mwyatt

Houston, I think we have a problem... Facts as I understand this is that total population consists of 6 NHCEs and 2 HCEs. All 6 of the NHCEs' compensation consists totally of commissions. Not sure if you say that your documents currently excludes commissions from the definition of compensation or if this is something you're looking into doing. Assume that the 6 NHCEs are full-time employees and have satisfied the eligibility requirements of the Plan. I don't think you need to dig too far into the regs to think that an end result of the 6 NHCEs otherwise eligible receiving $0 and the HCEs receiving $$$ would fly too far in testing. Also, as Blinky pointed out, this plan would need to satisfy TH minimums, which look to 415 compensation (which would add back your commissions). You can have definitions of compensation that deviate from total compensation; however, I think a Schedule Q attachment that showed a 0% inclusion rate for NHCEs would be serious bulletin board fodder down in Covington KY.

Andy, you listen to Howie Carr I presume?

Can anyone indicate how these bills will impact IRC 417 minimum lump sums (and also maximum 415 lump sums)? My cursory reading of the bills indicates that these changes to corporate bonds are more in line of modifying the rates used for current liability purposes. Don't see anything referencing changes for 417 payouts. Also, any changes possibly in the works for calculation of PBGC premiums? BTW, "Funds for Rebuilding Fish Stocks"? An example of legislation as sausage making?

What, you mean Boston ISN'T the Hub of the Universe!?! On a more serious note, the "juice", along with the other factors mentioned by Tom, have conspired to taint the tremendous increase in offensive stats. You don't need to be a regular poster @ alt.conspiracy.knuckleheads to think that something fishy has gone on since the strike back in '94. Keep following the THG story. This could be pretty damn ugly for many sports before the story is through (had to laugh last week when Gene Upshaw, head of NFLPA, took offense at Bush's comment on steriods, saying that the NFL had solved this problem long ago - humorous since 4 Raiders were named in the THG investigation the same week...). If you want the FDA's opinion, click here FDA on THG

Actually Tom, the unfortunate question about Bonds is how many homers he would have hit if he wasn't juiced up .

Hopefully this whole trade talk is kaput and Theo can get to business mending some fences with Nomar, if you know what I mean. One thing I still haven't quite figured out is why Nomar/Mia went and bought a place on the Cape. Last time I checked the baseball season pretty much covered the time that anyone would want to be taking advantage of the Cape, unless he's planning on learning to fly a helicopter to get to Fenway...

Nice, Andy... Of course us Red Sox fans now have something in common with our "friends" to the South: unabashed hatred of the "Texas Con Man", Roger Clemens. Feel good about our chances with Pettit/Clemens/Wells gone, and Brian Cashman soon to follow. Looks like George S. is entering the Al Davis stage of his life (jeez, can't the Raiders get anyone to coach for them?).

Hard copy has its place, but just wait until you find 3 months worth of updates crammed in the back of the desk drawer of a recently departed secretary (a true story BTW)...

Well, how about a one-man/small company DB plan that had sponsored a PS/MP plan in the past, but recently set up a DB plan to take advantage of higher EGTRRA limits/repeal of 415(e)? Rather than paying for administration on prior DC plans, he rolls his balances into the new DB plan (and hence only one 5500 filing). Also, could be issues where rather than having prior plan money in an IRA, participant wants to keep in qualified plan. Easiest way (obviously) is for the rollover money to go into separate accounts.

Actually praying for some relief (especially on PBGC variable premium). One question: since OBRA FFL is gone, QCbn liability is measured on RPA CL, what are the remaining reasons to calculate OBRA CL?

Just starting to get in data for 1/1/2004 valuations and wanted to make sure that I am up on the changes effective for 2004 in the current liability calculations (absent any corrective legislation). To confirm: EGTRRA repealed the "OBRA" Current Liability Full Funding Limitation effective for plan years beginning in 2004, right or wrong (so I assume that I still need to calculate RPA '94 Current Liability for the 90% threshold). The RPA '94 CL range goes back to 90%-105% as the 120% change was only in place for 2002-2003 years, barring any future legislation. PBGC variable rate premium goes back to 85%, rather than 100% of prior year's 30 year treasury rate. I figure that some valuations may need to be redone (at lease as far as CL goes) if future legislation provides relief, but I would like to make sure that I'm not missing anything on the CL calc side.

Actually, I would be looking for another adoption agreement, given the history of when the 401(a)(4) regs came out. Your 11/28/1989 adoption agreement was definitely a TEFRA/DEFRA/REA adoption agreement, as the proposed regs didn't even come out until 1990/1991, and weren't finalized for TB plans until 1993. The 11/28/1989 A/A was certainly not the TRA '86 approved version; look for another one that was adopted sometime between 1993-1995 (as I recall, Corbel didn't get approval for their TB VS language until August of 1993, and most prototypes for TB plans probably came out even later). Make sure you're actually looking at the right document. A word of advise too, is that if the only document you have is the 1989 version, then you probably never were in compliance with TRA '86.

I asked Relius/Corbel/Sungard/Gigantorcorp for an interpretation of the language I previously quoted and received the following reply this morning: It's basically as clear as mud and is open to interpretation. The language really was certainly drafted before EGTRRA. When the 415 limits were increased, a provision was added to IRC 404 stating that a d/c plan subject to 412 is treated as a p/s plan. So, the net effect is that there is just an overall 25% limit. What's not clear is what happens when you exceed it. You are proposing to reduce the owner's contribution. But, there's nothing stating that the owner should be the one who gets the reduction, even though his contribution may exceed 25% of his compensation. I think that would be a reasonable interpretation of the rule, but I can't point to anything in the plan or the good-faith EGTRRA amendment that specifically states that. As I thought, this was pre-EGTRRA language (wherein you had an operating 25% 415 threshold which would keep you out of trouble). Possibly a grey area for the IRS to interpret at a later date. Thanks Mike P. for your deduction suggestion; haven't yet approached the client on this issue before getting advise, and it may turn out that the result may be too much of a good thing, anyway (there probably is a reason that the owner's salary decreased, if you get my drift). At least we have time to scale back the 2004 result...

