mwyatt

Hey Blink: For the 5500, I have the following attachment language that I alone sign: Attachment to Schedule B of 2002 Form 5500 Justification for a Change in Funding Method Plan Sponsor: ABC Company Plan Name: ABC Company Defined Benefit Pension Plan EIN/PN: 12-3456789/001 Actuarial Certification: I hereby certify that I have changed the funding method for the above plan in accordance with Section 3.XX of Revenue Procedure 2000-40. I further certify that the funding method that I have used has met the requirements of Sections 5 and 6 of Revenue Procedure 2000-40. As of January 1, XXXX, the actuarial cost method has been changed (fill in what happened here). Note that Schedule R, Item 7 of the signed XXXX Form 5500 has been answered “Yes”. This response affirms that the Plan Sponsor has agreed to the aforementioned change in the Actuarial Cost Method. ____________________________________ __________________ Actuary's Name Date Enrollment No. 02-1234 Now if this is for a Form 5500-EZ filer, I delete that last "Note" about Schedule R paragraph and add the following: As the representative of the Plan Sponsor, I certify that this statement has been prepared in accordance with the requirements of Section 6.02 of Revenue Procedure 2000-40. I agree with the change in the funding method described above in the statement of the Enrolled Actuary. I also note that the xxxx Form 5500-EZ makes no provision for my approval of the funding method change. This signed statement indicates my agreement to the funding method change. This change in funding method is to take effect for the plan year beginning January 1, xxxx. ____________________________________ __________________ Sponsor's Name Date for ABC Company Maybe overkill, but I sure wouldn't want the IRS to disqualify my change to the funding method in future years upon audit, if there wasn't some filed representation with the 5500-EZ that the sponsor approved the change in funding method.

Doesn't sound too good to me. Now what will these insurance salesmen turn to next (419 has already been hammered)...

Actually, I've had the plan sponsor cosign my attachment to the Schedule B outlining the change in funding method explicity stating that he is approving the change in the funding method. Language is to the effect that the sponsor is giving consent to the change in the funding method (further, I have language on my attachment to a Schedule B filed with a Form 5500 stating that the sponsor is approving the change in funding method by his signature to the Form 5500 coupled with the response to the item on Schedule R). I figure it can't hurt. I'll post the language I use tomorrow when I get back to the office (my attachment is basically modeled on an attachment sample provided by Larry Deutsch at one of the EA meetings, so I can't claim authorship).

For What It's Worth

I'm assuming that the 12/31/2001 reference should be 12/31/2002. Also assuming (since you reference NOIT) that this wasn't provided until 12/15/2002, implying that your plan is subject to PBGC coverage. Hence the earliest plan termination date that you could use (and that the PBGC would accept) would be your 2/15/2003 date. So your plan termination date would have to be 2/15/2003 and you would have to do a 1/1/2003 valuation. Only way that the 12/31/2002 plan term date could be valid (again assuming that this plan is subject to PBGC coverage) is if the 60-day notice was timely given to participants by the end of October 2002.

To quote from the 2002 5500-EZ instructions: Note. All one-participant plans must file a Form 5500-EZ for their final plan year even if the total plan assets have always been less than $100,000. The final plan year is the year in which distribution of all plan assets is completed. Check the “final return” box at the top of Form 5500-EZ if all assets under the plan(s) (including insurance/annuity contracts) have been distributed to the participants and beneficiaries or distributed to another plan. So I would say that you need to file the final year 5500-EZ regardless of the level of assets. So Blink I would agree with you that the 2001 5500-EZ should have been filed on the MP plan.

Actually, I'd add the comment in general on short plan years of the problem of filing using the prior year's form. Consider a calendar year plan that merged 5/31/2003, with a corresponding due date of 12/31/2003, possibly extended to 3/15/2004. Now, you could go ahead and use the 2002 forms to file, but you might have the EBSA robots bounce it back since you're not using the 2003 series forms (technically, the 2003 forms might be issued by 3/15/2004, in which case they would state that you should have waited to take action until the appropriate year forms had been available). This issue speaks to why many folks don't try to rush filing that final short year (remember, no good deed goes unpunished...).

