ak2ary

retire...run out of work... same thing

My father, a professor of Mathematics at a northeastern university, retired at age 55, and it was quite common to retire at that age. Regardless of income...if the window is appealing enough..they jump through it...especially if they are employable elsewhere and get to start a new 415 limit. This is especially true of attorneys.

Probably an unnecessary clarification but.. You keep asking if they need to pass the average benefits test The answer is that they need to pass the average benefits PERCENTAGE test ... the third part of the average benefits test (In your case they pass the other two also, but don't need to.)

You have to be careful with retaining the GATT rate for lump sums post-PPA. AT the ASPPA annual conference lat year, and on several occassions since, the IRS has said that you may very well fail the requirement that the QJSA benefit be the most valuable benefit if you do this. The regulations provide that the only exception to the most valuable requirement is if the form is more valuable because of required use of 417(e) rates. The IRS has stated that if you use a different actuarial equivalence rate for lump sum benefits than for other actuarial equivalence (so that your "reasonable" actuarial equivalence interest rate that is used for showing that other forms of benefits are not more valuable than the QJSA benefit is a greater interest rate than your lump sum rates) and your lump sum rate yields a higher payment than 417(e) you have no protection and likely fail the most valuable requirement. I don't know of any cases in which this has been enforced, and there are more plans than you think which retained PBGC rates... but I keep hearing warnings getting fired by the IRS

If the "leased" employees are actually common law employees of the recipient and they are covered by the leasing company's plan, it is not automatically a multiple employer plan. It cannot simply be tested as amultiple employer plan or administered as a multiple employer plan. Those things only happen if the recipient employer is silly enough to sign on as a cosponsor of the leasing company's plan. It is that adoption that makes it a multiple employer plan. If the recipient does not adopt as cosponsor of the leasing company's plan, and the leasing company's plan covers employees that are later found to be common law employees of the recipient, the leasing company's plan is what is known as a disqualified plan for violating the exclusive benefit rule. (It covers participants who are not employees of the sponsor) Unless a company is 100% sure as to the validity of the leased status of their leased employees, they should treat them as regular employees. If you don't cover them, account for them in testing. Ignore the "sustantially full time basis" requirement and treat them as employees from day 1. If you want to exclude them as a class, test as you would to exclude any class. If you are 100% sure that you have a valid leased employee situation consider that, to be a leased employee you must satisfy a bunch of requirements One is that you cannot be a common law employee of the recipient Another is that you work at the direction and control of the recipient But if you work at the direction and control of the recipient, you have passed the IRS primary test for determining if you are a common law employee of the recipient So, to be a leased employee one requirement says you cannot be a common law employee of the Company and another requirement effectively says you must be a common law employee of the recipient Some companies understand how this works and do it well. PItney Bowes puts supervisors on-site with their workers, in essence taking over entire mailrooms. Kelly Services puts temporary employees on site (not the "former" employees of the recipient) and the recipient is not privy to how much the employee is actually paid, what the recipients benefits are etc.... I have also seen this "all of the doctor's old staff become his new leased employees" leasing arrangement and it almost never gets to the level of a valid leasing agrreement

Tom.. On your point, if you simply double or triple the coverage percentage of the second component plan by adding some of the older Group A NHCEs or subtracting some of the older Group B HCEs, you will likely still fail. The requirement for component plans is that they must pass coverage as if they were stand alone plans. Thus, if you are not going to pass the ratio percentage test, you must pass all three parts of the Average Benefits Test, including the reasonable classification test...so you can't just grab a few people...you need to grab enough to get to 70% or you have to make sure that you grab enough people to pass the nondiscriminatory classification test and the people you grab have characteristics that will cause the group covered under the component plan to be a reasonable business classification.

