JAY21

I'm still working my way through the final regs published on 10/15/09 as time allows. Does anyone know if the final regs provided any guidance on short plan years and the impact on minimum funding ? Thanks in advance.

Anyone have any thoughts on why Option A above is superior to Option B ?

AndyH, I guess I'm still missing what the practical difference is between option A and option B. Both fund for the same benefit at age 55 (one via a subsidized ERA) and neither has an in-service distribution before age 62. I agree that option A looks more "cosmetically correct" in showing an NRA of 62 but the bottom line for both scenarios for funding (assuming 100% probability of retiring at 55) and in-service appear virtually the same. Is there any other reason for reasonable retirement ages OTHER than funding and in-service distributions ?? Am I missing some other compelling issue that deals with using a reasonable retirement age ??

So if there is still value in using age 62 for reasons OTHER than in-service distributions why is it ok then to fund for a 100% probability of an early retirement age of say 55. What's the practical difference between this and say a plan with an NRA of 55 but does not allow for in-service distribution. For Example: Option A: Plan has an NRA of 62 and in-service distribution option at age 62 and an ERA option (no in-service) with fully subsized benefit at ERA of 55 (no in-service distribution option at 55) and assumes a 100% probability of ERA being taken and thus funds for an ERA of 55 (fully subsidized benefit). Option B: Plan has an NRA of 55 but no in-service distribution option whatsoever. Sounds like the comments suggest Option A is the better way to go ?? I'm not sure I'm seeing a lot of difference here, what am I missing ?

I think I'm ok with this but just want to make sure. 1 man plan is only 70% funded. He's past NRA and wants to take in-service distribution (assume final regs on in-service distributions are met). I believe the 1.401(a)(4)-5 restrictions on pre-termation distributions (110% funded rule) would not be required here as with no NHCE or even other HCE to be concerned about he can essentially waive that rule, correct ? If so, then he'd be left with only the AFTAP restriction in which case he could only distribution 50% of his lump sum (up to the PBGC max benefit). Any disagreement ?

It sounds to me like the regs just issued on 10/15/09 allow for a change in valuation date to any day of the year for the 2008, 2009, and 2010 plan years, so I say you can do it.

A rare plan that is still over funded in this market is interested in using the qualified replacement plan (Profit Sharing) approach under IRC 4980(d). They will meet all the requirements (e.g., 95% of current participants will benefit, 25% or more of the excess will be transferred). Logistically, since they are moving over a portion of the excess assets not attributable to any particular participant, so it's not all participant rollovers, does this then necessitate filing Forms 5310-As with the IRS giving the IRS a 30 advance notice of the transfer of excess assets ? Thanks in advance for any opinions.

There is an exception to the unrelated business income tax for real property rental income in qualified plans (and presumably IRAs as well) for most situations, though certain debt-financed property, if the mortgage is not a standard mortgage type, can trigger the UBIT rules.

Anyone who quotes "Dune" is ok with me. Thanks Belgarath.

Thanks Blink.

I noticed that our plan document provider's Post-EGTRRA "Good Faith" amendment (needed to be adopted by 12/31/09) seems to have the following options: 1. Just change the in-service distribution age to 62 or later but not the actual NRA for other purposes. 2. Change both the NRA definition and the in-service distribution age to 62 or later. I'd like to make as few of changes as possible while still complying with final phased-NRA regs. For the few plans with NRAs of say 55, that may lack supporting industry data for 55, would keeping the NRA at 55 but changing ONLY the in-service distribution age to 62 or later meet the IRS concerns (ie., they would only get a distribution at age 55 if they physically retired) ? Or are there other reasons I need to be concerned about changing the NRA to 62 for to be in compliance ? (you can assume I don't want the change for funding purposes) Opinions ? Thoughts ? Thanks in advance.

I wasn't expecting an automatic change in valuation date to be allowed for 2009 but if I'm reading the final regs correctly it appears to offer such for 2008, 2009, and 2010. I'd appreciate any confirmation and other interpretations to the following questions: 1. So a plan using an End-of-Yr valuation date through 12/31/08 has automatic approval to change to a Beg-of-Yr val date as of 1/1/09 ? 2. Do you interpret this as being a multi-year option for years from 2008-2010 so in theory could you do a EOY-Val for 12/31/08, BOY-val for 1/1/09, then back to a EOY val for 12/31/09 ? Kind of an extreme example but just trying to flush out the full scope of options available. See attached for the section I'm talking about (red-boxed section). Valuation_Date_Change_Final_Regs.pdf

