ak2ary

I mostly agree with Andy but a few points 1. 410(b) offers the option to treat otherwise excludables as a separate plan to "plans benefiting otherwise excludable employees". Your plan does not benefit any otherwise excludable employees. However, if no one under 21 & 1 benefits under your plan, you can treat all those failing the max 410(a) requirements as simply excludable 2. You can eliminate a BeRF prospectively if, as of the date of elimination the BeRF covers a nondiscriminatory classification of employees. So in 2000, the lump sum was available to a 410(b) group, so you were able to eliminate prospectively with respect to future accruals for everyone. My reading is that you did that. Thus, you didn't need to test the BERF each year since 2000. 3. Assuming the transaction meets the requirements of 410(b)(6)©, if the plan met the coverage requirements of 410(b) on the day before the transaction, it meets the requirements for the year of the transaction and the year following the transaction. Nowhere does it say that you get to treat the acquired employees as excludable employees. The relief under 410(b)(6)© extends also to 401(a)(26) but not to 401(a)(4). Some people believe that in performing the still-required 401(a)(4) analysis, you get to treat the acquired employees as excludable, which seems reasonable but has no authority. In determining whether you get the 410(b) relief, you cannot rely on a 3-year old test. There is nothing in 410(b) that says that there is a magic three year testing cycle and that if you pass on the first day of the cycle, you pass for the entire cycle. Instead, the law requires that you meet 410(b) everyday. Rather than constantly collecting data however, plans can demonstrate compliance once every three years, unless there has been a significant change in the data. The regs do not define a significant change clearly. When asked, the IRS has said that any change in the data that would cause a passing test to become a failing test, is a significant change in the data. Essentially..."if you need the three year testing cycle to be able to pass the test, you are not allowed to use the three year testing cycle". The fact that you pass the test for 2007 by assuming the acquired employees are excludable, would indicate that the plan met 410(b) immediately before the acquisition. This would allow the plan 410(b) relief for 2007 and 2008. 4. Because the stock acquisition is a data change that causes a test to go from passing to failing, it is a significant change, that must be considered for testing (and effectively ends the 3 year cycle). Thus, as indicated in answer 3, while you have 410(b) transition relief for 2007 and 2008, you may have to test for 2009. It should be noted that you indicated that the plan would fail coverage if you considered the acquired people. Clearly that makes the acquisition a significant data change. Many plans that are frozen to new members claim that even though their ratio pct test result is above 70%, the meet coverage using the Avg Bfts Test. Assuming they have a big passing margin in the ABPT, their margin in the ABT is larger than their margin in the RPT. Thus, fewer events would be considered signififcant data events. Further, plans frozen to new entrants almost always will eventually wind up using the ABT as their primary coverage test....so they might as well start now. Finally as mentioned above...there is no 401(a)(4) relief for acquisitions and dispositions, but there is also no guidance on how to test in that situation

You could switch to a BOY val for 2008. That would allow you to certify the AFTAP and, presumably, pay out The switch to a BOY val has automatic approval under the proposed regs I realize the switch to a BOY val for 2008 invalidates your 2007 certification under Notice 2008-21 but that certification did you no good anyway

I think you'll find that 417(e) doesn't refer to the annuity starting date but rather to the distribution date, to prevent the shopping for rates. Thus if you move into another stability period during your delay, you are generally required to recalc based on the updated rates. Failure to provide interest for the delay period could cause the benefit paid as of the distribution date to be less than the actuarial equivalent of the Normal Retiremnt Benefit which would be impermissible forfeiture under 411(a). The IRS doesn't want any part of rules for this, however, which is why the RASD regs provide that for retroactive payments of any sort an appropriate interest adjustment must be made, without any indication of what the heck that means. Of course your payment here is not a RASD payment, technically, and the RASD rules are not clear how long the delay must be before it triggers an appropriate interest adjustment (some believe that for, short periods, zero is appropriate); but the thought process is essentially the same. One way to look at it would be to consult the actuary as to how age is calculated for purposes of 417(e) distributions in your plan. Is it age to the nearest year? Exact age? Nearest month? Nearest quarter? This will allow you to determine if there was interest discount for the period of time in the delay and if so, an interest increment would seem appropriate. If the participant went from being 57 and 7 months to 57 and 9 months in a plan that rounds to the nearest year however, the lump sum recalc'd at the distribution date would be exactly as it was at the original ASD and no adjustment would be necessary ( I won't opine on whether I believe age nearest year is proper for benefit calculations, but it is not uncommon)

It probably requires a 204(h) notice in a top heavy plan where the normal accrual is less than the TH min unless the employer wants to give away the farm

I should add that to the extent funded may help you in a non pbgc covered plan Also I understand that IRS has allowed the forfeitures to occur in situations where the company is out of business so there is no chance of re-hire

The IRS uses GCM 39310 as their cite for their position here. They modify 39310 (as it was a pre-REA GCM) to take into accounnt the REA change which required 5 consecutive one year breaks. At plan termination, if forfeiture has not occurred under the terms of the plan (which they claim cannot be earlier that the earlier of payout or 5 breaks) they require that the nonvested portion of the benefit that is not yet forfeitable, become fully vested. Their interpretation is wrong, but they like it

PPA specifically exempts PEP plans from whipsaw...doesn't it “defined benefit plan under which the accrued benefit (or any portion thereof) is calculated as the balance of a hypothetical account maintained for the participant or as an accumulated percentage of the participant’s final average compensation.” I believe the bold portion of the above is meant to specifically cover peps

The target normal cost is the increase in the funding target expected for the year..thus it is apples and oranges to mix the at risk funding target and the non-at-risk TNC. Makes no sense..that doesn't mean it isnt exactly what it says but it makles no sense...I will look at it

If the plan termination date was before 1/1/08 ; it is not subject to benefit restrictions under 436

There aren't. Likely there will not be until and unless the IRS takes this position formally For 2008 terminations 436 clearly applies in 2008, the question is whether it applies in 2009, my reading is that it doesn't IRS' reading is that it does. Its mentioned in ASPPA's comment letter maybe final regs will deal with it and maybe they will see their way clear to fixing it.

