david rigby

Holy cow! What does the plan's ERISA attorney say?

Even if there is no DRC/AFR, there might be a deductible contribution. My greater concern is the use of Aggregate for a frozen plan. Several prior discussion threads on this topic: it is generally considered an inappropriate method for a frozen plan, at least in years after the freeze is effective.

Frank's comments are reasonable. Might not get much difference in the contribution under FIL, PUC, IA (depending on prior asset performance). IA will provide the same as Agg. method. The important thing is that 30-year funding is not appropriate with this demographic mix. It helps to have your valuaiton date at EOY to provide the most flexibility, but not mandatory.

Perhaps not relevant, but why wouldn't the plan sponsor send the check (the actual money) directly to the "large institutional custodian", and a copy to the TPA? (1) Gets the money there faster. (2) Having a copy at the TPA provides a "cross-check" on the custodian.

It means the plan has to purchase the promised annuity, with all of the appropriate provisions, including early retirement, optional conversion forms, etc. However, it is likely that NO insurance company will sell an individual deferred annuity, at least not if the deferral period is over a year. Then you have to decide what other option you have. I had this problem once, and we were instructed by legal counsel to calculate and purchase an immediate annuity (J&S, if the employee is married). Obviously, the monthy amount can be greatly reduced.

IRC 4972©(6): (6) Exceptions In determining the amount of nondeductible contributions for any taxable year, there shall not be taken into account - (A) contributions that would be deductible under section 404(a)(1)(D) if the plan had more than 100 participants if - (i) the plan is covered under section 4021 of the Employee Retirement Income Security Act of 1974, and (ii) the plan is terminated under section 4041(b) of such Act on or before the last day of the taxable year, and (B) so much of the contributions to 1 or more defined contribution plans which are not deductible when contributed solely because of section 404(a)(7) as does not exceed the greater of - (i) the amount of contributions not in excess of 6 percent of compensation (within the meaning of section 404(a)) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the plans, or (ii) the sum of - (I) the amount of contributions described in section 401(m)(4)(A), plus (II) the amount of contributions described in section 402(g)(3)(A). If 1 or more defined benefit plans were taken into account in determining the amount allowable as a deduction under section 404 for contributions to any defined contribution plan, subparagraph (B) shall apply only if such defined benefit plans are described in section 404(a)(1)(D). For purposes of subparagraph (B), the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to a defined benefit plan and then to amounts described in subparagraph (B).

Iis this what you mean? Section 653 of EGTRRA: "SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING. (a) IN GENERAL- Subsection © of section 4972 (relating to nondeductible contributions) is amended by adding at the end the following new paragraph: `(7) DEFINED BENEFIT PLAN EXCEPTION- In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except to the extent that such contributions exceed the full-funding limitation (as defined in section 412©(7), determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.'. (b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2001."

Quite a mess. Although it sounds overused, the first step is probably to have this conversation with your ERISA attorney. If you don't have one, you need one now.

Effen and mwyatt have supplied excellent commentary. Of special note is the comment about participant decision. If the plan does have a lump sum option, and it has not been observed in past practice, then you may have a problem. In that case, the plan should seek advice from its ERISA attorney.

You might get some value from prior discussion threads on this topic. Perhaps using the Search feature with keyword "overpayment".

Be sure your amendment does not cause problems under IRC 411(d)(6).

Actually, the deficit is worse, but 2003 has been a pretty difficult year for plan terminations. You can read the PBGC’s 2002 Annual Report here: http://www.pbgc.gov/publications/annrpt/02annrpt.pdf In this October 14, 2003 testimony before Congress, http://www.pbgc.gov/news/speeches/testimony_101403.htm the PBGC described its funded status. The most recent estimate at 08/31/2003 is a deficit of $8.8 billion in the single-employer fund.

I thought a plan could recongize a DRO only if it is a QDRO. Since a QDRO (or DRO) is "real" only if issued by a court (I think), then a draft DRO does not meet that condition.

But that does not mean that all prior deductions would be disallowed.

I have used all of them at various times, both paper and internet. Now, no more paper. Recently, we have used BNA and CCH, but I prefer BNA.

The confusion caused by double-posting. http://www.benefitslink.com/boards/index.p...topic=22270&hl=

To amplify Andy's response, it would be better to state "...may not exceed any prior year's accrual..."

Your 2002 deficiency becomes part of your 2003 funding requirements. If the 2003 required contribution is zero, you will have satisfied the requirement, including the prior deficiency. BTW, the penalty becomes 100% the second year if not satisfied. See IRC section 4971.

And get out the checkbook.

I think you just paid more than the plan permits. You might also have a DRO with enough ambiguity to question whether it is qualified.

Don't forget to look here: http://www.benefitslink.com/jobs/index.shtml

Assuming this plan has the post-NRD provision of actuarial increases, the choice of this assumption can be significant. But, if the benefit is the 415 limit, it gets easier.

I agree with your comment RE materiality. But be carfeul who is making that determination. WRT recognizing the effect of change in comp limit(s), it seems appropriate to include it if you know it. If the actual amendment wording differs from what you expected / valued, then there might be 3 choices: - consider re-determining the NPPC, or - include the difference in the next year's NPPC, or - let it fall into accumulated g/l (depending on materiality).

From Gray Book: QUESTION 94- 22 Lump Sum Availability of Section 415(b)(4) Amount -- 415 Under section 415( b)(4), a defined benefit plan may pay up to $10,000 per year (regardless of age) if the employee has no defined contribution benefits from the employer. Assuming that such amount exceeds the otherwise determined 415( b) limit, can it be paid in the form of a lump sum? RESPONSE: No. IRC Regulation 1.415-3(f)(4) states: "Computation of $10,000 Amount. For purposes of subparagraph (1)(i) of this paragraph, the value of the retirement benefit payable under the plan is not adjusted upward for early retirement provisions and benefits which are not in the form of a straight life annuity (whether or not directly related to retirement benefits)." In other words, no upward adjustment in the $10,000 is allowed for payment in a form other than straight life annuity, including a lump sum. Copyright © 1994, Enrolled Actuaries Meeting All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.

It depends. Some things to consider, assuming this plan is covered by ERISA: - The sale/spinoff might create a "partial termination", the consequence of which would be to give 100% vesting to those affected. - Even if that does not happen, the seller might choose to give 100% vesting. Just takes a simple plan amendment. If not, then the affected employees will probably be considered to have severed employment at the date of sale, and their accrued benefit and vesting will be determined as of that date. - An alternative is to establish a new plan (that is, spinoff a new plan by itself) with only the affected employees. Then upon sale of the “new division”, the plan goes with it. This is usually not recommended because the buyer gets the benefit of non-vested forfeitures. - Another variation is for the buyer and seller to negotiate a transfer of liabilities (and assets) directly from seller’s plan to buyer’s plan. BTW, this assumes the buyer is outside the controlled group of the seller.