John Feldt ERPA CPC QPA

"Does anyone if it is allowable for the plan sponsor to have the HCE's return the difference between the Total group refunds and PD refunds back to the plan?" Not allowable. fiona1: Austin is absolutely right on the mark in the above comments. Be sure to note: the recordkeeper's days are numbered (or should be). Kudos to the plan sponsor for noticing this, negative kudos for their choice in recordkeeper. I think Ed Burrows said something like: keep testing until the test passes or until the sponsor runs out of money to pay for more tests.

I am not 100% either, but I will hazard a guess. I think they are first reminding us that their goal is to provide approval letters with enough time to allow the users of these approved documents about 24 months to restate all of our clients. They are talking about the M&P plan documents - I think of these as the big national template document providers (like Sungard, Accudraft, etc. - pre-approved documents) or anyone who is qualified under their procedure to submit those kind of documents. They also state that the applications for these opinion or advisory letters for these template documents will be reviewed in the order received. So, there will be some delay for any requests for approval for pre-approved documents that are submitted after the normal due date in the six-year cycle (which was 1/31/2006 for EGTRRA DC document providers). This applies to all late submissions for opinion or advisory letters made after January 31, 2006. Maybe someone else on the board can correct me and elaborate further. This specific portion of this topic is probably better served in the Plan documents section.

Suppose a client misunderstood his DB plan 2 years ago, thinking all of the assets were his (the plan had one owner and 2 NHCE eligibles in the plan with accrued benefits). Suppose a ____ financial advisor convinced the owner/employer/sponsor/trustee (same person) to move all of his DB funds into his personal IRA. Suppose this happened just before the valuation date of November 1, 2005. Now suppose that a VCP application is now underway, and the correction method will be to propose moving all of the IRA money back to the plan (the IRA had no comingling and no distributions). Suppose all of the assets from the IRA are in the process of being transferred back into the plan. If you were the paid enrolled actuary, what would you do regarding the Schedule B for 2005? Option 1: Would you wait until the assets are actually transferred back to the plan before signing a schedule B for the 2005 year? Option 2: Would you run 2005 valuation with zero assets and offset the owner's benefit by the value of the amount that went to the IRA? Note: the plan assets were larger than the value of the owner's benefit. Option 3: Once the assets from the IRA get moved back into the plan account, would you run the 2005 valuation using the 11-1-2005 value of the IRA to be considered "plan assets" and sign a schedule B for that? Option 4: any other ideas out there? Same questions for the 2006 valuation and schedule B too. Oh, and assume that firing the client is not really an option now since they have begged for mercy by paying you in advance in the form of an unusually large check for val work and VCP work.

Agreed.

Okay, since we are dealing with the team of Holland et al, who knows what might really be meant. As Larry Deutsch has in his axiom #4: "When I use a word, Humpty Dumpty said, in a rather scornful tone, it means just what I choose it to mean neither more nor less." Lewis Carroll Andy is right to pose the question, who knows how the IRS will use that word? I choose to take that risk anyway, making my own reasonable interpretation, where the word reasonable means exactly what I want it to mean . I'll stand by my earlier post.

As far as the oustanding proposals, if any of them sign up then you'll have to communicate to them that the IRS re-wrote the law on their own doing, so the maximum is reduced, but even with that the results are still palatable. You realize that in 2008 the issue disappears for those handful of prospects who are subject to the PBGC (if that's any consolation). You still have something like this, or whatever your prospects' demographics would produce: Plan Comparisons Traditional 401(k) Profit Sharing Plan HCE's: 110,000 NHCE's: 54,000 Cross-Tested Safe Harbor 401(k) Plan HCE's: 120,000 NHCE's: 25,000 DB/DC Combo Cross-Tested Plan HCE's: 240,000 NHCE's: 78,000 DB Stand Alone Plan HCE's: 260,000 NHCE's: 115,000 DB with Cross-Tested Safe Harbor 401(k) Plan HCE's: 355,000 NHCE's: 135,000 Put it in a stacked bar chart and you can illustrate the added value of PPA.

If it were me, in this case I would, yes .

The way I read it, if contributions for the tax year are made to the 401(k) / PS plan which consist solely salary deferrals, then you may use the 150% of current liability limit for purposes of determining the maximum deductible amount for the DB plan for the same tax year.

ttott, I've heard no rumblings, but if you haven't read ak2ary's ASPPA letter already, take a look at this, especially page 3 where he quotes Senator George Allen commenting to Senator Charles Grassley about this very issue. http://www.asppa.org/pdf_files/0514_2007-27NoticeFIN.pdf

Does the plan document even allow for these deferrals to be distributed from the plan? How many wives does the owner have?

Great! I know that over 90% of the taxes are paid by only 50% of the taxpayers and that the top 1% pay 35% of all income taxes. As far as what will truly be legislated 20+ years from now, I hope you're both right, my crystal ball is broken!

Of course, depending on future tax schemes, if in 20+ years when a consumption tax is enacted, then you can just pay those taxes again as the funds are spent. Hopefully that won't happen, right?!

One notice was late for one participant, or all NOPBs were late to all participants? In my opinion, if you just missed one person's NOPB, then read the PBGC Form 500 instructions, section G under "Correction of Errors", page 13 of the link below. I think this indicates that you are okay if 1) you acted in good faith and 2) that you corrected it no later than the latest date an election notice may be provided and 3) the delay did not substantially harm the person. See page 13: http://www.pbgc.gov/docs/500_instructions.pdf

Nice one! Okay, actually, I think the same good-faith interpretation rationale still applies. Would a reasonable person actually believe this to mean that we must disclose the explanation of the current and old permitted disparity provisons that were ever used by the plan in each of the prior years? A reasonable person certainly would not. Disclosing current plan provisions seems to be a reasonable good-faith interpretation. Disclosing no integrated provisions seems like a stretch to me (IMHO). Back to the weak language problem.

