mwyatt

Well, let's take a hypothetical, assuming a high end owner. Document provides for accrual on plan year as participant and completed 1000 hours of service. Document (Relius BTW) states that if a short plan year, then the hours requirement is prorated by number of months. So assume plan starts 10/1/2012 and first short year ends 12/31/2012. My cursory reading of 415 regs seems to indicate no special rules for short plan years. The document states to me that for the 3 month period would be credited with a full year of participation, so the end of year accrued benefit for short year 1 could equal 1/10th of the 2012 dollar limit, or $1,666.66. The 430 regs reference proration of Funding Shortfall bases to recognize a short year but is moot on Target Normal Cost. So could I in this circumstance have a Target Normal Cost based on 1/10th of the dollar limit for this iniital short year with no proration? Pre PPA all costs (bases and normal cost) were generally pro-rated.

Have had two different proposals run across my desk for newly established entities that are looking at DB plans. Facts are: Fiscal and plan years both will be maintained on calendar year basis; will be short year say of 10/1/2012-12/31/2012 respectively. No past service so Shortfall Amortization bases not an issue (see in regs where prorate amortization payments for short plan year). In old pre PPA days when we were dealing with say Individual Aggregate, would prorate Normal Cost for months of year. A little confused in the PPA world how to treat Target Normal Cost. Looking at definition of Plan Years of Service in our document (which is a year of participation with 1000 hours of service), short plan year is dealt with by pro-rating hours requirement by month. So for funding purposes, would imply that our 3 month plan year would credit as 1 Year of Participation. So if salaries are such that dealing with 415 limit, could one use a Target Normal Cost equal to 1/10th of dollar limit? Seems like a much higher result than I would anticipate given a short plan year. Any guidance?

Have used LogMeIn (free version) for quite some time. One suggestion is to also install Dropbox (or the like). Remote control is fine, but usually easier to use local programs if possible for word processing etc. In order to avoid the e-mail shuffle of files, I'll create a temp folder for the client under Dropbox on the host computer, drag whatever files I need to use in there, and then work off of that folder in the remote computer. Bonus with the syncing feature is you don't have egg on your face when you get back to the office and realize that you left the edited files on your home computer. Other tip for remote printing is on the Host to print to a PDF printer, again storing output in the Dropbox folder. I know that some will offer remote printing capabilities, but this can be glitchy; the PDF printing option gets around those problems.

OK, so I do my two iterations for minimum required (which gets highest NEI / lowest cbn that fits my total) and my maximum deductible (which gets lowest NEI / highest cbn that fits my total). Think these present the range for my client initially. He then picks a contribution number which gives me an exact NEI for 2011. For 430 purposes, I rerun with this actual NEI to get final FT, TNC, AFTAP, etc. which goes on the Schedule SB.

Not sure if I'm overthinking this, but: EOY valuation for a sole proprietor. Schedule C Income for year is such that Net Earned Income (Sch C - SET - Contribution) will be under the maximum salary. Believe there is a solution to solve for IRC 430 so that there is a specific Net Earned Income that will generate a 430 contribution such that these equal Sch C - SET. For maximum contribution, which would be a higher number, believe that I need to solve for a separate Net Earned Income such that this 404 Net Earned Income plux max equals Sch C - SET as well (don't think it makes sense to just plug in the 430 NEI and solve for maximum as would overstate situation). So now have a range for the client of minimum to maximum. However, client will contribute what they contribute (probably the maximum). Question is now for showing what do I show on the Schedule SB? I now have an actual Net Earned Income figure for 2011 equal to Sch C - SET - actual contribution made to the plan. Should I recompute the Funding Target and Target Normal Cost based on this actual NEI and show on Schedule SB, or should I show my hypothetical numbers that I solved for the minimum contribution solution? Let me put some quick and dirty numbers in play to illustrate (not to dimension, but just to show what I'm getting wrapped up on): Let's say Sch C - SET (my target) is $100,000. I set up a spreadsheet to determine the IRC 430 minimum contribution, and I end up with a hypothetical Net Earned Income of $60,000 and a minimum contribution of $40,000. I then continue and solve for IRC 404; now I have a hypothetical Net Earned Income of $10,000 and a maximum deductible contribution of $90,000. I don't think that I would use a NEI of $60,000 and calculate the 404 off of that as think overstates maximum deductible. Let's say client decides to contribute $70,000 for 2011, so my actual Net Earned Income for 2011 is $30,000. Think I should recompute the Target Normal Cost on this actual NEI (FT shouldn't change since EOY val); should this final TNC etc. based on the $30,000 NEI be what's used for disclosure on the SB and AFTAP?

Also want to keep in mind that in 2010 at least was tinkering for SEHI on the Self-Employment Tax computation for the 1040. IRS's position was that for pension purposes you ignore this and just do your computation as before. You will also want to check for any W-2 income potentially in those years when doing your calcs.

