SoCalActuary

This sounds like a 20% backloaded benefit formula. It can be changed by amendment, just like any other benefit formula. If it results in lower benefits for an individual in the future, then 204(h) kicks in with the amendment. Plans that use 5 year elapsed time formulas don't have to give extra benefits at 4 yrs + 1000 hours, or even 4 years, 11 months and 20+ days, because that is not the terms of the plan. You did not explain the purpose of the question. Are you planning to amend the formula, or do you have an existing participant looking to score the extra benefit before 5 years? Are you considering a freeze or termination of the plan?

For terminating plans - amend now. For all others, administer the plan to avoid the possibility of violating the law, then amend with your 2009 deadline.

Thanks for the kind thoughts. Nice way to start the week.

The number of small businesses that need audited financial statements is small, but if you see enough plans, you will encounter a few. As Mike mentioned, often these have leveraged assets like construction projects or import/export work, or possibly real estate management. It is useful to remember that the FAS calculations are not subject to IRS review, but rather they rely on a general legal principle: that the users of this information are basing their financial decisions on the answer. Thus, a FAS 158 report that is unrealistic will lead to the possible consequence that the mis-led will sue. You need to consider your choice of plan design, the matching of pension cost to realistic pension risks of the company, and the relationship you present between PBO and plan assets. For example, do you pick a safe harbor plan based on FAE over 25 years, or do you choose a unit benefit accrual for the expected period until the owner retires? Do you grant past service credits because it allows more leverage for the owner, even though it creates a higher unfunded PBO? Do you plan your assumptions for a 10 year horizon or for a lifetime annuity of an ongoing firm that will keep the plan after the owner retires? You have to make those decisions.

I like your thought of projecting turnover or assumed termination for FAS purposes, even though it is not a normal IRS assumption. As to the PBO vs ABO issues, your choice of assumptions is key to getting a reasonable result. If you end up with an overstated PBO at plan term, then the employer gets a gain on their financial statement.

So tuni88 is looking for the one-handed actuary, who never says "on the other hand".... Thoughtful responses are not needed here, apparently, so I'll enter my guess in the lottery for the best number as 6.21%. Why? I like the sound of it.

My general approach is to start with the experience gain, holding formulas, assumptions, and methods constant. Then I go with amendments. The choice of assumptions or methods gives me two different amounts with 10 yr periods, so it does not matter which comes first. But that's just one person's opinion.

Starting in 2008, we are stuck with a funding method that requires a normal cost covering the benefits earned (to-be-earned) in the plan year. Prior to that date, we can use projected funding methods that allow a lower future benefit that resulted from the amendment, even though the benefit was already earned during the year.

Since you bring up 2008, my pessimistic reading of PPA says that your fickle client will be stuck with the cost and must ask for a funding waiver if they can't afford it.

The health benefits option is essentially the same as the replacement DC plan option, just a different trust. The health premiums face the same DC plan 415© limitation issues.

If you have a participant who has earned credit within the plan year, you must also credit them with top-heavy service. But the benefit credits granted before becoming a participant (hence based on all service with possible past service caps) is not a required top heavy credit. If the plan is not top heavy for a particular year, you do not have to grant top-heavy credit. In a DB plan, once you have granted 10 years of top-heavy, you don't grant any more.

AndyTA- that was subtle sarcasm. I salute!

But the certification of funding ratio is just as legally binding as the schedule b. And, it is just as subject to potential abuse when someone makes a contribution promise that they don't keep.

Beyond the issue of prejudice, you also have the issue of confidentiality. If the person had internal knowledge of controversial decisions, or past personal relationships with any persons involved with the plans, there are extra issues that should not be part of the audit. Just My Opinion.

Sufficient prior experience teaches me that I certify only the funded ratio that reflects contributions already deposited. When future payments are actually made, I might consider a new certification if it is materially different.

A number of people believed that you could fund 150% CL + 6% DC contribution before the notice.

Great question. Are the assets difficult to trade? Also, what was the reasoning given by those doing this method?

The transfer with excess assets works if the PS plan is the qualified replacement plan and the excess assets can be used up in 7 years as contributions. Detailed 415 analysis is required and the 1099 for the participants would only show the lump sums they are entitled to receive. All remaining assets would go to the replacement plan as future contributions.

The 1099 issue and the withholding are simple tax penalties. This is not necessarily an EPCRS issue. The additional issue is whether the correct distribution was made. What should have been paid in 2006? If it was higher, then you should also look at the required value in 2006, compute the required withholding and pay it ASAP. There will be a penalty for late payment. The 20% withholding will have to be paid based on the 2006 value. If it turns out that 2006 x 80% is more than the 2004 value actually paid, then the employer won't have to take money from their own pocket to fix the problem. The 1099 should be issued for the full amount of the payment made, plus 25% of that value to show the 20% withholding on the gross amount. There will also be a penalty for late filing of the 1099. You may have a EPCRS issue if the participant did not sign valid election forms, including any potential spousal rights if married.

That's called a ROLLOVER.

That's the essence of the new deduction rules.

You need to understand that 401(a)(17) is part of this calculation. $225,000 x 6% = $13,500 for beginning 2007 year $220,000 x 6% = $13,200 for beginning 2006 year

Are the native Moonies going to sue to reclaim their sacred emblems?

My point is this: a deferred annuity contract has a non-deductible investment in the contract. When distributions occur, the non-taxable portion gets paid out without income tax assessed. When a sole proprietor makes a non-deductible contribution to the pension plan, they are also making an investment in the contract. It should also come out tax free. In either case, the investment gain within the contract would be taxed as ordinary income. The tax advantage in both cases is that the tax is deferred until the contract is paid out.

Two comments: 1. This is not the 401k forum. 2. The sole proprietor does not even know what the income is until the tax return is prepared. So they cannot even know what the allowable contribution is by Feb 15.