SoCalActuary

In a simpler world, you would determine the deductible contribution at $100,000. The next year's valuation would be performed, justifying at least $50,000 for the next year. Then the $150k deposit would be neatly divided between the two years. Your method is more complex, since the IRS tries to force employers to specify the year for which the contribution is attributed. Now you must split a 2005 contribution into a part for which a deduction was taken and a part attributable to 2005 but deducted in 2006. This gets worse by the fact that you cannot claim the contribution was made after the completion of the tax year end or the date the tax return was filed. Nor can you claim it was made after the 5500 form was completed. I would opt for the simpler world, but I hope to hear other interesting opinions on this.

I'm glad your boss decided that proper participant disclosure requires use of trained staff who understand the operation of the client's plan. There is no single spreadsheet to accomplish your need, unless the spreadsheet knows the specific plan provisions of your plan, including the actuarial assumptions to be used. This is even further complicated if there are lump sum amounts, top-heavy minimums on life annuity basis, or maximum 415 issues. You should look in the ASPPA or NIPA educational materials for techniques, or even better, go to the Society of Actuaries study notes.

The actuary uses a specific pre-approved method in the first year of the plan. Then for year two, the same actuary in the same firm makes a change to another pre-approved method. As I read 2000-40, the automatic approval is ok, because there was only one change in method. The method adopted in the first plan year is not labeled a change. Any disagreement?

Kirk - Please read the linked item. It refers to sanctions applied to the managing directors and other key employees of non-profits, which might include outside directors who make large donations or allow use of their assets for the non-profit organization. This is a fairly new IRS initiative, and Jay's proposed DB plan looks like it would be targeted.

After your discussion, I found this new information. http://www.nysscpa.org/cpajournal/2006/606...entials/p36.htm It concerns the sanctions applied against directors of non-profits for excess benefits. The issue is a facts-and-circumstances one, but it addresses one of IRS' 4 top audit priorities. So you may be dealing with a risky position for reasons totally unrelated to ERISA.

It's none of my business if your "client" did not pay you to provide full and complete administrative services for the 2004 year. How do you want to help this taxpayer? Do you intend to maintain a funding standard account for 2004? Have you a service agreement to do so? Will you cover their deduction issue for 2004 by providing adequate support for the business necessity? Did they adopt the plan timely with a valid document from a vendor who got paid for the work?

So long as "modest benefit" meets the top-heavy rules, I agree with Jay

The key issue: Is the director a key employee? If so, the one-person db would be top-heavy. End of discussion on exemption from 401(a)(26)

The thoery is: These people make middle income wages (more than IRS agents), they already have a retirement income, and so... why do they need another tax shelter?

Pension Actuaries are: The real pension authorities The ones who actually understand the numbers The ones who have read the rules and understood them People who understand the difference between today's funds and tomorrow's promise.

I prefer these variations: "Unexpected results" "Event-driven results" "Changes after review of facts"

I would suggest that there were multiple versions of this, since TPF&C has done mortality projections in more than one circumstance. You could inquire of the authors: which table was used, how it was projected, did it use generational or static year projection, etc. If it was published, perhaps the Society of Actuaries might have info on it. Look in their XTBML project.

I don't see the IRS going to the US Attorney for perjury charges in these facts. I also don't expect the assets to look like they are identical, given the mix of other assets here. However, I absolutely agree that the trustee and their accountant should follow the rules for the 5500 filing. You describe a plan where I would expect a 5500-EZ filing, unless you know of other facts, such as controlled group issues. IRS agents don't show much interest in one-person profit sharing plan asset valuation, but a lot of interest in transactions, IMHO.

You have the unique situation where there is no value in an annual appraisal yet. No one will have more or less in their account due to a bad appraisal. There is only one person, and they will get the result of the real estate value when it is sold. What you must make sure of at time of payout is a proper appraisal, or a liquidation of the asset into cash. However, there are plenty of opportunities for mischief here, so you should be getting proper accounting of the real estate transactions in the trust each year. Some investors sneak money out of their account for fees and expenses, because no one is looking.

