Penman2006

Thanks Andy.

I am doing DB/DC combined plan testing for a plan that had to refund part of the 401(k) deferral for an HCE in order to pass the ADP test. I just want to verify that the amount of the deferral that I include for the average benefits test is the net amount, in other words, the deferral amount after reduction for the refund, is that correct?

Am I correct then that a one-person business with no prior DB plan can start a DB plan and contribute up to the 150% limit plus start a DC plan and do a 6% PS and a maximum 401(k) deferral? (Keeping in mind that you need to keep an eye on excess assets for 415 purposes, and there can be a trap for a sole prop.'s "comp" wrt the 150% limit.)

I remember this scenario from studying for the EA exam. My recollection is that you would not show contributions made between 9/16 and 10/15 on the Schedule B. You would show them on the 5500. The regulations provide guidelines on how to adjust the valuation assets for Section 412 and Section 404 for the contribution which was deducted but did not show up on the Schedule B. I did not try to look this up but I think that you just ignore the contribution for 412 assets and include it for 404 assets.

Okay Steve, I'll send them all to you. While I'm at it I'll give you all of my other clients as well, what the heck. I would like to rename the topic: "I want to answer this question responsibly".

They are not troublesome clients. It is more like Mike Preston expressed, I don't want to unintentionally plant any seeds that will come back to haunt me. It's tough because it's a grey area. SoCalActuary and J4FKBC are you saying you are comfortable with annual benefit formula changes as the client desires?

I can't remember how many times the small business owner(s) that is gung ho to set up a DB plan wants to know how often they can change their contribution amount. It's reasonable that the business owner(s) wants to know what the committment of starting a DB plan entails. I am comfortable saying that there is not a problem making cutbacks due to unforeseen changes in the financial condition of the business. I am not comfortable saying that the plan can be amended every X years to change the owners contribution level. Sometimes they are most worried about not being in a bind if business drops off but often it seems that they are more concerned with as much flexibility as possible. I say that's the tradeoff with DB plans, higher deductible contributions but less flexibility. They always want to know if they can amend the plan every 2, 3, 5 years. I'm not comfortable with answering that question. Personally I don't think any small business owner knows what things will be like in 5 years but I think that they should start a plan with the idea that they could maintain their initial contribution level for 3+ years barring unforeseen problems. If they can't make that committment then a DB plan is not right for them. I think there is some case law where the IRS has disallowed deductions due to too frequent plan amendments so that the plan was basically operating like a discretionary PS plan but with much higher contribution amounts. I'm guessing that involved annual amendments. I don't like to play games, but I don't want to misinform the potential plan sponsors either. I'd like to know how others handle this question.

How would you amend out the participants with a $0 accrued benefit, simply by stating that in an amedment................"All participants with a zero accued benefit are no longer considered participants"? What about on a prototype plan adopting agreement wrt preserving the prototype status?

This has been helpful. Thanks to everyone that responded. Tymesup, thanks for your suggestion on the document. I think I can finagle it so I keep it within the prototype and exclude anyone going forward.

I am taking over a DB plan on a nonstandardized prototype document and that document has, as part of the benefit provision choices, an election that "benefits are frozen as of blank date". There is nowhere to check a box that says "no new participants as of blank date". It seems silly that you would have new entrants with no ability to accrue a benefit, but in my mind freezing benefits and freezing new entrants are separate issues, yet I have seen more than a few instances upon takeover of all benefits being frozen but no amendment to freeze new participants. What am I missing here? In this particular case benefits were frozen in 2006 and technically some new entrants have come in since then. Now I wonder, for this particular case, if I freeze new entrants, which I can't do within the prototype, would that take the plan out of prototype status? Any input is appreciated.

I am looking at a DB plan for a not-for-profit organization that has/had an individually designed plan with an age 70 NRA. Benefit Commencement Date was defined as the latest of (1) reaching age 65, (2) 10 YOP, (3) terminating employment. So, if you quit at age 65 you could get your benefit but the document clearly says that it would be actuarially reduced from 70 to 65. Tha plan has a favorable determination letter dated in 1995. I didn't think any qualified plan could have a NRA greater than 65 & 5 YOP. How is this possible? The plan was subsequently restated for GUST and put on a prototype but the age 70 NRA remained.

And if it is an EOY val date, if you have a fully funded plan, you can switch to a BOY val in the year of termination per 2000-40. So you can give yourself the choice as noted in the prior post.

