Andy the Actuary

Copy costs still 25 cents/page. It seems like the copying offer re-reared its head in the 2010 annual funding notice.

I file for my clients using IFILE rather than 3rd party software. EFAST2 does generate an email that has a reference number. I would hope this number would be of value in demonstrating that you filed. One would also hope that the DOL/IRS will be understanding during the early years of electronic filing and that you should be granted forgiveness.

My understanding (and please jump in if there is disagreement): The overlapping rules (i.e., 404(a)(7)) apply for a taxable year if an employer contributes to both a DB and DC plan and there is at least one common participant. The rules do not apply if the only contributions to the DC plan are employee elective deferrals. For the purpose of the 25% overall limit imposed under 404(a)(7), consider all compensation for all participants in the two plans. So, for example, suppose the DB Plan covers 15 participants and the DC plan covers 20 participants and 10 of these are common. For 404(a)(7), compensation will be aggregated for 25 participants (5 in DB not in DC plus 10 in DC not in DB plus 10 in common). The fact there are individuals that don't share common features is immaterial. Suppose your DC plan is a 401(k) plan with match. While your employee in (2) is not in the DB plan, the person's compensation would be counted for 404(a)(7) purposes. Ditto, your employee in (1) would be counted because such employee is a participant in the DC plan though he elected not to defer. Again, the above discussion pertains only to the application of 404(a)(7) as it applies to the 25% of compensation determination. The 6% limit appears to apply only to the compensation in the particular DC plan or plans. In the above example, the 20 DC participants. Thus, as another example, 404(a)(7) would have to be applied if an employer sponsored a DB plan with 10 participants and then maintained a 10% money purchase DC plan covering only one participant (NHCE) [who was also in the DB plan].

A PBGC covered Plan that was frozen in 1993 is 75% funded and is going through the standard termination process. The Plan Sponsor has committed to fund the Plan to cover 100% of benefits liabilities. The Plan is filing for a D-Letter and will not make distributions, other than business-as-usual distributions, until the D-Letter is received. The Plan Sponsor will fund the Plan once the D-Letter is received. A NHCE terminates employment. The Plan distributes a lump sum. An HCE terminates employment. Is the Plan required to respect the pre-termination restrictions of 401(a)(4) and not distribute the HCE's benefit in a lump sum unless the Plan sponsor would make the Plan 110% funded? Obviously, once the D-Letter is received, the Plan would become 100% funded and all distributions could be made.

Has anyone a handle (or website) whereby we can estimate the underlying interest rates used to determine individual annuity premiums? Also, to what extent are theoretical rates loaded for expenses, commissions, premium taxes, etc. What I'm attempting to do is to ball park what annuities might cost in a plan termination. Is the lump sum rate a reasonable proxy?

Just in case you are unfamiliar with this service, the Social Security Administration may be able to assist: http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/136

I can't wait to see 8955-SSA, which should be the form to end all forms. After all, given that it will capture essentially the same information as SSAs since the birth of ERISA, it's no wonder there is such a desperate struggle to produce it. So, which event is likely to occur first (ordered by my choices from most to least likely)? (a) Charlie Sheen and Lindsay Lohan tie the knot (b) Global cooling overtakes global warming © Tuesday falls on Thursday (d) IRS issues Form 8955-SSA (e) Cubs win World Series

Interesting responses in that no one reminded me of the box [affectionately known as the "audit me box"] on the bottom of page 1 on SB that is required to be checked if you have failed to follow fully any regulations or rulings. I certainly don't want to check this box and then have to attach an explanation. Seems like this could be creating smoke where there is no fire.

Thank you. I was unfamiliar with the COPA forums to which you had referred. a.t.a

IRS Reg. 430(g)-1(f)(3) states, "(3) Approval for changes in . . . valuation method. Any change in a plan’s . . . asset valuation method that satisfies the rules of this section and is made for either the first plan year beginning in 2008, the first plan year beginning in 2009, or the first plan year beginning in 2010 is treated as having been approved by the Commissioner and does not require the Commissioner’s specific prior approval." Suppose for a calendar year plan, we used FMV of assets for 2008 and switched to AMV for 2009. Does this mean that we can switch back to FMV for 2010 (provided SB not filed) without IRS approval?

