ak2ary

BTW- If you go back to ASPA classes I taught 3-4 years ago, I am sure I also taught the lump sum approach

Mu understanding is slightly different than each of yours Consider 2006 Assume the max deduction absent the DC is the amount necessary to bring the plan to 150% of CL Assume that amount is 75% of pay Assume the DB minimum 22% of pay If the DC contribution is 6% or less, 404(a)(7) does not apply, the 6% is deductible and the max DB contribution is 75% of pay If the DC contribution is 8% of pay, 404(a)(7) applies, 2% of the 8% applies in the 404(a)(7) calculation making the maximum DB deduction 23% of pay If the DC contribution is 10% of pay, 404(a)(7) applies 4% of the 10% applies in the 404(a)(7) calculation, the maximum DB is 22% of pay (to meet min funding), the max DC deduction is 9% out of the 10% to satisfy 404(a)(7) But, yes, we need guidance

Once you get to 417(e) being ignored, the question of valuing the lump sum or the QJSA still remains, but really only matters in a combo plan situation. Assume a 5% AE rate Normalized L-S= QJSA x (5%QJSA-APR at attained age) x (1.085^FS) / (8.5% Life-APR at testing age) Normalized QJSA = QJSA x (8.5% QJSA-APR at attained age) x (1.085^FS) / (8.5% Life-APR at testing age) Since the 8.5% APR at attained age is smaller than the 5% APR the resulting MVAR for the QJSA benefit is going to be smaller the the normalized Lump sum, but in a standalone DB the make-up of the rate groups is likely the same. In a DB/DC combo however, using the QJSA yields a lower MVAR and hence de-values the DB benefits (usually provided to HCEs) versus the DC benefits (usually provided to NHCEs), This allows for greater DB benefits. As I said, both Jim and Marty have personally told me that you should use the QJSA and "You can't get into trouble if you follow the reg". They are aware that some field offices were questioning the QJSA versus lump sum, and they have looked at the issue. As far as a TAM, it seems to me that it would only mimic what the regs already say

Interestingly, the IRS has apparently adopted the position that it will not pre-approve plans (e.g. volume submitter documents) that allow an unincorporated employer to have a new comp pln in which a single participant/owner/partner is his own allocation group. So in a volume submitter plan, at least, a sole prop with employees can not be in a separate allocation class than his employees, if the contribution per class is discretionary

You might be a little concerned if Lab Assistant A is the oldest NHCE, as to whether the IRS/DOL would look at age discrimination. This type pf attck is often rumoured but, in my experience, rarely if ever used.

I would be concerned about an assumption that PPA would allow a deduction of 150% of EOY CL. Beginning in 2008, the max deduction will be unfunded target liability at the beginning of the year, plus NC for the year, plus a cushion of 50% of target liability plus an anticipation of future salary increases. It is very clear that the 50% cushion is based on target liability at the beginning of the year. This issue was raised with the house and Senate many times and, apparently the current year normal cost was intentionally left out. Now, the 150% of CL limit includes no adjustment for potential pay increases, if I remember correctly, so it is different and it may look to an EOY number, but I would hesitate to just assume that.

[in general, it is a qualification requirement that the QJSA benefit be the most valuable benefit under the plan. This means that no benefit form can be subsidized when compared to the QJSA. Thus, other tha for 417(e), if you have a six percent reduction for lump sums you cannot have a 7% reduction for QJSA. It goes further also. the (a)(4) regs require that the MVAR be determined by normalizing the QJSA payable at each age and picking the greatest, thus, even if it was legal to subsidize the lump sum (as compared to the QJSA) (again, other than 417(e) differences) under 401(a)(4) you would test the QJSA

Revenue Ruling 53-185 provides that a plan will not fail to have definitely determinable benefits simply because each participant's accrued benefit is multiplied by a fraction the numerator of which is the rate of return on some "variable annuity"; the denominator of which is the plan's assumed return (actuarial equivalent). The ruling goes on to say that the plan's actual rate of return can be used as the variable annuity. Thus, in a cash balance plan where the pay credit for the year is deposited on 12/31 of each year, the total plan assets will always equal the value of plan assets. Further, in the typical variable annuity example, rather than define the accrued benefit in terms of a hypothetical account, it defines it in terms of a career average pay benefit where the pv of the accrual matches the pay credit. They claim that this gets around the whipsaw because, they claim the plan is not a CB plan and hence not subject (even tho benefits accrue in exactly the same manner as a cash balance plan) Recent variations include a variety of investment options for assets, with a separate variable annuity depending on the investment option chosen. This only works if each option has at least a 401(a)(26) group electing it. I have recently heard that a variant of this design is allowing for individual investments, but how it avoids the separate benfit structre restrictions of 401(a)(26) is beyond me...my guess is that they simply claim it doesn't apply in the same manner(exactly) as they simply claim whipsaw doesn't apply. Interestingly, variable annuity plans got themselves a statutory basis in ppa by getting an exemption from the "not less than zero" return rule

I agree with my Mike...before the session we had several discussions with both Marty and Jim Holland regarding this and they were consistentthat a subsidy attributable solely to 417(e) is ignored. You measure the QJSA payable at each age normalized to testing age. Thus, in your 2% example, since (other than 417(e)) no benefit form can have a subsidy more valuable than the QJSA, if the plan provides a 2% reduction for lump sums, it can't provide a greater reduction for QJSA.

