Calavera

1.404(a)(4)-5 provides rules for determining whether the timing of a plan amendment (including the establishment of the plan) has the effect of discriminating significantly in favor of HCEs. And these rules are based on all of the relevant facts and circumstances. I would explain it to the plan sponsor, and as long as Plan Sponsor gets his facts straight, he should be fine ... until IRS disagrees with his reasoning.

In final 415 regulations as amended by WRERA Section 122: (a) IN GENERAL.—Subparagraph (E) of section 415(b)(2) of the 1986 Code (relating to limitation on certain assumptions) is amended by adding at the end the following new clause: ‘‘(vi) In the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)©(i)), clause (ii) shall be applied without regard to subclause (II) thereof.’’.

How about: 1. Do not refund 2. Do not deduct 3. Count total contributions for minimum purposes 4. Carry over and deduct non-deductible portion next tax year 5. There are no excise taxes on DB contribution over max - http://benefitslink.com/boards/index.php?s...ic=47600&hl

You also need to be careful with plan termination. If you submit the 5310 to the IRS, your reason for plan termination most likely would be "Other" with additional explanation as "Plan is fully funded". It may raise some questions about improper front loaded plan design that was not intended to run until retirement.

I think you have to preserve the value of the early retirement subsidy. Therefore I would use deferred to 55 factors for calculating plan’s lump sum. The 415 calculation will use the immediate factors at 49. You can also amend the plan to change the early retirement age from 55 to 49.

In addition: only limitation on lump sum is applicable for the first five years of the plan somebody may argue that this plan is not subject to ERISA and this particular notice is not required one participant really gave himself this notice by looking at a mirror and telling himself that he is going to work really hard, continue this plan until retirement and not planning to take a lump sum in a near future

Look at the IRS Publication 560 for self-employed individual and net earnings from self-employment. The following discussions may also help: http://benefitslink.com/boards/index.php?s...c=39548&hl= http://benefitslink.com/boards/index.php?s...c=41185&hl= http://benefitslink.com/boards/index.php?s...c=42792&hl= http://benefitslink.com/boards/index.php?s...c=42872&hl=

Thanks. The "dismissal" payments will cover severance pay. "Vacation allowances" will cover a regular vacation pay but not an unused vacation pay. I found a nice series of articles published by the IRS in September 2004 as the Employee Plans Continuing Professional Education (CPE) Technical Instruction Program for Fiscal Year 2004. As their disclaimer said, "These materials were designed specifically for training purposes only. Under no circumstances should the contents of these articles be used or cited as authority for setting or sustaining a technical position.", but they pointed me in the right direction. http://www.irs.gov/retirement/article/0,,id=133213,00.html We amended the definition of compensation prospectively for anybody leaving company in 2 months and later. It will change the future rate of accrual but not current accrued benefits. The 204(h) notices were distributed at least 45 days before the effective date of the amendment. I believe the reduction of future accrued benefits is permissible as long as the 204(h) notice was provided timely.

We decided to incorporate it in our calculations. It reduces the maximum deductible contributions but avoids a possibility of the IRS claiming excise taxes on the non-deductible contribution. The 2008 Gray Book QA21 discusses impact of these "amendments" on 436 restrictions if the AFTAP goes below 80% as the result of limit increases. As 2008 EA report stated: "Question 21 is a frightening question, with a frightening answer." http://www.actuary.org/ear/pdf/summer_2008.pdf Interesting to point out the QA3 from 2002 Gray Book: QUESTION 3 Funding: Limit on Deductible Contribution to Unfunded Current Liability EGTRRA extends the IRC 404(a)(1)(D) "Unfunded Current Liability" deduction to multiemployer plans and to plans that cover 100 or fewer participants. However, for plans covering 100 or fewer participants, unfunded current liability shall not include liabilities attributable to benefit increases to highly compensated employees from amendments made or effective (whichever is later) within the last 2 years. 1) When does the "last two years" begin? 2) Is a plan year of less than 12 months a "year" for "last two years" purposes? 3) Does the prohibition on reflecting recent amendments apply to multiemployer plans that cover 100 or fewer participants? 4) For this purpose, is the date on which a plan amendment is formally adopted the date it is “made”, or may an earlier date be considered the date an amendment is made if the plan is operated consistent with the amendment for amendments that reflect changes in the law or annual updates of IRC limits? 5) If an amendment is adopted under IRC 412©(8), is the date on which it is "made" deemed to be the start of the plan year for which it is treated as effective for IRC 412 purposes? RESPONSE 1) Two years prior to the beginning of the plan year for which current liability is determined. 2) No, a short plan year is not a year for this purpose. 3) Yes. 4) An amendment is made on the date it is formally adopted. Annual cost of living increases in statutory limits such as those in IRC §§401(a)(17) and 415(b) are not considered "amendments" for this purpose. No guidance was given as to whether changes made at the time of EGTRRA compliance would be considered "amendments" for this purpose. 5) No, for this purpose, the date the amendment is made is the date as of which the amendment is adopted.

For a calendar year plan the contribution due date is September 15.

