mwyatt

Will be interesting presenting the funding results at age 64, given the new PPA world of unit credit funding. Might want to have your client aware of the modest ballooning in TNC when that kicks in, to say the least...

In all seriousness, came across this on the Web which makes a pretty compelling case of outlining the pitfalls in investing in real estate through qualified plans and IRAs; may want to bookmark this page: Get Rich Quick: Invest your IRA in Real Estate Of course given the relative gloom and doom in real estate around the country, don't think you'll have too many inquiries about this for a few years.

Googling around on an unrelated search on PTs, came across the following (great) article: Get Rich "Quick"

Ah, the old "heads I win, tails you lose" plan design. Reminiscent of the pre common sense TH regs where you could provide the TH minimum allocation/benefit on the salary after deferral reduction.

But I didn't stays in California. Must go to website to see how welathy oners makes the money on there IRA real estate. Maybes I can see if I can still git ma hands on those Dave Deldato tapes. "Earlier people use to invest..." I'm always very confident in posts riddled w/ typos and grammatical errors...

One other wrinkle to consider is that the top 25 applies to the Controlled Group (if applicable). I remember a plan we had for a small subsidiary of a large insurance company. On the face, most of the folks in the plan were HCEs (only about 20 people in the group in all) and what we considered high-end earners. However, when you went to the CG they were small fry in the scheme of things so the top 25 didn't apply to any of the participants.

Huff's book was and still is a classic. Remember almost falling off my chair when Perot pulled out the infamous US area map during one of the 1992 debates to make his "point". Here's a good link on the validity of this "study": Retiring Early Means a Longer Life- an urban myth?

The ERISA Ouija Board is also quite popular.

Yep, the At Risk does factor in, although with under 500 lives and assumed lump sum funding think the cushion amount will likely override this part of the equation (also, didn't even want to bring that one up yet since I only see big fat 0s on our vendor's screen for At Risk FT and TNC at this point). Andy, what's your company's thought on the interest adjustment (although w/o any regs at this point guess we are looking at tea leaves at the bottom of the cup).

Ya think? Been going back and forth with our software vendor, but realistically the only thing that I think can be feasable would be for a special field in employee specs where you could enter what you think is the correct number. Either that, or export data to a spreadsheet and prorate (never did trust canned reports off of val software anyways).

From the EA Meeting that certainly seemed to be the position that amendments also include automatic amendments. The "weirdo" part of it was if you have an existing plan around for awhile, a calendar 1/1/2008 valuation would look back to the 12/31/2005 limits. Similarly in '09, would look to the '06 limits. However, a new plan established 1/1/2008 in '09 would still use the '08 limits (which would also apply in '10). God help the poor software companies; how do you code for this?

Working my way through 404(o) to determine methodology for 2008 valuations and have the following observations/questions (realm is small plans under 100 lives): 404(o) right now has the greater of the 430 minimum required contribution and the result of the following: 1) Funding Target for 430 purposes, plus 2) Target Normal Cost for 430 purposes, plus 3) Cushion Amount, composed of: 3Ai - 50% of Funding Target, adjusted by eliminating the effect of any increases arising from amendments within the last two years for HCEs - this also includes automatic COLA increases to benefit and salary limitations, so that a 1/1/2008 valuation would recompute a hypothetical 1/1/2008 accrued benefit for HCEs taking into account 2005 salary and 415 dollar limitations 3Aii - increase in Funding Target again arising from future salary increases (in practice with high end HCEs, no effect, but impact rank and file participants) then subtract Plan Assets under 430(g) to get cap on result. My questions: 1) Assume as in past practice that we would NOT reduce Plan Assets by carryover or prefunding balances 2) 430 minimum is determined as of the beginning of the plan year. As opposed to past practice where this was increased with interest to the end of the year, we're now dealing with a role reversal where we are discounting actual contributions back to the beginning of the year using Effective Interest Rate. Is there any (and I know we don't have 404(o) regs out yet) mechanism to adjust the 404(o) maximum past the beginning of the year amount to reflect contributions after the first day of the year. In past practice under 404 (assuming plan year equalled fiscal year), we did adjust our results by the valuation interest rate to the end of the year to determine the max deductible contribution. So if our old result had 404NC of $100,000 @ 1/1/2007, val interest rate of say 6%, then the max deductible contribution for 2007 would be $106,000, regardless of when the contribution was actually made, either during or after the plan year. Under the new law, let's say we come up with BOY figure of $100,000 and again a 6% EIR. Would the max deductible contribution be $100,000, $106,000, or $100,000 adjusted @ 6% based on actual date of deposit? Any thoughts on this (and if there is any knowledge of adding TNC to the 50% cushion amount in the Technical Corrections Bill?)

401(a)(4) was there first. Gateway requirements are on top of that reg; you always have to pass 401(a)(4) - you may have to go further to satisfy the Gateway regs.

Think the IRS has them both out, but you have to be careful w/ noncalendar year plans going forward if you just reference the issued blended rates.

I'd agree w/ WDIK (having had this situation occur a couple of years ago w/ a 401(k) plan set up late in the year that didn't get fully implemented until after end of first year).

