Andy the Actuary

Concur with SCA. If I'm self-employed, I am one entity so Schedule C income's are agregated just as they are on front of 1040. Client would only file one 1040 would he not?

It sounds as if the same sponsor adopted the plan twice. Isn't there a single entity which is was SCA's implied position?

You could ruminate for months on this. Past due 5500s, PBGC premiums, etc. One violation after the other.

There's always the find-another-single-employer-with-an-underfunded-plan-and-merge to consider.

Thank you. Agreed, we're talking about form rather than substance. But, all fingers tend to point towards setting up an escrow account, if nothing else so that this isn't blatantly a pay-as-you-go plan. Again, thanks. a.t.a.

Your post was not misleading at all. I was simply throwing the question out there for the peanut gallery to digest. Thanks again, a.t.a

Everett, thank you. That PLT may pave the way for a graceful exit. Appreciate your emphasizing to bring the plan into compliance. Question: Does this suggest the necessity of setting up an escrow trust account (e.g., Plan Name Escrow Account) and getting an EIN, making payents to this account, and then paying benefits from this account as opposed to the Employer simply paying benefits from the corporate account? Please bear with me as I am a propeller-head and not an attorney. a.t.a

I found nothing in Grey books as well. Thanks for searching. Question about DC plan: What justification would you have for making contribution to DC plan when former participant has no compensation, and even so, couldn't provide a $70,000 contribution? There are bunches of bad solutions for accommodating this. So, as long as there is no accepted way of handling this and you've repudiated law in each case, Mike's thought would get high consideration. Unfortunately, Mike, I wouldn't anticipate an attorney to bless such action so all the attorney can do is articulate the many risks. At this juncture, truly the biggest concern is that there are not other participants to be found. This entire exercise may lead to evincing that "no good deed goes unpunished!"

A defined benefit plan was terminated 5 years ago. The Plan sponsor received approval from the PBGC and an IRS D-Letter. All participants elected to receive their benefits in lump sums. And so, the Plan and Trust are long closed. The Plan Sponsor has determined that a former vested-terminated employee had been inadvertently excluded from the process. Had the employee been included, the lump sum would have been $50,000. The current lump sum value would be about $70,000. The (good shepherd) employer wants to do the right thing. That would be (a) gross up the lump sum for income taxes and FICA taxes (as well as pay the employer's share) or (b) reopen the plan so that gross up amounts are avoided and employee can roll benefits to an IRA. Question: Has anyone reopened a plan under similar circumstances? If so, what steps are involved to open and then close? Are we looking at more costs and head aches than grossing up, which may cost about $50,000 in addition to the $70,000? I'm sure this is not new ground and any thoughts would be appreciated. a.t.a.

For self-employed individuals with employees, previously communicated staff employee IA costs for inclusion on 1040 Schedule C. Amounts employer contributed in excess were reported on 1040. Would continue to do same with recommendation employer contribute on old IA basis so long as exceeded 430. Then, would have to make some adjustment that I haven't yet thought of.

I asked the question about the content of the certification because when I read the proposed reg., all it appeared to require is that you certify the AFTAP. It did stipulate the AFTAP must contain w, x, y, and z. Since you included information that was subsequently changed, you may wish to restate it just to keep the records straight.

Thanks for your reply. We did a "final" 2008 AFTAP certification, and not a range certification. So, I it sounds like we should re-issue the "final" 2008 AFTAP... but only if we decided to include the 2007 plan year contribution of $100K paid after 12/31/07... to reflect the correct COB? Does your your AFTAP certification refer to the COB? Is the certification required to? That is did your certification cover other aspects not legally required by 436?

Your optimistic pessimism is realistic!

I thought Mike was an actuary and not an account-ant?

Using transition and 4th preceding month (e.g., for 1/1/2008, use 5.66%, 5.85%, 6.03%. Transition because can switch to non-traditional in 2009. 4th preceding month to allow the most time for planning. In reality, we're playing guessing games so why not allow the most flexibility?

Here's an example of a certification. This was not taken from anything published. The following certification is required by the Pension Protection Act of 2006. Please retain it in the Plan’s files. There is no action that this requires taking (other than timely making of the contributions in the attached document). As indicated in the attached document, the Company has committed to contribute at least $475,000 in behalf of the 2007 Plan Year by September 15, 2008 and elected to waive any Funding Standard Account Carryover Credit Balance as of January 1, 2008. Consequently, I hereby certify that as of January 1, 2008, the AFTAP (Adjusted Funding Target Attainment Percentage) of the referenced plan was 80%.

