SoCalActuary

When you look at the cash balance account, which is not identical to the deductible contribution by the employer unless you want it, that account cannot be paid out if it exceeds the maximum 415 limit for a lump sum payment. So I start with computing the maximum lump sum payment available at the participant's age, taking account of their 100% of 3 year average pay, the actuarial assumptions in the plan document, and the current 417(e) interest rates. This sets a limit on the benefit I can accrue. If you want to learn CB plans, you should learn this calculation. The deduction follows normal funding rules. I pick reasonable assumptions for funding, consider the effect of existing assets, select a funding method (until 2008), and calculate the plan cost. If I am using a projected funding method such as individual aggregate or entry age normal, then I must also project the maximum benefit available at the plan's normal retirement age for 415 and at the assumed retirement age for funding. Usually they are the same age in small plans.

If the participant died before starting the benefit payment, what happens? Is the benefit gone/forfeited, either wholly or in part? If no forfeiture on death, and benefit is essentially equivalent to PVAB, then method 1 is used. Don't forget that the late retirement adjustment for 415 limits does not use 6%, although you said this was a frozen plan, so it probably does not matter.

You have not described who are the beneficiaries of the irrevocable trust, since they own the profit interests of that trust. Are they covered under the attribution rules that would turn ownership back to the two employees? I would not consider this issue without the knowledge of the beneficial owners.

The IRS has left us with a problem on this issue where your ERISA FFL is met but your RPA FFL is higher than the scheduled contribution. For immediate gain methods such as EANC or Unit Credit, you must now generate a negative amortization base to balance the funding equation. This produces cost credits for five years. Thus you get credits that falsely lower plan costs, since you have not actually funded the current liability. The IRS further complicates this by saying that you generate new bases "to the extent underfunded", so the negative base created must be limited somehow, so you don't end up with a net negative total balance of your amortization bases. This results in an unbalanced funding equation, especially in EANC methods. Otherwise, you have an unreasonable funding method. Having said all that, flosfur did not state in the original posting whether the RPA FFL was lower than the normal contribution requirement. If RPA FFL is higher, then there is no credit applied to the schedule b FSA account, so the bases stay in place. If the RPA FFL is above the ERISA FFL and below the otherwise required cost, then you get a credit, and the bases start over.

The law is even more subtle then that. If the DC contribution was not above 6%, you could deduct the maximum DB limit, regardless of the DB minimum. Once you get above 6% DC contribution and your deductions would exceed 25%, you only get a deduction for the DB minimum required to avoid a funding deficiency. This subject was covered at both the COPA and ASPPA sessions, but we still don't have written IRS guidance that is definitive. If possible, try to get taped responses or written info from the ASPPA session before you offer a firm opinion.

It is also important to ask the accountant if the deduction can be claimed in later years. Or did they just adjust the cost basis of the S-Corp? I would like to understand better how the tax deductions will flow in both entities, the sole prop and the S-Corp. When there is future income to apply against the deduction, who will get the deduction? Any accountants out there who can explain this?

PBGC ties their variable premium to the mortality tables for current liability. Since they are still publishing at 85% corporate rates, I would guess that current liability tables remain on 1983 GAM. When the IRS finalizes the 412 regs on mortality, then the PBGC will change as well. Don't forget that PPA will force the RP-2000 mortality table with projections starting in 2008. My vague recollection is that IRS scheduled hearings on the proposed regs. No one wants to comment, so the IRS was going to finalize them. But I have not yet found their comments on the IRS web site.

Sungard has reviewed my suggestions. Carl indicated that they will be correcting the improper adjustment to 415 limits.

Only their auditor can answer this question. But I agree with your presumption.

Insurance guys just gotta sell something. Look in the industry literature to see if anyone is promoting a new way of looking at Sec. 79. For your info, the attached file has the direct wording of the IR Code 79. If you choose to review it, I would be curious if anything really interesting comes out. IRC79.txt

The source I like best is at the Society of Actuaries. soa.org is the link. Go to their research section and look for the XTBML project. It allows you to download a range of different mortality tables, and the projection scales to modify them. You can take it a step further, and download their software as an add-on to MS Excel.

The term cost applies to the risk of death, and the additional benefit paid at death is usually the excess of the face amount in the policy minus the cash value of the policy. You then multiply the amount at risk by a reasonable rate of mortality, possibly including some formula for expenses built into the policy. If you have no death benefit, then you have no amount at risk, and no cost. If you have assets allocated that exceed the death benefit to be provided, then you also have no amount at risk. Otherwise, you should be computing a term cost, even if the policy has accumulated dividends in excess of expected cash values since there is still an amount at risk.

"Deferring benefits" may mean different rules depending on your situation. Can you explain a little more? Is this a DB plan? Are you looking at an option to take benefits now or at a later date? Is someone working past normal retirement age? Is someone eligible for retroactive benefit payments because they stopped work in the past? Are you considering the disclosure requirements of optional forms of payment and their relative value?