I think I am ok with the Safe Harbor definition. Since I can eliminate unused vacation pay from the 415 compensation, it will keep my Plan Compensation as the Safe Harbor Compensation. But this is what my problem is. I tried to read Code Section 3401(a) with all other references, but I am still not sure that the definition of Compensation itself as it exists under the Plan (ignoring the final 415 amendment) includes the unused vacation pay that paid after participant terminates his employment. Can somebody enlighten me?

I am not sure how this will change the answer. In the final 415 regulations amendment, the Code §415©(3) Compensation will include post-severance compensation and payments for unused vacation. But this is for the 415 calculations isn't it? I thought it shouldn't impact the accrued benefit calculations under the Plan Document which are well below the 415 benefits.

FACTS: Plan defines Compensation as: Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 641(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Plan states that Benefit Service ends on the date Employee severs employment with the Employer and defines service as elapsed time. Company has a policy to pay for any unused vacation accumulated by the termination date (could equal the annual compensation if somebody worked over 25 years without taking any vacation) within couple weeks after the termination of employment. QUESTIONS/CONCERNS: 1. Based on the Compensation definition above, it appears that the final year compensation will include severance pay and will also include the unused vacation pay. Correct? 2. So if somebody terminates the employment on 7/1 and week later receives his severance pay for another 6 months, I will have to use 6 month of service for the last year and full annual pay to calculate retirement benefits. And if this employee has 52 weeks of accumulated non-paid vacations, I would really use double annual salary for the final year. Correct? 3. If client wants to amend the compensation definition to exclude unused vacation pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing? 4. If client wants to amend the compensation definition to exclude severance pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing?

Yes he has money and benefits and funding are at 415 limits. This is what I hope for that he can withdraw the non-deductible portion (i.e. everything). But I was coming with standard "Contributions which are disallowed under Code Section 404 must be returned to the Employer within one (1) year of the disallowance of the deduction" which imply that the client will need to send letter to the IRS to request a disallowance. Does anybody know anything different, any new guidance that will resolve this situation without the IRS involvement?

The calendar year defined benefit plan was under 100% funded as of 1/1/2009. Quarterly contributios requirement based on the 2009 results were communicated to the client. All 4 quarterly contributions were made for the 2010 plan year by 4/1/5/2010. Since client made the maximum contribution in 2009 and asset earned 50% during 2009, the maximum deductible for the 2010 year is $0. What are our options? Is there excise tax payable to the IRS?

Unless it is a Controlled Group by attribution if Person A and Person B are related.

If it has more than 25 active participants (not employees), I believe it is covered by the PBGC but the flat premium calculated only for four participants.

From a summary prepared by American Benefits Council http://www.americanbenefitscouncil.org/doc...mmary101509.pdf The final regulations provide some additional transition relief which could affect funding for the 2008 plan year (for example, contributions made for the 2008 plan year can be taken into account at full value without a present value discount, provided they were made by the deadline for contributions (September 15 for calendar year plans). Do you think it's a typo and should read "contributions made for the 2007 plan year"?

The type of business is important. Partnership or LLC that employs a son who is a non-owner will be covered by PBGC.

The 1563 attribution rules apply to corporation. What type of business sponsors this DB plan? How old is their son?

Here is another mentioning of S-Corp. IRS Publication 560, page 5 - Net earnings include a partner’s distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). It does not include income passed through to shareholders of S corporations.

This is what I thought until Mike Preston disagreed with me in http://benefitslink.com/boards/index.php?s...c=41768&hl=

404(o) DEDUCTION LIMIT FOR SINGLE-EMPLOYER PLANS. —For purposes of subsection (a)(1)(A) — 404(o)(1) IN GENERAL. —In the case of a defined benefit plan to which subsection (a)(1)(A) applies (other than a multiemployer plan), the amount determined under this subsection for any taxable year shall be equal to the greater of — 404(o)(1)(A) the sum of the amounts determined under paragraph (2) with respect to each plan year ending with or within the taxable year, or (Method 2 above) 404(o)(1)(B) the sum of the minimum required contributions under section 430 for such plan years. These three methods were described in 1.404(a)-14© as "If the employer's taxable year does not coincide with the plan year, the deductible limit under section 404(a)(1)(A)(i), (ii), or (iii) for a given taxable year of the employer is one of the following alternatives:...". Since it doesn't reference section 404(o) that was added by PPA, I am not sure what to do.

Anybody... Does it mean: a) We have no idea or b) We have some ideas but we are not going to put anything in writing

Before PPA if the employer's taxable year did not coincide with the plan year, the deductible limit would be one of the following: (1) The deductible limit determined for the plan year commencing within the taxable year, or (2) The deductible limit determined for the plan year ending within the taxable year, or (3) A weighted average of alternatives (1) and (2). Once chosen, the method cannot be changed without the Commissioner’s approval. 1. It appears that PPA changed so that only the 2nd method is allowed. Correct? 2. Does the client need the Commissioner’s approval if he used 1st method in the past and now is forced to use 2nd method? 3. Can client continue to use 1st method?