david rigby

Try this publication from the IRS: http://www.irs.gov/pub/irs-pdf/p590.pdf It can be ordered by calling 1-800-TAX-FORM.

Amen.

No specific experience with this plan provision. The statute says the PBGC "is authorized", does not say "required". However, since it is a statute and not a regulation, probably wise to assume they will use it. Also, PBGC financial condition right now would indicate they want to go after every dollar they can. Might be some flexibility.

I'm no expert, going thru my first Distress Termination now also. I think the PBGC pays benefits. The "extent funded" provides a measure of how much the PBGC can go after. (If the PBGC paid only "to the extent funded", there would be no need for the PBGC. But then some believe that is always the case.) The PBGC limits what it pays two ways: first, the dollar maximum, then the phase-in of plan amendments. Well, perhaps that should be reversed, but you get the idea. Oh there is another limitation: the "3-year lookback" in Priority Category 3. I'm not sure what you mean about "the parties want to know how the participants would be affected before agreeing to release the funds". I doubt you can have a DT without prominent use of the word "bankruptcy", in which case, the judge likely has a voice (to put it mildly).

Not sure if that is covered explicitly, but you can look at the IRS correction program here: http://benefitslink.com/IRS/revproc2003-44.shtml Is there another paycheck this year? If so, can you use a neagtive deduction to effectively reverse the incorrect deduction? (Ask your ERISA attorney if that is acceptable.)

I doubt the plan trustee has any obligation. But who are you? Do you represent a TPA? the plan sponsor/plan administrator? If the former, perhaps the latter has some information to assist you in recreating the calculation details. Other sources might be back-up computer files. Might be a good time to change your procedures to include such information in any letters sent to VTs.

Blinky, please re-read second link. Part (b) of Q&A99-6 asks the question about a frozen plan.

Just a few thoughts: First search these message boards, using the word "bankruptcy", and read all of the items. Second, review plan document. It might already have some "bankruptcy trigger", such as automatically terminating the plan. If so, then expect 100% vesting. (That will happen anyway, but the correct timing could be important.) Third, talk to the plan's ERISA attorney. OK, mbozek will suggest you reverse the order of these.)

Good question Rolf. Perhaps you can submit (now) for the 2004 Gray Book.

See prior discussions: http://benefitslink.com/boards/index.php?showtopic=16493 http://benefitslink.com/boards/index.php?showtopic=19350 Agreed that Rev. Proc. 2000-40 (by itself) does not require changing the funding method, but by including the cited IRS regulation, I think you can build a case for it. At any rate, per Gray Book 99-6, the IRS seems adamant about their opinion. Then you have to decide if you want to fight it. Or more correctly, the plan sponsor has to decide.

I think the original analysis ignored an important point. What makes up that marginal 40%? Did it include the SS tax? Perhaps it is only 1.45% (or 2.90%) but don't overlook it. Remember that a qualified PS or DB plan [but not 401(k)] is a great way to permanently shelter money from SS tax.

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.