Andy the Actuary

Agree with Effen -- no prescribed IRS methodology. Just (1) see what the plan says and (2) apply whatever method used uniformly and consistently.

Thank you !

Was the J & 75 always an option or added as a result of PPA?

Just twiddling thumbs until tonight's World Series game and was wondering if anyone has witnessed a participant electing an optional Joint & 75% payment form that was added to protect him? I have not.

So, Mr. Jbones, if you agree with ScottR, then wouldn't you include this contribution when conducting your $250,000 condition assessment of whether or not a form should be filed?

Went through the retroactive start date issue on a plan where the 50% restriction was in order. The benefits attorney opined that only 50% of the retroactive payments could be distributed in a lump sum since they constituted a lump sum. (You should have seen the election package!!!) In the described situation, the implication is you couldn't distribute retroactive payments in a lump sum. It's not clear that all attorneys would see it the same way but I relied on the advice of the attorney my client was paying.

Suppose you were preparing the 5500-EZ. Would you include the accrued contribution as part of the year-end assets?

The Plan uses the 1,000 hours rule, so anyone with 1,000 hours gets a year of benefit service and any with less than 1,000 hours get a partial year. It will also credit a year of vesting if 1,000 hours performed during the annual period ending 6/30/2012 and 1,000 hours during the annual period ending 12/31/2012. The 12/31/2011 calculation will be performed as if the Plan Year was not changing, save service crediting. Thus, since the Plan uses Plan Year compensation, the short Plan Year compensation will likely not increase the the calculation of FAS. I pondered your interpretation but 430 regs. provide, "Under section 436©, a plan amendment that has the effect of increasing the liabilities of the plan by reason of any increase in benefits (including changes in vesting) may not take effect if the plan’s AFTAP for the plan year is less than 80 percent or would be less than 80 percent taking into account the amendment." Your contention is "by reason of any increase in benefits" means the benefit formula has changed. I questioned where it means and increase created by plan operation. Obviously, an amendment employing a fresh-start date would not decrease the AFTAP.

A DB plan amendment will be adopted during 2011 to change a July 1 - June 30 plan year to the calendar year effective 1/1/2012 so that there will be a short plan year from July 1, 2011 - December 31, 2011. The benefit formula is 1% of FAS x YOS, where FAS is determined on a July 1 - June 30 basis. As of 12/31/2011, the accrued benefits for all actives will be calculated. Effective 1/1/2012, a participant will accrue benefits under the same formula but using FAS determined using historical calendar year compensation. If greater, the 12/31/2011 grandfather applies. As of 1/1/2012, the AFTAP is calculated to be 80% before applying the amendment (i.e., just with the grandfather). After applying the Amendment, the AFTAP is 78%. Can this amendment take place without the Plan Sponsor making additional contributions to increase the AFTAP to 80% after the amendment ??? If not and the employer does make a contribution, does this mean the plan year has not changed or that the plan year has changed, but the part of the amendment that changes the computation compensation period does not take effect? My opinion is the Plan Amendment consists of two separable provisions -- the change in plan year and the change in compensation compensation period. There should be no problem changing the plan year. However, it seems that the change in compensation period, while it does not alter the benefit calculation formula per se, does in operation increase benefits and so would be precluded from going into effect. Comments ?

Agree with Mr. E -- It's retroactive annuity start date time. Of course, the Plan must be amended to so provide. At least these are the conclusions a client's attorney and I came to.

Surely you are joking that you would suggest this?

I saw this and wanted to send you the original IRS source and find that what was said what not exactly what the IRS website said (http://www.irs.gov/taxpros/article/0,,id=114385,00.html), which was that except the aforementioned "perfection process," the IRS will not accept 1040 returns via fax. This statement is quite different from you can't file a copy and must file an original. My bad. So, I felt I owed it to you to check with some CPAs around town. The two I called each indicated he would have no problem filing a copy of a signed 1040. In fact, they alluded to electronic filing where there is no signed 1040 and the 8879 the taxpayer signs to authorize the practitioner to e-file could be faxed to the practitioner. One rather larger CPA firm even indicated it nukes the original of the 8879 and saves only a digitalized version. So, given that you can file the 5500-EZ online via the 5500-SF route, the preceding suggests to the contrary of what I originally hastily suggested, that you could submit a copy of the signed 5500-EZ.

"The Internal Revenue Service (IRS) will only accept a facsimile signature on tax returns as part of a return perfection process initiated by the IRS. This is a post-filing process in which the IRS requests additional documents or schedules on an already filed tax return." Based upon the IRS position on federal inome tax returns, they might not accept a facsimile signature on a 5500-EZ.

