John Feldt ERPA CPC QPA

February? Heck, we had about an inch of snow only a couple weeks ago. Then an earthquake in Illinois, making all the worms come out of the ground (or was that the rain?) - global worming. I've been to one of Larry's conferences a couple years ago. I hope to go to another as soon as the IRS issues guidance on a fixed rate for a cash balance plan (or a statutory hybrid something or another - whatever the IRS calls them now).

Your plan document could provide an interest rate and mortality in its definition that could provide higher lump sums (if you wanted) as long as they did not exceed the 415 limit. Otherwise, the true minimum is the phased-in kind: you are required to use the 80% of GATT and 20% of the new segmented rate structure for determining the minimum for 2008. Based on current interest rates, you would not satisfy 417(e) by paying a lump sum based 0% of the GATT rate and 100% of the new segmented rates, you'll have to wait until 2012 for that. That being said, you are required to fund using the segmented rates (100%). But lump sum amounts will be based on the 80% GATT / 20% segmented rates. Hmmm. That appears to support the underfunding of a new plan until 2012. Was that what they were hoping for under the new funding rules?

We started using the accrued-to-date method for testing under 401(a)(4) for a takeover DC plan that is about 10 years old - it's working great so far (a couple younger owners can now also max out). The client is about to add a DB plan. A couple of questions: 1. Can the entire combined benefits be divided by the largest number of years in either plan (aggressive I think), or should each plans' EBARs be determined separately and then added together (my preferred suggestion), where the total DB plan benefits accrued are divided by the number of years in the DB (ignoring any prior years before the DB was added as a plan). 2. If any rollover balances exist in the DC plan for some NHCEs, should they be ignored?

"My parents want me to do well in life" Be sure to keep your overall perspective as well. Although the world tends to view success by looking at wealth, fame, academic, or other achievements, a true measure of success does not depend upon any of those (IMHO, FWIW).

I agree. When looking at Treas. Reg. §1.403(b)-3(b)(3)(iii) it appears to exempt churches from a written plan (form) unless they use retirement income accounts. edit: typos edited later to add: I don't think it requires church 403(b) plans to only use retirement income accounts.

Many thanks!

Near the end of 1.401(a)(4)-9©(3)(ii), it states: "In addition, the minimum allocation gateway of §1.401(a)(4)-8(b)(1)(vi) and the minimum aggregate allocation gateway of paragraph (b)(2)(v)(D) of this section cannot be satisfied on the basis of component plans." Does that say the gateway would have to be provided for the overall plan, not just the component, or am I misunderstanding the intent of this? edit: typo

Yes, I agree with that.

Thanks Appleby!

I'm not so sure about using smoothly increasing rates in the DC plan as a means to say the design satisfies the DB/DC combo gateway requirements. Are you indicating that the existence of smoothly increasing rates takes care of the gateway requirement for a DB plan needs to use the DC plan to pass 401(a)(4)?

Suppose a calender year corporation wants to establish a DB plan that has a June 30 plan year end. They want a short first year to run 1-1-2008 to 6-30-2008. Thereafter, the plan year starts July 1. Beginning of year valuation. Since their fiscal year is calendar year, can they deduct the January 1, 2008 (half-year prorated) funding requirements AND their July 1, 2008 funding requirement on their 2008 tax return? (let's assume all contributions are made during 2008 to cover the funding requirements)

As long as they avoid double proration too.

Look at §1.403(b)-3(b)(3)(iii). Churches are exempt from the written plan requirement under the Final Regulations as long as they do not have retirement income accounts.

