mwyatt

Hey Kirk: Really haven't run into too many issues, other than Firewall related tweaking, as yet. By default SP2 turns on the new Windows Firewall. Of course, the MS firewall only blocks incoming stuff and doesn't block outgoing, so you may want to stick with a Zonealarm or some other firewall program. The official MS list of programs can be found here: MS Windows XP SP2 Program Problem List The Relius issue has got me befuddled as I haven't had problems with the regular 5500 program. However, the 5300/1099-R print engine is pretty problematic (as any regular user trying to print to a more modern laser printer can attest) so I'm assuming something in the Relius coding did not like SP2 at all. Waiting to hear back from their support staff on this matter. Word, Excel, and other standalone programs probably won't have issues. The real glitches seem to be with programs communicating over the Internet or LAN. Took me a little while but I was able to "train" the MS firewall to get my PCAnywhere connection back up and running. Thought I should also throw this link in if you are responsible for a few computers: MS Windows XP SP 2 Complete Download This is a huge 220mb download, but might be easier than having all of your computers independently downloading an 80mb file (plus you'll have it available for future use if you need to rebuild XP).

I'm assuming most folks here are using Windows XP. Service Pack 2 will start rolling on to your computers in the next couple of weeks, and I thought it might be a good idea to keep track of any issues popping up with pension software so we don't feel like lone voices in the wilderness (trust me, there will be problems). I downloaded the complete patch and put it on our server (so we won't have 15 computers downloading the complete patch over and over again) and installed it over the weekend (on my own guinea pig computer - not on all boxes before testing!). Observations to date: Pension Software running ASC Win/Val w/ Pervasive 2001 Relius 2004 Government Forms Relius SAR Relius Government Forms 5300 Only problem noted is with Relius Government Forms 5300. You will NOT be able to print as it gives you an error message that "Your Printer Drivers are Outdated". Tried it on a non SP2 computer and no problem (both to network printers). Contacted Relius this morning; still waiting to hear of a fix.

Hey Blink: No apologies necessary. Not trying to say that JH is mathematically confused either - just when faced with 0/0 in that situation (and that was the specific situation in point of fact) he said to hold your nose and put down 100% .

Hey Blink: Actually JH is a pretty decent guy, but when faced with logic v. mathematical principals (ever try typing google /not the website/ into your software) he came up with the rational response. Look at the second year Schedule B with a plan based on participation; your liabilities and assets as of the beginning of the prior year are both "0". What do you enter for the prior year Asset v. Current Liability percentage?

I think this thread points out the whole problem with this issue, in that the IRS has never formally codified the standard for "looking back" on plan termination. Blinky's observation about the 5-year forfeiture not applying to DB plans is correct if you read the Code carefully, and points out the fallacy in the original GCM. Using the logic that full vesting is required for those who still retain the right to return and have their service reinstated at the time of termination ala DC plans would in turn lead one to conclude in the DB situation that all remaining partially vested participants in a DB plan should in turn be fully vested. This is due to the fact that they could theoretically return at some point in the future and reclaim their service. As I previously stated, the IRS author didn't go down this illogical (but consistent with his argument) path. Having been involved in DB terminations since 1983, I watched the evolution of this IRS "standard". Perhaps the best tack is to fully disclose on the attachment to the 5310 who you are contemplating fully vesting/not fully vesting and rely on the blessing of the agent.

The 1984 GCM basically stated that due to the new REA rules, which provided for the increase to 5 years before you could disregard prior service, a plan that is terminating must provide for full vesting for those terminated participants who were still within this time frame. The logic employed by the IRS author here was that these former participants still could return to work and reclaim this service at the time of termination, and henceforth this hypothetical ability must be protected as part of the termination. If I recall, this even phased in from 8/23/1984 (REA enactment date) so that the 5-years grew from that date forward. Of course on the DB side of things, the logical extension of the 1984 GCM, due to the fact that you don't really have the same 5 year wipeout of past service, was that any partially vested terminated participant still in the Plan at the time of termination would have to be fully vested since you never wipe out the past service. Fortunately the IRS didn't climb all the way out to the end of this particular logical limb. Obviously this was a source of consternation among many (the old standard usually being full vesting for those who terminated in the year of term and possibly the prior year - otherwise you'd fire everybody, then terminate the plan). IRS did backtrack a bit and introduced the cashout exception, including the $0 deemed cashout (which now leads to the peculiar interpretation that the only folks you need to fully vest at termination are partially vested participants in the 5 year window - nonvested terms are out of luck).

Assuming you filed for a DL, this payment would be disclosed in the 5-year lookback schedule for partial/non-vested terms. Are you filing for a letter? I wouldn't think that the IRS would go for 20% vesting if he never received the funds.

Hey Blink: Actual cited fact from one Jim Holland (as in when you're reporting the asset to current liability percentage for a new plan on next year's Schedule B). The IRS is indeed all powerful...

Hey Katherine: I know about DOL (I was only followink orders). I got bumped to a "supervisor" who must have come out of somebody's Motor Vehicle department. What a way to start the freakin' week! He obviously had no clue as to what to answer and basically accused me of being esoteric/belligerent when I asked him if this was an ongoing plan with a security over 20% throughout the year as to what value I should enter (BOY, EOY, highest, lowest, luckiest, unluckiest, random number generator). God knows what they do with this stuff... And I won't even go in to the ongoing problem with DB plans filing for the year after the plan terminated...