Hopefully this won't be a situation where they provided "clarification" on the 6% exemption for DC contributions for the 2008 plan year on 9/14/2009 (thanks for the lead time).

Anyone have any insight as to when the threshold rates will be released by IRS (hopefully not September 29th as in past practice?)

Looked like a "bright" idea when posited in PPA; however, IRS's position that you take two documents that could be maintained as prototypes/volume submitters (with $0 IRS User fees and presumably smaller preparation costs since using preapproved documents) and now have to treat the combined group of documents as two individually designed filings (for a once ever five year combined IRS User fee of $5,000) takes some of the luster off of this idea. Hard pressed to see what cost savings would be accomplished by layering in what amounts to an annual fee to the IRS of $1,000 for the document.

Given past experiences with Ogden, anyone want to place any bets on how many letters clients will receive rejecting the extension because it wasn't signed?

Unless those one-year delays were paid out in 2011 and then you don't need to report them (and you don't know because client hasn't gotten you the data yet to see if paid out).

A practical note here with the whole concept of a separate filing of extension for 8955-SSA. What if the reason for filing an extension of time for your client's 5500 is due to the (not so rare) fact that they haven't yet provided you with any data to perform the valuation? Without the data, you don't even know whether or not you even have a need to file the 8955-SSA in the first place. Do you preemptively file for an extension regardless for the 8955-SSA as well, and if it turns out that the 8955-SSA wasn't needed you're covered (or have you started a trip down the rabbit hole with the IRS because they never received the 8955-SSA that you requested an extension for?).

The Oracle VirtualBox software is a program that creates a "virtual machine" on your computer. Once you install the VB, you can then start creating VMs by installing your operating system of choice inside of the VirtualBox. You'll need to come up with an install disc for the OS you're installing. Somewhat technical in nature but not too hard. If you're comfortable installing OS software isn't too big of a deal. About the only hiccup I ran into (since resolved) is how it handles your network connection; by default it uses "NAT" for the network card; you want to change that to "bridge" and you should see your network. If you do decide to take the plunge, send me a message if you have any issues. It beats running XP on a legacy box for sure as speed is much better.

5 1/4"? Heck, trying to see if I can get an 8" off of ebay. Seriously, we currently run Relius PC Documents for our document software; Relius in their infinite wisdom hasn't updated this program to run with anything beyond Windows XP and Word 2000! We've been keeping one older box around to run this software.

For those of you pondering older pension software that only runs on older versions of Windows (98, XP, DOS etc.) or are struggling with programs that balk at 64 bit versions of Windows 7, there is a solution that doesn't entail physically maintaining some old hardware. Download Oracle VirtualBox (free) and install your older operating systems inside as Virtual Machines. Only recommendation would be to load up on memory, but a heckuva lot easier than trying to coax some older boxes through the next few years. Seems to have done the trick for some older self-written Fortran benefit programs that were balking on Windows 7 (and wouldn't even run on 64 bit versions, even in emulation mode). That plus you will find that these old OSes run significantly faster on your new hardware.

Congrats Dave (and thanks for the cool mug BTW)!

Understand "more bang for the buck" in DC from testing standpoint; problem is non PBGC plan so potential to run into the combined plan cap; reason why 6% on PS plan. Thanks for the input.

OK, here's where my "common sense" analysis may be running afoul: Say rank and file participant is age 40 with NRA of 65. Compensation for year is $50,000 Gets 6% Profit Sharing contribution of $3,000 On Cash Balance side, gets 7.5% hypothetical allocation of $3,750 CB Actuarial Equivalence factor from 2011 417/415 Applicable Mortality Table @ 5.50% per annum is 138.6807 For 401(a)(4) testing, I use 1983 IAF (Individual Annuity Female) and 8.50% as my testing interest rate 401a4 Immediate Annuity Factor is 115.3872 To get benefit from CB plan: CB AB = $3,750.00 * (1.05^(65-40))/138.6807 = $91.57 (this is how plan calls to convert, so that number isn't subject to 401a4 mortality and interest as that is what would be paid if chose annuity). PS hypothetical AB = $3,000 * (1.085^(65-40))/115.3872 = $199.85 So total AB for general testing would be $91.57 + $199.85 = $291.42 However, for Gateway testing the whole deal is to ensure that a NHCE is getting at least a threshold. From what you're saying, looks like interpreting the CB side to be $91.57 AB * 115.3872 * (1.085 ^(40-65)) = $1,374.57, which is considerably less than the ACTUAL amount being credited to their account for the year under the CB plan of $3,750.00. This doesn't make "common" sense to me. Guess my observation is on the DC side, would use the 401a4 standard interest and mortality to convert DC; however, on DB/CB side of things, lump sums and benefit amounts are subject to actual rates specified in the Plan; applying standard rates are all well and good, but DB/CB is only going to pay out on the plan rates. Intuitively doesn't make sense that would use the DB/CB rates to convert to benefit but then the DC/401a4 to see what hypothetical Gateway amount is; fact of matter is that DB/CB will be "really" paying a higher amount of LS.

