mwyatt

Hey Merlin: My guess is nil, none, zilch, nada. Let's see: I supposedly have $3m that is going to pay me $170k a year, and if my wife and I decide to celebrate our new found fortune by taking a cruise on the Titanic, my reserve turns into gains for the insurance company? This is the situation never answered by the agents: what happens at the end? The wink, wink is that no, you don't fund this thing for the full period, but only for the first five to seven years so you don't override the IRC 415 lump sum limit. Well, I'm not that old, but I do remember the TRA '86 transition that created overfunded plans that only got solved with improvements to the 415 limits and a general market meltdown (the only silver lining in the stock market crash). Last I checked, the EGTRRA 415 limits go poof 12/31/09 or 10, and you now have a firm interest rate cap of 5.5% for lump sums.

SoCal was trying to hint here with the DC comment. For funding purposes, remember our elaborate models are going forward, so we would be annualizing the comp in your short year, which clearly will be well over the salary limit. Is your concern the initial accrual or the projected benefit for funding purposes?

The plan does currently provide that rollovers could be distributed at any time. If the three would want to go to IRAs the problem would be solved; however, the two HCEs are doctors and are leery of leaving the qualified plan umbrella (these rollover accounts are mid 7 figures, so I don't blame them). Hence why they want to continue to keep the rollovers under the 401(k) plan protection. The office manager NHCE feels fairly confident that she's not facing malpractice suits, so she'll move her money to an IRA without concern.

Client had a defined benefit plan in past and currently maintains a 401(k) plan. The employee deferrals are invested in self-directed accounts under a mutual fund platform. At the time of distribution from the defined benefit plan, all but 3 participants took their monies either directly or rolled to an IRA. 3 participants rolled their funds to the 401(k) plan. These assets are held in a pooled brokerage account and earnings and investments are allocated annually. 2 of the participants are HCEs, 1 is an NHCE. The 3 are now contemplating breaking up the pooled account so they can self-direct (1 HCE is in his 40s, the other is close to retirement so they obviously have diverging investment strategies). The NHCE will take her amount and roll it to an IRA. The 2 HCEs are both doctors and understandably want to keep their funds under a qualified plan umbrella and aren't interested in rolling to an IRA. The question is they want to establish self-directed brokerage accounts SOLELY for the rollover balances. No other participants have rollover balances in the 401(k) plan except for these 3 at present. I'm concerned about Benefits Rights and Features issues here since the only 2 participants with self-directed brokerage accounts would be HCEs (although presumably the amendment would be written to provide that future rollovers would also be eligible for the same investment option). Any comments on this issue?

Hey Pax: Not sure that this actually answers Andy's question. Seems that all the GB answer is referencing is non first day of month plan year due dates, not the practicalities of a short year's impact on quarterlies. Sorry Pax - this 2 year old thread, after rereading, was asking two separate questions. One, the short year conundrum (as addressed by Andy), and the non-first day of the year question (which you accurately cited). Any ideas on the short year issue?

File. Exception would only be if this was 5500-EZ (assuming that your one participant is not the owner - I've seen some benevolent plans like this - so you're filing 5500) and assets of all plans were under $100k. Did have a similiar situation with a newly established 401(k) where the client didn't get their act together soon enough for deferrals.

Rent is just income to the Plan and not construed in any way as an employer contribution. Expenses just get taken out of plan assets (and BTW, you lose the ability to deduct these things in contrast if he held the apartment building as an after-tax investment). He should really run the numbers because you lose a number of items (mortgage interest, operating expenses, repairs, etc.) that contribute on the outside to making this an economically viable investment. We won't even mention ordinary income v. capital gains taxation.

On point 1, the 3% for 2% was a "buyback" feature if the plan wasn't super top heavy for the 1.25 rule under 415(e) - obviously a moot point now.

One other point is what do you do when the plan winds down? I'm assuming that we're talking someone reasonably close to retirement here, since this is a 1-man DB plan. The exit strategy is dubious at termination of the plan, especially since any transaction between the plan and the sponsor to take the property off the plan's hands would be a PT. Has this gone forward or still in the planning stages? Your client may be viewing this from his personal tax viewpoint. Unfortunately, things that might make sense from an after-tax investment are absent within a qualified plan, namely the ability to write off expenses against income, depreciation, and capital gains v. ordinary income.

I assume that this ABO would reflect the IRC 417 minimum lump sums for the fiscal year (any clarification as to what period to use as this rate fluctuates at the minimum annually - and for pure geek talk fiscal year v. plan year when they differ)?

Anything to report from the ASPA attendees? Hearing rumblings concerning 412i plans. What is the news?

I'd say your boss is confusing the 416 top heavy minimum contribution requirements, which do provide for a participant to be employed as of the last day of the plan year to receive the TH minimum, with the general requirements for the employer contribution. As WDIK indicated, standardized docs by default utilize the 401a4 fail-safe eligibility of 501 hours or last day; non-standardized prototypes can avail themselves of 1,000 hours/last day eligibility, but you do need to check to make sure you're passing the coverage tests in this instance.

Hey Belgarath: I will say this: A-Rod had the chance to put this thing away. He didn't in game 5, and was ineffectual (and somehow flipped back to High School Cornerback mentality rather than Baseball God), committing a moronic play and bringing Jeter back to first. For this, you pay $25m? I'll guarantee you that the NYY fans don't buy into the short series variance you mentioned. They expect someone to deliver in the clutch wearing the pinstripes, and A-Rod has not demonstrated it. I would say the venom in Boston against A-Rod is minimal; try perusing the NY papers, message boards, etc. Now that will make your hair stand up on end.

