Penman2006

Thanks for all the help.

Can someone give me a link or a place to go to find a summary of exactly what is included in the current technical corrections bill in Congress?

Andy, I made a mistake saying that both businesses adopted the plan. He is a sole proprietor so all C's are included. Do you have any input on my actual question though?

I have a owner only plan where the owner has two sole proprietor business that have both adopted the plan. For 2007 his net Schedule C for business 1 is $150,000 and his net Schedule C for business 2 is ($200,000). Would the correct way to handle this be to use a combined net Schedule C of $150,000 ($150,000 for business 1 and $0 for business 2) and to instruct the owner that only business 1 can take a tax deduction for the contribution (in case that wasn't obvious)?

I agree. Also, if instead your CB happened to be 110,000, you would only be required to burn 100,000, just enough to avoid the restiction.

FWIW, that same Q&A goes on to say that if that DC plan participant did not defer (or receive any other allocation) then their comp would not be counted in determining the 404(a)(7) limit.

Regarding the 404(a)(7) 25% of compensation limit, the 2007 Grey Book Q&A 10 says that in a DB/DC situation if a participant is in only the DC plan and their only DC plan contribution is the 401(k) deferral that persons comp is used in determining the 25% limit. Does that same "logic" apply when determining the 6% PS contribution limit when doing the deduction limit calculations outlined by Notice 2007-28 (6% of comp of DC plan beneficiaries)? I would have thought so but I was reviewing an outline from a 2008 EA meeting session and the presenter seems to be indicating that a PS contribution is necessary to count the persons comp for the 6% limit. I wasn't at the session, so maybe I'm missing/misinterpreting something. Can someone shed some light on this for me? Thanks.

Thanks.

Treasury had said they would not enforce Q&A9 of Notice 2007-28 and that they would follow proposed technical corrections. Has that technical correction been put into law yet?

I agree that you can't use the 2007 contribution receivable in the 2007 AFTAP but you can use the 2006 contribution receivable in the 2007 AFTAP. You would use the 2007 contribution receivable in the 2008 AFTAP. If you are doing your 2007 AFTAP certification according to Notice 2008-21 for plans with an end of year val date you would use the the current liablity for 2006 including the increase in the current liability for the 2006 plan year. Picking the numbers off of the 2006 Schedule B that would be 1d2a + 1d2b.

Andy the Actuary, I hear you on the cya stuff. That's not the person I want to be, but more and more I feel forced in that direction. It's just a waste of everyone's time. How do you feel about including the 2007 receivable contribution in the 1/1/08 COB for 2007 AFTAP purposes (prior to signing the 2007 Schedule B)? Is that what you are doing? I would welcome input from anyone on this question. Dave

Regarding Andy the Actuary's post, Example 3 at the end of the 8/31/07 Section 436 regs illustrates that cite. It shows how to use the 1/1/08 COB in the development of the 2007 AFTAP certification. My questions regarding the 1/1/08 COB are: Let's say that I have completed the 2007 actuarial valuation but I have not signed the 2007 Schedule B because the sponsor is waiting until 9/08 to make the 2007 plan year contribution (which, for what it's worth, will exceed the minimum required contribution). 1. Can I use the "anticipated" 1/1/08 COB in my 2007 AFTAP certification, in other words, the 1/1/08 COB which includes the anticipated/expected 2007 plan year contribution? (If so, I will get a written statement from the sponsor regarding their intentions.) 2. Example 3. discusses the sponsors "election" to use some of the 1/1/08 COB to get to the 60% threshold at 4/1/08. That would seem to be a "deemed election" but they don't use that terminology. Do I need to have the sponsor sign a written waiver to waive some of the 1/1/08 COB as in this example?

See Notice 2008-21 regarding the AFTAP certifcation for plans that have been using an eoy val date. Also, regarding assets, the 436 regs include an exception that allows the AFTAP calculation for plan years beginning before 1/1/2009 to include the receivable contribution for the prior plan year. See (h)(4)(B).

I am fortunate to do a fair amount of cash balance plan work with a couple very experienced well regarded ERISA attorney's (separate practices and separate geographically) and neither of them have taken that approach in drafting documents or amendments.

I'm retracting my earlier statemnt as I can see now from reg section 1.436-1(a)(5)(B)(iii) that it only applies after the 10th month per the reference to "paragraph (h)(3)". The explanation section of the reg omitted that "(h)(3)" detail. Thanks Mike and Andy for your responses.

Mike, Thanks for your response. If it matters: "So, in your case, you burn 90% of your COB on 1/1/08, thereby resulting in a presumed AFTAP of 80%." But then you would subtract 10% to end up with 70%. Which would result in a change from <60% to between 60% and 80%, or I to II in your example. That II(A)(5) language would seem to apply in my example though. We'll see what others say.