The SB requires showing the actual return on assets. This is an academic exercise if the Plan does not maintain credit balances. Anyone have a serious issue with simply reporting 2I/(A+B-I)?

After settlement of db pension obligations following a plan termination, the financial statements show a net asset. In the past, this was a pre-paid pension expense. Under FASB158 it is a combination of "liability for pension benefits" and AOCI. What is the appropriate accounting treatment for eliminating this asset?

There are no discrimination issues when a Plan offers less favorable terms to an HCE than and NHCE. While it might be preferable to define the class by a characteristic (i.e., senior manager), it should be acceptable to say HCE. Your issue becomes defining HCE for this purpose (such as an employee whose annual pay rate exceeds the 414(q)(1)(B) ($110,000) limit and you also have to deal with when a employee moves from HCE to NHCE and vice-versa; in this respect, the recommendation is once an HCE, always an HCE, including the year the employee became an HCE.

A DB plan had an 8/1-73/31 Plan Year. On October 1, 2010, Plan Sponsor elected "unconditionally and irrevocably" to apply $400,000 of its FSCOB to offset the 2010 minimum required contribution (of $400,000). On December 28, 2010, Plan Sponsor amended Plan to change Plan Year to calendar year effective January 1, 2011 and thus created a short (5-month) Plan Year, 8/1/2010-12/31/2010. The actuarial valuation has been revised and the 2010 minimum required contribution is $250,000 based upon projected accrued benefits 12/31/2010 as opposed to projected accrued benefits 7/31/2011. There is likely is no "right" way to deal with this and I'm trying to keep in mind that I will have to provide reasonable entries on Schedule SB. So, I offer: (1) Treat the election as being for $250,000, or (2) Request the Plan Sponsor to amend the election that is unconditional and irrevokable, or (3) Apply $250,000 to reduce MRC and consider the remaining $150,000 to be "burned" (without any additional election and it is too late to make such election anyway) so that the entire elected amount is used, or (4) Ignore the Plan Year amendment for 430 purposes since it was adopted after the actuarial valuation date, which would mean show full year entries on SB even though the SB will be for the period 8/1/2010-12/31/2010. Any thoughts????

So, we're in good shape so long as no one ever again poses this question and opens up the floor for a contradictory opinion!!!

As I thought about your problem, I considered what about if you could only deduct the minimum as determined 1/1/2010 as you were considering In such case, you could have deducted part of the 3/15 contribution in 2010 and part (the interest) in 2011. That's all fine and dandy but you would be trapped if the client advanced the entire contribution in 2010. It would still be interested adjusted from 1/1/2010 so now you would have an unsatisfactorily resolvable dilemma.

The minimum appears to be always deductible (except for situations where the minimum exceeds earned income): Sec. 404. Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan (a) General rule If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under this chapter; but, if they would otherwise be deductible, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year: (1) Pension trusts (A) In general In the taxable year when paid, if the contributions are paid into a pension trust (other than a trust to which paragraph (3) applies), and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 501(a) in the case of a defined benefit plan other than a multiemployer plan, in an amount determined under subsection (o), and in the case of any other plan, in an amount determined as follows: (i) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior plan year), if such amount is greater than the amount determined under clause (ii) or (iii) (whichever is applicable with respect to the plan), Sec. 412. Minimum funding standards (a) Requirement to Meet Minimum Funding Standard.-- (1) In general.--A plan to which this section applies shall satisfy the minimum funding standard applicable to the plan for any plan year. (2) Minimum funding standard.--For purposes of paragraph (1), a plan shall be treated as satisfying the minimum funding standard for a plan year if-- (A) in the case of a defined benefit plan which is not a multiemployer plan, the employer makes contributions to or under the plan for the plan year which, in the aggregate, are not less than the minimum required contribution determined under section 430 for the plan for the plan year,

Is the X-048 error a Relius error message or a DOL error message?

