John Feldt ERPA CPC QPA

Regarding the segments: Two EA's who gave out different interpretations on the use of the segment rates for minimum lump sum payout purposes (suppose the plan rate is 8.00%, so ignore that for this discussion): Employee Age 25, NRA = 65 1. Calculate the cash at retirement age 65 retirement using the 3rd segment rate, then discount for 40 years at the 3rd segment rate. 2. Calculate the cash at retirement age 65 retirement using the 1st segment rate, then discount for 5 years at the 1st segment rate, further discount for 15 more years at the second segment rate, and 20 more years at the 3rd segment rate. Did any guidance spell out how they want these used?

The law, under Internal Revenue Code Section 401(a) states REQUIREMENTS FOR QUALIFICATION. --A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section -- (1), ... (2), ... (3), ...; and 401(a)(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and (C ). IRC 401(a)(4) is interpreted under the Treasury Regulations, one section of which is 1.401(a)(4)-5. §1.401(a)(4)-5. Plan amendments and plan terminations (a) Introduction (1) Overview. --This paragraph (a) provides rules for determining whether the timing of a plan amendment or series of amendments has the effect of discriminating significantly in favor of HCEs or former HCEs. For purposes of this section, a plan amendment includes, for example, the establishment or termination of the plan, and any change in the benefits, rights, or features, benefit formulas, or allocation formulas under the plan. Paragraph (b) of this section sets forth additional requirements that must be satisfied in the case of a plan termination. (2) Facts-and-circumstances determination. --Whether the timing of a plan amendment or series of plan amendments has the effect of discriminating significantly in favor of HCEs or former HCEs is determined at the time the plan amendment first becomes effective for purposes of section 401(a), based on all of the relevant facts and circumstances. These include, for example, the relative numbers of current and former HCEs and NHCEs affected by the plan amendment, the relative length of service of current and former HCEs and NHCEs, the length of time the plan or plan provision being amended has been in effect, and the turnover of employees prior to the plan amendment. In addition, the relevant facts and circumstances include the relative accrued benefits of current and former HCEs and NHCEs before and after the plan amendment and any additional benefits provided to current and former HCEs and NHCEs under other plans (including plans of other employers, if relevant). In the case of a plan amendment that provides additional benefits based on an employee's service prior to the amendment, the relevant facts and circumstances also include the benefits that employees and former employees who do not benefit under the amendment would have received had the plan, as amended, been in effect throughout the period on which the additional benefits are based. (3) Safe harbor for certain grants of benefits for past periods. ... (4) Examples. --The following examples illustrate the rules in this paragraph (a): Example 1. Plan A is a defined benefit plan that covered both HCEs and NHCEs for most of its existence. The employer decides to wind up its business. In the process of ceasing operations, but at a time when the plan covers only HCEs, Plan A is amended to increase benefits and thereafter is terminated. The timing of this plan amendment has the effect of discriminating significantly in favor of HCEs. Do you think the amendment has the effect of discriminating significantly in favor of HCEs or former HCEs? It's facts and circumstances, so the IRS has some leeway when they look at something like this. IMHO, I don't know if a foolproof correct answer is truly known until the IRS gets involved. Looking at one side, just exactly how does this discriminate significantly in favor of HCEs? Would that mean the forfeitures of the NHCEs may get allocated to HCEs? Doesn't that happen in lots of plans anyway? Maybe this could be discriminatory only if one of the HCE leaves before they achieve their 6th year of vesting service. If that happened, then it does appear to be discriminatory. But if neither HCE left before their 6th year, again, how would this specific amendment have the effect of significantly discriminating? If they want to be mostly conservative, and if the HCEs only have a couple years of service now, perhaps the plan could be a little safer by adopting a 6-year graded vesting schedule that applies to all new employer contributions, that would impact the vesting of the HCEs too. Still not foolproof though.

Relius (Sungard) announced in the news section of this website that they expect to have one ready by the end of this month.

Under the Final 403(b) regulations, you could terminate a 403(b) plan - I think you'd have to adopt the Final 403(b) regulations though in order to do that. Also, I recall reading that a 401(k) plan would not be considered a successor plan to a terminated 403(b) plan. If the 403(b) terminates, the participants could then vountarity elect to roll over their 403(b) balances into the 401(k). I don't think a merger, requiring the assets to go to the 401(k), would be allowable. "...you cannot directly transfer the assests from a 401(k) plan into a 403(b) plan. Does that hold true for a direct transfer of 403(b) assests to a 403(b) plan?" I think a merger of 403(b) plans is allowable, if that is your question.

You're welcome - much success to you!