Mr. G3. may you be fruitful and multiply. Finally, someone has concluded (for whatever reasons) that PPA makes little sense.

From August 2007 regulations, Funding percentage less than 60 percent. "In accordance with section 436(d)(1), under the proposed regulations, a plan must provide that, if the plan’s AFTAP for a plan year is less than 60 percent, the plan will not pay any prohibited payment with an annuity starting date that is on or after the applicable section 436 measurement date" The annuity start date is the first day of the first period for which a benefit is payable as an annuity. For benefits payable in any other form, it is the first day on which all events have occurred that entitle the participant to a benefit. This would tend to suggest that if all the papers were signed say by March 15, 2008 and administrative delay causes the payment to be delayed to after April 1, that the lump sum could be payable. Nonetheless, this is somewhat gray and as Mr. "Recline" urges, get a legal opinion.

Why would a participant want to contribute to the 401(k) plan since he would likely not gain anything? That being said, you can't use the 401(k) employee deferral balance to offset the DB benefits. See 1.401(k)-1(e)(6).

As up-in-arms as "people" get regarding FASB87 assumptions, the opposite has been my experience in respect of FAS35. As I recall, FAS35 says use the valuation assumptions. For some plans, we comply with this requirement. For others, FASB87 assumptions are employed for FAS35 so FASB ABO is reported for FAS35. Others simply use fixed interest rates. For all my clients, FAS35 is reported as of the end of the year. Thus, for example when the 2007 Plan Year is audited, we develop for FAS35 the change in present value of accrued benefits from 1/1/2007-12/31/2007. The FAS35 exhibit is typically included with the 2008 actuarial report. For 2007, I am using the 2007 actuarial assumptions. (Hey, you got all your 2008 valuations done???) For 2008, I'll ask the auditors what they want to have reported. In all likelihood, they will ask what I want to do! As an aside, I am continuing to develop basic values using prior plan methodology because somehow the concept of advance funding future accruals still feels right. I will continue to illustrate a contribution on the old basis (2007 cost method and assumptions) because it's not too difficult to envision that funding on a minimum PPA basis for a stable population can lead to spiraling contribution requirements and perhaps the client will feel more comfortable funding a reasonably constant percentage of payroll.

Thanks, Mike

Clarification: No, recalculated management benefit taking into account reduced past service at time of payment. I.e., management plan will have underpayed benefit. I intentionally left out a critical piece of information the first goaround. Affected person is a relative so litigation should not be an issue. Assume person will be made reasonably whole one way or another. Thanks for the comments.

Client has sold assets of business and is in process of terminating its union plan. In days of yesteryear, client maintained two DB plans -- one covering its union employees; one, covering management. Union plan was $/service; management was final pay. Management plan was terminated 3 years ago and benefits were distributed. Management plan had provision that if employee transferred from nonunion to management, employee would get greater of (a) final pay plan benefit using service from date of transfer or (b) final pay benefit using all service with carve out of union benefit. When management plan terminated, an employee's distribution was based upon a union carve out of about $800/month. Now, management has advised that service history provided for union employee was incorrect (that while a union member, employee hadn't been union pension eligible for some of the years) and that carve out should only be $100/month. Ergo, if union plan pays $100 month benefit (what other choice is there?), employee was shorted in his management plan distribution. Any thoughts of how to handle this? (I won't cloud your thinking with what I intend to suggest.)

Been down this road before. Ixnay. See attached. In_Kind_Contributions.pdf

Agree with the other Andy. A Plan that terminated 12/31/2005 and received IRS approval and distributed assets in 2006 was pulled for random audit. The IRS auditor refuses to forego the audit on the grounds that the D-Letter covered the Plan in form but not in operation. I explained that operational information was indeed provided with the 5310 application and provided this information. This audit announcement occurred 5 minutes ago so I'm unable to report the disposition of this and whether the IRS will relax their position. In any event, the D-Letter is understood to protect the tax-qualified status of amounts rolled to a traditional IRA or employer plan. The problems that can arise by not getting a d-letter are (a) the client has some other issue with the IRS and the IRS is looking for leverage (b) the IRS auditor is unreasonable. The disqualifying plan defect could even be a provision that did not affect benefits or distributions, such as a failure to incorporate appropriate minimum cashout wording while all distributions exceeded $5,000. The IRS generally does not accept "no harm, no foul" as a valid argument.