think you would only count the people in the DB plan before the freeze for the 95% qualifier, but then you have 7 years to allocate the excess assets to the eligible employees in the PS plan which would cover an expanded group due to the size of the employee group. Revenue Ruling 2003-85 expands the QRP option so that up to 100% of the excess assets could be transferred to a QRP (where as 4980(d) itself initially was limited to 25% of the excess). Now this doesn't accomplish what you want it to, it doesn't allow you to give all the excess assets to the original plan participants, but I think you can use a cross-testing/job classification for your PS allocations and it might go further for employee relations to give a modest amount under the PS plan over several years to a larger group of employees than simply amending the DB plan to use up the excess assets in a 1-year accrual for an expanded group of employees. Just a Plan B option to consider that at least might buy the owners some good will with the employees over a longer period of time than a 1 year shot. I don't see any way to get it all to the original plan participants due to coverage/discrimination rules that will kick in.

I see one brief blurb in the preamble, and in the final funding regs themselves, in section 1.430(g)-1 of the funding regs issued 10/15/2009, that "seems" to say to use the prior Rev Procs issued regarding insurance valuations for FUNDING purposes and the preamble part specifically cites Rev Proc 2005-25 and 2006-13. However, I believe those Rev Procs verbiage only deal with valuation of insurance policies for distributions. Any thoughts out there as to whether it is clear that we should be using these 2 Rev Procs guidance for valuing insurance policies for FUNDING purposes too ? Thanks for any opinions.

A stand-alone DB plan has multiple formulas for varying job classifications. Example, 7%, 2% and no accrual rate (0%) for some job classifications. Obviously this is not a design based safe-harbor formula. The question is whether the general test under 401(a)(4) is the only testing method available or is there an alternate approach by testing each benefit accrual rate separately under 410(b) via "restructuring" by testing each formula separately for 410(b) and if it passes 410(b) on that basis does that obliviate the need for the 401(a)(4) general test ?

Line 38 of the 2009 Schedule SB states "Excess contribution for current year (excess, if any, of item 36 over item 37). Is everyone just taking that statement (37-36) at face value and ALWAYS putting the difference between items 37 and 36 on that line regardless of what the client is actually electing for a pre-funding CB ? The instructions to Line 38 talk about putting on line 38 the maximum amount the client "may elect" to add to the pre-funding credit balance. If the client does not want to add to the pre-funding CB are you putting $0 on line 38 or still stating the 37-36 amount and then addressing the amount added to the pre-fundiing CB on item 11(d)(b) on the subsequent year's Sch SB (portion of funding to be added to pre-funding CB) ? Thanks for any input.

I don't "know" that the QRP is the better route to go. Seems to me you're almost looking at this as if it's a new proposal with X dollars (estimated over funding) that you want to allocate as much as possible to the owners at lowest cost for staff over the next 7 or less years (to meet the QRP timeframe) and if you can get it done cheaper through the existing DB plan then you go that route or if the 8.5% interest rates in using a cross-testing PS approach for discrimination testing (including the extra fees for plan set-up) produce better results then maybe you go that approach. The 95% rule applies only to participants that were in the DB plan (not new potential participants via the merger). Depending on the freeze type (hard freeze that froze out any new participants) the QRP might not have to cover that many people though the testing will include the post-merger non-excludable employees for testing purposes.

Well the 4980(d) isn't limited to just those plans that are at the 415 limit. I assume if they unfreeze the plan they will have accruals for new employees via the merger, so the QRP "might" be a better approach depending on how much excesss assets there are and whether the numbers work out better allocating it to staff under a PS plan vs. a DB plan.

You might consider a Qualified Replacement Plan under IRC 4980(d). You could either transfer 25% of the excess funding and qualify for the lower 20% excise tax rate on the reversion of 75% of excess assets -OR- take advantage of Rev. Ruling 2003-85 which enhanced the Qualfied Replacement Plan option to allow that up to 100% of the excess assets can be transferred to a new/existing DC plan and placed in a suspense account and then allocated annually in lieu of new PS contributions. You have 7 years to allocate the excess assets in the suspense accounts. There are some other qualifers on this approach but I "think" you could use cross-testing to test the allocations released from the suspense account and still skew it in favor of the owners to a certain extent.