Watch out for the HCE matching rate. You can't have an HCE eligible for a greater matching rate than NHCEs would be eligible for. §1.401(m)-3(d)(4) Limitation on rate of match. --A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation. An employee is taken into account for purposes of this paragraph (d)(4) if the employee is an eligible employee under the cash or deferred arrangement with respect to which the contributions required by paragraph (b) or © of this section are being made for a plan year. A plan will not fail to satisfy this paragraph (d)(4) merely because the plan provides that matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that matching contributions with respect to any elective deferrals or employee contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter. (5) HCEs participating in multiple plans. --The rules of section 401(m)(2)(B) and §1.401(m)-2(a)(3)(ii) apply for purposes of determining the rate of matching contributions under paragraph (d)(4) of this section. However, a plan will not fail to satisfy the safe harbor matching contribution requirements of this section merely because an HCE participates during the plan year in more than one plan that provides for matching contributions, provided that -- (i) The HCE is not simultaneously an eligible employee under two plans that provide for matching contributions maintained by an employer for a plan year; and (ii) The period used to determine compensation for purposes of determining matching contributions under each such plan is limited to periods when the HCE participated in the plan.

And, if that is true, a further result could be that their restatement deadline is different (5-year cycle instead of 6-year cycle).

Thanks Mike. Any thoughts on this: For an underfunded non-PBGC plan, are you indicating that perhaps the accrued benefit itself should be ignored completely and a fully uniform formula be used for all benefit accrual years (is that your more conservative approach to smooth over any prior years where the formula was amended)? It would appear to avoid problems with 1.401(a)(4)-5(b)(2).

From the PBGC website: Sec. 4041.2 Definitions. ... Majority owner means, with respect to a contributing sponsor of a single-employer plan, an individual who owns, directly or indirectly, 50 percent or more (taking into account the constructive ownership rules of section 414(b) and © of the Code) of-- (1) An unincorporated trade or business; (2) The capital interest or the profits interest in a partnership; or (3) Either the voting stock of a corporation or the value of all of the stock of a corporation. After reviewing the above, I recommend a reading of section B (entitled 'Schedule EAS') of the PBGC Standard Termination filing instructions, where it says "Special Rule for Majority Owners" I'd be happy with 10% instead of 50%, but the PBGC hasn't given our clients any favors like that so far. How did you do the termination filing, standard termination (sufficient) or distress or otherwise? If you did a standard filing, there must be some agreement to make the plan sufficient for the filing to be valid, I think.

Right, we have always used the non-integrated portion of the accrued benefit to allocate excess assets. For an underfunded non-PBGC plan, are you indicating that perhaps the accrued benefit itself should be ignored completely and a fully uniform formula be used for all benefit accrual years (is that your more conservative approach to smooth over any prior years where the formula was amended)? It would appear to avoid problems with 1.401(a)(4)-5(b)(2).

So an underfunded non-PBGC plan could, upon termination, cut back everyone's accrued benefits (down to the extent funded), as long as the cutback "allocation" is done in some non-discriminatory fashion. Would the resolution to terminate need to spell that method out? Could it just allocate assets proportionally using plan termination lump sum PVABs, or could that be a problem too?

Generally, it's majority owners (50% or more ownership).

In January 2008, at the Los Angeles Benefits Conference, it was noted that while there may be ways to legally accomplish such a design, the arrangements are also showing up on the IRS radar as possible abusive tax avoidance schemes. The IRS has not officially declared them to be abusive tax avoidance transactions at this time, however. http://benefitslink.com/boards/index.php?s...24&hl=ERSOP They should get competent counsel to do the transaction right. The plan should probably have some employer contributions in order to really be considered a plan and not just a conduit for rollovers. The end-game distribution aspects should be considered before the plan is set up: ordinary income tax instead of capital gains tax (the basis was zero). That's just a start.

If the non-profit wants to provide benefits primarily to upper management and HCEs, then a 457(b) plan could work. If they file a letter with the DOL when the plan is established, notifying the DOL of the existence of the plan, then no 5500 filing would be required (unless the laws/rules get changed). Be careful - a 457(b) plan document for a non-profit company should have much different provisions than what you would see in a document for a 457(b) of a government employer. I can't speak as to the 457(f) side of your question.

It depends on his ownership percentage of his practice. If he owns more than 50%, he is a majority owner, and the 415 limit is aggregated. If he has a business partner, thus owning only 50% or less of his practice, then the 415 limits are separate. The employee controls his own 403(b), so he's the 100% owner of that piece of the pie, making the control occur when more than 50% ownership exists in another practice.

Thanks Tom, that is extremely valuable info to know.

... he said foolishly...