mwyatt

Well, I'm home with the flu, but if you look at 2000-40, I believe Sec 6.02 or .03 details this specifically. There was a change in the valuation method @ 1/1/2001; doesn't make a tremendous amount of sense since you're only conforming to a change in the plan year, but there you go. Now this Plan is changing the valuation date effective 4/1/2004 to conform with the new plan year. Preceding valuations: 1/1/2004, 1/1/2003, 1/1/2002, and 1/1/2001, which had a change in plan year. Hence you can't rely on automatic approval under 2000-40 but must file with the IRS. And yes, the IRS does count a change in the valuation date due to a change in plan year as a funding method change. Not saying that it makes alot of sense, but pretty clear from 2000-40 what the IRS's position is here.

Hey Andy: This is indeed a change in funding method, and you unfortunately fall within the 4-year window (1/1/04, 1/1/03, 1/1/02, 1/1/01 - Change). Looks like you will need to file for IRS approval.

Good point Andy. What service is being credited, given his partial accrual?

Not exactly sure of the answer here, but I would notice that if you use the $11k for testing the testing accrual rate will 3 times higher than the true accrual rate. I wouldn't want to have this person be the lynchpin in passing the General Test with an inflated accrual percentage...

How about the other way - benefits for past service under the multi plan are offset by the original plan accrued benefit? This is the only way that this would work. As far as the floor offset analogy goes, you can put one in, but you still have an inviolate minimum accrued benefit of the accrued benefit immediately preceding the FO amendment.

Yeah it is, but... Suppose you calculate costs as sidefund $100k, premiums of $20k. Method 1 (payment of premium by sponsor directly) Side Fund made on 1/2/2005 Premium paid on 1/20/2005 Schedule B shows two payments on respective dates. Method 2 (all into trust, then written out of trust) Total of $120k paid on 1/2/2005 Trust writes premium on 1/20/2005 Schedule B shows one payment on 1/2/2005.

Hey Blink: What I was getting at, especially with a new plan, is that the premiums paid to the insurance company would generally be paid directly by the plan sponsor and counted as a contribution (and hence shown on the Schedule B as deposits). Now if you were taking the approach that the entire cost would be paid by the trust, and then premium checks would be written out by the trust's checking account, the actual premium payments wouldn't show on the Schedule B, just the total deposit to the trust. However, most new plans probably are operating (since they don't have concerns about overfunding off the get go) by having the sponsor directly pay the premium. Hence the actual amount would go on the Schedule B.

Hey GBurns, I'm on your side. My perception of this thread is that a DB plan was set up contemplating the purchase of insurance, a valuation was run contemplating the purchase of insurance, but the plan sponsor never took the steps to actually purchase said insurance. So no underwriting, no claim back at the insurance company, since the sponsor never actually contacted said insurance company. That's what I feel happened here. Sponsor never went forward in any measure to obtain the insurance policies. What is the real story, AC, before we all end up at each others throats with peripheral arguments? So no, I don't think that there are issues with respect to the insurance company here, since in all likelihood the insurance company never heard word one from the sponsor (although that would make a pretty entertaining case: well, the sponsor said he was going to buy insurance from you, but never did anything about it, so since you have deeper pockets, why don't you pay me the death benefit that you never knew about). My suspicion is that someone ran a val for the sponsor contemplating buying these contracts, but they never went forward in any measure to get said contracts. I wouldn't rely on the original val since they clearly changed their mind about provding any insured death benefit. Although that might make an interesting way to get around a sponsor overcontributing during the year (well see, we assumed that they were going to buy some insurance so the maximum is actually higher than what we calculated).

I will note that of the small DB plans with insurance (usually whole life) I've dealt with over the last 20 years, they have invariably held individual, not group, policies. Actually, none of them have had group policies (which would certainly make life easier if they were group, but the fact is that they get sold on an individual basis). Maybe just my experience...

Hey Blink: Just wanted a clarification on the effective date (was buried in too many posts jumping over poor old GBurns ). Let's look at it another way. Let's assume you did your original valuation contemplating the issuance of (obviously) new policies for all (let's not confuse this with the other problem of selective policies for only the HCEs being issued) and that you used the expectation of insurance policies through Gigantor Corp Life Insurance and your estimates of what the premiums would end up being, given proposed policies from the agent. However, the agent decides to go with Fred's Bait, Tackle, and Insurance company, so the actual premiums (and projected cash surrender values) differ from what you originally estimated. Would you show on the Schedule B the estimated or actual premiums paid? And would you possibly revise your normal cost numbers to reflect the revised CSV numbers? I know which way I would lean in this case. Now you have a situation where your original proposal/valuation contemplated insurance but the plan sponsor for whatever reason didn't go ahead and issue any insurance policies. I would be curious to know whether the sponsor decided to bag the purchase of insurance entirely or whether they just didn't get their act together for 2003 issuance but went forward in 2004.

