SoCalActuary

Unfortunately, yes, you were wrong. The new table for IRS 415 limits is the unisex 50% blended table as published by the IRS in 2002. The male table has no legal standing here unless your document specifically used it.

We use slightly different wording when dealing with Union card carrying entertainers. We exclude employees whose "compensation and working conditions are governed by a collective bargaining agreement", knowing that pension plans are provided to the entertainment union employees.

Additionally, will the participant live in the apartment building? Rent-free? Will the participant receive fees for property maintenance, rent collection, etc? Each of these would suggest a PT. If the building is purchased at a good price with upside appreciation potential, then this could be a good pension investment. But I caution that the owner needs to be reasonably informed on the duties of the trustee before closing escrow.

Does your firm have an actuary who can explain DB spinoffs? The subject has some subtleties that are fact driven and require on-site expertise, Generally, a db plan like United Way will give instruction on how benefits can be spun off. They are in control of the rules. Your new non-profit needs to decide if they want to keep a db or not. If not, UW will keep the plan benefits in their plan with no future accruals.

My approach is to recognize that the cash balance account must follow the terms of the document, which might allow it to exceed the then current maximum lump sum 415 benefit. However, for funding I limit the benefit to the 415, and for distributions I limit the benefit to the 415. Cash balance is simply a formula for determining a benefit. 415 is the last step in determining if the benefit is allowable. The statement you give should show the theoretical cash balance with the warning that it would exceed the then current lump sum allowable. Often, by the time the statement is published, they have had a cola 415 increase and an added year of accrual, so the warning is obsolete anyway. Unfortunately, this is not 100% reliable, so the caution is important.

As an actuary who finds CB plans useful, let me offer these additional points: 1. Partners like the predictable nature of the promised benefits. They can be certain of the cost allocation between partners. 2. CB plans, like other accumulation benefit plans, don't have the dramatic problems with unexpected liability increase when pay raises are given. 3. CB plans can avoid the dramatic volatility of PVAB values by tying the actuarial assumptions to the 417e rates. 4. CB plans can use DB plan limits in cross-tested plan designs. If the targeted group of owners/HCE's are passing 401(a)(4) easily at 415c limits, then the CB plan is the logical next step to higher benefits. 5. CB plans can easily be amended to offer one-time benefit increases as in the PwC QSERP © programs.

Look at the provisions in 401(a) regarding permanence. We advise people in your situation to have the plan at least 3 years to meet the presumed requirement for permanent plan. First year is a non-calendar fiscal year, taking part of the income for pension. Second year, take the remaining consulting income. Third year, amend formula down and prepare to terminate the plan.

What is the applicable 72(t) penalty for pre-59 distributions that are not lifetime annuities? Does this person have another exemption? Did I miss something in the reg's recently on this additional income tax?

Two issues are at stake here, IMO. 1. Does the employer pay the proper gain/loss on the change in market value? 2. Does the employer attempt to transfer the asset at true market value? If the employer sells the asset in the open market to a willing buyer at market price, then there is no coersion on the trustee to accept assets that may be over-valued, nor is there an opportunity to hide the legitimate tax treatment of the asset's yield to the plan sponsor.

I just love sensational news about the leveraged problems of the PBGC. Interest rates are too low! (Oops, I just told the real story.) PBGC has no problem when liabilities are valued on traditional assumptions. The problem is that too many dollars are chasing too few quality capital goods, i.e., we are driving up the cost of investments and driving down the yields, simply because we all want to buy retirement plan assets. Add to this a political environment that needs low interest rates to finance bloated gov't programs.

417e covers the minimum distribution rules for DB lump sums. No major changes here in the recent past. The last change was in 2002 with a new mortality table. PFEA (the law passed in 2004) modified the 415 (maximum benefit) rules. For 2004 and 2005, lump sums for benefits at the 415 maximum amount must use a modified calculation with the 2002 mortality table and 5.5% interest. Naturally, some exceptions apply during 2004.

Holding an asset of a receivable amount is not unreasonable. Valuing the asset might be an issue if there is any risk of loss. What matters is the ability of the plan to collect. How are the negotiations going? Can the plan withhold fees to the TPA as security against the expense? In addition, the plan might have paid expenses that could have been waived or mitigated. The trustees would have to make a good case that the IRS payments were the absolute minimum they could have paid. On the other hand, if the plan paid the IRS as quickly as possible, I would argue that the trustees were trying to minimize the damages.

The issue of phased retirement is one of retiree liquidity, i.e., money for living expenses. Under our current rules, db plans pay the full benefit or nothing. If you work more than 60 hours per month, you get nothing, even though it reduces your monthly income. Phased retirement would allow a fraction of the benefit while working. This would be better public policy for people who wish to slow down without quitting completely. The benefits would presumably be provided to those who want the regular income, otherwise they would not apply for them. Therefore, it does not make sense to see these distributions as eligible rollover amounts, since they are annuity type payments. DROP makes sense when you want to continue full time work without being forced to forfeit the benefits not paid. To me, this is an alternative to the partial retirement benefits of the Notice 2002-43. However, it does have one thing in common, that the participant should not be forced to forfeit the lost payments. My idea is that the normal plan benefit is partly paid and partly held in trust, with the unpaid amount separated into a DC type account or alternatively used to give an actuarial equivalent increase in the later annuity benefit. Some employers will find this problematic, since it does not help with their underfunded pension plans if the benefit is never forfeited.