I think the DB testing benefit would have to be the age 65 actuarial equivalent of the age 62 benefit. Jim Holland said as much at the Northeast Benefits Conference although it was a pretty casual remark, no cites involved. Unfortunately the 415 issue mentioned here wasn't discussed.

Thanks!

Where does one record mutual fund dividend payments under Part II of the Schedule H?

Is a municiple DB plan required to provide a benefit statement to a plan participant upon request (as is required in a private sector plan)? Similarly, what about the SPD, must it be provided upon request?

Part 1: I would like to check my interpretation of Testing Age in 1.401(a)(4)-12. Combining plans for 410(b) and 401(a)(4). DB Plan NRA = Later 62 or 5 YOP (NRD is first of mo. following) DC Plan NRA = 65 (NRD is first of mo. following) No EE is at or past either plan's NRA. No EE comes under the 5 YOP NRA provision. EE1 is in the DB Plan Only EE2 is in the DC Plan Only EE3 is in both plans. Testing Age: EE1 = 65 EE2 = 65 EE3 = 65 Agree/Disagree???? Part 2: What if the NRD in the DC plan is the last day of the plan year NRA is attained (the DB NRD is first of month following NRA). Therefore, in the DC plan, some particpants actually retire at age 66 based on age nearest birthday. Would that change anything? The regs only use the term "normal retirement age" not "normal retirement date". I can add that my software vendor uses age nearest at NRD. If age nearest at NRD is applicable, would everyone's testing age be 66 or just those that are actually 66 at NRD (the rest would have an age 65 testing age)?

FWIW, I did not design the DC plan to manipulate the numbers, it was drafted that way and was in existence when the DB plan was installed. Thank you for input. I am not hoping for an outcome, I just want to get it right. We'll see if anyone else chimes in. Maybe I should put it in the X-tested plan forum.

This is what my original thinking was: A. My understanding is that a NRA of "the later of age 65 and 5 YOP" is a uniform retirement age, even though some participants may be different ages at retirement. B. If A. is correct, why wouldn't a plan with NRA = 65 and NRD = Anniversary Date (last day) following NRA be a uniform NRD? If B. is correct, then you would have in my Part 2 example, a plan with different uniform retirement ages, in which case paragraph (2) under the testing age definition would apply, and the the testing age would be the "latest uniform normal retirement age". (Again, I don't know if that's 65 or 66 in my example.) In other words, I was not looking at the combined plan as a plan that does not provide a uniform retirement ages (where paragraph (3) of the testing age definition would apply and testing age would be 65). What do you think?

Thanks Andy. What about Part 1 (assumes both plan have NRD = first of month following)? Do you agree with my testing ages?

Part 1: I would like to check my interpretation of Testing Age in 1.401(a)(4)-12. Combining plans for 410(b) and 401(a)(4). DB Plan NRA = Later 62 or 5 YOP (NRD is first of mo. following) DC Plan NRA = 65 (NRD is first of mo. following) No EE is at or past either plan's NRA. No EE comes under the 5 YOP NRA provision. EE1 is in the DB Plan Only EE2 is in the DC Plan Only EE3 is in both plans. Testing Age: EE1 = 65 EE2 = 65 EE3 = 65 Agree/Disagree???? Part 2: What if the NRD in the DC plan is the last day of the plan year NRA is attained (the DB NRD is first of month following NRA). Therefore, in the DC plan, some particpants actually retire at age 66 based on age nearest birthday. Would that change anything? The regs only use the term "normal retirement age" not "normal retirement date". I can add that my software vendor uses age nearest at NRD. If age nearest at NRD is applicable, would everyone's testing age be 66 or just those that are actually 66 at NRD (the rest would have an age 65 testing age)?

Gateway and combined plan nondiscrimination testing aside, if the employee in question only participates in the DC plan then that person only has to get the DC minimum of 3%. The 5% DC TH amount is if someone participates in both a DB and a DC plan and the TH min is provided in the DC plan.

Thanks.

For 2006 and 2007, does the 150% of unf CL 404 limit apply to a one person plan?

"A DB/DC combo arrangement cannot have class distinctions as to contributions, such as one finds in a new comparability plan." I have a number of DB/DC combos that have different DB benefits for different classes and on the DC side different allocations for different classes (including some DC plans with each partcipant in their own class). I have submitted to the IRS and received approval. There are some coverage testing quirks when the DC plan has each person in their own category and that has been discussed in detail on this board, but in general I know of no reason why there cannot be class distictions in a DB/DC combo.