Maybe we should get a little back on track here. AC, your original post stated that this was a takeover DB plan. The 2003 contribution consisted of a sidefund contribution amount and a mortality (presumably the insurance premiums) charge. To clarify: Was this plan established in 2003? If so, do you mean that the original design and valuation contemplated the purchase of life insurance policies, but that NO policies ended up being purchased, but that your client just ran with the original valuation and paid the total of the side fund contribution and contemplated premiums to the trust? If this is the case, and NO policies were ever purchased, I'd have a hard time staying with the original valuation results. I'd rerun the numbers. Presumably the revised normal costs would come out between your original side fund normal cost and the cost of insurance. Who signed the 2003 Schedule B (or has this come due yet if not a calendar year plan?)

Just curious here - you state "is the mortality part deductible?" If the client didn't purchase the insurance, are you saying that in lieu of paying the premiums that they paid the equivalent amount to the trust, or that they only made the side fund contribution to the trust? Please clarify...

Not sure that I'm reading this correctly. Are you saying that the 2003 valuation had a side fund normal cost plus insurance premiums, but that the insurance premiums were never paid (on policies that never went into effect)?

Any update on the LS proposal? Would this apply to YE 12/31/2004 or this still up in the air w/ FASB?

I would start your research first with the American Jobs Creation Act of 2004, specifically the sections dealing with abusive tax shelters, before spending too much of your time boning up on 412i and 419/419a plans especially. Note the penalties imposed on "material advisors" who don't have their clients/marks declare on their tax return that they are participating in an abusive tax shelter. $100,000 is what I call a fairly stiff penalty. Latham & Watkins Summary

Just got notice from Relius that the 2005 Government Forms is available for download (corresponding to 2004 forms). Haven't yet gotten product key so can't install. Question is whether anyone has taken a look at the 2004 Schedule B yet to determine whether or not we need to show the OBRA '87 Current Liability information anymore, or did this disappear as it basically has no bearing on any of our work (with a few limited exceptions). Oops, just answered my own question. 2004 Schedule B no longer has reference as far as I can see to the OBRA '87 CL. 2004 Schedule B

Just started perusing my EA Transcript CD the other day and this issue is popping back up in my head (from JHolland no less). Will try and find the cite on Monday. If I remember, you have to provide the higher of the two with regards to lump sum, so I don't think the '04 rates (which presumably will be less favorable than the '05 rates given trends in the 30-year) can be used in '05.

I would venture that this plan works as follows: 1) Super-low Normal Retirement Age in plan (say age 30 and 1 Year of Service) 2) Plan allows for distributions after attainment of Normal Retirement Age 3) Obviously DC 415 limits don't apply so participant gets dollar amount in excess of $41k credited to his cash balance each year. 4) At end of year, since Participant is "past" his Normal Retirement Age, he elects to receive his credit and roll it to an IRA or another plan, and hence is on his merry way...

I would chime in that having the owner be last in line for distribution may not be so nefarious as hinted at previously. Only problem you are running into is the switchover to a new basis for 417 rates at this time (and the holidays which probably are slowing down the liquidation of remaining assets). On a lighter note, here's one law firm's response to a demand for prompt action around the holidays: Grinch And believe it or not, this isn't an Urban Legend Snopes verification

Also noticed the "SHOUTING" in the subject line... a new trend for Gary.

Is this question for real? Gary, you've got to be kidding me here. Does mortgage fraud (let's not even go through the qualified plan arena palenopy of laws) mean anything? So your client is going to willingly (clearly a Party-In-Interest) put his name on a loan that will be paid back by a qualified plan? I sincerely hope this is a hypothetical question!

Pretty much the same as DC plans, but think more in the line of Money Purchase plans, in that you are covered under IRC 412. This means that you need to get the contribution made no later than 8 1/2 months after plan year end. For your corporate clients this isn't critical since they can't extend out further than that same time frame, but sole props/partnerships can extend out their return to 9 1/2 months. I've seen some people (accountants included) who didn't realize that the funds had to be in 1 month earlier than they were counting on...

Doug, since the face of the policy as issued was a function of the projected, not the accrued benefit, I wouldn't be worried about cutback issues.

Assumption is that the plans were NOT offset before. So how do the benefits go to zero once you put the offset in? I would think that you would have a grandfather of the accrued benefit immediately prior to the offset. Benefits would be lower, but wouldn't go to zero for participants in the plan prior to the change to floor offset.

Actually, I'd put Damon's GS in the 2nd in the ultimate "how to creat a vacuum in the Bronx" category. The only excitement in game 7 from there on in was Petey in the 7th inning (I guess all of these Yankee fans can now venture to Shea to try out the "who's your daddy" chant).