JAY21

Do we have guidance on how a rollover account in a DB plan is treated for 401(a)(9) calculation purposes. The calculation for the DB accruals is different now than for a DC account balance (years ago there was some support for calculating them on the "account balance" method). So does a rollover from an outside plan within a DB plan get treated like a DC account balance for the calculation rules ?

I'm having a hard time seeing a big niche for these plans. Maybe a husband and wife only plan (need 2 employees for the DB-k), or with only rank-and-file 1 employee, but as soon as you get a few employees a better plan design than the DB-K will save more on employee costs than the purported reduced admin cost of the DB-K. I didn't see any commentary on the plan doc requirements so some type of prototype doc would certainly be helpful. Seems to be about a half-step up from the SEP/SIMPLE level.

Thanks.

Form 5500 has the Schedule R which asks the question whether there was an election made under IRC 412(d)(2) [previously 412©(8) for retroactive amendments]. Since the 5500-EZ does not have a Schedule R does the 412(d)(2) election still need to be attached to the annual return (Form 5500) as explicitly required with the Form 5500 per Schedule R instructions ?

I'll take a shot at this and given my opinion. 1. A DC plan cannot have a subsized spousal benefit that I can see. 2. Treas. Reg. 1.401(a)(4)-9(b)(3)(ii)-Effective Availability of DB/DC benefits states: The fact that a benefit may be difficult or impossible to to provide in a benefit, right or feature under a plan of a different type is one of the factors taken into account in determining whether effective availability has been met. 3. A subsidzied J&S benefit under the DB plan will have it's value reflected and tested in the Most Valuable Accrual Rate (this is not a b/r/f test, so it doesn't settle the issue but still the subsidy value is being tested so it's not a free pass). 4. I'd probably test "within" the DB plan only for this b/r/f feature (since DC plan doesn't have a subsidy) and even though plans are tested as 1 plan for b/r/f the fact that one plan doesn't have the ability to offer such feature, I think there is value in proving that within the 1 plan that can offer such a feature (DB) the "current available" and "effect availablility" test has been passed. Given 1-2 above, and If I passed 3 & 4 I'd consider it non-discriminatory.

I believe Jim Holland said at the recent Denver ASPPA/WPBC conference that guidance on this issue was forthcoming and that he thought "we'd like the result". He also said that Rev. Ruling 80-229 is still valid (deals with under fudned plans). I got to think that means they won't be taking too hard-line of an approach on the <80% AFTAPs and plan terms, but who knows for sure. Personally I would pay out if that 4044 language is in there and also hang my hat on the above Rev. Ruling.

436(j)(3) discusses how the AFTAP transitional rule allows for plan years 2008-2010 to calc the FTAP without a reduction for the credit balance if greater than a certain transitional % instead of the normal 100% rule (2008=92%, 2009=94%,2010=96%), but ONLY if each preceding plan year was not less than the applicable percentage (emphasis added on this last part). Was there anything in the technical correction bill (WRERA) that modfied and soften this "preceding plan years ALL must also be over the transitional % for those years" ? I thought I remember something being modified on this preceding years requirement via technical corrections, but I could easily be wrong, or maybe there was something that only applied to shortfall gain/loss calculation. Thoughts/opinions appreciated. thanks.

Also, I don't think everyone has to have life insurance in the plan. It's a benefits, rights and feature that must be tested for discrimination but depending on the number of employees in the plan, and those that have insurance vs. those that don't, you might still pass even if this person doesn't get it.

One option would be to put in multiple formulas and only put the child (age 30) in at 0.5% accrual rate (don't have to have the same benefit formula for owner and child). That obviously doesn't totally exclude the chlid but at least it keeps the costs very modest and passes 401(a)(26).

Any chance they could keep the child's hours of service below 1000 so the child is an excludable employee from testing.

David, I suppose you're right on the val date changing to 10/31/08, but the issue then is still the same. To me if there is an accrual there is a normal cost, but with no assets or participants in the plan as of 10/31/08 is it ok to show $0 normal cost though there was an accrual ?

Facts (simplified): Calendar Year Plan terminates 8/31/08 All assets distributed by 10/31/08 Valuation Date: 12/31/08 I don't believe I am required to change to a BOY-Val. If I don't, is there any reason I can't just show zeroes (0's) on the Schedule B since my Fair Market Value of assets is $0 and my benefit liabilities as of 12/31/08 is $0 too ? The only reason I question it is that I had an accrual for 2008 which would produce a normal cost but on 12/31/08 all benefits and liabilities are $0. I don't think it would make sense to show a normal cost on the Schedule SB if all assets & liabilities are paid out before 12/31/08. Any thoughts ? Is this another "no current guidance" question ? If so, opinions are still appreciated.

