SoCalActuary

I would love to advise you to be patient, and just wait until the actuaries have approval. But, I have no guarantee of when the guidance will be issued. If you want to ignore the advice of your professionals, then you should either accept the fiduciary responsibility for the action, or you should get an attorney's opinion.

It is the nature of unit credit funding to have an increasing cost pattern. The additional benefit earned each year is more expensive than last year, because of age & cola on 415 limits. If that is a problem, then cut back on future benefits. Also, the 50% cushion matters here. Now you can fund for more than the 415 limit.

Andy, you display a certain generational bias. BRAINIAC, wow! Is anyone out there under 40 aware of that reference? Is anyone out there under 40? Sorry for the loss of your handwriting skills on IRS forms. Maybe you can get your secretary/assistant to write them for you.

Interesting difference here. But the HCE definitions go back a long time, so it is unusual to consider your fact pattern, and I have no recent experience with plans where the pre-ERISA compensation history is even available to review. This would make takeovers of plan administration even more complex. On a tangent, when do you track back the pay of merged and acquired companies, including ones with prior DB benefit histories? Do you need to know that the owner of a merged business made$2m before he sold his stock to your client?

SoCal, In my case all 5 prior HCEs received total distributions in the form of lump sums. If I read your penultimate sentence correctly you're saying they're no longer considered in the top 25, and that conflicts with the Gray Book answers (if in fact that's what the answers were). Is that right? No, I intended to say that you track the top 25 forever. You just stop worrying about them if they have all been paid out.

But you should not have to e-file those. You would be able to print a set from the IRS web site, and then hand-write or type in the values. I actually hate this suggestion I am making, so don't shoot me. But on the other hand, the IRS will usually accept a reasonable explanation if the form is late for the reasons you just described.

Common sense and actual practice are at odds here. I read the rules to say that you tabulate the entire history of compensation and pick your 25 who have been both HCE and among the highest paid. Then you look at your plan valuation before & after a proposed lump sum. If you still get to 110%, no restrictions apply at that time. If the amount is below 1% of the total, no restrictions apply. At a later time, any undistributed benefits could again become restricted. If someone previously received payments at the point in time they had no restrictions, then that just reduces any potential benefits/service credits they would have now. I see nothing here that allows you to stop counting the top 25 historic HCEs until you know that they have all had their benefit discharged by lump sum or death. Of course, if you have no HCEs, you don't need to bother.

You are correct. The one-person plan covering only owners is not Title I. The one-person plan covering non-owners is a Title I plan. PBGC coverage for a one-person plan is possible when it covers a non-owner, but only if it is not a professional service organization, which is a different characteristic not part of the original question. One actuary recently told me of a non-profit organization that PBGC had forced to fully fund the benefit for its one-participant plan, who had been willing to waive out the underfunding on a plan termination.

The plan is subject to IRC 401, which has many parallel laws to ERISA, but not all. This is fundamental to the construction of ERISA and the dual jurisdiction of the DOL and IRS. The dual legal status is shown in the wording in PPA, among many other laws affecting pensions. For example, PPA'06 has sections 101 and 111, 102 and 112, 103 and 113, etc. Once you read the law, you will understand better.

You have choices for the first question. If you consider the effect of all plans for all years, then you count all years of benefit accrual. You could also separate the effect of "old money" from the effect of "new money" by splitting the DC accounts based on the accumulated value of their past contributions. This would involve tracking the past growth of the accounts, if you do this right. Then you could test these on a fresh-start basis from some point in the past. Annual accrual testing is sort of like that, where you only consider the fresh-start from the beginning of your testing year. The rollovers are part of the package if they came from plans of the same employer. If they came from another plan of another employer, or from IRAs or 403b, then you should exclude them. I recommend that you attend a Larry Deutsch seminar, usually in February when the weather in Iowa is "too interesting", to get a much deeper view of your testing choices.

