himt4

I ain't no expert, but sometimes I ask questions on this board and get an answer, so I feel I must try now and again to try to help with someone else's questions. Hopefully someone with a better understanding will fine tune what I am about to write: I recently asked my technical support a similar question and my understanding of the answer is: If ever during your testing you need to pass the "average benefits test" you will need to pass something called the Reasonable classification test {begin cut & paste} "Section 1.410(b)-4(b) of the Regulations provides that a classification will be reasonable if, based on all of the facts and circumstances, the classification is reasonable and established under objective business criteria that identify the category of employees who benefit under the plan. Reasonable classifications include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location, and other similar bona fide business criteria." {end cut & paste} Since the classes are not safe harborish ones like the one's mentioned above (i.e. job type, salaried/hourly,geographical) then there is a question about whether you would pass this reasonable classification test. So, basically my tech support told me that if you are not using the safe harborish classes (i.e. job type, salaried/hourly,geographical) then you should file the Document with the IRS to get their approval and then you will be ok.

for coverage testing, two plans are aggregated, and I check "yes" for item 4b on scehdule T. For 4c(5)&(6): number of nonexcludable employees who benefit under the plan: Do I put the number only benefitting in this Plan? or since I am aggregating, do I put the number who benefit in either plan?

QUOTE (Belgarath @ Aug 17 2005, 07:23 AM) This seems a little confusing to me. In no particular order: Is the death benefit really defined as the larger of the PVAB or the life insurance policies? I only ask because the DB plans that I have seen generally either use the 2/3 rule, or the "stated times" method, where the benefit is the larger of the (in this case) 100 times projected benefit that you mention, or the PVAB. Not the larger of the PVAB or the life insurance. Of course there are variations, and what you mention may well be one of them - I just haven't happened to see this particular one. ......................... The documents we deal with split the issue of the death benefit and Insurance amount: There will be one set of options dealing with what the death benefit is, i.e "greater of Insurance Proceeds or PVAB" or "PVAB + Insurance Proceeds -Cash value of Insurance" Afterwards, there will be options of how much Insurance should be bought, i.e "100 time projected benefit" or "amount that can be bought with premiums equal to 2/3 of theoretical contribuion"

I definitely share your frustration. Let me share my story. Last year a client was terminating his 20 participant plan. The place he had the assets didnt have an easy way to cut checks, so as I often do, I suggest to the client that he go to his bank and open a checking account in the name of the plan and move the assets there for easy payouts. The client went to his bank, and the branch manager gave him the typical hard time. So to help the client out, I called the bank and tried to work my way up the ladder to find a corporate bigwig with some knowledge and authority about pension plans. When I finally got a hold of one, he told me to send him an email. Here is the letter I sent and the reponse (I changed the name of the bank to "metrobank" and the contact to "mr. big" to protect the innocent.) my email: - - - - Subject: Metrobank checking accounts for pension plans 2/10/04 Dear Mr. Big: As discussed, I am a pension administrator for a pension consulting firm that deals primarily with small company pension plans. These small plans have pension assets that will invest the pension assets however the trustee (usually the employer) chooses (i.e in stocks, mutual funds, bank accounts, etc). Eventually, the Pension Plan will have the need to make an occasional payment. Often, we will recommend to the client that they go to their local bank and open up a checking account in the name of Plan and keep a small amount of the Plan's assets in this checking account so that they can make the occasional payment. These clients then go to the bank that they have their business accounts with and open up the checking accounts in the name of the Plan. Here's the problem: It seems that when these clients go to metrobank, often the branch manager will tell them that "its illegal for a Pension Plan to have a checking account" or "a checking account is not a qualified account". As a pension administrator it is my understanding that a checking account opened up in the name of a Pension Plan is qualified. Other times, the “Metrobank” branch manager will open a checking account for the client without a problem. What I would like is a contact at “metrobank” who understands about pension Plans. So that when a client comes to me and says "I went to 'metrobank’ and they gave me a hard time about opening up an account in the name of the Plan", that I could ask this contact to call my client's 'metrobank’ branch and tell them how to do it. I thank you in advance for your anticipated cooperation. - - - - - the reponse I recieved: - - - - - The branch manager's comments about ownership of the account is correct. The account needs to be in the name of the trustee for the plan i.e. "ABC as Trustee for". Just having an account in the name of the plan is not okay and does not determine if it is qualified. The nature of the investment is the critical issue. You really need to address this with the manager on a case by case basis. As discussed, my business services large pensions and we would not be able to service you in the manner that either you or I would like to be serviced. We did explore various options within the bank, but this is the kind of service that should be handled by the plan administrator and trustee. My sincere apologies that we are unable to assist your client in this regard. Mr. Big at Metrobank - - - -

Thanks for the insight. I guess that I look at the control rules as being born from the IRS desire to out-think employers who are trying to think of ways not to cover their employees. Let's say an owner wants a db plan but doesn't want to cover his employees. So he convinces his son to put his employees (the father's employees) on his son's company's payroll. and he gives his son money to pay their salary. I'd imagine that the IRS might have come up with some rules to prevent this scenario and perhaps one of those rules would have to do with money being given from one company to another. If such rules exist, then it might cause problems for my client who is nicely trying to help his son out, and I was scared he might end up in a control group situation because of the transfer of money.

