himt4

Sorry, I made two typos in my original post. As JDW pointed out 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. The problems witht the compensation recieved in the Building corp. are a concern, but as Belgarath pointed out, hopefully they have a good problem solving accountant.

Yes, it smells to me too under the logic that the IRS' goal in making these ASG laws is to prevent this kind of thing from happening. If it was ok, I'd think that a lot of businesses would create this kind of set-up. If we end up consulting an attoney, I'll let you know what he says.

I understand the problem. Happens often. $5,000 is sitting in a segregated forfeiture account at year end. I do a nice job of reallocating the $5,000 to eligible plan participants. I send the schedule of reallocation to the trustee for him to sign and pass on to the financial institution. However, by the time the Financial Institution gets the instructions, the account is now less than the $5,000 and therefore my schedule is useless. A lot of wasted time. From these experiences, I usually pick a conservative figure, say $4,950 and reallocate that. keep a little in the forfeitue account to give us a little wiggle room.

(previouisly had posted this in the wrong category) Lets say Joe is over age 21 and is 100% owner of a building. Joe and his father decide to use the building to make widgets. Joe and his father form an s-corp with Joe a 51% owner and Father a 41% owner for their widget business. The widget business pays rent to Joe for use of his building. Joe incorporates as a 100% owner of a business that recieves rental income. Joe makes his father an employee of his rental income business, they both receive w-2 income from the rental income business. Joe wants to start a pension plan for his rental income business which cover him and his father (the only employees). Is there any rule or reason the pension plan would have to also cover employees of the widget business?

Lets say Joe is over age 21 and is 100% owner of a building. Joe and his father decide to use the building to make widgets. Joe and his father form an s-corp with Joe a 51% owner and Father a 41% owner for their widget business. The widget business pays rent to Joe for use of his building. Joe incorporates as a 100% owner of a business that recieves rental income. Joe makes his father an employee of his rental income business, they both receive w-2 income from the rental income business. Joe wants to start a pension plan for his rental income business which cover him and his father (the only employees). Is there any rule or reason the pension plan would have to also cover employees of the widget business?

Thank you for the clarification Blinky. That DB answer book gave me some hope that I could make those owners a little happier, but what you wrote makes sense. It makes me wonder though: I don't have a copy of the Plan Termination Answer Book. I wonder if that book goes into more detail about these non-pbgc terminations. I wonder if that book gives any support or contradiction to their "(disregarding the restrictions on benefits for substantial owners)” assertion. Perhaps they will clear up those sections in their future editions.

I searched past message boards, and found a similar question posed by RSNOW back in July 2003. RSNOW stated he had general success getting IRS approval for prorating benefits. If RSNOW is out there, does he/she know if the IRS requires the 30-year phase in for substantial owners? Has anyone else filed such plans and gotten approval? Did you apply the 30 year phase in? I want to give the client his options and give the client an idea of the risks, rewards and costs.

Thanks very much for the replies. I read through 80-229 and 4044 as best I could. Going down 4044… In this plan, there are no benefits derived from participant contributions, there is no participant that is in pay status or could have been in pay status during the last three years, all participants have accrued benefits lower than $3,500 at age 65 (i.e. lower than PBGC’s guaranteed amount), so it seems to me that all participants fall into category 4044(4). Now here’s the interesting part: when my Defined Benefit Answer Book list these categories, this is how it describes this priority “to all other benefits of individuals guaranteed by the PBGC (disregarding the restrictions on benefits for substantial owners)” It seems to me that the Answer Book is talking about disregarding the 30-year phase in rule since that is the only rule that I can think of that is unique to substantial owners. I tried to cross reference with 4044(4). Now, 4044(4)(A) has a clause “determined without regard to section 4022B(a)” and 4044(4)(B) has a clause “… if section 4022(b)(5) did not apply”. When I try then to look-up 4022B(a) and 4022(b)(5) I find it very circular and have trouble confirming that this all means what the answer book says about “disregarding the restrictions on benefits for substantial owners” One would think that the editors of the Answer Book did all this research and somehow came to the conclusion that you disregard the restrictions on benefits for substantial owners. With regards to the Plan Document, all it basically seems to say on this subject is that you pay in this order to the extent of the sufficiency of the assets: 1) retirees receiving benefits 2) those at Normal Retirement age who have not yet started 3) the remaining participants in the order in which they will reach Normal Retirement age. Since owners in this plan are oldest, this would mean the Plan would pay them out first. Since this would be discriminatory, I am back to prorating by PVAB, with the only controversial issue remaining is whether or not you apply the 30-year phase in to substantial owners’ benefit. What do you think?

When terminating a PBGC covered DB Plan with insufficient asset it is obvious that only the >50% owners can take a “cut” in their benefits. In a case where the Plan has insufficient assets and is not covered by the PBGC, I cannot find definitive guidelines. My instincts say that only owner(s) can take a “cut”, but I see in a Defined Benefit answer book that 411(d)(3) allows a plan to terminate and pay benefits “to the extent funded”. The answer book seems to suggest that after taking care of some priority benefits, it is permissible to prorate the assets of the plan by each participants PVAB, essentially decreasing the benefits of all participants and not just the owner(s). Others that I have discussed this with say that it would not be allowed under 411(d)6 anti-cutback rules.But 411(d)(6) seems to specifically talk about cutting benefits due to a Plan amendment.Here we are talking about reducing benefits due to a Plan termination to the extent funded. If we file such a termination with the IRS showing each Participant receiving a prorated piece of his/her PVAB, will the IRS approve it? Has anyone tried?