Andy the Actuary

My apologies for not probing further and making a false assumption. The Plan with which I was involved allowed for the second bite. I fell prey to a mental set. You said, "generally," and I interpreted this that you meant a universal. Upon rereading I now understand that the Plan in question does not provide for an additional a.s.d. I retract my comments and apologize for wasting your time. Your example is interesting in that though likely resulting from external forces that prevented you from making a more timely certification, it has the same effect as a Plan sponsor not requesting a certification. It should at least be considered to amend the Plan to allow for a new a.s.d. if the Plan's legal counsel believes that this would be permissible after the fact. Had the AFTAP been certified by 9/30/2011, no restrictions would have applied to those with a 10/1/2011 a.s.d. While it makes little sense, you should probably give the notice to those with 10/1/2011 a.s.d. as a matter of conservatism. This, of course, is analogous on the practical side to lecturing on abstinence after the girl is pregnant.

Not exactly sure, but generally if lump sum is 50% restricted, participant has option to defer election or bifurcate, but once bifurcated, there's no second bite at the apple. the annuity portion is locked in. What am I missing? Because of the >80% certification, it shouldn't have been bifurcated? Isn't your certification as of 7/1/2011 -- the first day of the Plan Year? Yes, the cert is as of 7/1/11, but its not certified until, lets say 10/20/11. Is that material?

Not exactly sure, but generally if lump sum is 50% restricted, participant has option to defer election or bifurcate, but once bifurcated, there's no second bite at the apple. the annuity portion is locked in. What am I missing? Because of the >80% certification, it shouldn't have been bifurcated? Isn't your certification as of 7/1/2011 -- the first day of the Plan Year?

Is this moot as wouldn't you be providing affected participants a new election without restrictions?

You indicated that restrictions did not apply as of the date the 436 notice was do. In such case, client's attorney and I took the position "no" provided no 10/1/2011 annuity start dates.

Technically, it appears to be a one-time notice provided there are no new participants to inform. Preference is to give it each year and also indicate on notice that conditions apply until plan advises otherwise.

Wow, I meant all that ???? Glad you looked it up in Wikipedia as such explanation is provided by people and not by experts.

IRS takes position that contribution cannot be deducted in an earlier year than reported on Schedule SB.

If you're from Boston, "scrod" is the pluperfect past tense of what you are.

You will want to see if 415(h) applies.

Sorry, as they sang about Kansas City, "I've gone 'bout as fer as I kin go."

A few years ago, one of my clients (an attorney no less) opined that IRC 1.72-17 applied and his interpretation was that the excess contribution was non-taxable. Sharing this should not be construed that I am confirming or supporting this position as I am not a tax accountant and am well versed only in actuarialese, baseball, and good, cheap, and plentiful dining.

I had a DB Plan where the Plan and Fiscal Year end was the Saturday nearest October 31 (shoe warehouse inventory day). We put the correct dates on the 5500, Schedule SB, PBGC, etc. Of course, this was 1977 and all the forms were prepared by hand (or type written). Never a problem. Today, well, would you rather slide down a razor sharp banister or subject your unmentionables to being squeezed in a vise?

Two actuaries: Three opinions. Suggest responding to the delinquency letter and attaching copy of extension. However, recommend not sending by certified mail if you wish to ensure IRS receives.

So, if your plan year is say July 31, 2011 - July 31, 2012, you would show a Plan Year of August 1, 2011 - July 31, 2012, an actuarial valuation date on SB of July 31, 2011, and for PBGC, your census date is shown as July 30, 2011. Or do you simply make the correct calculations but report an actuarial valuation date of August 1 and a PBGC census reporting date of July 31?

There does not appear to be any provision in the instructions that would prevent your action. Given the purpose of the form is to facilitate SSA's reminding the participant of a benefit entitlement, the action seems within the forms scope.

