ak2ary

At the Northeast Benefits conference in June, Jim Holland mentioned that if tech corrections did not timely pass, they were considering amending Notice 2008-21, to remove the end of year val requirement for 2008. That would allow a BOY val for 2008 based on EOY 2007 data, so that you could do a timely aftap certiffication and then, depending on tech correction timing could change back to an EOY val later for 2009 (or maybe 2008)

I am sure it came from some actuary skool...but not the one I went to either. When discussing precisely this issue earlier this year and how to deal with it, one of my partners said, "why dont we just use the two times F formula?" The rest of the room looked at him like he had three heads, but he wrote the formula on a white board (without referencing any books) and we tested it against about 20 combinations of interest rates and mortality tables and it worked. Since then another actuary in my office has proven it works by deriving it from commutation functions

The formula to convert a J&50%S reduction factor to a J&75%S reduction factor is: S = 2 x F / (3 - F) Where S is the Joint and 75% Survivor reduction factor and F is the J&50%S reduction factor. This will allow you to convert a tabular factor from J&50 to j&75 without having the underlying tables...so you can reconstruct a J&75 table Check it out where you know the factors...

Jsimmons Your example makes precisely my point. The PARTNERSHIP decided to make a contribution of 5% of pay for staff. The Partnership could just as easily decided upon 3% or 0%. Lets assume that the partnership had decided upon a 2% of pay contribution for staff. Partner A still wants the 415 limit, but the PARTNERSHIP will not allow him to have it. Again, there is nothing wrong with the PARTNERSHIP taking into account an individual partner's desires, but the PARTNERSHIP has final say over the contribution. Even in your example where the 5% contribution is already decided. Assume Partner B for some reason based on their long and stormy relationship, doesn't want Partner A to be able to shelter the contribution from taxes (or from creditors)...perhaps Partner B is one of Partner A's creditors... if partner B doesn't sign off on the contribution for Partner A (assuming they are 50-50 partners), Partner A cannot have that contribution...it simply is not his ultimate decision...he gets to weigh-in, but he doesn't get to decide. Having said all that, there are some practical steps -- plan document should clearly define how the contribution is determined (e.g. by resolution of the executive committee of the partnership) --the partnership should actually do what the plan doc says in terms of declaring the contribution -- there should not be an election form for the partners to choose how much they are going to contribute --the email trail soliciting partner input on contribution levels should not reference "how much do you elect to contribute?" or anything like that --the partners should be aware that they do not get to decide their own contributions, that it is a partnership decision, although the partnership will take into account theiir desires to the extent possible -- at the end of the day, while I think the deemed CODA concept is overhyped, at best it is a potential operational error. And the best way to avoid operational problems is to follow the plan document. Don't tell the client that each partner gets to pick his own contribution every year..rather explain that the level of contribution for each partner is a partnership decision and while there is year to year flexibility in the contributions, before changing the contribution level for any partner the partnership will have to look at the impact on the discrim tests and other factors, but most times partners' needs can be accomodated.

So, if one partner wanted to significantlt increase his contributions from prior years and it would cause a failure of the test absent a significant increase in staff contributions, he could make the increased contribution and the rest of the partners would have no choice but to fund the staff? No, I think not. I think the partnership would tell him, well we understand you want to put more away but it would be exorbitantly expensive for commensurate staff benefits and so you CAN'T have the higher contribution. And since the partnership has the right to nix the ideas of any partner...it is not a CODA Based on the IRS' current ridiculous interpretation of what an definitely determinable allocation formula is; these plans are legal. It kills me that the people that benefit from the promotion of these plans are the first ones to say publicly (and continuously ) the "We all know these are just CODAs in disguise." They are NOT and we should stop talking that way. There are limits that actually do get enforced from time to time by the partnership or the firm's executive committee or whatever the management group of the firm is called. The fact that the exec committee takes into account the goals of the partners in making contribution decisions is allowable and admirable, but taking into account the wants of certain individuals is not ceding contribution discretion to them. If the firm was having a rough year and the exec committee didnt think the firm should fund any staff contributio other than top heavy....BOOM every partner just goit knocked down to 9%...the discretion belongs to the firm not the partner...it aint a CODA. Has anybody had one of these challenged and lost?

mwyatt, i agree with your interpretation of 404(o)...if only someone from the IRS would say that they also agree with us..but they won't..I have seen IRS reps asked this question at the EA meeting; at the advanced actuarial conference; at the Northeast benefits conference and at several smaller meetings...their response is consistent "we haven't issued any guidance under 404(o) at this time and I cannot confirm that the 404(o) deduction limit of unfunded at risk target liabilit plus unfunded at risk target normal cost applies to a plan not subject to the at-risk rules. So they are not saying its not the case but they are not saying you can deduct it. One consolation is that 404(o) regs cant possibly be effective for 2008, so you must go by a reasonable interpretation of the statute. Some people believe that following the plain language of the statute is reasonable It should be noted that adding the TNC to the cushion amount is NOT in the technical correction bill currently being considered altho it has been in other versions

Which never happens in Jamaica but just might on a Wednesday in SoCal

Sure but if you were aggregating with a dc you wouldnt need this silly design for the db to begin with

I assume the plan has accelerated payment options or else there would be no need for the notice...but in that case the reduction of credit balance is MANDATORY and automatic to get to 80% so the restriction never applied

Jim Holland noted at the Northeast Benefits Conference that the IRS was considering, due to the technical correction delay, removing the EOY val requirement for 2008 from the 2008-21 relief. He was light on details as this is just being considered but presumably you would be able to switchback to EOY for 2009 if tech corrections ever passes

I agree that this meets the 3% rule. So all of your problems are solved (as soon as you figure out how to slip the 29% annual accrual through the general test).

