mwyatt

Not sure what you mean by "Spousal Consent Form". Spousal consent isn't required, based upon my understanding of the law, to elect another J&S percentage besides 50% (I'm assuming that the spouse is the contingent annuitant here). Or do you mean you can't find documentation of the owner electing the form of benefit?

You are of course following this to the end and subtracting from your 412 NC figures the interest credits. You might find that you end up at the 404 numbers...

You may also want to consider that in the eyes of the IRS, an "owner" in a one-person plan can never "terminate".

What type of stand-alone software are people using out there for participant loan processing (amortization schedules, notes, etc.)? Any recommendations would be appreciated.

The $0 benefit is a nonstarter, as one would project salaries into the future (or in the case of year 1, assuming BOY val, based on the prior year comp adjusted for whatever salary scale that you choose). So you won't, even given these 415 changes, come up with a $0 accrued benefit @ EOY, or a projected benefit of $0 for that matter. I think you would be hard pressed to argue that eliminating pre-comp salaries gives you no basis to make future projections as to wages for funding purposes. What I did think about though is that this language would eliminate any pre-participation benefit at establishment of the plan. It could of course pop up in the 1st year given salary for the year 1. But I think that it is contradictory to say in the case of UC funding that the entire benefit would be pushed into the 1st year NC with no AAL. This is an unintended consequnce of this change (regardless of whether your formula is pinned to the wall or provides a dollar per year of service), but I can't imagine this making it through final regs or the "law of logic".

Hey Could be: Last I checked, I think any participant in a plan would be affected by a $0 415 limit, regardless of ownership...

Interesting insight rcline, although the problem would go away by end of year 1 for small benefit plans. Example: $10/month * YOS type formula that would clearly be unaffected by 415 limits. Strict reading would say that since comp would have to be $0 at the beginning of first year, that the beginning AB would be limited to $0. However, by the end of year 1, comp exists and full benefit well under the limit. Not sure that a reasonable conclusion would be to literally take the entire EOY benefit at year 1 as all being funded by normal cost. Sure the regs (these are proposed after all) would be tweaked to take this point into account (and if not then they should be).

To be honest, Congress put through this change to exclude pre-participation compensation from the high 3 average via TRA '86. Since that time, we've been leaning on including pre comp for the average because the IRS never modified the regs (and you can find past threads here linking to the IRS audit guidelines substantiating that interpretation). Given this reality, the IRS is only bringing the regs up to the point where the law said they should have been 19 years ago. Now the application of the IRC 417 limits is a different story and doesn't make a heck of alot of sense. Looking at the relationship between the dollar and salary limit ($170k to $210k) this new interpretation is effectively creating a cap around age 68, regardless of actual wages paid to the employee/owner. Look to this one to catch some flak in the hearings on the regs this summer.

Well, when your plan sponsor undergoes an audit of the company, and the IRS starts asking about all of these undeclared dividends that were actually received by the Trust, I bet you'll wish you had gotten a number for the plan...

I totally agree with the non-practical basis. My problem is that by having a unique interest rate for a specific month (given 30-year rate and a stability period of one month), by what standard could you use a future interest rate retroactively?

Conceptually, a beginning of year valuation should ignore anything that transpires after that date. However, one thing of interest in your case is the immediate entry. Say you have a new hire on 12/31/2002; they enter the Plan on 1/1/2003. You obviously have no prior year salary to go on for valuation purposes, so I presume you would use some sort of estimate of annual compensation rate for val purposes. As Pax said though, I see some problems with taking into account terminations after the valuation date. I would go with developing a cost for these people, which would generate gains for the next year (either due to partial or no vesting at term). Something doesn't feel right if this is indeed a true beginning of year valuation and you're adjusting results for occurences after the fact.

Hey Blink: Let's look at another way then. Now we're at 1/1/2007 with presumably yet another rate. Would you redo the increase from 2005-2006 LR increase using the 2007 rate, or just reflect the 2007 rate going from 2006 to 2007? I see what you're saying, but I'm getting hung up with the month stability period.

What if I'm trying to bring up the benefit to 7/1/05? I've got 6 rates in effect between Jan and July of '05 - this is the reason I've never put in such a short stability period, especially for annuity forms. Would you just use the rate in effect for Jan 05, ignoring the changes in rates in the succeeding months (I really can't contemplate having to do month by month increases based on the varying rates, but this is kind of the logic that I'm seeing by having the IR change monthly for all forms of benefit).

Maybe I was just thinking too hard on this, but... I have an interest rate that is in effect for January 2005. I also have differing rates for each month during calendar year 2005, due to the fact that the stability period specified in the document is only for one month. So in essence I have 12 rates that applied during calendar year 2005. So which one (or all) would you pick to bring the benefit up actuarially from 1/1/05 to 1/1/06?

Taking over a plan which specified that Actuarial Equivalence for all purposes would equal 94GAR mortality and the "applicable interest rate" (ie, 30-year UST). The interest rate is based on the 3 month preceding with a 1 month stability period. Both participants in the plan attained NRA @ 1/1/2005 and benefit accruals were previously frozen, so late retirement increases on actuarial equivalence are the only factor. My problem: how would you determine the Late Retirement adjustment factors, from NRA to NRA+1, given that the document states that the interest rate changes monthly? Any ideas as to a reasonable interpretation (and no, 415 limits don't come into play at this point).