The rules are written so that you can include more than the technical top 25, so if you wanted to modify to top 25 after a certain date the plan can do that as long as the prior owners are long gone and paid out. In stock transactions I think you absolutely get to track back to prior owners if you want to and you have the data On another note the HCE rules only go back to TRA 86...so you dont have to restrict prohibited group members who never made HCE status...but you get to count them in the 25

In Janets example 14-2, a correction is necessary. You do not limit your list to HCEs. If you had a salesman in 1957 make $2 million, he is on the list but he is not an HCE. You determine the Top 25 before you apply the HCE definition. Then you limit the restrictions to only the HCEs that are on the top 25 list. The example only listed HCEs first and then grabbed the top 25 from among the HCEs. Of course, in the example, the company started in 1995, making the distinction unimportant in that case.

My reading of the top 25 restriction is that the top 25 is the top 25 of all time. You drop out of the top 25 when there are 25 HCEs who made more money than you. The top 25 is not impacted by whether or not you were ever in the plan or whether or not anybody got paid out. Take all of the employees of all time, line them up in reducing pay order, draw a line below the 25th person. Thats your top 25. If you are above the line and you were an HCE you are subject to the restrictions. Of course the plan can expand the restrictions, by its terms, to a larger subset of the HCEs, but only has to apply the restriction to those 25 people.

Thats why I do EOY vals and one of the reasons I dont understand beginning of the year vals Illegal is too strong a word but the val is invalid if it recognizes experience after the val date The IRS has looked the other way in alot of cases, but not where the plan is underfunded and the val recognizes a pay decrease after the val date...... Going forward I think the rules are a little stricter, certainly in 2009 Yo, Jamaica Boy, you mean we can't right now? (Good-faith and all that jazz....) Sorry Mike didnt see this til just now ...musta been da rum The "No Not a chance " was in response to ]"Is there any rumor of postponing the cert date by the congress or IRS to the date when Sch B is required to be filed or some other relief?" It wasnt meant to respond to I believe there is a range certification that offers some relief though some jeopardy exists if the call is close. Range certifications can be of help and there is talk of allowing a range certification to survive past 10/1...maybe until the following April 1 maybe even til the 5500 is due ...but who knows

Were these contributions by check from the participant or withheld thru payroll?

Participant could have addressed this about a year ago....but prior to that the statements were being sent to his ex wifes house

That appears to be their position..in effect it gets rid of (or restricts) the concept of "to the extent funded" and majority owner waivers for PBGC, but they don't like the result either so maybe it will change

Never considered the "when were the regs written angle" thats a good point and I'll have to do the leg work but not today because somehow a 2 hour conference call got scheduled for 5 Oclock. Have you ever heard of such a thing , Mike? The client is a cheap so and so

The recordkeeper (Wachovia) told the participant that the plan sponsor "has no record" of a 1099 having been prepared. But had no further info

Mike- I guess I don't understand. Under IRS and DOL rules the loan HAD TO default no later than 1998. Since the participant is not taxed on the interest that accrues for repayment purposes after default {1.72(p)-1 Q&A 19}. I can see the plan argue that it should have cut a 1099 in 1998 and cut one now reporting it for 1998 or alternatively cut one now for the amount that should have appeared on the 1998 1099 but I see no justification for what they are doing. In short the plan should have cut a $3500 1099 in 1998, how does that justify cutting a 1099 for $7000 in 2007?

The IRS and Treasury disagree with that scenario. I think you are right. Of course if I say you're right and the IRS and Treasury say you're wrong, I believe that would make you .......whats the word I am looking for....oh yeah...wrong

The participant seems most upset about the continued accrual of interest through 2007 on a loan he was told defaulted in 1998

Interestingly, the participant is threatening to go to the DOL and IRS about this, but has offered a comprimise...Re-issue the 1099 for the outstanding balance at the 1998 default date and he will shut up. He claims that then,if he is later audited he will produce his 1998 return for the IRS which will show a distribution of that amount

Participant took a loan in 1997, several years after terminating employment. Made a few payments and stopped. In mid 1998 received a letter from plan administrator that the loan was about to default unless brought up to date immediately and would be includable in 1998 taxable income. No additional payments were made. Outstanding balance of the loan was $3500 in 1998. Not clear if participant reported taxable income from loan in 1998 and not clear if 1099 was issued. Participant left his account in plan. In 2007 plan terminated. Third recordkeeper since 1998 was on the job. Claimed loan default in 2007 and prepared a 2007 1099 with income from defaulted loan of over $7000 (3500 plus nine yeras of accumulated interest). Participant is claiming that the loan defaulted in 1998 and offers letter from plan administrator as proof. Recordkeeper claims no 1099 was issued and without 1099 there is no default. Participant counters that DOL rules required the default in 1998 and just cause the plan admin/trustee made a reporting mistake, he should not be penalized. Participant claims that he believes that he reported the loan default as income in 1998, but whether he did his taxes right or not is none of the plan's concern. Thoughts?

True..the one year is actually an IRS rule...which is also usually delayed if the plan has a determination letter pending on the termination