Even if the plan is top heavy, you can exclude a group of nonkey employees, as long as the plan still meets 410(b). If you exclude them, you have to exclude them from the whole plan, including 401(k). If you want them to be eligible but just make a zero allocation to them, the plan can't be top heavy, or some other plan must be providing their minimums.

The IRS is very vocally saying that the accrued benefit can only be expressed as an account balance for purposes of the age discrimination rules under 411(b)(5). You may also pay a lump sum equal to the account balance without violating 411(a) or 417(e). For ALL other purposes, the accrued benefit must be stated as an annuity commencing at NRA. This has a bunch of ramifications --Since the accrued benefit is a benefit at NRA, you cannot reduce future interest credits by an amendment without either going to two separate accounts or doing wear-away calcs --For determining the normal accrual rate under 401(a)(4) you must project the current balance (or pay credit) out to NRA using the plan's interest credit rate and convert it to an annuity using the plan's actuarial equivalence basis --For purposes of the 411(b) accrual rules, you must test the annuity accruals at NRA --Whipsaw still exists for all benefit forms other than lump sum. Consider a plan with a variable interest credit most recently equal to 6% and actuarial equivalence at 5%, the minimum qjsa payable is the actuarial equivalent of the current balance projected to NRA at 6% converted to annuity at NRA then converted to its actuarial equivalent (using 5%) at current age. This will make the relative value of the lump sum considerably lower than that of the immediately commencing qjsa benefit Many many more I am sure but these are the biggest ones off the top of my head

Not meant at all as a criticism of CEBS which is a very good program, but it targets more someone looking to be an HR/Benefits generalist. The ASPPA program is designed more for someone in a pension TPA business.

The 415 dollar limit phases in over the first 10 years of participation but is never less than 1/10th of the full dollar limit. But it is no help in year 2

This provision was in one of the earlier technical corrections bills but apparently is not in the bill currently being considered. It may be added to a later follow on beefed up bill, but who knows at this point. I would certainly not count on it for 2008 deductions

I agree with rcline Do not let them opt out IRS will see it for the sham it is

ok I'll bite WHY would all the nonkeys opt out of the plan? BTW opting out and electing to defer zero are two different things

The 2005 guidance apparently went further than I was aware providing that the excess of the market value of the policy over the price paid would be considered a distribution to the participant, subject to 415, and 401(a) such that if, in service, inadb before NRA the plan might be disqualified. These rules were primarily directed at 412i plans but have application here too

Also lots of issues if this is an erisa plan and the owner amends the plan to require the surrender to enable this transaction at below market value

There is a PT exemption covering this, if I remember correctly. It provides that, if the policy would be otherwise surrendered under the terms of the plan, it may be offered for sale to the participant for at least the amount that the plan would have realized under a surrender. Otherwise, the transaction is a prohibited transaction. Later guidance from the IRS said that, in the event that the price paid by the participant for the policy was less than the fair market value of the policy, the participant would have a taxable event equal to the difference between the price paid for the policy and the policy's market value. This was to address so called "Springing Cash Value" policies that had depressed surrender values for several years and then after the participant had purchased the policy for its pitiful residual value, surrender charges would lapse and the policy would grow to its market value. The determination of the market value of the policy is slippery... IRS guidance looks at things like the terminal reserves under the policy etc... and as a result some policies were designed to hold down those reserves artificially. The IRS has commented that, in those cases, the artificially low terminal reserve does not affect the market value of the policy and another proper measurement should be substituted... this is my casual observer view but, as you can see, you really need an expert to do this right.

If I remeber correctly, IRS allows a safe harbor match to be made on a per payroll basis with the deposit quarterly as a way to avoid the otherwise applicable requirement of an annual true-up. In operation, by making the contribution annually, your client is depositing more than is required under the plan terms. That makes your client an excellent VCP candidate for proposing a retroactive amendment to bring the plan document into compliance with plan operations. While the IRS may ask for some interest for the later deposit, they may trade that off for the true-up that was made and allow the retroactive amendment alone

I think its more potential trubble. The answer I gave above was strictly in response to "Does it follow, that if you do not need an individual for the test, they can recieve nothing for the year and the plan still passes Gateway?" By definition HCEs don't need the gateway and you do need HCEs for the test. I agree with Mike, ADEA cares about age discrimination and protects HCEs and NHCEs alike. If you have a plan as described above though, where you have a typical plan that, even tho everyone is in a separate category, gives a flat % of pay for staff or the greater of a flat dollar or flat % and you do the etest and you find that you have a group of nhces that are in nobody's rate group, so you change their contribution to zero. You will find that you have excluded the oldest of your employees exclusively and in this case you have likely trubble. If you actually give different contributions to different peeps such that the group you wind up excluding is not exclusively older you may only have potential trubble or no trubble If you only exclude HCEs you can make an arguement that it wasnt based on age ... but my undertanding is that adea looks at actual impact rather than intention and if the older HCE brings suit you got potential trubble..but the irs likely has no problem

You mean that you don't need them for the test because they generate low EBARs because of their superannuation? Be careful, if the sponsor elects to make zero for some classes of employees and chooses the zeroes to be the company's oldest employees...ya got trubble

The IRS is aware that the 2008-21 requirement that the plan use an EOY val for 2008 is beginning to cause some problems. It is hard to believe that, in this situation, where the plan had partially restricted lump sums based on the 2007 presumed AFTAP, and based on a BOY 2008 certififcation it would have no restrictions, that somehow the result is that for the period of time where the partial restriction was in place rather than no restriction, the plan should have been fully restricted, even though a val shows that no restriction need have applied, thus the partial restriction notice that was given out was invalid because it should have been a full restriction notice atc etc etc It makes no sense that that would be the result ....but then again...What do I know?