Let me understand the facts: An independent trust fund (presumably a taxable trust) performs two transactions. You did not indicate who are the beneficiaries of the trust. First, it accepts a gift from your client. Second, it forms an LLC to invest funds, specifically to buy property. The LLC is also a taxable entity. You do not describe if it is taxed as a corp or a partnership. You did not describe who the members are, nor the pass-through of ownership. Your client has a qualified plan that buys stock in the newly formed LLC. Is there a PT? While I don't know, I would suggest you document who are the beneficiaries of the arrangement, how profits will be taxed from the LLC, and whether the members of the LLC are interested parties. Then your answer will be clearer. There is some recent activity where trusts form new corporations, but I don't follow it closely, and I don't want to practice law, so I can't give you the reference. So you should decide if you want to do the legal research, pay for the research from a knowledgable attorney, or just get out of the way.

This is when you write your congressional representative to express concern about inter-agency cooperation. Presumably, you plan sponsor is a major employer in their district.

You describe a fact pattern that does have only one year of testing service. If you perform general testing using average comp, I see no problem. It is probably necessary if you are also accruing benefits using compensation before plan entry. For what it's worth, 415 limits allow use of all years compensation. TH min's will depend on the definition used in your document, and your plan benefit formula can separately and independently choose to use all years compensation. Why not testing also?

To follow up: you would not be able to give a lump sum equivalent of a 100% J&S with 15 year certain on 100% of pay, just because it is less than the 415b dollar limit. You would convert the benefit to an equivalent straight life annuity to compare with the benefit on the IRS assumptions, which must not exceed the lesser of 415b dollar limit or 415b 100% of pay limit.

So long as the two plans can stand alone for qualification, the DC plan would not require TH min's in my reading of the reg's. However, your DB plan coverage percentage is probably less than 70% unless you have HCE's who are not Key Employees covered in the DC plan. If the DB in your scenario used the DC in any way to meet qualification, e.g., 401(a)(4), 410(b), then the DC is in the top-heavy group.

How did you determine the benefit? What is your definition of compensation in a year with less than 12 months worked? In many DB plans, we decide in the document whether we are annualizing or not the first year or last year. I prefer not to annualize, but I only count pay in benefits if the person also gets a year of service credit. In your example, there were three plan years of accrual, so I would average the actual pay during the three year period, (limiting each year to $200k if needed.) Thus 30 months of pay divided by 3 years of testing service would be your testing comp. However, for testing, you are not tied directly to the compensation definition used in the benefit formula, so my comments are mostly educational. You could use the 30 months / 3 years result for general testing, even if the benefit is not computed the same way. For DC plan testing, you could use the same approach for each year in which an allocation is made.

I would go with the code applicable to the workers covered under the plan. If the covered employees work for the benefit plan, then you choice would be logical. Otherwise, the plan covering electrical workers should be for the industry they work in. Just my opinion.

Was QNEC required in document? Was it a safe-harbor qnec with advance notification? If the QNEC was not made, then you have general ADP/ACP test. If it failed, then you have remedies to pursue, including refunds, disqualification, etc. My advice: start taking with benefits administrator about consequences of no qnec.

You have multiple users of financial information on the plan. IRS needs a valuation in compliance with IRC 412 minimum funding standards. Stockholders, creditors, investors need a valuation in compliance with generally accepted accounting principles under FAS 132 (35, 87 and 88). If the plan has not changed funding methods within the last five years, then you should have no trouble using the "automatic" approval to change from end of year to beginning of year for IRS purposes. For FAS 132, most larger organizations already use a beginning of year valuation to determine the pension expense for the year, although not all do so. For disclosure of the funded status of the plan, FAS132 expects a valuation within 3 months of the end of the year, to determine if underfunding affects the financial condition of the plan. Thus, you may end up measuring the plan both at the beginning and end of the period for FAS purposes. Which set of users were you concerned about?

I would inquire of the PBGC on the status of any such mergers. Did someone lose track of their pension?

The plan can use a special definition of compensation for benefit accrual. It is not a standard plan provision, so it is individually drafted. In addition, you would not have a 414(s) definition of compensation. If no HCEs are involved, you won't care about 414(s), because you will pass the test. For employees who have already established an average wage level, you can grandfather the existing average for use in future benefit accruals. In addition, you can establish future benefit accrual rates that increase yearly on the grandfathered wage if you want to improve benefits for the wages they would have received. However, you should only do so if your recordkeeping and administrative systems can accommodate these special designs. Meanwhile, actual compensation will still be used for 415 and 416 purposes.

In researching a 401(a)(26) question, it was clear that separate asset pools did not comply with the intent of a26, even going so far as to note any outside indemnification agreements between owners. Why does this matter? If the partners want to receive benefits based on plan asset levels, or they want separate asset funds to determine their distribution, then they want a DC plan. However, if they want the higher deduction levels of DB plans, the owners need to deal with the asset disparity issue. When an owner wants their funds, what do you pay? The other owners don't want to pay someone else's underfunding off, but the DB plan needs to distribute benefits under the terms of the plan. Otherwise, they fail a26. Of course, if the plan is underfunded, you would have the 110% current liability funding level to deal with, keeping the terminating HCE from receiving their distribution immediately. I like the plan term allocation approach unless you have NHCE's. Then you have more serious issues, especially for underfunded PBGC covered plans.