Jim Holland said in Boston last week that the MASD section of the 415 regs will be reproposed (with reliance)when final regs on 415 are issued (likely next month or so) There is no reliance allowed on the current 415 proposed regs sooooo... If I were you I would wait until the reproposed regs are issued or you will have to revist the distribution after they are issued since you are not allowd to use the current proposed regs as the basis for your plan payment

In testing on a benefits basis you must test both the normal and the most valuable accrual rates. Assuming that you have a uniform normal retirement age, for determining the normal accrual rate you would determine the increase in the benefit by projecting to NRA with the plans interest credit rate and convert to a benefit using the plan's actuarial equivalence assumptions. In determining the most valuable benefit , for a pure cash balance plan, using annual testing, with no early retirement subsidies, you would determine the increase in the benefit by projecting to NRA with a standard interest rate (7.5 to 8.5%) and convert to a benefit using a standard interest rate and standard mortality table. This assumes that the plan's interest credit rate is less than a standard rate (i.e. less than 7.5%), if the plans interest credit rate is greater than 7.5%, the most valuable benefit will turn out to be the normal benefit. In situations where the plan does not have a uniform NRA, you will need to use a a testing age of 65. For determining the Normal rate you project to NRA with the plan's interest credit rate and from NRA to testing age using a standard rate. Having said all this, if you are not used to general testing defined benefit plans, I would only do it under the supervision of someone with a good deal of experience doing it.

If the father owns 51% or more of corp. B, the kids stock will attribute to Dad and there will be a controlled group. If the kids own at least 1% of Company A there will be a controlled group. Once there is a controlled group, there is 1 415 limit applicable to each employee, stockholder or not

yes

Did you run the ABT on a benefits basis?

Flogger - Holland has said, in writing, that life contracts and annuities are inherently of different series. Thus all 412i's with both insurance and annuities are non-safe-harbor 412i's subject to the general test. Since no one has any clue as to how to run a 412i general test (for instance is the lapse of a surrender charge a benefit accrual?), you have real problems with any 412i's that are not annuity only. and since those annuity only 412i's don't commission all nice like the life insurance 412i's ya don't see many

I agree with Frank.... the PBGC will only allow a waiver by a 50% or greater owner...so if the plan is PBGC covered, you have a real problem. If its not the IRS will look for a nondiscriminatory allocation of the assets so the allocation to A could be restricted

I disagree that there is some question as to whether the payments are eligible for rollover.. the fact that a participant made 3 consecutive elections to take a partial distribution of the same amount does not constitute a series of substantially equal payments. Each of these payments is paid as of a separate annuity starting date. Think about it...when does the first payment become part of the series?/ After the second one is made? after the third. Each ASD is, IMHO, evaluated separately.. and I think, in this case, each is eligible for rollover

The only reason I can think of to put testing assumptions in your plan is as part of a fail safe allocation formula. If that is the case, changing the assumption will affect the operation of the fail safe language ... in effect chaanging the allocation... impermissibly ... but I'm just guessing (BIJG?)

I don't think the EB Manager is up to speed... three choices Fight Ignore in the future Comply It seems like you could win the fight but, if youre drafting a detailed board resolutioin each year, why not call it an amendment anyway?

To clarify, the proposed regulation quoted above is part of the proposed phased retirement regulations issued a few months ago

The Service will often allow compliance with proposed regulations as a safe harbor until final regulations are issued. This was not the case with the phased retirement rules. The early Normal Retirement age is still valid and is used by a large number of Fortune 500 Companies in their Cash Balance plans to avoid whipsaw and testing problems. My understanding is that Finnegan still uses this design technique and his only caution is that it will not be around long. To support this, Carol Gold has said publicly that the early NRA is one part of the phased retirement proposed regs thaat the IRS will not back off

For 2006 he is not otherwise excludable. He must begin receiving the match when he enters the safe harbor match plan. If the plan satisfies the requirements for a pay as you go SH match, he will be matched only on his deferrals after entry. His deferrals before netry will be covered by the safe harbor and not tested. If, however, the plan does not meet the requirements for a pay as you go SH match, he has to get the whole years contribution since he participated in the 401(k) for the whole year

If its not top heavy, its poorly designed

I disagree.. the top heavy minimum will cause an allocation for the nonkey group and then the default plan language will increase it to the Gateway amount..even if the board resolution declares a zero contribution for the NHCE group....then an 11(g) if necessary