mwyatt

In review of current case, discovered that there was an error on the 1999 Schedule B (interest on Normal Cost didn't stick when entered last year, so charges were understated and credit balance was overstated). I know, I know, one shouldn't make errors, but unfortunately was the byproduct of having to do a ton of forms in a very short period of time last fall. My question is, how to handle submission of amended 1999 Schedule B under EFAST? The Form 5500EZ and Schedule P were unaffected by the change. How should I submit? Have client resign a new "amended" 1999 5500EZ (showing no changes) along with the amended 1999 B? Submit revised 1999 Sch B along with the 2000 filing? Any help would be appreciated.

From a practical standpoint, I would say that your HCEs are the ones who are being restricted, not the NHCEs (remember, your HCEs, if given the chance, would take the full lump sum immediately if not for the Early Termination restrictions). I wouldn't think that you would have a BRF issue in this circumstance.

I guess that this coordinates with the way that we recognize 415 limits currently. Example, a plan year that runs 2/1/00-1/31/01. If I'm doing this @ boy (2/1/00) than I can only recognize the limit in effect for 2000 of $135,000; if I'm doing @ 1/31/01, I can use the $140,000 limitation. Now what this means for the valuations we've performed @ boy for 2001 years beginning > 1/1/01, I would GUESS that we use we would still use the pre TRRA '01 limit of $140,000 w/ SSRA if BOY; if EOY use the TRRA '01 new limits. I'm sure that Jim H. will clarify (although I'm sure his explanation will cause some consternation). IMHO I would think that you couldn't reflect TRRA 01 415 rules for BOY vals starting after 2001. Any other thoughts?

Just refreshing this post... looks more likely that this will go through. Any comments (switch to Class allocation rather than pure age-weighting?). If you haven't thought of this issue yet you may want to. Your doctor client with the one older employee may be in for a shock next year when you tell him that this person making $20,000 previously receiving $5k is now going to get $18k;).

A followup on RCK's comment: This seems to be "double jeopardy" in that if someone is working at a rate over 1000 hours but under 1820 hours, then their accrual for the year is being reduced twice. First for not getting a full year of credited service, and second because they are working on a part-time basis (and hence their salary is lower just by virtue of lower hours worked in year). This type of design is OK for a dollar-based benefit; I think the DOL would have concerns with this design (pre-TRA '86 this was definitely verboten - maybe now washes away if you can satisfy the General Test - definitely not a safe harbor formula by virtue of your definition of Credited Service).

Two points: 1) My brother-in-law was a former trader in the 30-Year pit at the Chicago Board of Trade. The US Treasury a while ago stopped sales of 30-year bonds; his gut feeling is that the discontinuance probably caused a 50 basis point drop in yields (due to scarcity - the only stuff selling now are resells). 2) This question was brought up in the Dialogue with the IRS session at the 2001 EA meeting. Their response (Holland and Wickersham) was that the IRS does not make law, only interprets it; need to look to Congress if want to switch to a different basis. My comment: I think that there is recognition of the problem by all parties involved. Unfortunately, I think it will take time to fix as it will have to be done by legislation, and in the real world this is most likely not perceived as a burning issue.

Not sure of your question. I assume you have already filed the 1998 Form 5500 for plan year August 1, 1998 to July 31, 1999. You stated that plan was terminated on June 30, 1999 and that all assets have been distributed by end of next plan year, July 31, 2000. Therefore, you have one last filing to do covering plan year August 1, 1999 to July 31, 2000 (or date of last distribution if earlier). This filing would indicate that filing is last filing (no participants as of end of year and zero assets). Therefore, only one filing remaining. Or did you mean to say that some assets were distributed after July 31, 2000?