The phase-out of IRA deductions applies when a participant is active in a company sponsored pension plan. This plan was frozen before the start of the 2006 calendar year, so it would be unfair to prevent employees from participation in their own IRA for 2006 in this situation.

Interesting issues: My first reaction is that the valuation on 7-1-06 should include all participants, since the irrevocable commitments were not made by the valuation date. In addition, you are making an estimate as of the beginning of the year for distributions from the trust that occur during the year. The fact that you know those exact amounts is cause for confusion. If you actually take the events subsequent to 7-1-06 into account for valuation, then you have effectively moved your valuation date, which is not only an assumption change, but also you have a method change. One additional point: You are making an assumption and fulfilling your duty as an EA by making the best assumption available for that valuation, and I don't see anything to prevent you from making a reasonable assumption on the expected distributions to occur.

Simple answer: BOTH Second answer: and all amendments between 1979 and now. The key issue on any intermediate amendments, such as REA, is that some provisions apply to all participants, such as JS rules. Other provisions only apply if the document says so, and some amendments are only effective for those who work in active employment after the effective date.

Tricky problem here. The trustee of the plan will have an obligation to the remaining participant, as well as a duty to the beneficiary of the deceased owner. With the plan termination in process, a lot of issues are involved. Vesting - full or partial on death of the participant? PBGC benefit rules - how are they used in the plan document? Why no life insurance if there was a large underfunded benefit payable on death? Was it a bad design to put a large underfunded benefit at risk, or was the participant insurable at all? You have two competing parties for the plan funds and probably a conflict of interest, in that the people who will pay for your work are probably related to the beneficiaries of the plan. Will you be explaining the fudiciary duties to the successor owners and/or trustees?

It seems to me that the first PBGC premium for the year 2006 would show that no benefits have been earned. The second filing as of January 1, 2007 would show that all the participants have benefits. You must then convert the CB accounts in to monthly benefits, to be valued at the PBGCs interest and mortality rates.

Without doing the research, here's my take: A. This approach is based on the premise that the spinoff occurs when the assets are transferred. You file as of 1-1-07 as a single plan. Once the spinoff occurs, you file for a refund of the unused premium for the single plan. Then you file for a new premium amount on the spun-off plan, on a pro-rata basis. B. This approach is based on the premise that the spinoff occurred 1-1-07 with the appropriate documentation in place. It presumes that you treat the assets to be transferred on some accrual basis, so you "know" the asset values of the two separate plans as of 1-1-07, but you are just waiting to transfer the funds. You file as two separate plans, including the estimated payments if needed, assuming that one of the plans still has over 500 participants.

I am concerned that the annuity contract must meet some strict standards of protection to the employee. If it protects all the employee's benefit options properly, or if it is done by decision of the plan participant with spousal consent, then I would be comfortable that the plan has released all its liabilities. If the funds were simply put into a standard variable annuity contract, then the important DB protections for the employee are lost. Before doing the purchase, I would defer to some of the annuity specialists who are ERISA-trained.

The PROPOSED 415 regulations included a number of items that should be reflected, especially on the DC plan side. But the IRS knows they took a risky position on the DB parts of the PROPOSED regulations. Jim Holland has publicly mentioned that the multiple annuity starting date language does not work, and the pension industry has given him plenty of examples. PPA put the lid on the issue of pre-participation compensation. There is still the issue to be fought over the fact that 415 does not refer to 401(a)(17) compensation limits, even though the IRS PROPOSED that it should be limited. The message I leave you is this: What the gov't PROPOSES is not final until it is final, provided Congress and the courts don't change it. Also, for that reason, I do not include the proposed 415 changes in my DB plan documents when new or restated plans are prepared.

I just completed my analysis of the proposed amendment to 415 under PPA. The language has a critical error and should be corrected before it is approved by clients who wish to terminate their plan.

I am attaching two documents from the Social Security Administration's 2005 statistical report. They show by 10 year age bands the recent SSA experience over the past 10 years. For example, in 2002, there were 10,361,000 males in their 40's insured for disability. In 2002, 406,336 men were awarded disability benefits, and 10.3% of those were age 40 to 44, while 12.7% of those were age 45 to 49. So (10.3 + 12.7=23.0)/100 x 406,336 = 93,457 approximate number awarded benefits in year 2002 out of 10,361,000 = 0.902% rate. If you work at this, you may be able to put these into a spreadsheet and make the remaining calculations. Good luck. OASDI_Awards_to_Disable.pdf OASDI_Insured_Workers.pdf

You still need to include these amounts in your determination of the Average Benefits Percentage Test either for 410b coverage, or to use the midpoint in your rate groupings. But neither is part of the 401a4 EBAR nor EAR.

The issue raised in these plans is that you don't get 401a26 protection if you do not offset exactly the same uniform PS formula. That does not prevent the IRS from allowing an exception if you can make a good case for it. But the default is that the IRS is not approving tier-allocation DC plans as a uniform offset.