ak2ary

I must be missing something.... The proposed regs say that you cannot recognize an amendment adopted after the valuation date for determining the funding target or target normal cost. They also say that 412(d)(2) {the PPA nomenclature for 412©(8)} controls the date that the amendmemt is deemed adopted. So an amendment adopted upto 2.5 months after the end of the plan year could be considered adopted as of January 1. So assuming the employer makes a 412©(8)/412(d)(2) election; the amendment will be an amendment effective during the plan year adopted no later than the valuation date for the plan year and clearly would be taken into account. In your case then, since I assume no one is expected to get 1000 hours before the freeze date, you will have a zero target NC I have heard several people give the same opinion as you have on this issue, so I wonder what I am missing

So HCE 1 terminates employment in January and requests a distribution. Standard practice for the plan is to distribute within a couple weeks of the request. But for this HCE, we're not payin til we have the ADP test done whch may be in July, October, December, next year all at the discretion of the plan sponsor. I think thats a 411(d)(6) violation. Process the request in the normal course of business and adjust the 1099 later, if necessary. If you believe it may be a couple weeks delay, the plan sponsor can ask the participant if he wants to hold up until the tax ramifications are clearer, but you can't take away the participants rights.

I am holding out hope for some intervention...although I hesitate to characterize it a divine

I agree with Jim...even if the salesman also terminated with less than 500 hours, if he was in an ineligible class but satisfied 21&1, he would not be excludable ... that, I think, is the point of the word solely (although the IRS is very quiet about the reason for "solely ") I wouldn't be concerned if all the employees were eligible to share in the contribution but terminated with less than 500 hours and did not share due to a last day rule. In that case, they are all excludable for the year

While I see your point, it is hard to believe that the IRS or DOL would argue that adding a window to elect another form of benefits creates a detriment when, in fact, it creates an opportunity. If this was the case, then every early retirement window ever offered would create the same detriment...

I didn't get that from Holland's response. My understanding is that, based on comments that Treasury reps had made, there would be some transition allowed where you could pay the greater of PPA and GATT rates and then get rid of GATT rates without a 411(d)(6) problem. But I didn't hear him say that you could wait to amend until 2009 and would be shocked if that happened (of course I have been shocked before and likely will be again). The treasury response came when asked about plans that currently have qjsa notices out with respect to benefits with an ASD in January. They don't want to pay the lesser PPA lump sum and have the employees complain, but they don't want to create a protected GATT benefit by continuing to pay a GATT benefit in 2008. The treasury response, I understand, was that plans making reasonable transitions from GATT to PPA shouldn't worry that they will get snared by a most valuable or 411(d)(6) trap. My guess (and it is pure guess) is that the regs will allow a short transition period from GATT to PPA and that you will need to reference the PPA rates (which BTW are simply the applicable interest rates and the applicable mortality table, so your plans may already be covered) before you can pay PPA benefit

I agree with RCLINE, assuming the plan is terminating. Holland said that a plan that terminates in 2007 never becomes subject to PPA and thus does not have to comply with the PPA 417(e) provisions I don't read this post as saying the plan is terminating, however. In that case, Bill Bortz said at an ERIC meeting that plans that used a reasonable transition from GATT to PPA would not have to worry about most valuable benefit rules or 411(d)(6) just because they used GATT for some period of 2008. Holland at ASPPA said that someone from Treasury had publicly indicated that there would be some transition, so Jim assumes there will some over-lap period allowed. But that long term, on an ongoing basis, retaining GATT rates causes a most valuable benefit problem

If the teenagers are the owners kids I agree If the teenagers are NHCEs they help...alot...sometimes

Did you ever see what a 3% or 5% contribution to a 15 year old file clerk who makes 1000 bux does to cross tested results...especially the average benefits test? The owners kids are what kills the test...