Under the proposed regs, the amortization charge is prorated for the short plan year but the TNC isn't. This leads to (2) questions: (1) How would you handle the expense portion of the TNC? We could prorate some or all of the expense. For example, suppose a SPY of 8/1/2010-12/31/2010. Let's say the expense assumption is that the current year's expense is assumed to be the same as the prior year's expense. However, let's suppose that during the SPY that no PBGC premium would be paid by the Plan. I.e., such premium would have normally been paid 1/1/2011-7/31/2011. Would make sense to exclude this from the expense before proration? (2) How is the amortization factor determined -- over calendar years or Plan Years? Let's say there are no existing bases but a base is created 8/1/2010. Let's also say for the sake of illustration ease that all segment rates are equal. Would the amortization factor be determined as an annuity over seven years, or would it be 5/12 +v^(5/12)x annuity (6 years)? Thus, come 1/1/2011 we would determine the remaining unamortized base from either an annuity (6 7/12 years) or annuity (6 years). In either case, it would seem if there are existing bases and charges 8/1/2010 that they would need to be adjusted in some fashion for the change in Plan Year.

When professionals post to BL or other bulletin boards, such posts should be viewed as no more than professional opinions. When Mr. Holland posts -- and in the manner he posts -- his content takes on an aura of government opinion owing to his well-respected reputation and long-term, recent government ties. In short, his words have weight (mine don't). As such, the government is more likely to consider and possibly rely on his analysis than they would on my articulating the exact same words. Absent his analysis, we cannot conclude that the IRS would have employed the same reasoning or determined the same. IMHO (and I'm not looking for agreement), Mr. Holland should be careful to wear his new and not his old hat.

Because they wanted to punish their spouse?

ILP was an old funding method, under which the annual "premium" was the level dollar amount that needed to be funded each year, from the participant's entry date until his NRD, in order to accumulate to the projected lump sum at retirement. To illustrate, assume that projected monthly benefit is $16,250, and that projected lump sum at retirement is $2.4 million. Further assume that there are 20 years from date of entry to NRD, and that a 5% interest assumption is called for. The ILP would be $72,582. i.e. $72,582 deposited at the end of each year for 20 years will accumulate to $2.4 million. The ILP would remain fixed from year to year unless there is a change in the projected LS at retirement. ... Scott In which case ILP = ILP0+ILP1+ILP2+. . . ., where increases are funded over the remaining duration rather than on an EAN or aggregate basis. I believe this is the basis for the safe-harbor target benefit contribution under the 401(a)(4) regs. I'd be remiss if I failed to comment that this is the most meaningless post, including jokes, I've ever submitted to this Board.

From Form 5500 Instructions: Generally, a return/report filed for a pension benefit plan or welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year should be completed following the requirements below for a “small plan,” and a return/report filed for a plan that covered 100 or more participants as of the beginning of the plan year should be completed following the requirements below for a “large plan.” Use the number of participants required to be entered in line 5 of the Form 5500 to determine whether a plan is a “small plan” or “large plan.” Exceptions: (1) 80-120 Participant Rule: If the number of participants reported on line 5 is between 80 and 120, and a Form 5500 annual return/report was filed for the prior plan year, you may elect to complete the return/report in the same category (‘‘large plan’’ or ‘‘small plan’’) as was filed for the prior return/report. Thus, if a Form 5500 annual return/report was filed for the 2008 plan year as a small plan, including the Schedule I if applicable, and the number entered on line 5 of the 2009 Form 5500 is 120 or less, you may elect to complete the 2009 Form 5500 and schedules in accordance with the instructions for a small plan, including for eligible filers, filing the form 5500-SF instead of the Form 5500.

The plan could be amended to allow for unreduced early retirement provided it could be demonstrated that the amendment did not discriminate against non-highly compensated individuals.

Certainly, provided you're talking about a defined benefit plan and (A-PFB)/FT all determined as of 1/1/2011 >=80%