I think someone posted that the IRS verbally at least has said they don't have a problem with using NRA of 62 for distribution (in-service) purposes combined with an early retirement age of say 55 where the actuary assumes the participant(s) will retire at the ERA, anyone have any more thoughts on whether this might fly ?

I've had the same problem. Here is a pretty good article I found that may help, though the source of the article isn't a household name. Minimum_Required_Distributions_2009.pdf

If 2008 AFTAP (using 2007 data) was above 80% but when preparing the 2008 schedule SB you can "see" your 2009 AFTAP (using 2008 Sch. SB data) will be below 80% and burning the CB will bump AFTAP back above 80% (less restrictive category); Do you burn the 2008 CB before using any CB to reduce the 2008 minimum funding ? OR Do you burn the 2009 CB before using any CB to reduce the 2009 minimum funding ? Assume 2009 AFTAP not formally prepared or certified yet if that makes any difference.

I believe each separate annuity contract specifies the participant (beneficiary) to whom it belongs to and that is their actual accrued benefit with no further calculation (except a top-heavy check must be done to make sure it's greater than top-heavy if the plan is top-heavy).

I would think it would enjoy the same protection. I think the bankruptcy code (revised a few years ago) references "qualfied plans" vs. whether the plan had a trust or not.

Looks like you are both right that a 412i can have a trust through which the policies are purchased. Treas. Reg. 1.412(i)-1(b)(2)(i) and Treas. Reg. 1.412(i)-1©(2)(i). I'd make sure the IRS knows this and point out the trust was adopted timely and per the prior Rev. Ruling 81-114 previously cited does not have to have a corpus (be funded) by the end of the plan year to be a valid trust.

Well that sounds like you have a better arguement then with the IRS since the plan contains a trust and the trust was effective timely. Sounds like the IRS believes (like I did) that a 412i doesn't have a trust and thus they look to the insurance contract effective dates, let us know if you are able to prevail by using the trust's effective date.

I guess the main point is that a 412i does not have a "trust" by definition of what a 412i plan is.

Rene, the adoption agreements I've seen (mostly Datairs) has a box to check whether it is a 412i plan or not and then the trust section doesn't apply. Maybe yours is the same in that if you check the box the "trust" part isn't being used. However, it does still seem to leave you in a pickle: (a) either a trust was established timely but then no vals/Bs were done since it then wouldn't be a true 412i plan (just traditional DB plan with lots of insurance), OR (b) a trust was not established because it was a 412i plan (by checking the 412i box insurance contracts are in lieu of the unused trust) but then you have your original problem of the contracts maybe not being timely adopted. Don't mean to be doom-and-gloom just trying to understand the IRS position and also help think through the different positions the IRS might take.

As a side note it's interesting that a 412i plan had a trust doc component. I thought a 412i plan did not have a trust per se (just insurance contracts) so it's possible that by showing that Rev. Ruling (81-114) and showing them the trust docs that they (IRS) may say that it wasn't a true 412i plan but rather a traditional DB plan with insurance in the plan. Then they would next say where are the Schedule B's for those years and the Actuarial Valuations for this traditional DB plan with lots of insurance in it. Not trying to make life more complicated, just noting that going down the "hey a trust was established" road might open up other areas of attack.

So the plan was effective properly for the 2/28/00 plan year but since the plan document did not include a "trust" component (since it's a 412i plan) the 412i policy/contract itself "serves" as the equivalent of a trust and it was not properly adopted (apparently) by 2/28/00. Did I get that right ? Trying to follow the IRS analysis here.

Somewhat related question, does anyone have a problem with a terminated plan that paid out during the year still using an EOY valuation date which would then be mostly zeros (0's) on the Schedule SB (assets=fmv=$0, tnc might be $0, depends). I almost feel more comfortable changing to a BOY val but then I'm not sure there is anything wrong with an EOY val/Schedule SB with mostly zero's though the funding target would disappear under this approach since no benefits in the plan as of Val date. Thoughts ?

What type of "discrimination" is a HCE going to bring if it's not an age-discrimination suit ? I assume no "younger" HCEs have been provided with escrow opportunities. That said, I realize anyone can try to sue for anything, but such a suit would seem pretty weak to me.