I side with Lynn. I definitely wouldn't file a "final" 5500; the screening computers will kick your return back since you won't be showing 0 participants and 0 assets. Just file the 5500-EZ. If the client does get a letter asking for explanation, just respond (and I doubt that you will receive a letter from EBSA on this matter).

I'm assuming that we're talking a small to one-man plan here, and your intent is to preemptively add in additional years of participation for when you actually make the move to a "funded" DB plan (assuming that your 0% of pay benefit will probably generate no contribution, and that TH issues, if any, are null due to EGTRRA changes - although you may run into a counterargument that you are "accruing" benefits for 415 but not for 416 so TH accruals aren't called for - another direction that this thread can proceed). In practical terms, haven't run into too many clients with this much foresight (and or willingness to pay for a valuation that provides for no current deduction), but this could be one way to potentially boost contributions. The repeal of IRC 415(e) has modified the timing for switching from a maxed out DC plan to a DB plan; assume your client is obviously older than 52 with this type of planning going on.

I second Blinky. The "waiver" is only after the plan has terminated and shouldn't be confused with the funding deficiency in the FSA. You can't terminate with a deficiency. More facts on your situation would be helpful as there may be some ways (or maybe not) that you can deal with your problem. Ah, for the good old days when our problems 4 years ago were trying to figure out strategies for coping with reversions being penalized with an effective 90% tax rate. Only silver lining in the market slide is overfunding certainly isn't the issue that it once was. Aside: guess I'll have to change my screen name, he not a she Blink (either that or I'll need to find a good jpg from the Simpsons like yourself ).

A few things: if the plan terminates, the participant (with spouse's consent) could execute a Substantial Owner Waiver (although it is phrased differently than an actual "waiver" - see past discussions on this matter, with clarifications due to Mbozek and Mike Preston) to receive what is in the plan. However, on an ongoing basis, you really can't reduce the accrued benefit to get around funding requirements (of course you could always reduce/freeze benefits to reduce future accruals, but this may not be of use if you're already past your valuation date). A few more details might be in order here (age v. NRA, level of funding, etc.) as you could look to your assumptions to reduce costs. We've increased the Expected Retirement Age assumption in some cases - this will lengthen time period of funding which would tend to decrease the developed cost under the Plan. And I might add, after someone has lost a pantload of money, I would venture that assuming someone will work longer than they originally intended would be a reasonable assumption...

Actually, dittos to Mike ... precisely. No more needs to be said why limiting the PB to 415 before accrual would be discriminatory.

Thanks for the clarification - that was my gut feeling also on receivables (plus who knows where that money would ultimately end up being invested). Only thing that did concern me with the output from our software (Relius/Hyperprep) is that the totals of assets disclosed doesn't end up equalling the total assets reported in the SAR. I suppose this is a problem only if someone actually takes the time to read the SAR and use a calculator; assume that some questions may arise among participants.

Merlin, thanks for your help on this issue. The code reference I originally cited to start this whole thing out was pretty ambiguous on this point.

You can definitely submit your GUST document with the 5310; you don't have to separately apply for a DL using 5300/5307 in the case of a termination.

I'd second that. The last private sector plan I can recall requiring employee contributions as a condition of participation ended the requirement in 1984. Most employees, given the prevalence of 401(k) plans, would not appreciate having to make after-tax contributions to a plan (plus the aforementioned basis recovery rules and the 120% Mid-Term interest credit greatly added to the complexity inherent in the plan. Finally, the 401(a)(4) and 401(a)(26) rules could pose some significant hurdles to maintaining such a plan if your lower paid employees took a pass on participating).

In general, I would venture that it is imperative that you monitor your past SSA submissions. You don't know what fun is until you have to prove to some former participant that received this nice letter from Social Security that they in fact did get paid their account balance 16 years ago, but for some reason your client didn't choose to keep around bank statements for that length of time (especially entertaining when the bank holding the checking account at the time has been through at least 10 different takeovers...)

