david rigby

Generally, if an EE changes jobs *within* the same organization, then no distribution is expected to occur because no "distributable event" has occurred. Such events usually are death, disability, retirement, or other severance of employment. The benefit accrued (or account balance, depending on the type of plan) will remain in the plan and will be paid at some later date (death, termination, retirement, etc.). The EE may then have a benefit coming from 2 different plans; nothing wrong with that. Unlikely that the plans would include provision to transfer assets and liabilities upon a transfer of employment, but it is possible. You also asked if the participant could "roll the assets". No, because that first requires a distribution (see first paragraph). If the plan the EE is "leaving" is a DC Plan that contains the ability to modify investment elections, then the EE should still have those same options.

Good question. I think you have it correct, that the plan year ended 1/31/99, so that the due date of the form was 7 months (unless extended) later, or 8/31/99. One possible caution, verify that 1/31/99 was the final distribution date, not the begininng the distribution process.

My math is a little different. I interpret the facts as creating a $60,000 contribution. It seems to me that contributing an additional/extra $x per participant is not going to be discriminatory, but you might need to amend the allocation formula in the document to accomplish this. Also, as Bill states, watch out for 415, etc.

I'm not an attorney, but this does not smell right to me. If assets and liabilities are transferred from C's plan to A's Plan, then 414(l) is at issue. I think C's plan must already state that excess assets (that is, if the plan were terminated) will be returned to the ER. Anyone disagree? Next issue, if C's plan has "overfunding" as described above, then nothing happens to it unless that plan is terminated. The rules of the Plan govern where that excess goes. Assuming the Plan states that the excess will be reverted to the ER, then C gets that full reversion, and pays the appropriate taxes. Then the owners/management of C can decide what to do with whats left (after Uncle Sam takes out his very large chunk). If the goal is to transfer the "overfunding" into the plans of A and B, then a plan merger is the way to do that. If A and B each want their share of the excess, then it may be necessary to split C's plan first, and then merge the appropriate split plans into A and B. Have I missed something?

Yes, all above is good advice. But there is a practical issue: almost no plan participants are aware of this limitation. I'm not sure if the ER has any responsibility to notify them. The danger might be: if the ER does such notification (probably in a generic manner), and then later misses an employee who is affected by the 402(g) limit, would the ER have some liability. Any opinions or advice or examples to offer?

Well, the answer to Andy's question can be obtained by viewing the "profile" for Matt Tuttle.

Yes, it is back to the basic question. Larry makes some very good points. Even if you decide that showing individual cost is a bad thing, that may not be an acceptable answer to the client, or some other vendor. If you are forced to show it, i suggest that you use some standard method, preferably applicable to all clients and all situations. To me, that leads directly to use of the Normal Cost. Then you must decide which. I don't think the funding method is relevant in this case. For example, if you are using the Aggregate method, then that provides you no help in this regard. My preference is to use Entry Age normal cost, because this is typically a "truer" measure of the underlying cost, spread over the employee's working lifetime. Also, note that if you were to use the PUC Normal Cost, you might end up with an individual cost that is small when you (and the employee) don't expect that. This is likely if the plan has a service maximum, which can also lead to one year's normal cost being less than the prio year's normal cost. In any case, I believe that the text is just as important as the number. Here is the text I used once: "During (year), (Company) contributed over $ to fund these benefits, including $ in Social Security contributions. None of these amounts are placed in an individual account under your name, but are contributed in total to fund benefits for all eligible employees and beneficiaries." [Edited by pax on 08-07-2000 at 01:20 PM]

No disrespect to Larry, but I strongly disagree that individual cost of a DB plan should be shown by prorating the actual contribution. There are several problems with doing that. The most obvious ones are: First, the total cost usually includes inactive participants, so it could overstate the cost of an active participant. Second, the actual cost of each individual is related to age, service, comp, etc., so that a proration based on comp (which is simple) will overstate the cost of participants who are younger than average and understate the true cost of those older than average. I have seen first-hand the problems this one caused, when a division of a large plan was sold, and the participants were given lump sum options. The younger employees (which were most of this division) were very unhappy with the amount. They had previously seen EE statements showing a prorated amount of contribution "for that employee", which had averaged about 5%. As you might expect, they perceived this as an "account" and did not understand the actuarial equivalent concept. Third, what if the plan is limited by the full funding limitation? The actual cash contribution may be zero (although the accounting expense might not be). There is still a cost to the plan for that individual and the increase in benefit. My suggestion is to find a way to use the actual cost of that employee's *increase* in benefit. Some approximations may be necessary.