Let's go through an example: Bob has been eligible for the 457(b) plan since 2003. Now, in 2007, let's suppose Bob is in the first year of his 3-year period that would end prior to the year he reaches Normal Retirement Age. Starting with his first year, 2003, let's suppose his "annual deferral" amounts were: 2003 10,000 2004 10,000 2005 10,000 2006 12,000 Suppose the maximums for each year were (ignore the 5,000 catchup issue for this example): 2003 12,000 2004 13,000 2005 14,000 2006 15,000 (I did not look those up, it's to late at night, just go with me on this for the illustration) Bob did not use up the whole limit each year, so his underutilized amounts are: 2003 2,000 2004 3,000 2005 4,000 2006 3,000 The total unused amount is the sum of these: $12,000. So, Bob's special catch-up amount for 2007 is the lesser of A) the normal 2007 "annual deferral" limit of $15,500 (or 100% of comp if less) or B) the unused prior amount of $12,000. The lesser amount was $12,000. So, for 2007, Bob's maximum "annual deferral" in the 457(b) plan is $27,500 ($15,500 regular amount, plus $12,000 special catch-up). Remember, "annual deferrals" includes any employee elective deferrals made into the 457(b) plan PLUS any employer contributions allocated to the employee - they all count against the 457(b) limit.

1. The ebar for EE2 will be increased (one extra year for projecting at 8.5%) 2. Based only on birthdate, it would be lower (one less year for projecting at 8.5%) 3. Your demographics will dictate which is better: attained age or nearest age.

The special catch-up (last 3 years prior to Normal Retirement Age), is the lesser of two amounts: 1) the current year's "annual deferral" amount, or if less 2) the "underutilized" amount. The underutilized amount is the difference between the prior annual deferral limits and the amount of actual annual deferral made for each of the previous years that the participant was eligible for the plan. This is explained in the Treasury Regulations at §1.457-4(c )(3) Special section 457 catch-up (i) In general. --Except as provided in paragraph (c )(2)(ii) of this section, an eligible plan may provide that, for one or more of the participant's last three taxable years ending before the participant attains normal retirement age, the plan ceiling is an amount not in excess of the lesser of -- (A) Twice the dollar amount in effect under paragraph (c )(1)(i)(A) of this section; or (B) The underutilized limitation determined under paragraph (c )(3)(ii) of this section. (ii) Underutilized limitation. --The underutilized amount determined under this paragraph (c )(3)(ii) is the sum of -- (A) The plan ceiling established under paragraph (c )(1) of this section for the taxable year; plus (B) The plan ceiling established under paragraph (c )(1) of this section (or under section 457(b)(2) for any year before the applicability date of this section) for any prior taxable year or years, less the amount of annual deferrals under the plan for such prior taxable year or years (disregarding any annual deferrals under the plan permitted under the age 50 catch-up under paragraph (c )(2) of this section). (iii) Determining underutilized limitation under paragraph (c )(3)(ii)(B) of this section. --A prior taxable year is taken into account under paragraph (c )(3)(ii)(B) of this section only if it is a year beginning after December 31, 1978, in which the participant was eligible to participate in the plan, and in which compensation deferred (if any) under the plan during the year was subject to a plan ceiling established under paragraph (c )(1) of this section. This paragraph (c )(3)(iii) is subject to the special rules in paragraph (c )(3)(iv) of this section. (iv) Special rules concerning application of the coordination limit for years prior to 2002 for purposes of determining the underutilized limitation... ...(v) Normal retirement age (A) General rule. --For purposes of the special section 457 catch-up in this paragraph (c )(3), a plan must specify the normal retirement age under the plan. A plan may define normal retirement age as any age that is on or after the earlier of age 65 or the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan), immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age, and that is not later than age 70-1/2. Alternatively, a plan may provide that a participant is allowed to designate a normal retirement age within these ages. For purposes of the special section 457 catch-up in this paragraph (c )(3), an entity sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors. (B) Special rule for eligible plans of qualified police or firefighters. --An eligible plan with participants that include qualified police or firefighters as defined under section 415(b)(2)(H)(ii)(I) may designate a normal retirement age for such qualified police or firefighters that is earlier than the earliest normal retirement age designated under the general rule of paragraph (c )(3)(i)(A) of this section, but in no event may the normal retirement age be earlier than age 40. Alternatively, a plan may allow a qualified police or firefighter participant to designate a normal retirement age that is between age 40 and age 70-1/2. I hope this helps!

bingo!

The company owner took a loan out of their 401(k) account 9 months ago. No loan policy was adopted. The "employer checklist" attached to their document indicates that the plan will NOT provide for participant loans. The IRS talks about discretionary and interim amendments and the deadlines that apply. However, isn't a participant loan more of a DOL issue - what is the timing requirement to adopt a loan policy? I believe it must be done before the loan is made, but I have not found the official cite for that. Any guidance is much appreciated. Oh, just for fun, as I'm sure you've guessed, the loan exceeded $50,000 and no payments have occurred yet. We are currently trying to find out if we could turn this into an in-service distribution, and deal with the tax withholding problem.