They are treated as completely separate plans, but not as completely separate employers! So, if the only "plan" the employer had was for Group B, would it meet coverage??? Your calculation indicates that it would not Assuming that's a best case calculation, I agree with your assessment. (Of course if 900 of the Group A NHCEs are otherwise excludable the answer might be different)

The PPA mortality table is much more expensive than the old table. The PPA table does not phase-in, only the interest rate does. SO in 2008 you get 100% of the more expensive mortality table and 20% of the less expensive interest rates and your result is likely going to be higher

If the plan is PBGC covered, they may have a different opinion, they said at an ALI-ABA conference earlier this year that if you terminate in 2007, even if you have a provision in your plan pre-termination that says that 2008 LS's will be on PPA rates, that you cannot recognize that law change for purposes of the plan termination and would have to pay out the GATT amount. This caused a huge contraversy and, while the PBGC has not backed off the position, they do not talk about it in public. Prolly won't matter though, since 2008 lump sums will likely be greater than 2007 lump sums, and you will have to pay the PPA lump sum to keep the plan qualified

That is correct

Treasury has announced they will not enforce QA 9 of 2007-28 and rather will follow proposed tech correction Attached is an email ASPPA is sending to members ASPPA Members: Treasury officials informed Congress yesterday that they will enforce the new PPA combined plan deduction limits under Internal Revenue Code §404(a)(7) in accordance with the language in the proposed PPA technical corrections legislation (H.R. 3361/S. 1974). Thus, Q&A 9 of Notice 2007-28 will not be enforced and, in a defined benefit/defined contribution plan combination situation, if the DC contribution was not greater than 6%, Code §404(a)(7) does not apply to the defined benefit plan. This is effective for the 2006 plan year and has two primary IMMEDIATE effects: · Employers who contributed in excess of 25% of compensation to their defined benefit plan (and in excess of Unfunded Current Liability) in 2006 based on an interpretation in conflict with Q&A 9 of Notice 2007-28 need not pay an excise tax; and · Employers who move fast for 2006 (who were previously limited by Notice 2007-28), have until tomorrow to increase their 2006 deductible contribution. Link to Sept. 13 Treasury Letter (http://www.asppa.org/government/gov_reg.htm) ASPPA was instrumental in securing inclusion of this solution in the PPA technical corrections legislation. We also addressed this issue with the Treasury and IRS in a May 14, 2007 comment letter (http://www.asppa.org/pdf_files/0514_2007-27NoticeFIN.pdf).

Would your answer change if this plan did not permit employer nonelective contributions? But I'll ask again...what does constitute a mistake of fact..if not this? The fact that an occassional agent may have argued that mistakes of fact are rare..In this case where it would seem that the employer would be able to document that the excess contribution ties exactly to the proposed mistake and the employer deposited the money because he thought it was the amount deferred by the employee...it is a mistake of fact..and if not, why not?

Which correction would that be...the suggestion made here is to forfeit the excess and "make it up to the employees outside the plan" First of all, there's nothing to be made up, as the money never came out of the employees' pay. Secondly, the solution is to then use the forfeiture account to pay for future deferrals which constitutes prefunding deferrals...illegal under the final regs. You don't correct one operational defect with another. Third while some of you may have run into individual auditors who disliked mistake of fact..the fact is , in this case, it appears to be the proper correction Finally, regardless of the definition of mistake of fact you care to like..Ken's point that the recordkeeper saying "one is a mistake of fact and two is an operational defect" is silly, is directly on point. The recordkeeper should do as they are told by the trustee and / or administrator

..and your cite that this is not a mistake of fact??? Its not an excess deferral to be forfeited because it was not deferred by the employee...the payroll company properly stopped the deferral at the 402(g) limit The employer made contributions to the plan based on misinformation that the deferrals had continued..the employer, from what I read, thought that the contribution made was equal to the deferrals of the employees. The facts upon which the contribution was made were wrong If not a mistake of fact then what is a mistake of fact?

Honestly. I don't think that I have ever heard Jim complain about that...but that doesn't mean much...he gives alot of talks I don't hear It seems to me that under (a)(4), 410(b) and (a)(26) in a frozen safe harbor plan that applies the 415 limit as of the eventual ASD, nobody is benefiting throughout the freeze...at least that's what the rules say. Perhaps Mr. Poje could add this to the list of DB questions at ASPPA annual?

a frozen plan, which provides 415 increases post freeze and tested the 415 limited benefit pre-freeze, does have to be tested uncder 401(a)(4)..you just never get there cuz you failed 410(b) and 401(a)(26). but a safe harbor frozen plan with 415 increases may not need any testing at all...