A 50,000 participant DB plan has a 12/1-11/30 plan year. The plan year will change to the calendar year effective 1/1/2012 so that there will be a one-month short plan year 12/1/2011-12/31/2011. The Plan had a funding short-fall as of 12/1/2010 so quarterlies are due for the short plan year and the 2008 proposed regulations say use 1/12 of the 2010-11 MRC to determine the short plan year minimum quarterly contribution safe-harbor. It is now 4/15/2012. We don't yet have the data and can only estimate if there is a funding short-fall 12/1/2011 and thus, do not know if quarterlies apply for the 2012 Plan Year. Worse, the 2008 proposed regulations stipulate that in the plan year following a short plan year, the minimum quarterly contribution is simply 90% of the current year MRC and the 100% last year safe-harbor does not apply. Apart from just estimating a high contribution for the 4/15/2012 first quarterly installment for the 2012 plan year, does anyone know of any guidance to cover this situation?

Thank you all for your thoughts. Fortunately, the affected client has requested the AFTAP be certified and would find not certifying it unthinkable.

1. Do not work through others or have others work through you. 2. Request contributions, benefit payments, and expense from the Plan Sponsor as well as trust statements. Full reconciliation is then accomplished. 3. Fire clients such as the described. 4. This work code is covered under a.t.a's code of business conduct for maintaining 5. Hide in the ivory tower: Be the sole employee of self-employment so that you are not prevented by income needs from sticking to your convictions and professional standards. Haven't read JBEA or ASB codes in awhile but believe they would recommend consideration of #3.

IMHO, you are in a precarious position. There are fines for late filing and the client may look to you to absorb these fines if you fail to sign. To quote the wisdom of this Board's good friend Mike Preston, "Sometimes the "correct" course of action isn't the one that is legally defensible at a cost. Instead, it is the action that ensures one needn't defend anything - legally defensible or not." You will likely have to wiggle around this issue gently. You may wish to send the client a letter listing the dates and amounts of contributions provided by the advisor, indicate that you attempted to verify but have been provided no basis to confirm them, but that if the Client does not advise that these are incorrect by mm/dd/yyyy, you will complete the Schedule SB using them. However, your actions now do not lock you into how you should practice your business in the future.

Do not hate the Yankees. They generously allowed St. Louis to win the World Series in '26, '42, and '64.

You work for the client. Send your formal request directly to the client.

Doubt there are answers but let's try. Calendar year plan. I've come across my first mandatory burn of FSCOB to bring AFTAP to 80%. Question 1: Does mandatory burn eliminate need to certify? If you don't certify, then is AFTAP deemed to be <60% ? Question 2: Suppose plan was not certified in 2010 and presumption of underfunding applies. Is it still necessary to burn FSCOB? My guess is (1) if you don't certify, than AFTAP is deemed to be less than <60% even though FSCOB was burned to bring AFTAP to 80%. My guess is (2), Yes, it is necessary to burn FSCOB. Comments ???

Thank you. I still contend the meaning may not be ambiguous. They specify "do not cease to apply" rather than "continue to apply. So, they could be interpreted to mean that you don't forgive the restrictions that apply prior to termination but it does not mean you can't remove them by making contributions. I suspect I may be the sole earthling who sees them this way.

It would be great if someone can quote chapter and verse. This means, if what you state is the rule, that in your situation if the AFTAP <80% prior to plan termination, the plan sponsor could not contribute additional amounts to remove restrictions. The question would then become, "Why not?" It would also suggest that if AFTAP>80% prior to termination, that plan could be amended to increase benefits without regard to resulting post-amendment funding status and this doesn't sound kosher. This stuff is very educational -- It teaches you how to cuss !!!

If the Plan plays lump sums and was not frozen before the magic September 2005 date, wouldn't it still be subject to 436 so AFTAP would need to be determined and hence, liability numbers are available? Then, if AFTAP >= 80%, the plan could distribute lump sums during the limbo period before which, for example, the D-Letter has not been received.

Yes, thank you, my oversight. New FT would be 1,000,000 and so funding shortfall would be 125,000 = 800,000 - 675,00 Contribution required at 12/31/2011 would be (125,000+40,000+50,000) x 1.05 = 225,750

Would appreciate comments on the following: Facts: Calendar year DB Plan frozen in 2007 Plan pays lump sums FT 1/1/2011=900,000 Assets 1/1/2011=675,000 FSCOB=PFB=0 2011 MRC=50,000 2011 Effective Rate=5% 2010 AFTAP=100% (e.g., 2011 quarterlies not required) 2011 AFTAP certified in April 2011 as 75% and restriction notice provided to participants Plan Sponsor wants to reopen plan effective 1/1/2011 and adopts amendment 6/1/2011 FT will increase from 900,000 to 1,000,000 and TNC will increase from 0 to 40,000. On December 31, 2011, Plan Sponsor makes contribution of 150,000. Conclusion: To make amendment effective, Plan Sponsor must contribute the equivalent (a) 45,000 to bring AFTAP to 80% (b) 40,000 for the TNC Discounted value of contribution is 142,857. Excess contribution is 142,857-50,000-45,000-40,000=7,857 Participant terminates employment on 10/1/2011. Benefit is the frozen benefit and lump sum restrictions apply because amendment is not effectively in place until 12/31/2011 after 436 contribution is made. EA will recertify AFTAP as of 12/31/2011 as 80% and participants will be notified that restrictions have been removed.