SoCalActuary

Thanks for the good laugh over the millenium accrual rules. Seriously, sole proprietors can claim the entire year starting back to 1/1/04 if they want to. You indicated your intent to use the short plan year because it gives you the deduction you need. The deduction rules for short plan years only limit the deduction, generally not the 415 limits. However, you could use the entire year since most sole prop's do their planning for sometime before they open the doors of the business. If so, they get to have a complete 12 month year. On the compensation issue, 415 looks to the highest 3 year consecutive compensation without using any proration for short years. If the $150 k happens to be part of your hi 3, then no adjustment is needed. On a related issue, I personally don't use annualized compensation from a short year in my plan documents or administration, so I would not assume that future compensation will be at $450 k (150 x 12 / 4 months) unless the client gives me assurance that this is a reasonable assumption.

What is the difference between holiday pay and regular pay? If someone is called into work, do you bring them back to regular pay?

The big problems you can get into come when you tell a lie to the terminating employee. By the way, this forum is not confidential. Anything you post becomes a public record that many people look to, possibly including your former employee. If you fired them with some sweet little lie about cutting back on work, changing policies, etc., but they are not the real issue for removing the employee, you probably put yourself into a worse position if the employee challenges you. You are better off not telling us what your thoughts and motives were.

You may have a valid point if you make a proper lump sum distribution from the DB at an eligible distribution point, such as NRD. Spousal consent is also needed. Then you make a full IRA rollover distribution. Thereafter, once the funds are in the IRA, you may elect to roll them back into the DB. (But why would you, except for asset protections?) This two-part rollover scenario would allow you to use 414k type accounts, because it truly is not DB benefits anymore.

You should also consider a long discussion with the people of Penchecks, who thoroughly understand the trust and fiduciary issues here.

Your concerns about short plan year make more sense in a DC plan. In the DB plan, the contribution is prorated. However, you can still use the entire year for limitation year. You can define a year of participating service to less than 1000 years, so the participant gains a full one year accrual. This can also apply to the compensation, which is not prorated for 415 purposes. Projected benefits must be based on some reasonable assumption of the expected benefit at retirement, so your full year normal cost should not be hurt. Neither should your one-year benefit accrual. You might also ask if the sole proprietor spent any time before 9/1/04 planning to become a sole proprietor. Why? From the time they started planning, you can establish a hire date.

You hold plan assets, so you are clearly some form of fiduciary. You are probably not intending to be a trustee, nor have you been appointed one. The trust fund has placed some of its assets with you, and they have not been distributed to the participant during 2004. I would think that your checking account becomes a common pooled fund, subject to the normal fiduciary duties like audit, bonding, and probably some state trust law issues. As such, you have not distributed until you have sent the check, so no 1099 in 2004. If this is a DB plan, you probably also have a revaluation issue. If this is a DC plan with pooled accounts, you may also have a revaluation issue.

Let me assume for the moment that the new partner gets a W-2 for pre-partner income and K-1 for later income. If the partner contributes to the SIMPLE, these amounts will not appear in the W-2. To answer your questions then, 4 yes's IMHO.

Seems reasonable, but you should confirm that 7 is for normal retirement. Does plan have 59 1/2 normal retirement? If not, you are probably stil ok to use 7, but it just doesn't match the literal reading of the rules.

I think you are still in time to fix this. Revoke the SIMPLE. Confirm that the 1 other employee was not intending to defer. Start the SEP. Fix the payroll record. Get it done by 12/31 or before the first payroll report.

The 410b question is for the employer - the trust fund. Does the trust fund have any HCE's? If not, then 410b is no issue. If so, then the plan must do the coverage test on trust fund employees. This assumes that no trust fund employees have collectively bargained benefits.

After reading Frank's post again, here's a second opinion. 1. IA for a person at retirement age, it seems obvious you can fund in one year. 2. IA for a terminated plan for employees not at retirement age, I agree that you should convert to unit credit funding with 5 to 10 year amortization for 412 purposes but with immediate deduction for PBGC plans of UCL.

Two separate issues are here. 1. You must determine if a non-bargained group (the fund office) is permitted to be a sponsoring employer. Apparently, the group has already said that's OK. 2. You have a group of NHCE's (future eligibles) who will cease to enter the plan. That becomes a 410b coverage issue once they pass the statutory exclusion period. If they pass 410b, then it is an acceptable policy to stop allowing new entrants.