Have a situation where client deposited during the year amounts to a profit sharing plan in excess of 15% IRC 404 limit. For sake of argument, let's say that $50,000 was deposited during calendar year 2000, while $35,000 was actually limit when salaries for 2000 came through (guess he was in a hurry last summer to buy EToys @ $70). Question is how handle contributions physically made during year but not yet deducted. Instructions to 1999 Schedule I say to not show contributions attributed to 1999 year in Column (a) (on form, this is "beginning of year" column). Nothing further mentioned as far as end of year asset value not including contributions not attributed to 2000 year, nor is anything mentioned in instructions for item 2a (contributions). How would you handle this situation? Not deem advance contribution as an "asset" so only reflect amount being deducted in 2000? Show total contribution in end of year assets and employer contribution (but seems inconsistent with beginning of year assets not reflecting not-yet-deducted contributions)? BTW, I know about 10% excise tax on nondeducted contributions - not the issue here. Thanks for any input on this question.

Actually, the first one I received was for a plan that filed its final form (I have the copy in front of me) for the 1989 year! No contact since then from the IRS until this random mailing saying the 1997 filing hasn't been received (also neither have the 1990-1996 forms). I'm an actuary so I sign Schedule Bs. When the enrollment number prefix changed the last time from 96 to 99, all of my Schedule Bs filed in the first part of April 1999 as part of 5500EZ filings were rejected by Memphis as I (properly) used the new 99 prefix. Turns out they hadn't updated their scanning software in Memphis only (5500C/R filers were fine as Holtsville had updated). Of course, I had four clients who thought I was an idiot. Just trying to see if other TPAs have noticed an influx of erroneous 1997 non-filing letters. This is a busy time of the year with end-of-year projections and proposals; I don't really have the time right now to deal with erroneous IRS demand letters .

Has anyone else recently received IRS letters on non-filing of plans for the 1997 plan year? I've received at least four faxes from (worried) clients in the past week regarding non-filed 1997 forms. In all cases these were terminated plans that had filed final forms well prior to 1997 (I have copies of the final filings so we're safe - now all I have to do is talk these prior retired clients off the ledge).

I'm sure everyone has been following closely all of the proposed pension changes in the House and Senate this summer. One proposal in particular is to change the 415 limit for DC plans to the lesser of $30,000 and 100% of Compensation. On the surface this is great; however, we have a number of age-based plans where there are a few older NHCEs in the population who presently are capped at 25% of pay in their allocation. If this proposal goes through the attractiveness of the age-based allocation could fall dramatically (although a great windfall for these select individuals). Anyone have any thoughts on this issue?

Two points: Since this is final return, I imagine that you definitely had benefit payments during 1999 (otherwise not final return) -> Schedule R is filed. As far as Schedule T goes, plan terminated in 1998; therefore no benefits accrued (or should have accrued) past the prior year termination date. Therefore you should qualify for one of the exceptions (either no HCE benefited or noone benefited). Hope this is of help.

Form 5500 and 5500EZ have now added for the first time the identification of a "paid preparer" (line 5). Instructions say that completion is optional. I'd be curious to know what other TPAs and actuaries think about the completion/noncompletion of this item and any potential ramifications.

See following from Reg § 1.411(d)-2(B)(2) (2) Special rule. If a defined benefit plan ceases or decreases future benefit accruals under the plan, a partial termination shall be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer, or employers, maintaining the plan (determined as of the date such cessation or decrease is adopted) is created or increased. If no such reversion is created or increased, a partial termination shall be deemed not to occur by reason of such cessation or decrease. However, the Commissioner may determine that a partial termination of such a plan occurs pursuant to subparagraph (1) of this paragraph for reasons other than such cessation or decrease. So full vesting could be required in certain situations. If you are freezing an underfunded plan (a typical use of a benefit freeze) then full vesting is inapplicable. However, this situation sounds like full vesting may apply (assume plan is at least fully funded on a termination basis) as elimination of future accruals would certainly increase amount of reversion to employer.

