SoCalActuary

mjb, I ask that you re-edit this posting to remove all the extra lines of blank space. Thanks.

Andy - that reference was wicked but funny!

Every time I look, I still fail to see any weirwolf or 3-eyed fish at the conferences.

Harlan's non-answer is probably irrelevant. IRS audits, not Treasury. I care about the line position people, because they supervise the auditors. Get Holland's answer.

The deferrals are no longer employer contributions. Been that way for a few years now. This is the reason why DB/401k combos are selling so well now. The 401k deferral is not counted against the deduction limits. Your situation is interesting, because you come out with no problem. Your db contribution is much more modest that some I see. If your db contribution had used up the entire 25% deduction, the safe harbor 401k match could still have been made to the plan. This would not be deductible, but no excise tax would apply. Then the 401k deferrals would be protected against refunds at year end from a failed ADP test.

Can you post the source of your KPMG news article? What paper, what section, what date?

The Society of Actuaries has published some tables on disability continuance and disability mortality. I encourage you to explore the ACORD project and the XTBML tables at the soa.org web site. If you are taking over a plan that used this table, you should make the request of the former actuary for a copy of the table used, or at least the source of the table. Perhaps you would be better served if the client makes the request.

The SOA list is not complete. The Joint Board is the definitive source. However, you should also consider referral to the ABCD if you suspect bad behavior by the individual. It is important that you do not harm the taxpayer by taking this to the Joint Board unless you have given full client disclosure and obtained their permission. Their problem is confidential to them if past tax filings were in error. If your client wants a clear conscience and to avoid the worry of audit roulette, then you will advise them of the voluntary compliance possibilities.

Currently, you can have different rules. The proposed 415 regs would eliminate that.

Are you prepared for double billing? If he does the work now, and has to do it again, you are willing to pay for it, I assume. Seriously, you should give it until early April to determine the 2006 valuation. I suspect that Congress will do a few remedial things retroactive to Jan. 2006, with all else to start in 2007 or hopefully 2008.

mwyatt - not sure which version you looked at. My reading of the senate version, S1783, is that you maintain up to 7 bases, each fulling amortizing over 7 years, provided you are underfunded. All amortizations stop once the CL is funded. The equivalent of the old OBRA FFL would be 180% of current liability, not 150%. Further, large plans with the additional funding requirement would see their 90% rate slowly grow to 100% overa a few years. The PBGC coverage issue is that Washington powerbrokers don't worry that they are overcharging small business owners on the premium for benefits that cannot be collected from the PBGC. As the late great Martin Slade said, "who cares about a few California millionaires?" (His words, not mine.)

Anything can cause an audit, but you have good facts and regulations behind the premise that the corp is responsible for the funding and can take the whole deduction. Talk with your actuary if you need more support. To jgordon - the employees of the SP are also in the corp, so 162 is not a problem.

The act is PFEA. It mandated a higher interest rate for current liability for two years, 2005 and 2004, based on corporate bond rates instead of US Treasury bonds. The proposals in Congress would also use corporate bond rates, but they have other issues that would probably make for higher contributions in many plans.

You did not tell us if owner of SP is also an owner of Corp A. Nor the percentage of ownership. Can you explain why it is a controlled group? Or, does Corp A receive any compensation, economic benefit, or use of the employees of SP? Maybe you have a management org for affiliated service groups? If you are describing a controlled group, (which has not been shown yet), then the controlled group can get the deduction from any of its members. You also should consider whether you are using reasonable accounting methods, applied consistently, in treating the cost allocation between the entities.

The IRS is not a party damaged by the firm's actions, the taxpayers are. Did the law firm describe a program that would fail to satisfy Code and/or IRS regulations? If so, then they seem a good candidate for liability when the plan failed to meet its stated goals. If not, then they have a good defense, and the promoters have a problem because they failed to control the operation of the plan.

The original post noted that this was a component of the 401(k) plan. Are there any other employer contributions? If so, then the 10 year requirement does not bother me.

I'm having a problem with deduction in 2005 from your example. If the deposit was made during the tax year 2005, with the proper amendment retroactive to a date in 2005, then I agree that it is deductible. However, the contribution made in 2006 is not for the minimum FSA for the year ending in the 2005 tax year. It becomes deductible in 2006. For a plan year beginning 1/1/2005 and ending 12/31/05, the full amount would have been deductible.

We have developed, thru a cooperative effort, checklists for administering DB plans. This serves as an internal audit, quality control, and training device. The challenge is that each item in the checklist requires detailed knowledge of the subject matter. If someone has not read 401(a)(26) as an example, then how do they know if the plan complies? The checklists are a nice road map, and serve as a reminder of what issues to consider. Then it is up to the qualified professionals to dig deeper.

After researching this issue, I concluded that the law only requires the option if the participant was not vested. Check your document to see if you have a more generous provision. Meanwhile, check your 411 regulations to see if you can find examples. Otherwise, you just have to draft something that covers the intent of the reg's.

Outsourcing does refer to other business decisions besides Asia. If a major benefits firm needs specialists who are not on staff, then they outsource the work. Given the record of several large firms in managing professional practices, like legal, accounting, actuarial, (hospitals and doctors?), I would not be surprised to find actuarial services subcontracted. Any rumors as to who the parties are?

Variable rate stays at $9 per $1000 underfunding. The new act changes the flat rate to $30. This will be indexed on wages yearly. But the proposed legislation would change the calculation to require use of the banded yield curve for measurement of the underfunding. At the LA BC, the Treasury representatives say the legislation will pass, it's just a question of when.

Jim Holland was asked this question on Jan 25 at the LA Benefits Conference. He affirmed that it is a second change in funding method, requiring the user fee for approval. But if you get the request postmarked by Jan. 31, you get the old rate. Determination letter requests have until June 30 on the old rates, because they are "on a different program" to quote Holland.

If he can afford to make the payment now, and he is not looking for future db deductions, this looks like a good time. But do it quick, because you need amendment time, 7 day notice time, and time to complete the rollover to an IRA. You are betting that Congress won't act first.

On its face, I say the 6% rate in the plan document is used. This produces a greater benefit than the 417(e) equivalent.

Before you concede the $75k deduction, look at the db cost with similarly conservative assumptions, ie a valuation using the guaranteed rates in the policy. The justification is that they are consistent with the investments. However, you still have to deal with other issues, such as excess insurance values above the allowable death benefit, possible differences in policy form between participants (term vs cash value), coordination of the life and annuity products, whether the policies existed before the end of the year, and top-heavy minimums. Do any of these issues threaten the qualified status of the plan? If so, the entire cost is at risk.