Here is the full quote from the ERISA Section 105(a)(2) STATEMENTS. -- (A) IN GENERAL. -- A pension benefit statement under paragraph (1) -- (i) shall indicate, on the basis of the latest available information -- (I) the total benefits accrued, and (II) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable, (ii) shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986 or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i), (iii) shall be written in a manner calculated to be understood by the average plan participant, and (iv) may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary. DOL officials have informally commented that vesting can be provided annually in a separate statement. To me, your argument indicates that no explanation of permitted disparity is needed for any DC plan (maybe because it's not directly related to the accrued benefit - the account balance). However, if the plan is integrated, the integrated allocation amount is added to the account and becomes part of the accrued benefit, thus indirectly the integration determines the ultimate accrued benefit. I am not aware of any DOL officials indicating agreement toward the slant that you suggest. Eliminating the issue saves you a lot of work, so be careful in the decision-making process to not taint the answer toward the result that you know you already want. So, go ahead and roll the dice, do you feel lucky? But as Obi-wan would say, "You must do what you feel is right, of course ."

Bill: DB only? IMHO, that would not be a good faith interpretation. Why chance it? - the penalty looks like $100 per day per participant. austin3515: yeah baby, great idea . But again, why take the unnecessary risk? IMHO, just because the DOL wording was not as strong as is should have been, I would not take that leap. Per Derrin Watson, the DOL plans to hold hearings likely in September, one for DB and one for DC. They will miss their August 17th deadline and issue model notices sometime after these hearings.

If you are a third party administrator and you want to begin offering a 457(b) product, I know Sungard has a product available. Be careful to study up on these types of plans before putting a document together however. There's a huge difference between a 457(b) plan sponsored by a government entity vs. a 457(b) plan sponsored by a nonprofit corporation.

Thanks John, that story really stinks. I guess if the accounts were't very big it was cheaper to just 100% vest and then pay out. I'd like to hear a DOL representative speak to this situation at a conference.

Thanks Steve. This document has no suspension of benefits provision, thus the question remains.

We came across a DB plan that uses a document (from a major provider) where the participant receives the greater of 1) the formula with continued service/salary or 2) an increase of 6% only per year on the normal retirement benefit. However, the plan's definition of actuarial equivalence is 7.5% GATT. Can the plan have an actuarial equivalence definition where the post-retirement actuarial equivalence is something like: "7.5% GAM 83 blended (50/50), but for purposes of actuarially increasing benefits after a Participant's Normal Retirement Date no mortality applies and 6% interest applies" Would that be alright or would this violate something from those ancient proposed rules?

I vote we make jpod king. Oh, wait kings aren't voted on ... never mind!

Also, the facts and circumstances also look at normal turnover and replacing employees, but I see no bright lines in there: "Whether or not a partial termination of a qualified plan occurs on account of participant turnover (and the time of such event) depends on all the facts and circumstances in a particular case. Facts and circumstances indicating that the turnover rate for an applicable period is routine for the employer favor a finding that there is no partial termination for that applicable period. For this purpose, information as to the turnover rate in other periods and the extent to which terminated employees were actually replaced, whether the new employees performed the same functions, had the same job classification or title, and received comparable compensation are relevant to determining whether the turnover is routine for the employer. Thus, there are a number of factors that are relevant to determining whether a partial termination has occurred as a result of turnover, both in the case where a partial termination is presumed to have occurred due to the turnover rate being at least 20 percent and in the case where the turnover rate is less than 20 percent."

Agreed. In our opinion, if a statement is required quarterly (ERISA plan with participant direction), then the participant must receive certain info per quarter as well. This includes info regarding permitted disparity. We also thought this meant vesting too, but some informal statements by the DOL are saying that annual vesting statements are ok even if the regular statement information is provided quarterly. The DOL did not really do their best to think all of these things through in their FAB (which is like an IRS Notice). This permitted disparity disclosure can be done by using the multiple statements method. In that case you could send the same extra page describing permitted disparity every single quarter. Seems very silly, but when you look at how the FAB is written, well, good-faith intrepretation says timing = quarterly and the content is the content. We will use this quarterly approach for permitted disparity until further DOL guidelines are issued. Of course, we are still under a "good faith compliance" period - which is kind of unusual for the DOL. So if you believe you can argue that you did your statements under your own good faith interpretation, then you may be ok.

Thanks, jpod, we are aware of this. I almost used the word "kid", but figured AndyH or WDIK would not be able to resist the temptation to make a goat comment. This is an adult child actually doing some legitimate work. The only item in question might be the reasonableness of the amount paid for that work. Since they are getting a zero in their numerator, the denominator (the compensation) won't affect us, and we leave that to their CPA.

I agree, that's how it should be done. Of course, in this business we have to watch out for unusual interpretations that get made by officials from time-to-time. What makes sense now, well, anyway... This actuary stated they would be more comfortable if the HCE had some small amount of benefit in one of the plans, just not being entirely comfortable otherwise, no other reason cited. Perhaps since the child was not working a lot of hours was another concern (but the plan was installed in a way that all employees entered when the plan when it was established).