Client has over funded plan (believe it or not) based on his high-3 compensation avg from the sponsoring entity (he's at his high-3 415 limit but far below the 415 dollar limit). He recently mentioned he has another entity he also owns 100% of (no employees now or previously) that he used to draw compensation from (apparently at higher level than the sponsoring entity of the DB plan) that is still an active corporation though little activity is going on there now. Anyone see any problems with me amending the overfunded DB plan to count compensation from both entities for both the plan's def'n of compensation for benefit accruals and for IRC 415 purposes. In fact I believe th def'n of 415 comp is based upon a controlled group basis, and this certainly is, as he owns 100% of both entities. This doesn't seem particularly aggressive to me but the stakes are high so I just want to make sure I'm not over looking anything. Do you think it would be helpful to have the other entity sign a co-adoption agreement to co-sponsor the plan ?

I can't give you a cite for it but at a recent ASPPA conference this summer in one of the discrimination testing sessions it was mentioned that the IRS is willing to consider the 3-year cliff equivalent to the 2/20 vesting schedule so that the DC plan wouldn't have to change to the 3-year cliff. Again, just the presenter's view but he sounded up on the subject.

PPA 2006 allows you to use any Val date for the 2008 plan year.

A safe-harbor 401k plan is "deemed" to not be top-heavy under the 401k safe-harbor rules. The 3% non-elective safe-harbor may or may not cover top-heavy anyway (assuming pre-participation comp not excluded) but it's not needed if the plan isn't top-heavy due to other additional profit sharing contributions. I don't see where the facts that you mention bump you out of this "deemed not top-heavy" status that safe-harbor 401k plans offer. I agree with Andy that the DB funding is irrelevant to the top-heavy issue. I think you are exemption from top-heavy as long as the DB plan remains frozen and as long as you don't have other non-safe harbor profit sharing contributions.

Andy I don't know that it is aggressive, just not sure that's it's not. I like the approach but before I buy into it wholesale it's helpful to get some input from others.

I know this has been discussed before, but how aggressive do you feel it is on say a 1 person plan (new plan) to use an NRA of 62, and a ERA of 55 with the ERB fully subsidized at 55 with a 99.99% funding assumption that the owner will take the ERB at 55. Does this sucessfully weave through the concerns of the IRS on post-NRA distributions being done on a reasonable NRA (in this case 62) but still allow us to use 55 for funding ? I'd appreciate a few votes. On a scale of 1-10 with 10 being VERY aggressive where do you put this strategy ? I "think" the IRS has verbally offered some support for this strategy, or at least not kaboshed it outright, but correct me if I'm wrong.

I wouldn't necessarily be suspicious that there is something wrong given the actuarial firm's response. It's likely they just consider an IRS Submission to be a hassle (which they are). Still the actuarial firm certainly needs to be looking out for the client's best interest (not theirs).

Belgrath's comment is what I'm seeing the IRS do also (treat it as if it's a traditional DB plan from the get go and use the cash-value or interpolated reserve of the policy as being the side-fund assets). Don't be afraid to use low interest rates like maybe 4% when re-calculating on this basis. There isn't a magical 5% limit on funding assumptions and I do think they (IRS) might even allow a salary scale if benefit formula is pay related. They truly almost seem to be ignoring the 412i plan document and just treating it (for funding) as a traditional DB plan with all the normal funding assumptions you might use.

I'd be surprised if the IRS is doing the death benefit limit using the Rev. Ruling 74-307 themselves. You might need to do that calc for them, provide the Rev. Ruling, and have them reconsider. We have a handful of 412i plans and the few audited it seems like the IRS considers them "guilty" until proven "innocent", and innocence is considered extremely unlikely.

I agree with Andy but the IRS did seem sympathetic to allowing this at the WPBC/ASPPA conference in Denver in late June, so I think the odds are good we'll get that approval to change for 2009, just can't assume so just yet.

I agree with David. The paper trail if the business owner did it (correctly) would be likely be (1) take out home equity loan personally, (2) make loan to the business of some/all of the home equity loan proceeds (look for supporting loan documents), and (3) the business then contributes the money to the pension plan. If he went through those steps, in addition to David comments, it might be tough to challenge him on this. If the business is not incorporated this transaction could be a bit murkier to track in my opinion without the clear dividing line of corporate accounts vs. personal asset accounts.

Thanks for the good info.

I can't remember when the Volume Submitter DB restatement cycle begins though I think it is in 2010. Anyone know ?