If choosing between (1) no filing and (2) file w/ 0s, which situation would you rather have happen in future? I'd prefer the DOL coming back saying why did you file, no reason to, or 3 years from now asking where the late filing for year 1 is, and if you didn't do it, here's a nice late filing penalty.

CAS=Confederated Association of Soldiers, or Current Average Salary, depending on how the mood fits. Still showing my age talking about integration rather than permitted disparity...

Depends on how the amendment was written (hard freeze on 1/1/2008, or get compensation increases). Noone can answer without looking at the document (although think you might have some problems from discrimination standpoint if you let CAS float up).

Larry Deutsch did have an observation at the EA meeting that you wouldn't want to put the entire benefit at the beginning of the year; actually would want 1/4 at inception, 3/4 accruing during the year (or vice versa, going on memory) so you don't run into a violation of the 133 1/3 accrual rule.

One other point of interest at the Dialogue session was the questions on the new NRA regulations. Turns out that the IRS's focus here wasn't so much funding as it was plans trying to circumvent the in-service distribution regulations. Per Jim Holland, he wouldn't have a problem with a plan with NRA of 62 funding a fully subsidized ERB benefit at age 55, for example. For those who tried to circumvent low interest credits on Cash Balance plans by having a low NRA and allow for post-NRA rollovers, that was the target it seems.

Reality is (having bought a home within the last four months) if you bring lots of equity to the table, have good credit, and a good job, you will have no problems getting a mortgage (as it should be). If you on the other hand, make $15k a year and are trying to apply for a $600k mortgage with no money down (not an exaggeration, but literally from an article in the WSJ), you're probably out of luck. Going forward, we're looking at 10-20% down payments and income verification. Probably where we should have been anyway in the last few years. Funniest thing is thinking about the guys who got into the split mortgage business (i.e., where instead of having the borrower pay PMI, they get two mortgages, one for 80%, and then one for 15-20% so they don't have to pay PMI). Little thing overlooked in that business plan for the guys issuing the second mortgage was the fact that they were second at the trough - they can't even think of initiating foreclosure proceedings since all that does is put into fact that their funny loan is worth $0. Good luck w/ your business plan, but think it will be a tough sell - how exactly are you going to make any money for $0?

With regards to point 1, I was there yesterday morning at the Dialogue w/ IRS & Treasury session, and did in fact pose that question to Jim Holland. My feeling is that they OK'd not using pre-retirement decrements for 430 funding (in fact Harlan Weller indicated that the use in a small plan goes against actuarial principles - how do decrements mean anything with 1 or 2 lives). For 2008 at least I'm proceeding not using pre-retirement decrements based on their response. Point 2 should be fun to deal with (in fact say if you have a new plan in 2008, the 2009 numbers for cushion would use the 2008 limits, while an existing plan in 2009 would use 2006 - see if that makes sense to you or not). Was speculation if you have a new plan in '08 and you have no pre-service benefit (i.e., Funding Target of $0) that the Effective Interest Rate would be 0%. Of course, as my third grade son says to me, anything times 0 is still 0, so ANY interest rate would solve the equation on a 0 FT, not just 0%. Also brought that anomoly up at the session and Harlan said that it would reasonable in that situation to use the TNC instead to determine the EIR.

Having just gotten back from the EA meeting... No guidance right now, although check back daily, words from IRS this morning at the Conversation with IRS seminar, as they know that 4/15 is closing in soon. Will also say that: 1) Confirmed that in small plan ok to not use pre-retirement decrements for 430 funding 2) If you have a new plan with no pre-participation service, your Effective Interest Rate isn't 0% (since no FT). An anomaly, reasonable to calculate on the TNC instead to get the rate for the first year.

Mike, actually the switch to essentially unit credit funding under 430 (as long as you have the benefit accruing in the first 10 years using 133 1/3 v. fractional accrual) will indeed lessen impact. My first impression when this came out was that if you were under 55 NRA, you had to go to the IRS; between 55 and 61 just have good reason but filing not required. Is that correct or is it saying if you have under 62 NRA you need to file (at the $9k rate - BTW, I've gotten in battles with clients who have saved close to 6 figures on taxes over slight bills - for some reason they have the impression that we work pro bono for rich people - can't even imagine what would happen presenting a $9k bill for filing fee). Think that the real impact of this reg was more the "have your cake and eat it too" crowd who tried to push too far on the cash balance scheme. Liked the concept, but didn't like the interest credits (at least at the time when markets went up). So you would put in a CB plan w/ NRA of say your age as of entry date and allow for distributions at NRA, so that the contribution goes in, and then immediately went out to an IRA for higher investment gains.

Correct me if I'm wrong, but my reading here is that if you have an NRA under 62, you need to file w/ the IRS for a ruling (at a modest $9,000 user fee - GMAFB). What are folks doing in the small plan market? Of course the fact that Schedule Bs are no longer filed with 5500-EZs, I wonder exactly how the IRS is planning on figuring out how Citrus Valley part 2 is going to be discovered on their part.