We have a client that recently filed their final 5500 on a terminated profit sharing plan. There was a security held by the plan that was in excess of 20% of the value of plan assets during the year. We answered question 4(i) as "Yes", but were stumped as to what value to put down as to the value of the asset. As all assets were distributed by the end of the year, and questions in line 3 all reference end of year values, we put down $0 (the value as of the end of the year) for the asset, since the instructions provide no guidance as to the value to put down (beginning of year, end of year, highest value during the year). Client got a bounceback letter from the DOL on the question. Ended up with a supervisor on the phone who (basically a complete jerk) would not provide any guidance whatsoever as to the amount to put down for the question, whether beginning of year value or end of year value of security in question. Besides being a little ticked that this guy wouldn't (or couldn't) provide an answer as to what to put down, what would you do in this situation? 1 - Terminated plan with all assets distributed by end of year 2 - Ongoing plan: beginning year value of security in question, end of year value, or highest value during the year (which would basically be an impossibility to reasonable track?).

Hey MGB: The short year only comes into play when all assets are distributed; a mid-year termination date doesn't create a short plan year in and of itself. The date that final assets are distributed could create a short plan year. In this case, calendar plan year terminated 5/1/03. Action that would create a short plan year in 2003 would be distribution of assets prior to 12/31/03, in which case end of short year would be date of distribution, not termination. The 412 proration comes into play under regs recognizing that 412 doesn't apply after termination date. But this doesn't create a short plan year; just a shorter period of time that you take into account for 412 charges/credits. 404, as previously mentioned, is unaffected.

Ah, but for you M&A vultures out there, remember ABO isn't a true measure of a plan's termination liability (had a college friend who went to work for Shearson Lehman in the late 80s, and had to point out this fact to him before they went on of those fabled acquisitions - obviously pre 50% excise tax on reversions).

Let's look at another example. You sell stock, and a commission is charged on the sale. You pay capital gains on the net price (sale less commission). Another example: you sell your house and pay a realtor commission fee. Capital gains (if any due to exemptions) is on the sale price less expenses of sale. So I'll fall on the side of $4,925 myself. BTW, just got back from vacation and ran into an actuary who had a firestorm Friday on his Blackberry concerning the SEC investigation. Any comments (other than the fact why would someone want to take work with them on vacation?).

Aha, but now the wrinkle. For 410(b) on the ADP side of things, I'm passing (since under 410(b), the ability to defer is equivalent to actually deferring). However, with regards to the employer match, I'm failing 410(b), which would in my mind that my ACP test is on hold until I fix the 410(b) problem. Corrective method under plan document is to add in folks, but how do you do this when increasing those who already received a match isn't going to get me to pass 410(b)?

Client has a 401(k) plan which provides for deferrals and employer matching contributions. There are no other plans sponsored. In the plan, they exclude a class of participants not covered by the statutory exclusions under the Code. Question has arisen as to whether the employees in the excluded class who would otherwise satisfy the eligibility requirements and be in the Plan if they weren't excluded should be considered for the ADP and ACP tests. Clearly these folks are included for purposes of 401(a)(4)/410(b) testing; don't see why they would be kept out of ADP/ACP tests or am I all wet here?

Actually, it's even more hysterical because the maximum PBGC guarantee for a Substantial Owner phases in over a 30 year time period!

Don't want to get on a high horse here, but your situation really illustrates a problem for small plans. Unless your client breaks the law by ignoring the top-25 restrictions, where is the PBGC's liability here? I suspect that if you limited your owner's benefit to the PBGC guaranteed amount, your plan would be fully funded. So where exactly does the PBGC come off trying to get extreme premiums from this small plan client to subsidize the steel industry?

A practical observation (at least concerning the lump sum issue): Since your table is based on UP84, 417 minimum lump sums using the 94GAR table w/ current 30-year treasury rates (you don't specify your AE interest rate) would probably override anything calculated under your plan's AE rates.

Hey Lynn: If a one-person plan, then definitely establishing a follow up PS plan would be the answer to your solution (since the same assets could flow over to the PS plan). You would need to terminate the DB plan, but your client wouldn't face the problems of trying to roll esoteric assets to the IRA. You should make sure though that you have a defensible market value for said assets, to avoid understating of values.

Of course, one must follow the logic that if the early termination restrictions kick in (since the plan is underfunded), then this discussion is moot. Lynn, what is the funding status of this plan? Are you dealing with excess assets (remember that concept from the 90s folks) or are you just trying to insure that the client won't face that in the future? If so, then the concept of a followup PS plan would be the way to go.

Thanks Penman.

Just for clarification, did the new law change the interest rate used in determining the benefit where NRA is greater than 65, or do we still use the 5% max cap for conversion purposes?

Hey Andy: Intrigued (or confused). I would think that the point of relevance would be the basis for compensation of the MP contribution. The termination date of 9/30 is a fixed point, which would define how much compensation was taken into account in determining the MP contribution. Whether the client rushed or dallied in actually distributing the money before or after the calendar year end doesn't seem to have any bearing on the testing... (of course, I'm about to have to argue with an IRS actuary that my client was not a bad person for not blindly sending out checks under 5k to people who had no chance of rolling them over to an IRA since noone could find them, so what can I say about logic?)

A little example of "saving" money. Client running a pretty basic DB and PS plan left our firm in 92, and had an insurance broker restate the plan documents using a standardized prototype. Of course this was a small client who was always going to be top heavy. Only problem was that the prototypes in question automatically defaulted that the TH minimum would be provided in BOTH plans, regardless... This little "savings" ended up in about a $70k hit to the DB plan...

The plan contribution costs for the non-partners are split in determining each of the partner's net earned income. Remember that the conceptual map to follow is what you would be doing if this was a corporation and you were "back solving" to arrive at the salary. If you applied the entire non-partner deduction to each partner, you would be double counting the cost of the non-partners contribution which doesn't make alot of sense.