Hey Belgarath: Just check out the NY papers for why A-Rod is getting bashed. The Yankees didn't shell out that type of money for gaudy stats during the season; they paid it for production in October, which he sorely failed at providing (0-4 in game 7, did not hit in key situations in the series). I was listening to Peter Gammons on the way home yesterday and he brought up the point that several RS players came to Mark Belhorn's defense after the media was dumping on him earlier in the series for not hitting. However, after the game 6 brain cramp tomahawk chop, you heard no yankee players coming to A-Rod's defense after some of the RS players were ragging on him. So no, in retrospect we're perfectly happy not having the A-Rod trade from last winter go through, and the Yankees are regretting their move. For such an "impact" player, why did Seattle and Texas both get better after his departure?

Wonder how Rodriguez's endorsement deals are going in NYC? Looks like he's been tagged now with "A-Fraud", and a personal favorite from the SOSH site: Slappy McBluelips.

Hey Andy: Actually, I wouldn't be too worried about Roger if Houston pulls this out. We didn't have much problem with him last year, and I'd venture that much of his success in Houston this year had to do with switching leagues (and hence having to face batters who weren't familiar with him). What a series. I was about ready last Saturday night after the debacle to start a bonfire of RS stuff in my yard, and now look where we are. My one complaint last night is that Fox didn't have a hidden camera in George's office; talk about a great reality series that would have been!

My reading was that he wasn't talking about a max cap, but not increasing/adding policies beyond the total face held in 2003, so Andy's point was on target. Clarification by "freeze" please?

Good clarification SoCal. Glauran1, what is your concern? As far as the regular valuation (412 purposes) you can change to BOY, with automatic approval as Socal mentioned as long as you haven't made a change in the prior 5 years. Of course thinking about it, I bet this has always been an EOY val as the IRS does not provide automatic approval for going from BOY to EOY, so you're probably OK. And even if the plan is less than 4 years old, the IRS has made it clear that the 4 year change threshold includes years prior to the effective date of the Plan (what I'm trying to say is you don't have to wait until the 5th year to make the change to BOY with the 2000-40 automatic approval). What size plan is this and is the sponsor publicly traded? This might give further guidance as to FAS 87/132 issues. Also, the clock is severely ticking on any changes to the 2003 valuation. You could do it at this late date if you haven't yet filed the Schedule B for 2003; of course you could have some interesting issues as the 9/15/04 funding deadline is clearly past (and I would bet that the 412 contribution amount would be more favorable using EOY 2003 assets v. BOY 2003 assets given general market performance in 2003).

No problem making this change as you get automatic approval under RP 2000-40. Not sure what you're referencing as far as "disclosure requirements"; the change in valuation date is a change in the Actuarial Cost Method and would be indicated on the Schedule B and affirmed on the Schedule R. If plan is of any size, it definitely makes for better financial planning for your client as the contribution number would be known prior to year end.

And a little OT, but there is also a phase-in for substantial owners on the maximum over 30 years. Kind of makes it a little silly paying the variable premium on your smaller plans...

I will post one thought on this matter from this year's EA meeting. Let's say you have a small frozen TH DB plan post-EGTRRA, where no more TH service is required to be credited. Although TH service is counted, the accrued benefit is adjusted for compensation increases (plan is still top heavy). IRS response was this is a "soft" freeze, which doesn't mandate a UC change in ACM. Mandate for change to UC is only in a "hard" freeze (their terminology, not mine) where benefits are not subject to any adjustment. Of course, this whole issue begs the question of what happens when things thaw out due to economic improvements down the road...

Did they have you set up a dummy HPIIIsi printer? This sometimes will work with Relius programs. I understand that they are in the process of rewriting the printer drivers, as they are pretty sensitive (they should almost keep a link on the website to any HPlaserjet 4 auctions over on EBay to use their product). I have had problems in the past with non-HP printers, which is a real shame since you can get some really good laser printers now for no money. Do you have any other printers that you can print on in your office?

Relius is acknowledging that Relius Government Forms (5300 program) will not print if your computer has been updated to Windows XP Service Pack 2. Workarounds are to either uninstall SP2 (you do not want to go there - several people have reported problems with the uninstall) or run the software on an older computer. They do know this is a problem (and will also affect the 1099-R software) and have contacted Microsoft to see why there is a conflict. A word to the wise... Our solution is we have one computer on our network that is still running Windows 98 for compatability. You can do all of your data entry on your XPSP2 box, but you need to print off the older box. Hopefully this will be resolved by January for 1099R processing.

I know it might be falling on deaf ears with your client, but you might want to have him think about the poor economics involved in this transaction. If he buys the house after-tax by himself, he can deduct expenses from his income and the ultimate cost basis of the house when sold. If held by the plan, a tax-exempt entity, these expenses (and there will be expenses, ie maintanence, repairs, property taxes, utilities, etc.) are just paid. Second, when sold after-tax, you pay capital gains instead of ordinary income rates on your gain. In essence, most of the factors that make real estate a viable investment on your own are eliminated when you try to do it in a qualified plan or IRA. Finally, how will this be financed? I would think it would be difficult to get a mortgage by the Plan; your sponsor sure couldn't go into the investment personally along with the Plan (PT), so you're also eliminating leverage from your equation. Good luck...

Another update on 5300 printing. Tried all of our network printers and was able to get an older HP4 to work; however, the SP2 definitely took a working HP5 out of action for printing. Larger observation is if you are using any sort of VPN software to get back into your network, be careful before updating to SP2.