Father owns 100% of company A. His over-age 21 son owns 100% of company B. The father tells me that the "two companies are independent", but the father says that sometimes when Company B (son's company) can't meet payroll, company A (father's company) will give Company B money to meet payroll. What further questions do I need to get answers to so that I can definitively determine if it is common control or not.

I asked a simlar question back in March. I'll try to paste the link here to that thread. http://benefitslink.com/boards/index.php?showtopic=28235

Rev ruling 2004-13 was one of the things I was looking at. It says... "Section 416(g)(4)(H) provides that the term “top-heavy plan” does not include a plan that consists solely of (1) a CODA that meets the requirements of § 401(k)(12) and (2) matching contributions that meet the requirements of § 401(m)(11). Section 416(g)(4)(H), which is effective for years beginning after December 31, 2001, was added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16." The 4 "situation"/examples that Rev ruling 2004-13 give all provide for situations where a safe-harbor matching contribution is given, so the "situations" do not address our issue about the "3% non-elective safe harbor contribution" Unfortunately, I don't have the ERISA outline book. Perhaps someone can provide me a quote from this book that supports that "3% non-elective safe harbor contribution plans" are just as exempt from Top Heavy rules as "safe harbor matching plans".

Does everyone agree with this? Everything I look at regarding the "safe harbor top heavy exemption" seems to only refer to Safe harbor 401(k) plans that use a match to satisfy safe harbor. I dont see anything that says that safe harbor plans that use the 3% non-elective safe harbor plan contribution are exempt from top heavy minimums (since the 3% can be applied towards satisfying the TH minimum, the "exemption issue" only becomes an issue as you mentioned when Plan comp excludes pre-participation comp but top heavy calculations must use full year comp). Can anyone tell me where it says that "3% non-elective safe harbor contribution plans" are just as exempt from Top Heavy rules as "safe harbor matching plans"?

Corp I and Corp II are a brother-sister controlled group as a result of ownership by individuals A,B,C,D, and E. Corp II and Corp III are a brother-sister controlled group as a result of ownership by individuals C,D and E. Are the above 3 Corps a controlled group?

Yes, the formula is based on service and as soon as those 7/1/04 entrants enter they have an accrued benefit. So you interpret that instruction to say that you include them in the counts, that's fine. But should you also be adding in some CL for them at BOY when obviously they had no CL at 1/1/04?

I am doing an e.o.y. 12/31/04 val for 2004. The instructions for Schedule B say to use Beginning of year numbers for line 2b. I noticed that my software system is including current liability amounts for participants who entered the Plan 7/1/04. This seems strange. The instructions for Schedule B does have this passage for line 2b instructions: "If the current liability figures are derived from a valuation that follows the first day of the plan year, the participant and beneficiary count entries should be derived from the counts used in that valuation in a manner consistent with the derivation of the current liability reported in columns (2) and (3). " I find the wording to be very confusing in this passage. But, anyway, my question is whether my software is on solid ground with adding in current liability amounts for 7/1/04 entrants for line 2b? And, if so, is it the above passage that justifies it? A follow-up question is: Would it be a problem if I don't include in amounts for the 7/1/04 entrants?

Thank you. I am switching to your side. From now on I'll believe that someone who earned 41,000 in 2004 can get 44,000. I believe in the power of this message board: since there is no one on the message board who took the side of my original thought, my original thought must have just been based on a misinterpretation of something I read or heard.

I'm still trying to refind a better article we saw, but here's something we saw that's not too clear, but it throws in "but the 100% of compensation limit does apply". http://www.tiaa-cref.org/bpc/winter2003sr/page2.html "402(g) and 415 Limits. It is not difficult to determine how catch-up contributions relate to the 402(g) and 415 limits. The catch-up contributions are in addition to the normal 402(g) limit. They are also excluded when applying the 415 dollar limit ($40,000 in 2003), but the 100% of compensation limit does apply."

are you saying that a person who earned $41,000 in 2004, can get $44,000 in 2004 (via a $13,000 deferral, $3,000 catch-up and $28,000 profit sharing)? Yes, I see that 414v3 says to disregard the catch-up for annual additons and in such case the above person only has 41,000 of annual additions, and all looks well. But I've found a couple of articles (without cites) that seem to indicate that you cannot disregard the catch-up for the 100% of salary limitation, and the above person could not get the full $44,000 but only $41,000(of a mixture of deferal, catch-up and profit sharing.)