Yes.

http://benefitslink.com/boards/index.php?s...mp;hl=undefined

This question was posted twice. Here's a link to the post that has responses: http://benefitslink.com/boards/index.php?s...c=36811&hl=

Two things: 1) a "plan document" isn't technically required by the final regulations, but a "written plan" is (yes, that may just be mincing words FWIW). Only the preamble to the Final 403(b) regulations uses the word "document". The written plan could just be a collection of the contracts, agreements, etc. as long as they cover/include all of the necessary items to satisfy the Final regulations. 2) I don't remember reading a section where a frozen 403(b) plan would not be required to comply starting in 2009 (but another commentator may help us there). Another option would be to adopt the Final Regulations now which allows you to terminate the 403(b) plan. Wow, they still have a money purchase plan! Not many of those left around! The broker might be saying the money purchase plan could be merged into a 401(k) profit sharing plan, which isn't a bad idea, if it's really necessary for the employer to do that. We have a 457 forum here, you can ask specific question there. I'm guessing the employer in your case is a non-profit? A 457(b) plan for a nonprofit can only cover primarily upper management and highly compensated employees (top hat plan). One reason for that may be that the money "deferred" is not protected by a trust, it is still subject to creditors. Now, why spend the money on a money purchase merge/restatement, instead of just adopting the Final 403(b) regulations for the 403(b) plan? If you go to a 401(k) plan, then you have to test average deferrals (ADP test, unless you adopt Safe Harbor provisions); whereas you have no ADP test on a 403(b) plan. Please find someone (other than the broker) who can give the employer the advice they need to have the best overall plan(s) for their specific circumstance.

I'd like to see that case law, we'll take the ones that don't want to work with SoCalActuary.

You're probably talking about a DC plan anyway, but for a DB plan the 401(a)(9) amendment isn't due until they restate for EGTRRA or if earlier, they terminate the plan. Also, if it's a DB plan that does not have lump sum cashout provisions, then I don't think a mandatory rollover amendment is required. added on edit: Ah, yes - I now see the orginal post is also under the 401(k) section. My message here can be disregarded.

Angela, mjb has it. To recap that post: Employee contribution maximums (assuming ee is age 50 and the school is a government employer): 1. 457(b) plan: $15,500 + greater of: $5,000 catchup, or the special catch-up = $20,500 max (if no special catchup) 2. 403(b) plan: $15,500 + $5,000 catch-up = $20,500 max Total maximum employee deferral (contribution) for both plans combined = $41,000. (This assumes the special catch-up is not used, and that both plans allow the $5,000 catch-up) Employer contribution maximums A. 457(b) plan: the amount in #1 above is the max, so if the ee maxes out, no further 457(b) contribution is allowed B. 403(b) plan: $45,000 reduced by employee deferrals (but not reduced by catch-up deferrals) So if the employee defers the maximum in #2 above, the maximum employer contribution is $29,500 as follows: $45,000 - $15,500 = $29,500 Overall maximum for both plans = $41,000 + $29,500 = $70,500 (if no special catchup) That being said, your employer's plans might not contribute any employer dollars, perhaps it only provides for deferrals. Or perhaps the employer has the discretion to contribute if they have funds available to do so, a discretionary employer contribution. In any case, these things would be spelled out in some type of plan summary, perhaps they have even done a full summary plan description for their employees to explain these items. I hope this helps. Let me know if you're curious about the special catch-up. We've only shown the $5,000 age 50 catch-up here.

Thank you Mike, John, QDROphile, mjb, and blbvip. Much appreciated.

Yes, I'm the buddy - nice try! - I did also say that they can go up to $31,000 (15,500 x 2) if they are eligible for the special last 3 years catch-up and they have enough unused prior limits to do so. Let's see what the commentators say!

Ah, yes, okay, and that should vary based on the age of payee as well. Does anyone have a link to the new table (for lump sum payouts after 2007)?

To get the free ACP test, look at 1.401(m)-3(d)(3)(i): "Matching contributions are not made with respect to elective deferrals or employee contributions that exceed 6% of the employee's safe harbor compensation." So instead of the formula you propose, if you are not concerned about the 100% vesting, you could provide 116.67% match on the first 6% deferred. Anyone deferring 6% will get a match of 7% of pay. That would get you a free ACP pass. There are a number of other ways to do that as well, you could combine the Basic SH match with a concurrent discretionary match or use a fixed match to get the desired results.

Wow - cool new posting features! ak2ary - are you talking about the recent drop by about 0.33% in the 30-year treasury rate? Are you saying that even with 20% of the corporate bond rate applied you're thinking that the PPA 80/20 rate will produce a larger amount due than the 100% GATT rate would have? Please elaborate, I haven't kept up on this issue as well as I should.

Thanks jpod, that is very helpful.

I don't think so. The plan was changed during the year (terminated), which affects employee deferrals (stops them) so the requirement under 1.401(k)-3(e) "unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year" has not been satisfied.

See pages 20 and 21 http://www.pbgc.gov/docs/2007_Premium_Paym...nstructions.pdf if the full link didn't copy in, the last part of it is: 2007_Premium_Payment_Instructions.pdf