Calavera

Here are two websites I definitely recommend to visit. http://www.trustgordon.com/ http://www.livingtrustsontheweb.com/pages/index.html

Didn't you answer your own question? As soon as majority owner(s) elect to forego their benefits, the plan is 100% funded.

I think the following is how the IRS looks at it. MVAR is based on QJSA payable at earliest retirement date. Cash Balance plans offer an immediate lump sum to terminated employees. In order to offer the immediate lump sum, they also need to offer the immediate QJSA. So for the MVAR purposes, there is the QJSA payable immediately that needs to be normalized with the standard rate.

From Defined Benefit Answer Book Q19:104 Example: The funding target of $1,452,362, in Q 19:102, is used in this example. The value of assets in the plan as of December 31, 2007 is $1,000,000. The plan had a funding standard carryover balance of $100,000. Therefore, the value of assets to use is $900,000. The transition rule from Q 19:105 is used, so the funding target is multiplied by 92 percent, or $1,336,173. The shortfall amortization base is equal to $1,336,173 less $900,000, or $436,173. This base is amortized over seven years using the segment rates in effect. Since there are two segment rates in effect over a seven-year period (the first segment rate is effective for the first five years, and the second is effective for the last two years), the calculation of the amortization is a little more complicated. The present value at each year must be calculated using the particular rate, and then added together... I thought the transition rule (i.e 92% of target liability) is used for the exemption from the shortfall amortization calculation. But if not exempt, full target liability is used to calculate the shortfall and the shortfall amortization base. Did I miss some corrections, explanations, etc. that stated that 92% of the funding target could be used to calculate a shortfall amortization base?

Under the first approach you have $300,000 of FSCOB left for 2009 (ignoring interest). Under the second approach you will be exempt from setting up amortization base ((Assets-Prefunding CB only) / FT >92%). Therefore you will only use $100,000 of FSCOB to cover the 2008 minimum, and another $100,000 of FSCOB to cover the 2009 minimum/quarterlies. I vote for the second approach.

If I didn't certify AFTAP for the first 5 years of the plan, the only applicable restriction is a restriction on the accelerated payments. Am I correct that the ERISA 101(j) notice is not required, since the one person plan is not subject to ERISA, and there are no other consequences? I understand that there may be some parallel requirement under IRC/DOL/etc., I just couldn't find anything that would require any notice.

I have couple more sole-proprietor related questions. 1. Do we have to amend the NRA? Can we leave it at 55 and let the IRS review all relevant facts and circumstances to determine "whether the age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed" (how would you define it for a sole-proprietor?). 2. Let say, he didn't terminate his employment, but his benefits cannot be actuarially increased past age 55 due to the 3 year average compensation limitations and 10+ years of service. Would you say he has to terminate his DB plan when he is age 55, since he cannot start in-service distribution and his benefits cannot be increased?

What about late retirement actuarial increases? Those who reached 85 points and continue to work may receive greater of AE of Normal Retirement Benefit or Accrued Benefit. Does the actuarial increase need to be protected after NRA amendment?

It could also be a PBGC Q&A from EA meetings http://www.pbgc.gov/practitioners/law-regu.../page13190.html

Thanks Andy!

In the absence of circular 230 notice you can always start from the Schedule SB disclaimer: To the best of my knowledge... Case 2: So, 30,000 of the DB contribution should be counted as 2008 contribution; 1040 should be amended Case 1: This was my reading of the Notice 2007-28 as well. Does the non-deductible contribution have to be removed from the plan's asset (DC only, DB only, both) or does it become the part of the asset after you pay excise taxes? Another variation of the Case 2 if both contributions are made during the year and we are still in that year, could $19,000 with proper earnings be returned back to employer on the fact of error or non-deductibility or something else (and I mean something else legally).

Let's break it down to two situations: 1. DC and DB contributions were made during the Plan Year 2. DC contributions were made during the Plan Year and DB contributions were made after the end of the Plan Year but before 4/15. Both clients filed their taxes deducting $105,000. I need to give them some idea as to how to fix it besides just telling them that they need to talk to their attorney and/or tax advisor.

W2=100,000 MRC = 100%UCL = 50,000 150%UCL = 80,000 1. The deductible contribution is 150%UCL + 6%W2 = $86,000 (correct?) 2. Client made $105,000 as 150%UCL + 25%W2. Since DC plan contribution is over 6%, 404(a)(7) applies. What contribution amount is subject to excise tax? Is it $19,000 (25%W2-6%W2) or is it $49,000 ($19,000+ $30,000 (150%UCL-100%UCL))? Does the non-deductible contribution have to be removed from the plan's asset (DC only, DB only, both)? If $49,000 is subject to excise tax, will paying excise tax on $19,000 and removal of $19,000 from the DC plan's asset put you in #1 above and make the full 150%UCL deductible?

I am adjusting the dollar limit. This person has over 10 years of service and participation and his salary is over $230k.

