Calavera

Good point Effen, but my situation is different. There is no excess asset and the owner just want to contribute what he can take out. So consensus for now that the actuarially equivalent straight life annuity benefit of his lump sum is compared to the current $415 limit and not to the $415 limit at the time of plan freeze. FYI - I also discovered that if plan was terminated in 2013 and distribution occur in 2014 you have to use the 2013 $415 limit and not the 2014 $415 limit.

I believe it is correct and in accordance with the Sch SB instruction. Note that for the AFTAP the Asset in nominator should be increased by contributions for the current plan year. See the following for more details: http://www.ccactuaries.org/opportunities/ea2013/onsite/302.pdf

Thanks guys. David, It is not a one-person plan. Owner just want to contribute up to the maximum he would be allowed to take as a lump sum after everybody else is cashed out. Andy, I am glad that you are thinking what I was thinking. Hopefully nobody else thinks otherwise.

New spin on the old question. NRA is 62. Small plan was frozen when participant was 52 years old in 2003 with 10+ years of service and participation. Given the IRS position that 415 applies to the accrued benefit and there was no special language in the freeze amendment, the final annual accrued benefits are $160,000 (2003 $415 limit). Plan is terminating now in 2013, and participant is 62 years old. What is his allowable lumpsum? Step 1: Calculate lump sum under the plan's assumtions (417 October rates for prior year) 160,000 x 14.7734 = 2,363,744 Step 2: Under 1.415(b)-1©(3) the actuarially equivalent straight life annuity benefit is the greatest of: a) 2,363,444/14.7734 = 160,000 (plan's rate) b) 2,363,444/12.4228 = 190,251 (5.5% rate) a) > b) = 190,251 Step 3: Verify whether 190,251 is above or below $415 limit to confirm if I can pay 2,363,744 lump sum. Question is if I am still stuck with 160,000 limit, and therefore lump sum is limited. Or I can use $205,000 for this purposes since it has nothing to do with the accrued benefit, and therefore lump sum is NOT limited.

Also need to check if 4062(e) reporting is applicable.

I agree with Effen. Moreover, when you are over NRD and an actuarial equivalent of your benefit is higher than the 415 limit, you either need to implement a suspension of benefit or you need to implement in-service distribution.

Does your plan document specify to use GAR94 @ 5% for lump sum calculations?

Grandfather rule for preexisting benefits is described under 1.415(a)-1(g)(4)

QDRO states that AP may commence her benefits on or after the participant's earliest retirement date but not later than the participant's normal retirement date. Participant is still active past NRD. We have prepared the benefit package for the alternate payee but she refused to return it. Plan document is silent regarding this issue. What are our options? 1. Start paying her on a life annuity basis (but she may refuse to cash the checks). 2. Wait until participant retires and start paying her with missing payments to participant's NRD (with interest or without interest?). 3. Wait until participant retires and start paying her actuarially increased benefits from participant's NRD to her commencement date. 4. Suggest to plan sponsor to contact participant and AP and request a new QDRO. 5. Other?

I am not sure if there is a rule for that. I have seen distinction was made by EIN on each individual Schedule C. So if all of them have the SSN of the employer, it would be treated as one employer. But if all of them have different EINs you will have one employer and 4 participating employers.

Why would you even convert it to an annuity for a valuation purposes? It is a cash balance plan. So why wouldn't you calculate the target liability as: TL = BOY Account Balance projected to the expected retirement age with the interest credited rate and discounted back to the valuation date with the appropriate first, second, or third valuation segment rate.

I agree that B and D are in controlled group. Who owns other 10% of C?

Raise the average comp to 255000 and continue the plan until age 67-68.

Both are valid options. See what a plan document says. It may say the greater of 1 or 2.

Here is my understanding of 1.401(a)(9)-6. Q/A-1(d) for a person retiring at age 73 in 2012 with the Required Beginning Distribution Date of 4/1/2013. Under the annuity method the RMD portion of the lump sum that is not eligible for rollover is 24 x Monthly Annuity calculated as of 1/1/2012. Under the account method the RMD portion of the lump sum that is not eligible for rollover is the actual lump sum amount divided by 24.7 (2012 RMD) plus the actual lump sum amount divided by 23.8 (2013 RMD). Factors are taken from the Uniform Life Table in A-2 of 1.401(a)(9)-9 for age 73 and 74 respectively. I would love to hear if my understanding is not correct.

I am pretty sure you can find this table and many more here: http://www.soa.org/Professional-Interests/...le-manager.aspx

This is wrong. Even if the plan year will be calendar and the first year is 2013 that can still give rise to a deduction on the 7/1/2012-6/30/2013 tax return. In this case the plan documents need to be signed before the end of the fiscal year. That is, on or before 6/30/2013. I wouldn't say this is wrong. I think you need to sign the plan document by the earlier of the end of the first plan year, or the end of the tax year in which you are going to deduct your contribution. I purposely didn't mention 2013 calendar year as the first plan year, since the 404(o) regulations are not available, and the IRC Section 404(o)(1) refers only to "each plan year ending with or within the taxable year". I understand that the Pre-PPA regulations allowed 3 different choices. We just decided not to take any chances without new 404(o) regulations in place.

If a plan year will be a calendar year 2012, you will need to sign all plan documents before 12/31/2012. If a plan year wll be 7/1/2012-6/30/2013, the date 12/31 is irrelevant.

Is it a defined benefit plan or a defined contribution plan?

I suggest to use the participant’s age based on completed calendar months as of the annuity starting date, since this is what you should use to calculate the adjustment for retirement after age 65 for 415 purposes (1.415(b)-1(e)).

If you make the contribution within 60 days, you do not have to notify participants. If you didn't make a contribution within 60 days you have to notify participants. There is nothing about when you need to notify them. Old rule was that you can notify them with a SAR. I say using the AFN for the notification is perfectly acceptable. If you didn't make a contribution within 30 days, you have to notify PBGC. The notice must be filed within 30 days after a plan administrator or contributing sponsor knows or has reason to know that a reportable event has occurred.

I vote for must execute with the notarized spousal signature

I suggest you ask client how much he wants to contribute. It gives you exact NEI. Then you do your valuation to be sure that the contribution given you by your client is between min and max. And if clients wants the absolute max, then you do your iteration until you get the max under 404 supported by NEI with NEI calculated under the assumption that max will be made. Also based on the history of NEI the maximum contribution may not benefit your client in the long run (that requires additional consulting and education).

Who knew that "corporation" means "Pension Benefit Guaranty Corporation".

It is wishful thinking and I doubt it was intended. Nevertheless as it exists right now (reference in PBGC § 4006.5(g) to the target liability used to determine the plan's minimum contribution), it appears you can use it for the alternative method unless PBGC will come up with some clarification and/or technical correction.