zimbo

Thanks JAY. that was the same calculation I was coming up with. I agree with Frank. It seems that if you fund greater than the equivalent of the 415 accrual you may even be running into non-deductible contributions. Of course, you could fund the proper equivalent accrual using different actuarial assumptions to get a higher cost, but beware of potential excess assets. I have been using Unit Credit for funding these new start up cash balance plans. What have others been doing? In year one, with Unit Credit you can get a perfect match between the cash balances and the accrued contribution if you use the same assumptions for funding as for cash balance accumulation. Of course, after year 1 it will break down as you begin to have actuarial gains and losses. Since these plans put benefits in lump sum terms in the eyes of the client and participants, it seems that our goal is to keep the assets and liabilities as close as possible throughout the life of the plan. Quite a challenge though.

I like your answer for its simplicity and elegance but I still can't buy into it since the actual language of the regulations seems to call for the approach described in #2 from my original posting. Maybe we can ask the IRS at a future EA or ASPPA Meeting.

With regards to item #2, I think the IRS agent is grasping at straws. If the plan language is clear and the ratio percentage test is met, there is absolutely no prohibition about picking and choosing job classes or even naming eligible employes (or ineligibles I suppose) by name. The reasonable business related classifications are only relevant when doing the Average Benefit Test portion of 410(b).

When a Plan becomes frozen, it is generally considered a Curtailment and using the FASB worksheets you will normally recognize much if not all of the existing gains/losses and transition obligations/assets as well. Each year thereafter, you still can generate gains and losses requiring amortization.

There are such cash balance plans out there. I was involved in a peripheral way with one adopted by a large accounting firm. It operates much like a Daily Valued DC Plan but everything is hypothetical. The hypothetical contribution is hypothetically contributed x days after each pay period and is hypothetically invested in your selected funds. The question for which I never received a straight answer is whether a decline or even a no change in investment portfolio would cause a prohibited 411 reduction in accrued benefits from one year to the next. IN other words, could your account remain flat from 1/1/05 to 1/1/06 without causing a prohibited reduction in the monthly normal retirement benefit?

The new 401(a)(9) rules for DBs are in effect for 2006 and I see lots of unanswered questions. Some issues worthy of discussion: 1. What distribution method works best for most clients? I have come to think that term certain with a payment period equal to the "uniform lifetime method" may work best because (a) it produces a lower minimum than the normal annuity options, (2) it allows for a death benefit whereas it appears that the other annuity options only allow for whatever the option calls for (i.e., life annuity would have NO death benefit) (3) you could change payment options at any time rather than just at retirement or plan termination. 2) Is spousal waiver out of QJSA required for any payment option except QJSA? Must we give a full range of payment options or can the plan choose one method without employee selection? 3) Must the plan document, when amended to the new rules by the EGTRRA restatement date, specify the exact option? Would welcome any feedback of this preliminary analysis

I have always believed that the change in rate is for the entire year rather than just as of the val date. I know that there are differing opinions on this. For example, I believe that Relius DB software, treats the change as occuring only on the val date, so contribution made during the plan year are credited at the old val interest rate. Don't know if there is any definitive guidance though.

I agree with Blinky. The 5 year lookback seems to cover it. Do we all agree that, as per my original question, if a son owns more than 50% of another business that does not sponsor the DB Plan but is related to the sponsor under 414, that he would be considered a substantial owner of the sponsor following the flow of 1563 ownership?

I have a client, Company X, that has a DB Plan covering the Mother who owns 99% of the stock, the Son who owns 1%, and a rank and file employee. At the end of 2005, the rank and file employee terminated and was fully paid out. I know that PBGC regs do not attribute stock from Mother to Son so normally this plan would remain covered under PBGC in 2006. However, if the Mother and Son have other companies that form a controlled or affiliated group with the Company X though these other companies are not part of the DB Plan , and if the Son owns more than 10% of one of these other companies, would he be considered a "substantial owner" for purposes of PBGC coverage of Company X?

Thanks for your insight. Just want to point out that in #1, I took a shortcut. I was actually comparing the value of the Lump Sum payable at 417(e) rates to the QJSA at plan rates (which is equal to the value of the lump sum at plan rates since all options are actuarially equivalent). Does this point change your opinion in any way or do you still believe that the regs support my approach in #2?

We are working on a typical small plan that offers actuarially equivalent annuity options along with a lump sum option that is subject to 417(e). In determining relative value, it seems clear that the annuity options are all 100% of the QJSA option using plan actuarial equivalence. However in determining the relative value for the lump sum, do you (1) take the lump sum value determined at 417(e) rates and divide by the lump sum valued at plan act equiv. and make the resulting pct. the relative value, or (2) take the lump sum value determined at 417(e) rates and divide this by the present value of the QJSA at payment date using 417(e) assumptions? A strict reading of the IRS regs seem to support #2 but I though many practioners were using the approach in #1. Opinions are welcome.