Is anyone far enough along with E-FAST to have an opinion on whether the Schedule SB attachments "label" requirements (e.g., Line 19c, Plan Name, Plan No, EIN#, etc....) can be satisfied by simply "checking" the pre-labelled boxes in the E-FAST attachment menu (e.g., summary of plan provisions). -OR- Do we still need to have all the info (Line #, EIN#, Plan Name) pre-printed on each attachment itself PLUS then check the appropriate pre-lablled attachment from the E-FAST attachment menu. Seems to me if the pdf attachment is going along with the 5500 E-FAST filing and the pre-labelled box is checked identifying the attachment type that should be sufficient, but maybe I'm wrong. Some of the attachments are not easily and completely labelled as needed from our software so I'm hoping the E-FAST pre-labelled attachment menu would be sufficient. Thoughts ?

Just curious as to what other TPA firms out there do as far as following-up and maintaing executed (signed) documents both initial plan documents and amendments/restatements. We have a hard time getting signed copies back on a lot of clients and spend a lot of time following up with them, but I'm wondering if this is needed. Doesn't the plan sponsor have the legal reponsibility to maintain (store) the executed documents. I'd appreciate hearing what other TPAs do on this and whether you state the responsiblity in your service agreements or in some other written form. Thanks in advance.

On a related question can we use a 2008 Form 5500-EZ to file a final Form 5500-EZ for 2009 if all assets have been distributed by crossing-out the "2008" year and writing in the "2009" year ?

I have a small professional employer with about 10 participants who is not PBGC covered (due to small size). Previously there were 2 owners but one owner sold out to the other owner about 1 year ago. Initially the ongoing owner (now 100% owner) thought he would maintain the under funded DB plan but now he is thinking about terminating it. He would like the under funding to be applied to both he and the former owner (Former HCE) benefits which are still in the plan. They want the employees to get their full benefits. 401(a)(4)-5(b)(2) seems to include Former HCEs in the same boat as HCEs in its brief paragraph that states the benefits must be limited to a benefit that is non discriminatory. Rev. Ruling 80-229 regarding a non-discriminatory allocation of assets doesn't specifically mention Former HCEs but stresses non-discrimination that protects the "rank and file employees". Does anyone see any problems with the former owner (Former HCE) limiting his benefit to the same proportion of available assets as the current owner. Both former and current owners seem to be ok with this shared under funding approach, but IF the former owner were to change his mind and challenge it would he have much of a case ? Opinions.

I believe the final 430 regs allow you to change the valuation date to an EOY date for 2008-2010 without formal IRS approval. That would presumably wipe out the contribution.

A client just called and their 9/1/08 - 8/31/09 Form 5500 was rejected by the DOL as it wasn't filed electronically. I thought we didn't have to file these off-calendar 2008 plan year forms electronically just yet. Am I wrong or did something change ?

Anyone able to illustrate the general structure of building the annuity factor (in general) for a 100% Joint and Survivor Annuity with a 10-year certain feature. Either with first principles or commutation functions. I've never run across this annuity combination before.

I'll take a guess: 1. The $22,431 is the 415 dollar limitation actuarially increased from ag 65 to age 70 (seems about right). 2. The High-3 average "may" have been grandfathered even though higher than the 401(a)(17) comp limit, and higher than the actuarially increased dollar limit, if the terms of the plan as of 4/5/07 (final 415 reg enacted date) allowed for 415 compensation to be higher than the 401(a)(17) limit. See the final 415 regs on what can be grandfathered but they expressly provide that an accrued benefit may be grandfathered even if higher than the 401(a)(17) limited high-3 average IF the plan provisions allowed for this higher 415 comp and plan provisions were in compliance with "then" 415 rules. I'd check final 415 regs for exact criteria and ensure the grandfathered application has been applied correctly.