Have a situation and I'm not sure of the reasonableness of the results. Client has existing profit sharing plan, integrated with Social Security. Established Cash Balance plan for 2011; Group A gets 28% of Comp hypothetical allocation, Group B gets 7.5% hypothetical allocation. Plan actuarial equivalence is 5% pre-retirement interest only, post-retirement 2011 415/417 Mortality Table @ 5.50% per annum. Interest crediting rate is 5.00% per annum. Accrued benefit for testing purposes is derived from actuarial equivalence; that number is what it is. If an employee say left at end of first year, they would get hypothetical balance of 7.5% of salary. When I run the General Test however, I'm stuck with using standard mortality and interest (7.5-8.5) assumptions for testing. Our software is effectively saying that the gateway contribution is something less than 7.5% for the year (significantly less as get younger); from a common sense standpoint, the participant is being credited with a fixed percentage of salary and would be paid as such; not sure as to the logic of stating for gateway that this 7.5% is worth less. What am I missing?

Let's remember what the whole purpose of the deduction is for: the "employer" side (not the employee side) of FICA taxes paid. Contrast a sole employee getting paid $100,000 (his first and last check for the year on 12/31); this needs to be divided up between his gross wages and the Employer FICA contribution. Now mathematically So, W-2 would be $100,000/ (1+.0765) = 92,893.64, with Employer FICA of 7.65% of that ($7,106.36) to total $100,000 available. The math isn't exact, but (1-.0765 = .9235) is their way of adjusting for the Employer FICA portion.

My understanding from last year was that one should ignore the tinkering with one-time Health Insurance deductions in determining Net Earned Income for 2010 (i.e., your deduction should NOT match what is actually shown on the 1040 if the Health Insurance deduction is in play). See: Relius Technical Update

In MA we have had these restrictions for the past few years; reason why we all use some form of secure e-mail up here. Don't see a problem with e-mailing per se if using a secure system. Only thing that I can think of is the control of printing; if the client's PDF software scales the output, then barcode size would shrink and possibly be rendered unscannable by IRS OCR software. Think that is reason behind the Relius printing instruction page instructing the recipient to turn off print scaling before printing the form.

Situation is following: plan provides for deferrals, 3% non-elective safe harbor, and a cross-tested profit sharing plan. Safe Harbor is provided to all participants. Daughter of owners now eligible for plan in 2011. She is in her own class for the PS component; unfortunately she is by far the youngest participant (HCE and NHCE) so testing is a problem. Usually when running Ratio Percentage, Non-Discriminatory Classification and Gateway testing have aggregated the SH and PS contributions together. Generally is more favorable result and usually provides for lower Gateway contribution since can take into account the SH component (say if 3% SH, 12% highest PS allocation to HCE, then aggregate Gateway for NHCEs would be 5% - 3% = 2% PS to NCHEs; if ignore SH, Gateway PS would be 4%). However this young HCE is killing things. In looking at 401(k) final regulations, see following in 1.401(k)-3(h)(2): Use of safe harbor nonelective contributions to satisfy other nondiscrimination tests. A safe harbor nonelective contribution used to satisfy the nonelective contribution requirement under paragraph (b) of this section may also be taken into account for purposes of whether a plan satisfies section 401(a)(4). I focus on that all-important word "may" in the preceding. Would it be permissible to run my Cross-Testing in this situation by only taking into account the Profit Sharing contribution for ratio percentage, non-discriminatory classification and gateway testing (Average Benefits Test would of course include all sources: deferrals, Safe Harbor, and Profit Sharing for the 70% of HCE <= NHCE average) or am I reading into "may" too much here? Don't have a problem with providing a higher PS contribution for gateway by ignoring Safe Harbor as initial results were horrible. Any thoughts?

Putting together a Funding Waiver Application right now on a DB plan and just want to make sure that I'm using most recent rev. proc. Appears that Rev. Proc. 2004-15 still stands (although somewhat awkward as many references are pre-PPA code references). From studying Section 15 of Rev. Proc. 2011-6, appears that the address in 2004-15 is unchanged. Is there any more recent guidance out there that I might be missing? Thanks.

Have a plan where benefit accruals were frozen by amendment effective February 28, 1997. Plan does provide for lump sum option. Most recent certified AFTAP is in the 60-79% range. Participant has recently left employment and was never a Highly Compensated Employee so early termination restrictions under 401(a)(4) are inapplicable. My reading of IRC 436(d)(4) is telling me that the accelerated distribution restrictions do NOT apply in this case so that there is no restriction on the ability of this participant to receive their full lump sum (ordinarily would be restricted to 50% of lump sum with remainder available as an annuity). Before committing this to the participant want to make sure that I'm reading the Code correctly.