401(a)(26) must be met by the cash balance alone unless the cash balance/new comp combo is a floor offset arrangement that meets the definition of concurrent offset. In that case the cash balance benfit would still be examined alone for 401(a)(26) compliance but it wouuld be tested on the gross benefit before the offset

The right to defer receipt of the benefit is a 411(d)(6) protected benefit that cannot be eliminated at plan termination (with certain exceptions for PS plans). Just because the plan is terminating, you do not get to eliminate optional forms, either immediate or deferred. You cannot force a QJSA down people's throats and you cannot eliminate the ability to defer payment and, at that deferred payment date, elect from the entire menu of optional forms including lump sums. So, if you don't hear from people, you have to purchase an annuity contract that retains all their plan rights, including the right to a deferred lump sum..which is expensive and hard to find. If the lump sum was not an optional form under the plan but rather was added at plan termination, you may have additional options and it may depend on whether the plan was PBGC covered. First, you shouldn't amend the plan to provide lump sums "upon plan termination" ... this adds a 411(d)(6) protected benefit. Your amendment should clearly add a window in which a lump may be requested and commence ...for say, 6 or 9 months following the plan term date, If you do not request the lump sum during this period (in which an immediately commencing QJSA must also be offered) the window closes and the lump sum does not have to be part of the annuity contract. Make sure you satisfy the BeRF current and effective availability rules when you do this. There have been rumors that certain PBGC reps are arguing that the closing of the window constitutes a post-termination amendment reducing benefits, which, under PBGC rules, is prohibited. I have heard that they have forced people to make the LS permanent. I think thats a ridiculous stance, but the PBGC is auditing just about all of the terminations, so tread lightly....

you have to use the plans interest credit rate to determine the normal accrual rate you have to use a standard rate (7.5-8.5%) to determine the most valuable accrual rate So you don't use the 7.5-8.5% to determine any plan benefits, but if youare running the general test, on a benefits basis, you have to use 7.5-8.5% to determine the MV accrual rates for testing

Well, assuming the general test the normal accrual rate will be determined by projecting to NRA with the plan's interest credit rate (then to testing age if different with a standard rate) The most valuable rate will be determined by calculating the QJSA benefit payable at current age (assuming interest credit is less than 7.5-8.5), normalizing it to a life annuity at testing age using a standard interest rate (7.5 to 8.5%) Unless the plan's interest credit rate is somehow related to the segment rates, segment rates have nothing to do with testing (Having said that some plans may try to approximate the effect of the yield curve for purposes of their interest credit rate to prevenet "funding whipsaw")

The general test?

Was the RASD formally in the plan document or was it an administrative policy?

I would argue that managers is a reasonable business classification and, as such the goal was not to ... limit participation to only the shortest service and lowest paid NHCEs while excluding the other NHCEs... and you're fine, in any document. The problem appears to be exclusions by name who happen to be oldest or highest paid NHCEs or exclusions like I described earlier where you only cover the minimum number you need to and guarantee its the cheapest group by pay. Nevertheless, I agree its stupid, but again, they limit it to pre-approved so that if you want to use this language, you have to get an individual letter so they can look for abuse. Otherwise a word for word adopter of a vol submitter using the language I described earlier could say, "whaddya mean this is abusive...I have a DL on it."

Its not good..In fact, its bad (which is another word for not good) Keep in mind that the warning is for pre-approved documents and does not place any restrictions on individually designed documents. I believe its meant to enforce in some way the anti-abuse provisions in 401(a)(4). In your case, you are not covering " only the shortest service and lowest paid NHCEs while excluding the other NHCEs". In fact rather than excluding the other NHCEs you are covering more than necessary....(albeit just one more than necessary if you don't have a reasonable class). I have run into three plans where the eligible class of employees was described in the document as "5% owners and the Low-paid Group of employees"...the Low Paid group was defined as a process...line up all nhces in increasing pay order for the year, add the lowest paid employee to the plan, test the plan for 410(b) and 401(a)(4)...if it fails, add the second lowest paid employee and so on and so on. I would imagine that they would like to preclude preapproved status for this design

I believe that, assuming the same covered employees in both plans, the entire contribution is deductible. That is, only the amounts in excess of 6% of pay from the DC plan will be counted toward the 404(a)(7) limit