Actually PAX, I think the key point of concern here is whether the subsequent lump sum distribution is eligible for rollover. I remember this issue being discussed in a previous thread but can't recall the outcome. I do recall reading of a case in the early 90's where a participant had commenced distributions from a profit sharing plan over their lifetime. At plan termination he subsequently rolled over the balance to an IRA. The IRS disallowed the rollover stating that since equal payments had already started, that future rollover treatment was disallowed and the lump sum was subject to ordinary income tax treatment. However, I believe that subsequent legislation attached to UCA '92 may have made this argument moot. A good question posed by Richard: is the subsequent lump sum distribution eligible for rollover? Obviously this is of critical importance to the client. Any cites would be helpful.

JF: Agree with you as to the value of the IRS review of General Test (when you get down to it, the IRS's review doesn't certify that you performed the test correctly as they have no way of knowing that your census data is accurate). We never applied for the General Test back in 1994 w/ TRA '86 restatements for our age-based PS plans for this reason. That said, however, I'm not so sure that you have the option of not applying. For sure, when you apply for DL on plan termination you have to apply for General Test (read the fine print in instructions). Although the IRS has not yet issued final procedures for GUST restatements, there is a very real possibility that you need to apply for General Test review in order to get the letter. We use Autodoc also; I'm not sure that you can get the volume submitter rate (although you're generating document using VS system). Have they clarified this yet?

Not sure at this point. The IRS did come out and say that New Comparability plans could not use prototype documents which would lead one to believe that Form 5300 would be used as you have an "individually designed" plan. However, keep in mind that the big attraction of Form 5307 over Form 5300 is the User Fee. This advantage is somewhat negated if you are filing for a General Test review (which you basically have to do with a New Comparability plan). User fees are as follows: Form 5307: $125 if no General Test; $1000 with General Test Form 5300: $700 if no General Test; $1250 with General Test Why the addition of General Test costs $875 for Form 5307, $550 for Form 5300 is unclear (maybe factoring in additional review time inherent in regular Form 5300 filing as a credit). The main point, however, is that your client will be spending at least $1000 for a User Fee; extra $250 savings from Form 5307 probably won't overcome outrage at the first $1000 spent.

Identity theft seems to be a growing problem, made even easier by the resources available on the Web. Given the fact that our pension consulting businesses contain loads of confidential payroll data, including participant names, Social Security numbers, salaries, birth dates, etc., do we have exposure if some nefarious individual(s) get ahold of this data, either through "dumpster diving" or electronic means? What steps do you all take to dispose of confidential information. You see so much data in this business that you tend to forget that much is very confidential and could be put to very devious purposes. What steps (if any) are people taking out there to protect their data? Shredding papers, network protection, firewalls, etc., are all ideas that come to mind. Given that we're "discussing" this on the Web itself, I'm assuming that most of us are sensitive to these issues. How about a discussion about "best practices" with data?

Maybe I'm missing something, but now that the IRS is allowing a CT plan document to define the allocation method as allocation by defined groups with the employer providing written instructions to the Trustee of how to allocate the total contribution by group, doesn't this problem go away? Obviously the written instructions that you as the consultant provide to the Employer satisfies the General Test (or they better ). I thought that this was the most powerful change by the IRS as you no longer had to worry about your "super integrated" or specified allocation method failing from year to year, with corrective (nondeductible) contributions being made to pass the General Test.

Here, here, Chester! This is especially frustrating as the Conference Committee report stated that these bases would go away for spread gain methods, but on the basis of Rowland Cross's response (see above) when questioned directly on this point, I (and I assume several other readers of this Message Board) maintained these bases. One point to consider is the allocation of assets for 412 purposes if using the Individual Aggregate cost method in 2000. The normal costs may go up/down (who knows) as assets have been allocated @ 1/1/99 including the value of outstanding bases as an "asset" for 412 purposes. Now these bases go away so the 412 Normal Cost in 2000 will be determined on possibly huge "losses" in assets due elimination of CL bases. Anyone's thoughts on this point (reallocate in accordance with 404 allocated assets per chance?).