Hey Andy: Hope I'm not condemning myself, but we've always used projected average compensation for determining the target benefit contribution (of course with no salary scale; although I did run across a takeover where they not only used a salary scale assumption, but also an expense load!).

One question is, assuming that this formula was to be a safe harbor, is how you got it through the TRA '86 restatement, never mind GUST... Can you give a little more info as to when the plan was established?

Actually, that's a good suggestion; I imagine that we will be able to bring the 2004 cost down somewhat as the plan year has just started, so that the overage from 2003 could fit under the 2004 25% limit.

Unfortunately, the EGTRRA comp limit isn't really an issue since past salaries were high, but not over the prior $160k limit (the owner is 64). Knew this could be an issue with age-weighted plans, but at least you have an out by pulling back on the overall contribution. At least the excise tax will only be under $200... Thanks for the input Andy.

Have a 3-person target benefit plan. The target benefit formula is based on a High 3 Year Compensation for averaging purposes. Situation is the owner, who had established a high average in past years, had his compensation greatly reduced in 2003. The results are as follows: Owner: Salary of 62,500, TB contribution calculated at $40,000 (new EGTRRA limit) 2 Other participants: Combined salaries of $164,659, combined TB contribution of $18,654. Note that both calculated TB contributions were in excess of the 3% TH minimum. Problem that arises is the 25% IRC 404 limitation. Here the deductibility limit would be $56,790, while the combined contribution is $58,654, leaving a nondeductible contribution amount of $1,864. Plan document was timely amended for GUST and EGTRRA using the Relius/Corbel volume submitter document. The document does have the following language present in Section 4.1: "Formula for Determining Employer Contribution": Notwithstanding the foregoing, the Employer's contribution for any Fiscal Year will generally not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. However, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount which is deductible under Code Section 404. I'm not sure if this language means anything in this case (from the GUST restatement) as this was clearly drafted prior to the EGTRRA increases in the 415 limits (remember, this wouldn't be an issue pre-EGTRRA since individual contributions were limited to the lesser of the applicable dollar amount and 25% of compensation). Trying to see if this language would at all support a reduction in the owner's contribution to the amount that would allow the entire contribution to be deductible. Any thoughts on this situation or do we put in the full amount and file the Form 5330 with the 10% penalty on nondeductible contributions?

No problem, Andy.

How about some more Xmas presents from season's past? 1983: Mad rush to send out 242(b) notices; 1994: Maddening rush for TRA '86 DB restatements, until a very late reprieve after you've completely sent yourself to the loony bin; coupled with 1994: GATT implementation! Have a Merry Christmas all...

TRA '86 made this change if you're looking for a reference.

Point well taken Pax, but most of the heavy hitters are well beyond the TWB, so the comparison is with 2.9%, not 15.3%. However, one critical point is that pension contributions (I believe) lower your AGI BEFORE the Alternate Minimum Tax, which may even be a bigger point...

But nothing spells disaster better than brokers and DB plans. Just had one who wanted to me to run a proposal for a new DB plan for an over 100 life company with 4 owners in their early to mid 40s, with a result of getting more than half of the contribution to the owners. Not wanting to spend 15 hours scrubbing data to prove that this was a collosal waste of my (unbillable in his eyes) time, tried to dissuade him that his buddy's case (much smaller census with much older owners) might have had a little more favorable census base to play with... We'll see if he can actually understand what a DB plan is the next time and when it will work (I shudder about someone trying to pitch over 100 life cases as "tax shelters").

Mike is onto something with the effective tax rate on the IRA withdrawals. You figure that everything currently taken off the top of income is being taxed at the highest marginal rate, while ultimately when you start drawing down on your IRA to provide your income in retirement, the effective taxation rate will probably be much lower. These tax questions are intriguing though; just this morning a CPA wanted to what the impact would be of increasing the owner's wife's salary (2 person plan) to get a higher PS contribution for her. I figured out that the PS contribution would be in the 17-18% range, after taking into account the DB deposit. However, since extra funds to pay for her salary would be subject to FICA (effectively 15.3% since she was well under the TWB), didn't seem very cost-effective to shore up SS for an additional PS deposit of roughly the same amount (I brought this point up, not the CPA, BTW). I guess the moral is that sometimes we all have to look out of our little corner of the world and think things through to their logical end. Of course, one should remember the old CPA adage of never pay a tax today that you can pay later. I'm glad for some of my old pre-TRA '86 grossly overfunded DB clients that we kept things going in time for the EGTRRA increases instead of pulling the plug earlier (of course, three years of slaughter in the markets didn't hurt either...)

One question: you mention a work schedule of 10 Hours per week. I know that you have 6 months of service for eligibility (which precludes a 1,000 HoS threshold for eligibility), but one thought comes to mind is your requirement to be credited for a Year of Service for accrual purposes. Assuming you're using a 1,000 requirement, seems that your employee in question will not be credited with Years of Service for accrual purposes. Couldn't you effectively assume in your funding assumptions that current work schedule would be projected into the future, so that no waiver would be necessary (this is predicated on 1,000 threshold being used, not elapsed time for accrual purposes) since the funding (and accrued) benefit would be $0.