Tom, what are you referring to by "the reg relief for most valuable benefits only applied to increases required under 417". Are you referencing the (at least to me) elusive TAM of last year? Or something else? 1.401(a)-20 Q&A 16 Q–16: Can a plan provide a benefit form more valuable than the QJSA and if a plan offers more than one annuity option satisfying the requirements of a QJSA, is spousal consent required when the participant chooses among the various forms? A–16: In the case of an unmarried participant, the QJSA may be less valuable than other optional forms of benefit payable under the plan. In the case of a married participant, the QJSA must be at least as valuable as any other optional form of benefit payable under the plan at the same time. Thus, if a plan has two joint and survivor annuities that would satisfy the requirements for a QJSA, but one has a greater actuarial value than the other, the more valuable joint and survivor annuity is the QJSA. If there are two or more actuarially equivalent joint and survivor annuities that satisfy the requirements for a QJSA, the plan must designate which one is the QJSA and, therefore, the automatic form of benefit payment. A plan, however, may allow a participant to elect out of such a QJSA, without spousal consent, in favor of another actuarially equivalent joint and survivor annuity that satisfies the QJSA conditions. Such an election is not subject to the requirement that it be made within the 90-day period before the annuity starting date. For example, if a plan designates a joint and 100% survivor annuity as the QJSA and also offers an actuarially equivalent joint and 50% survivor annuity that would satisfy the requirements of a QJSA, the participant may elect the joint and 50% survivor annuity without spousal consent. The participant, however, does need spousal consent to elect a joint and survivor annuity that was not actuarially equivalent to the automatic QJSA. A plan does not fail to satisfy the requirements of this Q&A–16 merely because the amount payable under an optional form of benefit that is subject to the minimum present value requirement of section 417(e)(3) is calculated using the applicable interest rate (and, for periods when required, the applicable mortality table) under section 417(e)(3).

Mike, I absolutely agree..I was commenting on the concept of the board approving the general adoption of a plan

Resolution to adopt a plan doesn't work... the plan itself must be adopted by the last day of 1st plan year

Holland Wickersham Pippins and probably others have all said at EA conferences that I attended that 417(e) includes a mortality discount pre-retirement, regardless of the plan's pre-retirement death benefit. They have also said that you didn't "have to" use mortality because using interest only would yield a higher result and the 417(e) result is a minimum. Of course that was before the reg relief for most valuable benefits only applied to increases required under 417e....I am checking the grey book to see if it is in writing and will see if there is a similar way to search ASPPA QA questions (ie Ask Larry Starr or Tom Poje)... Its interesting that you refer to the plan doc rather than the death benefit. The rules compare the results of the 417(e) calc to the results of the plan rates, The fact that the plan has a zero "q" for all pre 65 ages in its actuarial equivalence shouldn't change its 417(e) result, to my knowledge. However if for 417 purposes the plan says that if the form of benefit is a form subject to 417 that the result will be no less than if the applicable mortality table and applicable interest rates replaced the interest and mortality table in the actuarial equiv section, then there is prolly an arguement that the plan requires the no-mortality 417(e) calc, but that woulfd be a plan requirement not a 417e requirement Assume two plans identical except that plan 1 has actuarial equivalence of 5% interest; post ret mortality 1983 Iam; pre-ret mortality none Plan 2 has a table of conversion factors for all forms at all possible ages based on the identical assumptions.... The 417(e) benefit for these two plans has to be the same....doesn't it??? The QA at ASPPA annual will address the most valuable question and, as a follow up, I will ask this specific question. Most of my small plans do not apply mortality in the 417(e) calc and are specifically written that way and I am concerned that they will (or do) have most valuable benefit issues. Anyway to answer your questions...I'll try to find it in writing, but have heard them say it many times Not a PPA issue...they've said it for years

The IRS has been pretty clear that the 417(e) benefit is the value of the retirement benefit only. That is, you do not have to value any ancillary benefits pre-retirement to determine the minimum lump sum. Thus, for 417(e), you are not valuing the possible intervening payments, even if the plan has a PVAB death benefit. In fact, you may violate the most valuable benefit rules if you don't apply mortality to all payments in determining your 417(e) benefit Having said all that, I disagree with Kevin's calc Calculate the present value at NRA with 12 monthly payments discounted at the second segment rate and the remainder of the expected payments discounted at the third segment rate. Then discount back to the distribution date using the second segment rate? You do not discount all the payments to the NRA at the applicable rate and then discount to payment date using the rate applicable to NRA, rather, in his example, you would discount the first twelve payments from expected payment date all the way to distribution date at the second segment rate and you would discount all the later payments from expected payment date to the distribution date at the third segment rate In other words it is the PV as of the distrib date of a temporary life annuity for twelve months starting at age 65 using the second segment for all calcs plus the PV as of the distrib date of a life annuity at age 66 using the third segment rate for all calcs both of these PV's appear to require pre-retirement mortality

Not yet...last I heard was end of October for Cash Balance guidance... but its political and you never know

I have heard rumors that the mortality table will most likely be, as Mike described, the 430 table blended 50/50 m/f to form a unisex table... this would lead to generally higher lump sums