A DB client of mine said he heard that the medical bill before Congress includes a provision to assess FICA taxes against "unearned income" (I presume that means passive income of some sort). Has anyone heard anything about this ? He's beyond the NRA but under age 70.5 and is considering whether to start taking distributions from his plan and thinks this bill "might" assess FICA taxes on income (distributions) taken from his DB plan. Anyone aware of such a provision and whether it would apply to retirement income ?

I know the IRS came out with some guidance on partial plan terminations, where previously we just had case law, can anyone give me the cite for that IRA guidance ? Can't remember if it was a Revenue Ruling, or Rev. Proc or what form it was in. Thanks.

Trying to apply the Final 415 regs section 1.415(a)-1(g)(4) regarding grandfathered benefits and would appreciate any input. I have an HCE with over 20 years of service as of 12/31/07 and compensation greater than the 401(a)(17) Comp limits in just one big year (2006) with the following history: 2007: $210,000 (comp limit $235,000) 2006: $250,000 (comp limit $220,000) 2005: $210,000 (comp limit $210,000) 2004: $200,000 (comp limit $205,000) This is a calendar year plan so I "think" I have a grandfathered 415 limited AB on 12/31/07 of: ($210,000 + $250,000 + $210,000) / 36 = $18,611.11 The final regs state I can grandfathered the AB as of the end of the limitation year that ends immediately prior to the effective date of the final regs. Based on the calendar year the application date of the final regs would start 1/1/08 so I can see an interpretation that allows me to grandfather as of 12/31/07 (i.e., $18,611). However, the formal effective date of the regs is 4/5/07 which if I use the end of the limitation year that ends before THAT date I can only grandfather as of 12/31/06. Either approach will cover my big 2006 year but since 2007 comp was larger than 2004 comp I'd like to be able to do my High-3 for the 2005-2007 years and grandfather as of 12/31/07 if that is a reasonable interpretation. Any thoughts opinions ? Is this a grey area of intepretation or is it black-and-white to most of you out there.

I thought the Oct. 09 final regs addressed this but now I can't find a cite so maybe I'm wrong. Does expected HCE restricted distributions play a role in whether the actuary can assume the expected form of payment will be an annuity vs. a lump sum ? I have a plan that offers lump sums but about 50% of the benefits are for HCEs where the plan has never been well funded enough in its 30 years of existence, nor expected to be in the future, to pay out lump sums to the HCEs (this is an ongoing non-profit org plan that is not likely to terminate). There are no plans to increase funding levels. Given this expectation of restricted HCE payments on the bulk of the benefits do the Regs allow an assumption that the form of payment will be an annuity (i.e., restricted series of distributions over the lifetime of the HCEs) even though some lump sums will be paid to lower paid non-highly compensated employees. The AFTAP tends to range between 85-90% each year.

I assume if I amended the plan (1 man plan) to an annual benefit then I wouldn't have any issue using the annual mortality without further adjustment.

Plan provides for monthly retirement benefits and has lump sum option. Is there any argument for valuing the 415 limit using annual mortality instead of the usual m-1/2m adjustment to the annual annuity factor (times 12) for benefits payable monthly ? Plan is over funded so client is looking to max out everything. Thanks.

Thanks for the good input.

I know this is an old issue but does anyone take the position the IRC 415 high-3 limit cannot go down in present value after the NRA ? Example: Sole Owner/Participant has NRA of 62 and has 10/10ths of his High-3 Limit (which is less than the dollar limit) at age 62 but does not retire and does not electo take post-NRA in-service distributions. He later funds a large amount leaving the plan somewhat over funded and with economy downturn shortly after that he cannot increase his High-3 comp average. Thus, his highest PV of IRC 415 was at age 62. Is there any argument to preserving the IRC 415 High-3 Present Value at age 62 or must I use the PV at age 65 since his comp average did not increase after age 62 and the annuity factor at age 65 is smaller than at age 62. Thanks for any thoughts and opinions. Client might be inclined to be a little agressive if there is any arguement at all for the PV at age 62 but if that's clearly a 415 violation he'll use the PV at age 65.

My understanding is the same as yours but I'd love to be wrong. This is a problem every year when putting in new plans. You might almost consider starting the new client process with the starting question "Do you have an existing SIMPLE plan" and then introduce yourself after that.