http://benefitslink.com/boards/index.php?showtopic=27774

I know that catch-ups are disregarded when establishing the $41,000 (for 2004) annual additon limit (i.e a 50+ person who made $100,000 and deferred $13,000 and an additional $3,000 catch-up in 2004, can get a $28,000 profit sharing contribution for 2004) but I am pretty sure I heard that you cannot disregard the catch-up when testing the 100% of salary limit. I cant find the cite, does anyone know it? a 50+ person has salary of $41,000 in 2004. he defers 13,000 and an additional $3,000 catch-up. Can he get a profit sharing contribution of $28,000. It all depends on whether the catch-up is ignored for the 100% limit test. does anyone know the cite either way? ps. its a cross-tested plan where there are other employees and this guy could get the full $44,000 without the plan failing the 25% deduction limit. pss. I tried using the search to find a previous similar question.

We got a small DB plan using individual aggregate funding. The owner has accrued his full benefit. Last year, before the Plan was frozen, He was just three years from NRD, and his unfunded liability was amortized over those three years. Now that the plan is frozen, it is the actuary's understanding that the IRS expects you to change to Unit Credit funding for frozen plans. In which case we would in effect be amortizing the owners unfunded liability over 10 years instead of two. Doesn't seem to make much sense. The unfunded liability of the others is insignificant.

Thanks all for the info. I was glad I was able to ask a question where everyone could agree on the answer.

In a DB plan that pays out monthly annuities to its retirees, I know that withholding tax is not mandatory. However, often the retirees will request withholding. If the plan does not want to be bothered with withholding, can the Plan document be written, and the Plan administered so that it does not do any withholding for monthly annuity payments, even when the participant requests it?

Ok, so then at 1/1/05, he has accrued a fraction of (15/16) of his benefit. Now if he quits on 1/2/05, he obviously has less than 1000 hours in 2005, and has therefore only completed 15 Years of Service, and hence has not met the criteria for the “55 & completed 16 Years of Service”, so his NRA age is 65&5 which puts it at 1/1/16. So for the denominator the “Years of Service the participant would accumulate if employment continued until NRA” would be 26, capped at maximum of 20. So his accrued benefit fraction at 1/2/05 would be (15/20) which would make his accrued benefit less than it was at 1/1/05 (15/16). So perhaps we should employ this same logic at 1/1/05, and say that the first step is to calculate his NRA. Even though he is still working, as of 1/1/05 he has only completed 15 years and is not yet eligible for the 55&16 criteria which makes his NRA 1/1/16. So his fraction at 1/1/05 would be (15/20). What do you think about that interpretation?

Plan has formula: 6.66% times Years Of Service up to 15. Benefit is accrued using fractional rule with maximum denominator of 20. NRA is 65&5, or if earlier, “55 and completion of 16 Years of Service”. Year of Service requires 1000 hours. Document describes denominator of Accrued Benefit fraction as “Years of Service the participant would accumulate if employment continued until NRA” A full-time employee, born 1/1/51, is hired 1/1/90 and is still employed on 1/1/05. The numerator of his Accrued Benefit fraction is 15 as of 1/1/05, but what is the denominator of his Accrued Benefit fraction as of 1/1/05?

Was it supposed to be $17,000 each to the mp plans, and $18,000 each to the ps plan? if so, did the mp's 5500 show the contribution correctly as $34,000 and was it only a mistake of where they put the money? if so, I know that a lot of the Plan documents that we use have language that allows for the commingling of assets with any other Plan of the employer. Perhaps, you can make this argument to the auditor, that although the money was placed in the ps accounts it has been treated as mp plan money. This argument probably works better if both plans used pooled assets instead of having individual accounts, but maybe you can make it fly.

I've sent the client the reallocation schedule in February to sign and send to the Financial Institution, and often they don't get around to doing it until September 15. At which point the assets can be less than they were in February (even if its a penny less, the financial institution might reject the allocation schedule). reallocate all but $20, $30, $50. Whatever you are sure will be there. Don't let your hard work get rejected.

Thanks for the response alanm: Sorry, I made two typos in my original post. I meant a 51%/49% split. But more importantly it should have been written as Joe with 49% and Father with 51%. And, therefore, as Joe doesn't have a controlling interest, he does not get attributed his fathers interest and remains a 49% owner for consideration of control groups. I had accidnetally put this thread in two forums, the one I accidentally placed in the "retirement plan terminations" forums has gotten more resonses, so I request that any further responses to this thread be made instead inside of that thread.