mwyatt

Assuming this is an EOY question, what about vesting (just to add another wrinkle).

Thanks for the reply MBozek. My unlawyer reading of the original reporting was that there was language as you state "for the reasonable support", so there wasn't necessarily the blanket statement conveyed in headlines that IRAs were fully protected now. In the case in review, we were talking $55k for two unemployed people. Perhaps a surgeon with a $3m qualified plan balance shouldn't be so quick to rollover to an IRA, especially in light of the more pressing concern of malpractice suits rather than him personally filing for bankruptcy?

To our lawyer friends out there: What exactly does this decision mean for our doctor clients? Given this decision, would you give a blanket go ahead to rollover prior plan proceeds to an IRA, or should they continue to keep funds in the qualified plan arena until retirement? I notice that this decision, based on limited reading, deals with a couple of modest means in a Ch 7 filing. Any difference with a 7 figure rollover, and a different circumstance of a malpractice suit?

Now back at the office and checked one of our documents generated using the Relius Volume Submitter system. Pretty clear that the Immediate Annuity Factor used is the factor at the Participant's NRA, not Current Age, and (obviously) no discounting past NRA. So in effect once you are literally at or over NRA, the value of your 1% benefit for weighting purposes is the value at NRA.

Hey noname, I'll give you a "generic" answer. If you look in the regs, you will most likely find that you stick with the Immediate Annuity Factor at the participant's NRA, and obviously no "discounting" from NRA to AA. And BTW, warmed my heart today to see Petey do great and then have the Mets bullpen implode... as they said on EEI, he maybe should have traded some "respect" dollars for a decent reliever to follow.

Interesting question (assuming you're not just fishing for SS numbers). We've all recently gotten the PBGC's accounting of past premium payments, although their presentation/communication left a little to be desired; is this a bill or what? A check of what SSA has on file wouldn't necessarily be a bad idea from time to time to make sure that what was transmitted in past filings, especially deletions for payment, reflects current reality. You don't know what fun is until some former participant from way back when gets that letter from the SSA saying they have money due (which was actually paid to them) and your client for some unimaginable reason can't locate a cancelled check from 17 years ago. Funny how they never remember receiving 5 figure payments when there's hope of getting more...

A sidebar to this situation, Blink. Always been a little thrown off here w/ EOY valuations in the situation of someone who was active at the beginning of the year but terminated during the year (with possible reduction due to partial vesting). I know the item 1 liabilities reflect your valuation status (calculated @ EOY), but how do you treat these shifts in status from BOY to EOY?

Well, as noted won't go into pricing. As to the second question, most of our clients are small in nature. When you really look at the target of the mandatory distribution amendment, you're only focusing on those under $5k who never respond to you, either through inertia or the fact that you don't have a valid address. We've opted to go, unless otherwise directed, to the lower $1,000 threshold. Consider a doctor and two nurse plan - why should he have to go through the effort of establishing a concrete IRA relationship when it may never be exercised. Another good idea that dies out due to overregulation. If they had left it without all the formal procedures now, this would have been a nice idea to use rather than the current practice of unilaterally mailing out checks that may never get delivered. Although I guess on plan termination, one would be inclined to amendment otherwise to take care of any missing participants by lowering the IRA limit to $0 (although it may be difficult getting an IRA providor to take a miniscule missing balance).

We are looking at a law firm with approximately 80 partners. Income to the partners is distributed via a K-1. The question is for 1% and 5% ownership thresholds for Key and HCE determination, what is the appropriate partner percentage to use for these tests? The K-1 (2003) shows the partnership percentages under Item D for profit sharing, loss sharing, and Ownership of Capital. Two numbers for each are supplied: before change or termination, and end of year. I am fairly confident that you would use the higher of the two column numbers since the 1% and 5% references "highest percentage" owned during the plan year. The question is do we use the profit sharing/loss sharing (which are identical) or the ownership of capital for testing?

We looked into this last year for a time and really weren't satisfied with all that was out there. We were coming from the slapdash multiple spreadsheets, which clearly wasn't the way to go (why would one need to update an address change 5 different places). Ended up taking two weeks and creating a Lotus Approach database that handles pretty much everything (in fact will be spitting out 700 Mandatory Distribution Amendments tomorrow complete at the proverbial "push of the button" - will definitely save our poor 70 year old secretary from a heart attack). If you have the people available and some computer skill, a customized relational database is the way to go.

Safe? Executive Life, Mutual Benefit, Baldwin, Fred's Bait and Tackle & Insurance... Having all eggs in one basket isn't exactly safe.

Hey Dom: Not trying at all to be snide or anything of the sort, but I'm surprised that the insurance company doesn't have final say on the amount of premium due on the annuity contracts. My impression from the TPA side is that it is all well and good to calculate the numbers given tables etc., but the final bill (and overriding check) would come from the insurance company. What's a decimal point between friends, as they say...