I would try to be a little more discreet the next time you post such a question (you do know that those Google spiderbots are constantly trolling around the Net?)

This from my RIA e-mail this morning: IRS Issues First Comprehensive Guidance on Plan Limits on Benefits and Contributions in 25 Years. IRS has issued proposed regs, generally effective for plan limitation years beginning on or after January 1, 2007, on the limits applicable to benefits and contributions under qualified plans that would consolidate miscellaneous guidance that has been issued, and statutory changes that have occurred, since 1981, when the last set of final regs was issued. The proposed regs also specifically allow National Guard and Reserve members to contribute to their employer's plan while on active duty. Preamble to Prop Reg 5/25/2005 ; Prop Reg § 1.415(a)-1 through Prop Reg § 1.415(j)-1 ; Prop Reg § 1.401(a)(9)-6 ; Prop Reg § 1.401(k)-1(e)(8) ; Prop Reg § 1.403(b)-3(b)(4) ; Prop Reg § 1.457-4 ; Prop Reg § 1.457-5 ; Prop Reg § 1.457-6 ; Prop Reg § 1.457-10

Actually, this type of inquiry is indicative of the top of the real estate bubble. Batten down the hatches, and make sure you're not in an ARM or overexposed...

Perhaps we can pin these things on "the societal good" as a way to get this overturned at the hearings. Consider Dr. H past 65; with the higher limit we're operating under now, plan (and accruals for the NHCEs) continues until he retires; with the new limits, plan would end when the hi 3 limit got to the dollar limit, robbing poor Nurse N. of additional benefits. We won't even go into the rational of a 5.5% interest rate when the 30-year rate hit 4.43% today...

Effen: C. Determination of high 3 average compensation The proposed regulations would make two changes that would have a significant effect on the determination of a participant's average compensation for the participant's high 3 consecutive years. Consistent with the provisions of section 415(b)(3), the proposed regulations would restrict compensation used for this purpose to compensation earned in periods during which the participant was an active participant in the plan. In addition, the proposed regulations under §1.415©-2 would clarify the interaction of the requirements of section 401(a)(17) and the definition of compensation that must be used for purposes of determining a participant's average compensation for the participant's high 3 consecutive years. Because a plan may not base benefit accruals on compensation in excess of the limitation under section 401(a)(17), a plan's definition of compensation used for purposes of applying the limitations of section 415 is not permitted to reflect compensation in excess of the limitation under section 401(a)(17). Thus, for example, where a participant commences receiving benefits in 2005 at age 75 (so that the adjusted dollar limitation could be as high as $379,783), and the participant had compensation in excess of the applicable section 401(a)(17) limit for 2002, 2003, and 2004, the participant's benefit under the plan is limited by the average compensation for his highest three years as limited by section 401(a)(17) (i.e., $201,667, or the average of $200,000, $200,000, and $205,000).

TAG had it in their new stuff this morning. 2 points of note concerning the High 3 Year Comp in the regs: Changes so that pre-participation comp no longer recognized (bringing the regs in line with the TRA '86 modication to the Code, but ignored to now due to no amendment to the prior regs). Somewhat illogical, but uses the limited comp, rather than actual comp, which will have bad ramifications for older high paid participants. This will be a problem with participants with high comp and a retirement age past 65. In fact, this will limit around age 67-68 these participants to the comp limit, rather than the adjusted dollar limit (comparing relation of 210k salary limit to the 170k dollar limit, approximate increase of 24%).

Did your plan execute a GUST restatement (remember, the "G" represented GATT)? IF not, I'd suspect that nonamending for the GATT rates is the least of your problems.

Would your opinion change if the residual assets went to the participant without being rolled over? I still get statements on a closed-out plan with $2.61 left in the account. At some point Smith Barney will wise up and debit the account for two years of postage...

Hey Blink: You're thinking too much here (as I say tongue in cheek). You should just look at your nice pinky ring and think about all of those commissions you'll be collecting off of the annuity contract, and not bother yourself with these pesky details... Seriously, you bring up a pretty interesting point with your question. We all know what the reality would be in a regular DB plan (PV of what you accrued, adjusted for vesting). I sure don't know the answer since I've steered clear of 412i plans (most of the people I've run into promoting these plans I wouldn't wish on anyone I know), but I would think that you would at least have a floor of what's due being what would be owed if the plan sponsor didn't fall prey to the siren song of wicked awesome deductions to fund the DB plan. And BTW, what happens in the case of partial/non vesting? How are these forfeitures taken into account in the scheme of things?

Taking over a DB case with term insurance. Plan had no contribution as developed under prior actuary, so plan has been paying insurance premiums from trust. Since the valuation was performed @ EOY, with EOY asset value reflecting payment of these premiums during the year, I think it would be consistent to modify the EOY asset value by adding back the amount of premiums paid during the year for the year in question.