Information on state tax withholding can be found at http://www.cigna.com/retirement/sponsor/y2ksw_w.html

I disagree with RBeck's last sentence, especially his choice of verb "is". Filing of the 5500 is a task related to the plan and the sponsor. It is not part of the audit. However, it might be a task related to the audit. In my experience, 5500's prepared by others (whether the sponsor or an independent TPA) are usually reviewed by the auditor before filing. That does not make it a part of the audit, but rather takes the practical step of making sure that the information in the form does not conflict with the auditor statement.

Note that you don't really care how many employees that sponsor has, just the number of plan particicpants.

I don't think I agree, but before answering, perhaps you could provide a bit more information. What do you mean by "full normal cost"? Numerical examples of your 412 and 404 amounts would help.

To my knowledge, there is no specific definition of "spouse" in the Internal Revenue Code, so the answer by IRC401 would seem to make sense, meaning a default to state law. However, but there may be another factor to consider. Congress recently passed the Defense of Marriage Act (I think that is the title), the primary purpose of which is to affirm that, for federal law purposes, marriage is defined as between one woman and one man. (Hard to believe that we need a law to tell us that.) That statute might have some relationship to this question. Can anyone help here?

I don't see anything that would per se prohibit it. I would want to inquire about the reasoning behind the original advice. Also, it is possible that the advisor may realize some benefit from that action (such as administrative fees) that would not exist if the plan is amended.

There is also a publication by the American Academy of Actuaries. Try this http://www.actuary.org/pub/actuary.org/sta...00/cashbook.pdf

Also, if you are trying to create a benefit of 100% of comp, refer to IRC 415(B)(3) for the defintion of comp, and refer to IRC 414(B)(5)(B) for the "phase-in", that is, the 100% applies where the employee has at least 10 years of service.

The 2000 covered Compensation is contained in Rev. Ruling 99-47. http://www.benefitslink.com/IRS/revrul99-47.shtml Do you get the Enrolled Actuaries Report? Look in the November issue (each year) for the covered compensation table and the limits for the following year. Also, Carol Calhoun maintains some of these on the site http://www.benefitsattorney.com Just click on the drop-down box and choose the item that says "Section 415 and other inflation-adjusted limits."

Great discussion! I agree with Tom's analysis. The essence is contained in T-7 of the regs. BTW, there is a reference in T-3 to IRC 7701(a)(46). That subsection is titled "Determination of whether there is a collective bargaining agreement." Fear not, the reference appears to be pointing out that the collective bargaining unit must exist after 3/31/84.

Actually the SOP 92-6 was issued (I think) by AICPA, not by FASB. I searched the FASB website and came up dry. Then I searched the AICPA site and found it, but it seems to require a password. Any other ideas?

I am looking for a copy of AICPA Statement of Position (SOP) 92-6, Accounting and Reporting by Health and Welfare Benefit Plans. Can anyone steer me in the right direction? Paper is OK, but online is better. Thanks.

Don't forget about top-heavy rules. There may be other ways to help you accomplish your goal of providing more meaningful benefits to younger employees, but the addition of a 401(k) is probably the simplest. Your actuary should be of help in reviewing the alternative plan designs.

As I understand the facts, the Plan is doing exactly what the law says is permitted (not required). That is, if the break equals or exceeds the service, then the plan can ignore the pre-break service. The exception to this is if the pre-break service gives rise to a vested benefit by itself. Another avenue to consider is where you were during the 9-year break. For example, if you were employed in another company that was "related" to the first company, then you may get vesting service (but not necessarily benefit service) for that period. Internal Revenue Code section 411 details the requirements for vesting. Please re-post if you have follow-up questions.

I agree with comment about amend instead of replace. There might be some good reasons to terminate the existing plan, such as prior violations of statute or regulation, so that the new plan is not "contaminated" by these problems. But if not, then adding the 401(k) feature to the existing plan is much easier, cheaper, and quicker.

Interesting comments by Greg. But Senator Harkin's committee assignments can be found at his website by clicking on "Legislation".

sorry to be so uninformed, can you help me identify which regs are relevant here? DOL? IRS? thanks.