I've always wondered when the '90 "standard" interest rate range of 7.5-8.5% codified in 401(a)(4) would be revisited. Might make the cross-tested plans a might less attractive given current rates...

UCL would if the CL exceeded $1.75m given above (90% of 1.75m less 1.5m in assets = $75k, ignoring interest adjustments). However if 417 liability was only 1.8m, CL on corporate rates probably is less than $1.75m.

Hey Jay: I know the Early Termination restrictions are based on Current Liability, not 417 rates. However, it appeared given the numbers that there would likely be problems since the 110% measurement would be after payment. The exact amount of the owner's PVAB wasn't explicitly given, but with the 60% statement, would peg the 417 PVAB of the owner at $1,080,000. So after payment, remaining PVAB on termination basis would be $720,000, while assets would be $420,000. Don't think interest differential between 417 and CL (even given the corporate rate) would overcome the 110% restriction.

Early termination restrictions under reg 1.401(a)(4) will preclude (or at least hinder) the full payment of his lump sum.

Thanks Merlin and Blinky. If this is indeed the case, this is great news, as I have a previously frozen plan that actually wasn't top heavy but came back as TH when the five-year lookback went to one-year. Will be very glad to revise this val!

Hey Blink: Hate to be a pest, but I haven't run through anything on RIA Checkpoint or TAG that supports blowing off post 2001 TH years for inclusion of compensation averaging accrual purposes...

Het Blink: I hope you understand that I'm rooting that you're right and I'm wrong about this! However, until we get some clarification with some post-EGTRRA updates to the 416 regs, who knows what the answer is. I've seen too many plans over the years where not a very big benefit was offered that got thrown into horrific underfunding due to the TH minimum..

Actually Blink, that more takes into account the situation in an ongoing TH plan where the non-key is credited with less than 1,000 Hours of Service (so you don't beat down the average further).

Let's forget about our existing document language here (which to tell the truth is irrelevant to our discussion since noone has an EGTRRA document at this point). Either IRC 416 states that if the plan continues to be top heavy, you have to include compensation in the average for calculating the top heavy minimum, or it doesn't. We know that EGTRRA provides that you don't have to credit service after 2001 if benefits have been frozen; however, the existing language in IRC 416 and regs states that your averaging period has to include years while the plan is top heavy (the pre '84 stuff is somewhat irrelevant at this point). I really don't see how Holland can say that you "could" have a hard freeze without some future guidance on how 416 will be interpreted.

Well, if you look at most documents (my experience primarily rests with Corbel), you will see that compensation is ignored (or can be ignored) prior to the establishment of the top heavy rules or after the last year in which the plan was top heavy. I too wish that a pre '02 frozen plan could ignore compensation after 2001, but that's not what I'm reading (especially fun in that I've had some plans that were previously not top heavy that popped back up due to the movement from 5 year back to 1 year back on terminations). Blink, I'd be happy to be wrong in this case...

Hey Belgarath: As long as the plan continues to be top heavy, you include the compensation (you just aren't adding service) so I vote B. So in effect you have a "soft" freeze for non-keys, while a "hard" freeze for keys. Went through this issue a little bit as far as TH minimums go under a DC plan operating with a frozen DB plan. Couple of points that came up in discussions and research with TAG were that your DC minimum operates at the 3%, not 5% level. Second, the 3% could drop if the keys' highest percentage was under 3%, so a $0 contemplated PS contribution wouldn't run you afoul of the TH minimum (although be careful if you have key 401(k) deferrals in the mix).

Hey Blink, here you go from Rev. Proc. 2000-41: Section 3. Scope and Definition .02. Any change in a plan's current method of computing the minimum funding requirement under section 412 of the Code or section 302 of ERISA is a change in funding method (see section 1.412©(1)- 1(b) of the Income Tax Regulations). The following are examples of a change in funding method: ... Example 5 — The valuation date for the plan is the date that is the first day of the plan year. The plan year is changed, and the valuation date is changed to the date that is the first day of the new plan year. This is a change in funding method. ...

Hey Blink: I agree with your analysis that this is somewhat ludicrous. However, in Andy's case where the initial year was a short year, the change in beginning of year from year 1 to year 2 constitutes a change in valuation date. Does that make alot of sense, since the valuation date still stays at the beginning of the plan year? No, but the IRS is pretty clear in 2000-40 that this is a change in the Funding Method. Hence the change again in '04 is a change in the valuation date. Is the IRS going to bust Andy's chops over this submission? Probably not, but it is clear from 2000-40 that his circumstance falls outside of automatic approval. PS will look through past Gray Books tomorrow - I know that this issue was addressed. Looked at 2000-40 and 95-51 tonight via Checkpoint and no this isn't entirely clear from respective 3.13 of each.