This situation isn't out of the realm of possibility, as we had it happen a few times (obviously all profit sharing plans). Consider: PS Plan established in Year X to receive contemplated distributions from a terminating DB plan; however, distributions don't occur until Year X+1; PS Plan established early in Year X; subsequent to establishment, business conditions deteriorate to extent that no contribution is made for Year X; PS/401k Plan established in Year X; due to confusion in sorting out where investments are to be made and fouled up employee communications on deferrals, no deferrals are actually made in Year X. Since you legally established plan for Year X, you are required (unless you fall under 5500-EZ exception for under $100k) to file the Form 5500. Obviously this should be a pretty simple form to complete (enter a bunch of zeros in Schedule I and Schedule T clearly should take less than 30 seconds).

Actually Mike, what we were doing was fixing a known typo (Relius acknowledges as such). If we are making any "special language" changes to document, then yes we are submitting. Spelling corrections I don't think count...

Actually an excellent point on the testing issue. Let's face it, even submitting for a DL for General Test doesn't mean anything even for the year that you showed on the Schedule Q. Why? IMHO, the only "real" guarantee would be for the IRS to come out, audit your data, and perform the General Test themselves. The Schedule Q is only showing data that you submit. Who's to say that some inadvertantly omitted participant that would throw the whole test out of compliance wasn't reported to you. The DL basically says that your document appears to follow regulations. It's up to you to determine that the plan actually complies with what the document says; the DL doesn't speak to compliance issues at all. Our firm (we primarily use Corbel/Relius VS docs) made the decision that the time and expense of submitting documents that were word for word adoptions didn't make any sense. We've only been submitting those documents where significant changes had been made to the volume submitter language (i.e., the language dealing with change in plan year was obtuse so we clarified what actually happened - I wouldn't venture that this affected the overall "pureness" of the VS document so in this case we wouldn't submit). I would guess that the IRS has also reached this conclusion, although for more pure reasons than when the DOL decided to stop having sponsors send in SPDs because "they didn't have any room left to put the stuff... ". Given budget constraints, etc., putting so much effort into reviewing a bunch of prototype/volume submitter documents wasn't justified (and given past experience with TRA '86 submissions a document that consisted of a front, back signature page and padding from the telephone book would stand a 50/50 chance of receiving a letter anyway, given some of the whoppers that I've seen on a few takeover cases that received a favorable letter).

From a philosophical viewpoint, the question is really getting at diversification of plan assets. I would probably bet that your mutual fund might hold more than one stock in its portfolio, which tends to argue against the spirit of the lockstep "yes" response. This question always kind of bugged me (and also its prior counterpart dealing with transaction over 20%) for small plans at the beginning of their life. I actually answered this question as "Yes" one time on a fairly new plan as the plan had just started out (hard to avoid 20% of asset limitation when it is pretty new, unless you "luck" in to one of those brokers who likes to buy 5 shares of this, 15 shares of that... ever heard of a mutual fund sport?) which inadvertantly triggered an IRS audit. The agent actually told me not to answer that question yes in the future unless it was a meaningful stretch of diversification of assets. And so it goes...

Actually, this may be a little OT, but consider a plan with $200,000 held in one brokerage account and a $30,000 receivable contribution as of the end of the year. What is everyone doing with regards to the receivable contribution amount? I've just been listing the actual cash amounts held by holder, and not referencing the receivable contribution as such on the SAR. What are other folks position on the receivable contribution?

Actually, from a practical matter, the GUST restatement in many cases couldn't have possibly been done prior to termination date. We use Relius (nee Corbel) and although their approval letter was dated in January of 2002, the actual software didn't get out until June/July 2002. Are you saying a client who terminated their DB plan @ 12/31/2001 is out of luck since the GUST/EGTRRA amendments weren't done prior to termination in this case?

For movie references, let's also not forget "Who Framed Roger Rabbit?"

Actually, with a small plan that obviously has a limited life span, granting past service for accrual/benefit purposes may not be the way to go. Creating an underfunded plan from the get go isn't a great way to start out, unless the only meaningful past service would be granted to the owner. Just have to look at the situation and consider the projected scenario when your owner will be winding the plan down, not necessarily at the retirement of all parties involved.