I guess I'm clueless here. I thought the Court opinion in the actuarial audit cases included the thought that the plan should be sufficient to pay the benefits when the participants have all retired. To me, that implies that the final year of funding under IA should be the difference between assets & liabilities. So tell me again why that's unreasonable.

My recollection is that Rick Block researched this question shortly after the law became effective. If you can reach him, he gave a reasonable explanation at the time. Among the issues he addressed were: What is the prior year cost ( I recall his answer as "It's irrelevant") When are the payments due? (3 1/2 mo. after begin yr, then 3 months thereafter until you run out of plan year) What is the quarterly payment? (Annualized current year cost, computed at beginning of year, times 25%) For a more authoritative position, write to IRS.

Blinky - yes the math results in the same benefits, but my experience in keeping accurate career avg pay records says to stay away. Especially for takeover plans, or when picking up the work from the prior year, it is not obvious that the old administrative records are available nor accurate.

It's always about the document. If your document defines the limitation year as the plan year, then look to the limit for your plan year end. But watch out for documents that use another definition.

Document must be written to define benefit. However, in general, I prefer that career avg benefits be replaced with career accumulation benefits. By this, I mean that the benefit is defined as the prior year benefit plus 1% of the current year pay. Each year, you add a new piece as the participant continues to earn service credits. Therefore, it becomes mathematically similar to choice 1, but without the problem of maintaining the years pay history.

Well, it works better if each personality has their own SSN

You can also accrue the benefits over 10 years and terminate the plan at age 50, rolling over the benefits to a DC plan. However, you can only use one 415b limit for your controlled group, affiliated service group or common control companies. If the client wants two 415 limits, they need two different employers.

Sorry I don't know, but I suggest you try the litigation board and the distribution board.

To quote from the IBM release on China and PC's: "About 10,000 IBM staff will move to the new enterprise - about 2,300 in design, marketing and sales in the US and the rest in manufacturing in China." In addition, all IBM's new entrants will skip PBGC coverage. So PBGC will lose more premium base. By the way, it is OK with me if mbozek wants to own the anti-cash balance position, but it still bothers me that IRS & PBGC don't step up to their responsibilities.

Said another way, IBM finally decided they don't need DB plans to attract and keep employees. Another case of dirty bathwater, so eliminate the baby! For those of us disappointed by this action (not counting IBM employees of course), this is one of the biggest drops in pension coverage. Don't forget that IBM is also getting out of the personal computer field and moving it to China. PBGC should have stuck up for IBM in the lawsuit also, since they are also big losers in future premium volume. mbozek, your posts do look as if you want IBM to lose, keeping the IRS' old age-discrimination position (of pre-cash balance regulations). Maybe I'm wrong, but the circumstantial evidence supports me.

mbozek, you do take such delight in smacking cash balance plans. Maybe you could be one of Ellen Schultz' tech advisors. Seriously, this article simply addresses the timing of an amendment that happens to reduce plan costs for some employees, a right still preserved for plan sponsors. Did the sponsor communicate and timely amend their document? That is the key to the problem. In addition, the article noted that $800,000 would be lost by age 55. This must have been a very rich plan, since the 415 limit at age 55 is barely over $1m. Of course, the article might have been talking about the future benefit payments over the plaintiff's entire lifetime. This is equivalent to saying you won $10m in a lottery, only to have actual cash of $4m, since the payments are over 25+ years. Of course, this article also feeds my distrust of journalists, but that's nothing new.

With separated plans, can you get each plan to pass 401a4 on its own? A safe-harbor 412i design that passes 70% coverage won't care about testing. Also, don't forget your gateway issues if you have both plans. Will you use 7.5% DC minimum contribution? Will you have primarily defined benefit plan? In general the 412i is defined to have an accrued benefit based on the cash value of the policy. However, you must normalize the accrued benefit for testing, presumably using the plan's actuarial equivalence assumptions. Thus, you would take the beginning cash value, project to testing age on the plan interest rate and divide by the plan's APR to get the beginning accrued benefit. You follow the same procedure with the ending cash value, which is one year closer to testing age, giving you the ending accrued benefit. The difference between is used for the annual accrual test. I would hope that this potential 412i is not trying to operate without an actuary familiar with these issues.