No. You can do what you intend with the pension. The employment contract would only matter if it gave grounds for suit for breach of contract.

I don't see any ERISA issues given the care you have already taken. Since you say it is an HCE, non-discrimination is no problem. Does the employee have any other recourse, such as an employment contract?

No, these are not qdro's, but I won't disclose any other aspects of the cases. Related question: to comply, the TPA must build a file of more than 1,000 pages covering several years. Who pays for the time and costs, and at what rate? The party seeking the subpoena? The plan sponsor? The TPA? What are reasonable charges for labor, photo costs, professional review? Does the TPA have recourse to charge any of the above for legal costs?

What was I thinking??? Thanks Mike for pointing out the ERISA issue. The plan sponsor is complaining about the cost of the employee. Either they fix the plan design (as suggested), or adjust the person's compensation for the economic reality of the benefit cost, or pay the cost of the benefit. If they get sued for age discrimination, the cost of the benefit will be the least of their troubles.

So you would release any and all plan records if a participant's lawyer asked? If he sues to contest a profitsharing allocation made, could he ask to see the compensation levels of all other employees? How about their birth dates or marital status? Is he entitled to know if another participant named their mistress as beneficiary? Can he ask if another participant made investment decisions for their own earmarked account? My understanding is that affected participants should be given the opportunity to object to disclosure and enough time to act to prevent invasion of their personal privacy.

As long as you are aware of the consequences, you can cease future accruals for this participant. You must document it, notify the participant properly, and take care to keep the plan in compliance. You do have to continue vesting provisions if the employee does not decide to quit. If you did this because the participant is "too expensive", you might get an employee lawsuit. In that case, you might be under less burden if the employee was simply released.

The plan sponsor does not want to pay the 2005 premiums. Then it's not a 412i plan any more. Now value the plan benefits using the same rules for all other db plans. Start the funding standard account for 2005. Complete the 417e minimum benefit calculations. Charge the full actuarial and administrative fees for a regular plan.

Recently, a TPA asked me how to respond to a subpeona they received from the attorney for a plan participant. I am not an attorney, so I am looking for advice. It seems to me that the TPA has no direct fiduciary duty to the participant. Any disclosure would require the permission of the plan sponsor or plan administrator or plan trustee. No participant data would be released on any person except the plan participant. Amounts of distributions, compensation, service, etc. that were not the direct records of the participant would be off limits unless the other participants gave express written approval to disclose the information. This would include information on the timeliness of participant loan payments. Any other guidelines I should follow?

I agree with Mike, that you must use the same definition of benefit accrual for safe-harbor status. If both are based on years while a participant, I call that "years of participation." If both are based on years that may have begun before date of entry, I call that "years of service." Your example showed years of participation for the individual, but you described years of service in your discussion. I assume further that the participant with 5 past years is in a plan that is already at least 5 years old, not a new plan.

Are you certain of the accrued benefit? I see the possibility of: $5,000 x 5/35 = $714.29 as the accrued benefit. Limited to $1,000 x 5/10 = $500 if service was 5 years to date. The difference is in the plan document, which must address the question of when the 415 limit is applied. If the 415 limit is applied before the fraction, your numbers are correct. If the 415 limit is applied after the fraction, see above. My method is definitely a safe-harbor design. Your's is too.

This issue can come from plan amendments, investment losses late in the life of the plan, or sudden increases in compensation that push the benefit up. In the case I cited, we had EGTRRA benefit increases as well, since the NRA was below 62. Remember the late 80's Arizona cases: to paraphrase - "the assets must be there when the person retires" which is the principle behind catching up the assets to be sufficient at NRA. If you want to fund on 3% interest and a mortality table where people don't die until age 95, then the IRS might want to deny your deductions. But if you are funding for a reasonable lump sum at retirement that matches the plan's payout assumptions without exceeding 415, you should be comfortable with the high deductions. After all, they are a business necessity to meet the obligation of the plan for the employee.