The process that should have been followed is whatever the Plan document provides. Now, this advise is valueless. So, about six months prior to 65, the Plan should have contacted them and asked for information (e.g., spouse's dob) and then explain that you will be sending out an election package. The transmittal with the election package (or election package itself) will include language that if it is not returned by the appropriate drop dead date, payment will be made under the automatic J&S form which depends upon the Plan provisions and marital status of the participant. Unfortunately, life does not allows follow a recipe. What we've done to handle cases such as yours is amend the Plan to provide for a retroactive annuity start date election in addition to a current election. This is fairly complicated but should satisfy that the participant is whole. You can check with legal counsel but my understanding is it is impermissible to forfeit missed payments once the participant reaches 65 just because the participant has not applied for benefits.

I use IFILE with an XML feed from Relius. Generally, there has been no problem with EFAST2 accepting the feed. I just spent three hours locating an error. Hopefully, this discussion will spare others some pain. Keep in mind that each time my uploads failed the only message EFAST2 produced was "The XML is not a valid file." This, of course, was not true as I even tested the XML for syntax with an XML tester. (1) I reviewed the filing for suspected blanks and triple checked. Nope. (2) I continued to edit XML file and dropped off the attachments and then the schedules one by one. Nope, until I got to Schedule C. (3) I reviewed Schedule C but could not get EFAST2 to accept the XML no matter what I did to the Schedule C. (4) I gave up and decided to upload the filing without the Schedule C. Worked fine. (5) Then, I proceeded to enter the Schedule C manually on line and that worked fine until [drum roll] I entered an address. The address I attempted to enter was "7th & Washington." The entry field turned pink and it turns out EFAST2 didn't like the ampersand. So, when I changed "&" to "and," the XML uploaded just fine. In short, EFAST2 gave no indication whatsoever what was unacceptable and through brute force I was able to determine the offending entry. EFAST2 is very educational -- it teaches you how to cuss !!!

No remedy called for unless required by law. Plan sponsor does not want to pay lump sums.

So, essentially contributions were "misreported" on the wrong year. Sounds correctable. HOWEVER: As I've blogged previously, the IRS has pronounced that contributions may not be deducted in a year preceding the year they are claimed on the SB. So, while it might be allowable to amend the Schedule SB, it might jeopardize the deduction.

Couple comments: (1) Should request an IRS D-Letter if proposing to offset under floor DB plan by the actuarial equivalent of 401(k)/401(m) deferral accounts, as I thought this design is a "no, no." (2) By design, the Plan always provides HCEs with a benefit and NHCEs with no benefit. Would suspect as you inferred that this Plan does not in form or in practice cover NHCEs and thus may fail 401(a)(26). Better would be to have some non-de minimis formula (1/2 of 1% per year of service) that is always less than the actuarial equivalent of the account balance.

Does your formula overall satisfy one of the minimum accrual rules under IRC Sec. 411(b)??? Does youramended formula satisfy the grants of past-service under IRC Sec. 401(a)(4)

Thank you. It was clearly the intention of Congress to punish plan sponsors who fail to fund their plans. They did not envision that some plan sponsors may use this provision to prevent fund depletion when a plan is inadequately funded. I.e., if 80%, lump sums are granted on a first come, first serve basis to any NHC until the plan runs out of money. To some, this is no more just than not distributing lump sums to anyone.

Suppose the example is modified so that calculated AFTAP >80%, but AFTAP defaulted to <60% because Plan Administrator refused to request EA to certify AFTAP? Is your answer the same?

FACTS (1) Plan is restricted from distributing benefits in a lump sum because AFTAP<60%. (2) Participant eligible for early retirement elects immediate monthly payment with full disclosure that lump sum distributions may be available at a later date if participant defers start date and that election to start immediate monthly pension, including distribution form, is irrevocable once first payment is made. (3) Plan does not provide for opportunity to elect a lump sum of remaining payments once restrictions are lifted. (4) In three years, AFTAP>80% Conclusion Monthly payment continue under distribution form originally elected. Anyone see any problems???