Look at the August 2007 regulations, roughly page 60 of 133. Here's a cut&paste of the section. © Effect of balances on plan assets--(1) In general. In the case of any plan with a prefunding balance or a funding standard carryover balance, the amount of those balances must be subtracted from the value of plan assets for purposes of sections 430 and 436, except as provided in paragraphs ©(2), ©(3), and ©(4) of this section. (2) Subtraction of balances in determining new shortfall amortization base--(i) Prefunding balance. For purposes of determining whether a plan is exempt from the requirement to establish a new shortfall amortization base under section 430©(5), the amount of the prefunding balance is subtracted from the value of plan assets only if an election under paragraph (d) of this section to use the prefunding balance to offset the minimum required contribution is made for the plan year. (ii) Funding standard carryover balance. For purposes of determining whether a plan is exempt from the requirement to establish a new shortfall amortization base under section 430©(5), the funding standard carryover balance is not subtracted from the value of plan assets regardless of whether any portion of either the funding standard carryover balance or the prefunding balance is used to offset the minimum required contribution for the plan year under paragraph (d) of this section. (3) Special rule for certain binding agreements with PBGC. If there is in effect for a plan year a binding written agreement with the Pension Benefit Guaranty Corporation (PBGC) which provides that all or a portion of the prefunding balance or funding standard carryover balance (or both balances) is not available to offset the minimum required contribution for a plan year, that specified amount is not subtracted from the value of plan assets for purposes of determining the funding shortfall under section 430©(4). ... (more follows)

Not yet. Technical corrections is passed by each house of Congress, but they have not completed the conference bill. For your info, the IRS changed their position primarily because the Congress members wrote to explain that the IRS position was not their intent. So, we are seeing an unusual event: the IRS listened to the drafters of the legislation as a result of public indignation over the IRS interpretation.

In a DB plan, as in a DC plan, you can exclude people by name. You simply have to accept responsibility for the testing consequences, including the fact that you still have to pass 410(b) and that you might not get the easiest results using the average benefits percentage test method, because you are not using a "reasonable classification" rule.

Add the note that the interest rate used for late adjustment is capped at 5%. So the formula looks like this: The lesser of A or B: A: the plan rules 185,000 x a65 x (1+j)^(x-65)/ax where j is the plan interest assumption for late retirement and the a65 and ax values are on the plan assumption, But not greater than B: statutory adjustment 185,000 x a65(at 5%) x (1.05)^(x-65) / ax(at 5%), using the mortality table for the limitation year specified by the IRS for 417(e) purposes. Further, note that the statutory adjustment should be done to the month that benefits commence, not to the nearest year. If a payment governed by 417(e) will be offered, then additional constraints apply.

31% - non-pbgc plans deduction limit otherwise, testing & pbgc coverage are not related in answering this question.

The standards are document must determine the benefit. This has not changed. So you name the formula for each group or each person, so no one has an ambiguous benefit. Remember, you are describing the benefit amount, not the 410b coverage issues.

You should look at the Staff Notes for compliance with FAS 158, available from the FAS website. The details of compliance for FAS 88 still apply, but in a new format. That document is some 256 pages, and at least 15 deal directly with your issue.

So you need to establish an accounting procedure that the plan sponsor will deduct the cost of plans that begin in the fiscal year of the employer. This needs to be consistently applied, or request a change in accounting method in the future.

CB is just a benefit formula in a DB plan. Gateway testing of combo DB/DC plans requires that you pass some form of gateway, regardless of benefit formula. How you pass the test is up to you. It can all be in the DC, or primarily DB in nature, or smoothly increasing DC, etc. But your combo plan has to still get it done.

Your testing assumption is in the 7.5 to 8.5 corridor. Of course, 8.5% is better for making the account look like a bigger amount. But what interest rate are you using to project the CB benefit to normal retirement? That answer will determine the monthly benefit at NRD, when combined with your testing APR.

This question belongs in another discussion thread on documents. But, my initial reaction is that you can restate an entire plan document at any time to imbed any amended language. Just consider the logistical effect of the IRS requirements for the submission.

Agree, my question is if that limitation applies to employee money or to both ee and er money as well. If the 403b EMPLOYER money had been deposited into a 401(a) plan, no problem. Otherwise, you are pushing a large rock uphill.

The details of your plan are important. What interest rates are used to test this? Did the plan change because of lower rates? What interest rate are you using to project the account balances? Do you have authority to use a higher rate?

Kind words, thanks. Some of that "old school" thinking still comes out.

As written, you have a plan design that gives no regular benefit to new entrants who are not named. They would then get the default benefit under top-heavy, if it applies.