SoCalActuary

Like. Well the main reality is that a maximum lump sum is payable under the plan. Was that part of the plan valuation assumption? Did it reflect the 5.5% rate and applicable mortality for the assumed lump sum payout. I usually find that this is lower than the 430 assumption value for the immediate annuity based on a lifetime annuity payment.

Review the extensive regulations on MASD and RASD..... Oh never mind, there are none. Contact the IRS for informal guidance.

Your 415 limitation pay is usually defined in the document, and most of mine plans use the entire limitation year as the plan year. Some use the calendar year. So you should only have to look at the hi 3 for each limitation year. Discuss the effect of a RASD amendment with the plan attorney to see if they even want to do so. On a related point, recent IRS discussions on other forums make me believe that the IRS would prefer that you give the participant the full actuarial value of their benefit, looking at year-by-year results. If that requires a retroactive starting date, you would get IRS approval easily.

You should have been paying the 100% of pay since age 70 1/2 in any event. I know, there are exceptions like 242b, etc. Another option is to make a retroactive annuity payment for past amounts at $5,000 monthly.

At LA Benefits Conference, the IRS actuaries stated strongly that it was OK to distribute and then get the FDL or other remedial corrections within a few months after a request for change. HCE/NHCE issues: if the plan has discrimination issues, and you distribute too much money to HCE's, it is hard to get it back.

With the IRS encouraging the payout, why wait? Any remedial changes needed in the DL process can be made after the IRS response. If that includes a future distribution for the NHCEs, you just have to plan for the potential that a second payment might occur.

My take is that you are free to start distributions to terminated employees, even while waiting PBGC review. But you cannot ignore top-25 or 436 restrictions. Once past the PBGC deadline, you should start paying out. If this is a standard termination, you can distribute benefits to NHCE's now. If this is waiting an IRS determination, there is some debate about paying non-majority-owner HCEs to protect against discrimination. Recent IRS discussion indicates that they still want the full distribution to occur within the time PBGC expects the payment to occur, even if you have not received an FDL. If you are comfortable that no discrimination issue is waiting, then payout the remaining non-majority participants. Once all others are paid out, then you can distribute or fund/distribute the owner benefits.

For the non-actuaries out there reading this, the "law of large numbers" is not a "law" at all, but just reflects some ability to predict overall patterns, at least approximately. In any particular case or ALM study, the actuary will take note of any special demographic or plan characteristics that might cause (or increase) volatility in any measurement. In other words, hiring an actuary is a great idea! "Law of Large Numbers" ~ If you eat enough celery, you will become large? No, in the end, you have nothing....

I'm right now working on a one man plan who is 70 and has assets are completely in stocks...errrr a stock. My ALM expirience is from a past life and is more academic than practical. This extreme risk tolerant position is fine if the AB is low, with lots of room below the 415 limit, and assets well above the PVAB. But he does have to consider the potential for catastrophe.

may be a safe harbor if you require 25 years for full benefit. if the db plan passed on its own, then you would be able to test all other plans without it. However, if those other plans depend on the db to pass, then you have aggregated plans.

I respect the opinion of my fellow ak2ary, and agree that your fact pattern is best handled by re-doing the work. But it still requires the approval of the plan administrator, who ultimately decides if the fee is worth the remedy. Way back in the past millenium, we used to say that this gets fixed in a later valuation, so you only have a short term aberration. But with burns and elections and aftaps, it is safer to get each year accurate to the best of your ability. And I still think the bad information does trigger more fees.

If you were not there, then how do you know? My experience is that the IRS accepts attestation under threat of purgery that the document was genuine.

OOOh, OOOh, lawyer question. (Sorry, I just found out The Three Stooges Movie is coming.) Seriously, you are probably within the rules by having a properly documented resolution, and adequate notice to the one participant. But you should be discussing this in the document forum.

Sure, you can do so. Be prepared for an audit. Even better would be a formal request for guidance from the IRS. Start with the fact that decisions were made on incorrect information. Also, consider informal inquiries to the IRS actuaries at regional or national office.

Can you quantify the damages created for your client, caused by the incorrect report of assets? Does the damage represent a one-year asset loss which was adjusted in the following year? What economic harm was created? Does this harm justify the expense of requesting an IRS ruling? Does it justify a claim against the trustee?

Plenty of discussion on this issue in different places. Just look at the insurance as a percent of pay. Is it discriminatory? If so, buy more for the NHCEs.

Q1 - yes Q2 - Does your 206,000 reflect the benefits previously paid? If so, then it gets my vote.

I believe this question is covered under estate tax rules, and belongs in a different forum. Look at the rules associated with filing form 706, and the extensive body of law on estates and inheritance tax.

Sounds like a document issue. Do the amendment now, retroactively to when it was required. Review the deduction issues with the actuary, because there might be no problems.

Lots of public plans allow this, as a purchase of "airtime", and it does have a long history in that world.

Here's my suggestion: 1. Contribute as much of the $500k to the plan as possible, unless the business owner has a substantial portion of the underfunding. 2. Write to the PBGC, enclosing a form 10, to describing your problem. 3. Terminate the plan as a deficiency plan. But, the business owner might be commiting tax suicide, because they are converting cost basis in the business to taxable income from pension. This also needs to be checked carefully.

Except for some small adjustments, friz is doin' it right. Other earned income matters. Income from other controlled business matters. Wages matter, because they adjust the FICA cost. The 1/2 FICA worked before we had the silly 2% tax reductions for 2011 and now 2012. Now you should adjust by the deductible employer portion, which is more that 1/2 the total. If you also have elective deferrals, the calculation is made before the deferrals are reduced, then the DC amount is added to the deferrals to get the 415© compliance information. But that was a good basic explanation.

The challenges get much more interesting when you have interest rates that are not 5.5% and you do not use the current mortality table. Then you must also consider the limitations that use the 5.5% lump sum rule. And retirement beyond SSRA adds limits not to exceed 5% interest. Retirement before 62 adds limits not less than 5% interest.

Others are free to disagree, but here's my approach: From that old document, you determined the monthly benefit at NRA equivalent to the lump sum paid. Adjust that monthly benefit to the NRA of the new plan using the new plan's actuarial equivalence assumptions. Show this as a benefit previously paid, reducing your new maximum 415 limit.

John, interesting post here... If you have the documentation of the actual accrued benefit at the time of the old plan distribution, it would have to include information about compensation and service history, the actuarial assumptions and the normal retirement age at that time. That places a burden of recordkeeping that most small employers will fail, IMO. One alternative is to just look at the LS paid, and compute an equivalent benefit. This also places a burden of picking the assumptions that apply. I don't have a single best answer on this, Other thoughts?