The 5-year window outlined in the TH regulations keys on termination date, not distribution date. So in your situation (presumably testing 2000 plan year) with determination date of 12/31/1999, your participant who quit in 1994, paid in 1995, would be excluded from testing. This makes some intuitive sense as he could have been paid out at any point since termination (and in fact could still have balance in plan). Key is to focus on termination date for testing.

Thanks for the info. Now, I've done a bunch of BOY 1999 valuations using Individual Aggregate where, based on the best information available at that time, we maintained prior amortization bases but redid the payment over 20 years - # years amortized through EOY 1998. Clients have contributed and deducted on this basis. Is the IRS going to have us redo these valuations or can we get rid of these bases with the 2000 valuation year? Also, I went back in time on the Board because I remember this issue being discussed early last year. Here is a quote from Pax's response: pax Contributor Posts: 381 From:NC Registered: Oct 98 posted 01-29-1999 05:43 PM -------------------------------------------------------------------------------- No problem. I spoke to Rowland Cross of the IRS yesterday and asked this question. He stated that since the referenced comment is not in the Code, it will not be applied as a statutory exception to the requirement to establish a base. Therefore, the continued use of the base, and its switch from 10-year to 20-year amortization, is required even for aggregate method. He did seem to be open to other possibilities, but was not planning on taking a poll at the EA meeting, for example. If you have an opinion, he was interested in hearing from you. My opinion is that for larger plans, it (using a 20-year amortization vs. having no base) won't make much difference in the resulting contribution, but that it could in smaller plans, especially if funded with the IA method. [This message has been edited by pax (edited 01-29-99).] Looks like the IRS has switched their thinking... [This message has been edited by mwyatt (edited 03-30-2000).]

Look at IR Notice 2000-14 again. The IRS's tack in attacking these plans is that you must demonstrate that contributions received by classes must satisfy the Benefits, Rights and Features requirements of IRR 1.401(a)(4). So in a situation where the classes vary only by employer (or division) and HCE/NHCE ratios are not skewed, you should be able to demonstrate nondiscrimination. The reason for traditional New Comparability plans to be nervous is that usually the classes fall into lines of Class 1-Favored HCEs and Class 2-everybody else. Hardpressed to figure out how that wouldn't be discriminatory.

I suppose you all saw ASPA's release yesterday on the effective date of any new "New Comparability" restrictions (plan year beginning in 2002). This grace period only applies to the following situations: 1) Existing new comparability plans adopted prior to 2/24/2000; 2) New plan where sponsor has no plan in effect; 3) New plan or amendment to existing plan where ONLY benefit was from employee deferrals (no discretionary PS cbn). Any other conversion from any other plan would not be afforded extended relief, i.e., if you had an existing PS plan you convert to a New Comparability plan at your peril. Does it make sense to put these plans in place for 2000 and 2001? It depends, but you better fall into one of the above situations or any potential new restrictions apply from the get-go. I would tend to think not. As for the survey, if they want to show the data from our selection of "New Comparability" plans, I think that would be the end of any lobbying efforts (as I'm sure many other practitioners must realize). Given the hoopla going on in Congress and the popular press about cash balance plans, I think defending plans where the players get the IRC 415 maximum and the rank and file get 3% might be a tough sell. [This message has been edited by mwyatt (edited 03-22-2000).]

Can you give some more specific timing (you said that 75% went to employer in February, I assume 25% to replacement plan not yet transferred until "much later" - this is March so I wouldn't call that too much later at this point . The excise taxes due on the net employer reversion are due by the end of March so you still have time to pay these (if not already done). Please outline the years you're talking about here (one could possibly construe that the 25% remaining in the prior plan trust is effectively in the new trust and gets these earnings - I don't think the IRS would give you much trouble here). Unless of course your February is in 1999 and transfers occurred in 2000. More detail please.