I have an calendar year ongoing plan with a beginning of year val date. Plan benefits were frozen in 2006. The 1/1/07 val has been completed but the 2007 Schedule B has not. There is a 2007 minimum required contribution of $0. The expected 2007 contribution is $500,000. There was no contribution made for 2006. At 1/1/07 I have the following AFTAP info: Assets / CL = 82% (Assets - COB) / CL = 62%, which becomes 52% at 4/1/08 In the 8/31/07 proposed regs on benefit restrictions, Section II(A)(5) on "deemed election to reduce prefunding and funding standard carryover balances" says that if a plan "is presumed to have an AFTAP less than 60% under the Section 436(h) presumption rules, then the plan is treated as if the plan's funding standard carryover balance and prefunding balance are insufficient to increase the plan's AFTAP to the threshold percentage". So it seems that even though waiving some of the carryover balance at the 4/1/08 measurement date would allow this plan to pay 50% partial lump sums, that is not possible and the plan is therefore restricted from paying any lump sums until the 2008 AFTAP is certified before 10/1/08 and if that funded percentage is 60% or more. Is that correct, or have I misinterpreted or missed something?

Aside from the relief given by Notice 2008-21 the AFTAP is a beginning of year calculation. At least that is my understanding of my readings to date, and threads on this message board seem to support that. If you have a DB plan that grants no past service credit, then at 1/1/07 your liabilibity is zero and your assets are zero. Given that, in my opinion, to consider that this plan is anything other than 100% funded for 2007 doesn't make sense.

On April 1 a plan becomes restricted from paying full lump sums. What about participants that received distribution election forms prior to 4/1, at that time were entitled to a full LS, but did not return their forms by 4/1. Can they get the full lump sum payment paid to them after 4/1? Would their forms have to be signed before 4/1 or just provided before 4/1?

I'll let you know what I find out. Thanks.

Thanks for responding Belgarath. I agree that I need to speak with the CPA. I looked at code C for line 14 in the K-1 instructions and it says "Gross non-farm income". What do you mean "rehabilitation expense"? Also, since I wrote my intial posting, I read 2004 IRS Pub. 533 and it specifically says that earnings subject to self-employment tax is from box 14 code A so I think I agree with you that the correct number to use is the 200,000. Nonetheless I am going to speak with the client and the CPA.

I just received a K-1 for one of my DB plan clients. I looked at line 14 "Self Employment Earnings" and I was surprised to see two entries, one coded "A" with a value of about $200,000 and one coded "C" with a value of about $800,000. Which one do I use, or both?

Thanks Grant. It really looks like a lot of work but I guess why would they make it easy since it's a pain to deal with.

I posted this on the DB board and after a couple of days I didn't get a bite so I'll try it here. I have been working on defined benefit plans since the early 1980's but up until now I have never had the pleasure of preparing a Schedule MP and the related MP schedules for submitting a missing participant's money to the PBGC. The participant in question has a lump sum greater than $5,000 and therefore cannot be forced into taking a lump sum. Unless I am totally misunderstanding the procedure this appears to be far more involved than I expected. According to what I have gleaned from the instructions and regs, his plan lump sum has to be compared with a lump sum using the PBGC interest and mortality basis stated in the regs. Unfortunately the PBGC mortality is not simply just some standard table. It starts out with a standard table but the regs require that each years mortality factor gets projected based on their projection table. The projection is for the number of years from 1994 to the year containing the distribution date plus 10 years. Therefore the mortality table is going to have to be projected for each individual since it changes for each individual based on the year of distribution. If anyone that has been through this process can tell me if I'm on the right track I would appreciate it.

I have been working on defined benefit plans since the early 1980's but up until now I have never had the pleasure of preparing a Schedule MP and the related MP schedules for submitting a missing participant's money to the PBGC. The participant in question has a lump sum greater than $5,000 and therefore cannot be forced into taking a lump sum. Unless I am totally misunderstanding the procedure this appears to be far more involved than I expected. According to what I have gleaned from the instructions and regs, his plan lump sum has to be compared with a lump sum using the PBGC interest and mortality basis stated in the regs. Unfortunately the PBGC mortality is not simply just some standard table. It starts out with a standard table but the regs require that each years mortality factor gets projected based on their projection table. The projection is for the number of years from 1994 to the year containing the distribution date plus 10 years. Therefore the mortality table is going to have to be projected for each individual since it changes for each individual based on the year of distribution. If anyone that has been through this process can tell me if I'm on the right track I would appreciate it.