Andy--- I hope I didn't say what you wrote. If anything, I would argue that in a safe harbor plan, the total benefit is already taken into account and 415 increases could be recognized ( but I haven't looked that closely) .. of course if 401(a)(17 changes are recognized post freeze you have actual benefit accruals If the plan was unfrozen (for 415 only) after years of being frozen is an interesting issue..there are timing issues under (a)(4) probably... but it kinda seems doable off the top of my head

While you could, I think, have a freeze that allows 415 increases (limited to the actual plan-formula benefit) , you better pay attention to 1.410(b)-3 and corresponding 1.401(a)(26)-5. Essentially, if you have a general test plan that limited benefits to the 415 limit for purposes of the test, then for 410(b) and 401(a)(26), increases in the 415 limit are benefit accruals and those who receive them (likely HCEs) will be benefiting for the year of the increase. This would likely cause both a 410(b) and 401(a)(26) failure in small plans. I think the service would also raise this issue if the plan counted yrs of service or participation during the period between freeze and ASD for purposes of the ten year phase-in.

Even if the administartion is perfect, you cannot eliminate an actuarial increase on a previously accrued benefit without violating 411(d)(6) ... (and the Heinz decision) You could eliminate the actuarial increase with respect to future accruals, except that you will blow the suspension notice...everybody does. Keep in mind also that, at age 70.5, you must begin actuarial increases even if the suspension rules are followed perfectly

Unless the plan tracked or could track the uniform portion of the prior account balance and use only that portion for the offset, I think you've got problems. You could start to track future contributions in a different bucket... I don't see how you could use the entire balance as an offset

This is why I was surprised by the memo. Both Jim and Marty have said at conferences over the past year or so, and in preconference meetings, that they believed that they were allowing the partial offset and seemed to give the go-ahead to the design. The question of course, then, is why does the memo bring up "uniform and reasonable" and imply that it is a somewhat limited definition.

The problem is that the only reference you give that allows a partial offset is 401(a)(4) {partial in terms of part of the participant's benefit as opposed to some participants and not others}. We are looking solely at whether to test 401(a)(26) by considering the gross benefit before offset or the net benefit after offset. This looks at the definition of concurrent offset under 401(a)(26), which says (among other things) that unless the participants benfit under the offsetting plan on a reasonable and uniform basis, you must test the net benefit There is no question that it is legal to offset by a portion of the account balance...it just looks like, in the IRS' eyes, you may be forced to test for 401(a)(26) AFTER the offset, Thus, anyone whose net benefit is zero or less than a meaningful amount, would not be benefiting for 401(a)(26) purposes

I don't think we have anything that remotely resembles an answer to this. In fact the IRS has been asked if similarly situated includes "name" and have begged off the question saying that they have only begun to work on cash balance guidance and that this is not on their list. It would be ridiculous finding that all plans other than hybrid db's can have different formulas for different peeps...by name...and that clearly is not what is intended. I would argue that the benefit formula under which they are covered is clearly an "other relevant factor".

Just read page 2...sorry I agree that the determination is based on how the employees actually benefit...not on how the employees could potentially benefit. So if you have different allocation classes for different groups, but all the classes get a 5% allocation, they would, IMHO, be benefiting on a reasonable and uniform basis. Attached is the full memo FloorOffset_A_26.doc

Given that this issue has been in for tech advice, and that the national office is keenly aware of it; and given that it has been far easier, apparently, to get a DL on the west coast with respect to the "portion of the DC" offset than on the east, the timing of this memo seems to imply that the IRS isn't buying into this offset. Otherwise why would they publish this memo now? If it was just to say that the offset has to apply to both HCEs and NHCEs, they could have left the uniform allocation comment out. So I agree with Blinky...I would also agree that an integrated allocation is uniform