Since multiple annuity regulation is under construction, below are 3 versions of 415 calculations. The goal is to maximize the 3rd lump sum payout. Any comments, suggestions, corrections, your own versions, known IRS objections, etc. are highly appreciated. Current age – 67 Prior Lump Sum 1 at 51 – 366,413 - (prior DB plan) Prior Lump Sum 2 at 66 – 1,269,653 - (current DB plan, in service distribution) What is a maximum 415 lump sum that could be paid at 67? Version 1: Using 5.5% and GAR with no pre-67 mortality Offset1 = 366,413 * 1.055^(67-51) / 10.7588 = 80,213 Offset2 = 1,269,653 * 1.055 / 10.7588 = 124,501 Additional Annuity at 67 = 214,955–80,213-124,501 = 10,241 Additional Lump Sum at 67 = 10,241 * 10.7588 = 110,181 Version 2: Using 5.5% and GAR for converting to immediate annuity. Using 5%, GAR and no mortality from payout to 67 to adjust for timing 415 Annuity Equivalent 1 at 51 = 366,413 / 14.6490 = 25,013 415 Annuity Equivalent 1 at 67 = 25,013 * 15.4995 * 1.05^(67-51) / 11.1910 = 75,621 415 Annuity Equivalent 2 at 66 = 1,269,653 / 11.0372 = 115,034 415 Annuity Equivalent 2 at 67 = 115,034 * 11.4934 * 1.05 / 11.1910 = 124,050 Additional Annuity at 67 = 214,955–75,621-124,050 = 15,284 Additional Lump Sum at 67 = 15,284 * 10.7588 = 164,438 Version 3 (Modification of Version 2): 415 Maximum Annuity payable at 51 – 88,488 415 Maximum Annuity payable at 66 – 199,331 415 Maximum Annuity payable at 67 – 214,955 415 Annuity Equivalent 1 at 67 = 25,013 * 214,955 / 88,488 = 60,762 415 Annuity Equivalent 2 at 67 = 115,034 * 214,955 / 199,331 = 124,050 Additional Annuity at 67 = 214,955–60,762-124,050 = 30,143 Additional Lump Sum at 67 = 30,143 * 10.7588 = 324,303

Here is my understanding of PPA Sec. 501(d). PPA Sec. 501(d)(1) states that new notes will be required for plan years beginning after 12/31/2007 and eliminates the requirement for 4011 notice for plan years beginning after 12/31/2006. So calendar year plan does not require any notices for the 2007 plan year. Since the new notices have to contain FTAP for the plan year and 2 preceding plan years, PPA Sec. 501(d)(2) defines what to report for 2006 and 2007 instead of FTAP. I hope this is correct.

Andy, I agree with (1) but where is (2) came from?

I never said it is going to be an easy calculation. IRC 414(p(3) refers to a qualification of a DRO meaning "do not assign more than plan document said". Previous post stated that there are more generous early retirement factors (aka early retirement subsidy). It also stated that according to a QDRO, spouse is entitled to pro rata share of this subsidy. But you cannot calculate the subsidy and therefore pro rata of this subsidy until participant retires. And there is no subsidy if participant retires on his Normal Retirement Date or later. So approach was to start paying the actuarial equivalent of spouse's portion of Accrued Benefit (easy part). Adjust if needed upon participant's retirement without increasing the total value of benefits payable from the Plan (hard part).

I assume they do not have a minor child. Otherwise it is a controlled group anyway. Section 1563 deals with the corporations. I assume you came to 1563 from 414©, which says: "The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b)." And subsection (b) refers to 1563. This is how 1.414©-4(b)(5)(ii)(B) describes this exception: Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year. Hope it helps.

I believe this is a correct approach. The place I worked in the past used this approach for years. If participant is active and AP would like to start her benefits, he/she will receive the actuarial equivalent of Normal Retirement benefits. If there is a subsidy at the time of participant's retirement, AP's benefit will be adjusted.

It does, and it refers to how benefits are adjusted for commencement either before 62 or after 65. Thanks Mike! I assume the valuation segment rates and not 417 segment rates are used for the discounting. Should we split the age 65 benefit limit times 5.5% factor/417 mortality into two pieces and discount one of them with 2nd segment rate and another one with 3rd segment rate? And if benefits paid in a form of lump sum are not limited by 415, we would value them as an annuity using 417 mortality table and valuation segment rates, correct? Muchos gracias in advance!

I guess I am confused by the last sentence of the following excerpt from Rev. Rul. 2007-67: In addition, for plan years beginning on or after January 1, 2008, § 417(e)(3)(B) defines the term "applicable mortality table" as a mortality table, modified as appropriate by the Secretary, based on the mortality table specified for the plan year under subparagraph (A) of § 430(h)(3) (without regard to subparagraph © or (D) of such section). In contrast to the phase in of the use of the segment rates with regard to the applicable interest rate, there is no transition rule with regard to the applicable mortality table. In addition, PPA ’06 left unchanged the mortality table which generally must be used for the purposes of adjusting any benefit or limitation under § 415(b)(2)(B), ©, or (D). Does the last sentence refer to GAR94 mortality table and what will it be used for?

So, what do we do for 415 calculations from distribution and from valuation perspective? Are we still using GAR94 mortality table and not a new 2008 lump sum mortality table (let’s call it PPA table) for 415 calculations? So, for the distribution purposes it is lesser of present value of accrued benefit under PPA table and lump sum segment rates and present value of 415 max benefit under GAR94 and rate which is greater of 5.5% and lump sum segment rates. Am I correct so far? Would you compare each segment rate with 5.5%? Now for the valuation purposes let’s assume person is age 55, retiring at 65, with assumption of taking lump sum upon retirement. What combination of mortalities (GAR94/PPA) and interest rates (5.5%/val segment rates/lump sum segment rates) should we used?

Let say one person plan is underfunded and the owner wants to terminate it since his income is substantially decreased. Is there an easy way for him to get money out of the plan before the IRS blesses the plan termination, since the IRS is sitting on the d-letter for over 6-9 months?

Does anybody see any problems with the following? NRA - Age 62 ERA - Whatever client wants Early Retirement Benefit - Accrued Benefit unreduced for early retirement and limited by 415 if needed Retirement assumption - 100% retire when first eligible