SoCalActuary

I see a few issues in this discussion. 1. Is the new S-corp member really independent or a common-law employee due to the economic control of the LLC? Would the LLC cease to make any payroll tax payments? The two entities should agree to go through the tests applicable to the federal and local state laws that determine employment vs independent contracter status. 2. If the new S-corp is truly considered independent, then the S-corp has to divide receipts between W-2 compensation and S-corp earnings or dividends, where the first part (W-2) is subject to payroll tax and is counted toward pension plan benefits, but the second part (S-corp dividends) is not counted. However, the pension plan benefits are deductible in the 1120-S before the dividend is calculated. 3. If the S-corp provides management services, then the affiliated service group rules should be reviewed to verify the level of management services provided. If so, then the S-corp must be aggregated with the plans of the LLC for 401(a)(4) testing, since the plan would have a participation ratio in 410(b) of 0% on its own. (0 NHCE's benefit, while 100% of HCE's benefit.)

Interesting, and not quite what I expected, since the apr values are at 5% and the non-standard mortality table. This still produces a lower benefit at age 49 than use of 5% for all years, so an amendment would still improve the benefit. Even better would be use of 5% for 415 purposes and the existing rates for all other purposes.

Thanks for the clarification. Since this is a design I don't use, I will do more research. Perhaps the past threads will give Blinky a good argument to use with the IRS agent. Maybe the agent is looking for uniform DB provisions here. As a personal aside (not on point), my past problem with offset plans has been the funding volatility when the DC plan performance dramatically changes the DB offset. This is especially a problem when the DC plan has participant direction. It encourages smart employees to take the maximum gamble in their DC investment allocation, since they can't lose.

One of the sites to check is freeERISA.com where you can get some back 5500 information. The times I have checked, it gave some useful information. However, it is generally ancient news by the time posted.

My understanding of the safe harbor floor offset is that it is used when you have uniform plan benefits. Your db plan does not. Therefore, the IRS is not permitting the safe harbor floor offset exemption.

mbozek - interesting political commentary. Of course, you know there are two sides to that argument, especially since they affect new plan formation. If you can't do cash balance, you will get fewer db's and more uncertain profit sharing plans. jay21 - no recent news.

Thanks for the info. I checked IBM's press release, in which they accepted court remedies on their old Pension Equity Plan, but held their position on the cash balance plan. In addition, they agreed to limits on the costs if they lose on the CB age discrimination issues. Stay tuned for 15 to 27 months of further litigation on this issue unless Congress acts sooner. If they lose at the Supreme Court, CB plans are dead until legislation fixes them. Expect massive numbers of participants taken out of the db system, as in ATT, Bof A, California PERS, etc. Meanwhile, I hope to keep installing new ones, because they work so well.

Don't confuse "frozen" with terminated. IRS and PBGC maintain that a frozen plan continues, maybe with new TH accruals, maybe not, but it remains and on-going plan. IRS & PBGC tell us a terminated plan attempted to distribute assets as soon as administratively possible. I know, I'm over-simplifying here, but maybe you could explain the intent of your question.

Can you tell us the cite for your info? I would like to read the details.

With a new plan, you can use any asset valuation method desired, including beginning of year, end of year, or end of year with "book value of assets" aka projected assets. What you pick stays with you for five years. Beginning of year valuation is easier, since asset=0. End of year => 200,000 - (100,000 + pre-contribution interest) Book value $100,000 plus presumed interest, less pre-contributions w interest (net = 0) for the first year. However, this falls outside the 80% 120% market corridor on the facts presented. If you use beginning of year valuation, then you must make assumption on rate of pay. Sometimes that assumption is inconvenient to the desired budget. Presumably, the method you choose for rate of pay should also be consistent for 5 years as part of the funding method.

Let's move this discussion to the DB-Cash balance forum. Cash balance plans cover millions of employees, including a number of large employers. The state of California covers their part-timers with such a plan. ATT, Bank of America, and a number of others would be guilty of age-discrimination if the old 411 regs are the law of the land. I believe this would make all such plans impossible to maintain. I am looking for the cites from the old cash-balance cases. Georgia-Pacific and Bank of Boston were two of the litigants. I even gave a speech on this a few years back. The judge in one of these cases heard your argument and ruled against it. From my review, the IBM and Xerox cases had other issues that were bad cases for setting precedents. In some respects, they "deserved to lose" on some of their issues. This did not justify the old DB only accrual rules being applied to cash balance designs. For that matter, any level cost accrual method in a db plan would meet the same failure as cash balance plans. This would include traditional db plans that use the individual reserve method for calculating accrued benefits and the fully insured 412i plan. It is easy to demonstrate that the level contributions put in at an earlier age produce a higher rate of accrual than the same amount of contribution at a later age, thus violating the old obsolete db accrual rules.

Can you explain how the deduction limit was 21%. Did 415 apply to reduce it? Or, Was this a profit sharing plan still subject to 15% in 2001? Also, were the tax returns done with the entire amount deducted? If so, and the contribution included non-deductible amounts, then the return should be redone and back taxes are due. Some plans allow a refund for non-deductible amounts, but often it is written to apply only to the initial qualification of the plan. Let us assume for a moment that the contributions were all made after year end, during the receivable period. Then, the excess 2001 amount could be applied against the 2002 deduction, the excess 2002 amount to the 2003 deduction, and the excess 2003 amount to the 2004 deduction. Thus your administration for 2002, 03 and 04 would have pre-contribution allocation issues. Then your administrative allocation of the contributions for 2001 could follow the 2001 deduction rules without worrying over the mis-allocation or redoing the excess allocation.

That's why there's a Supreme Court. Other cash balance litigation said that the concept described is absurd on its face. Who will win? Those who believe cash balance is a great way to deliver benefits or those who can't make it work with existing regulation issued before these plans became popular? Cash balance enthusiasts say - it's a money purchase plan with a guaranteed interest rate and db benefit limits. Employees get two guaranteed amounts of 1-contribution and 2-interest credit. This does not sound like some evil thing to be destroyed.

A comparison of SLA vs QJS would result in identical values if the conversion assumptions are the same as the "reasonable assumptions" built into the reg's. Is your conversion factor from a fixed table? If so, you could adjust the fixed table to match a reasonable assumption. For example: The QJSA is defined in the document at say 80% of the SLA. But a reasonable assumption would result in 85%. Two possibilities to consider: Is there another reasonable assumption that produces the 80% conversion? Or, can you amend the plan's 80% rate to 85%? Does this help?

Cash balance age discrimination only makes sense if you look at the monthly retirement benefit, not at the cost of employment. For two employees getting the same cash balance allocation, their cost of employment is essentially identical. I personally don't call that discrimination.

I suspect this question arises with the new 417 disclosure rules. My observation is that the lump sum rules for early payout are the problem. The result is that a J&S benefit might be valued on "reasonable assumptions" that do not use the low 30 yr Treasury rates of a lump sum distribution. This is a relatively new area of regulation, so there's plenty of opinion and considerable confusion. Can you give more detail on the comparison you are making and the assumptions that produce the unfavorable result?

What the document says ... goes. If your document says to allocate, you are stuck. However, if you have discretion on amount by group, it is not discriminatory to give zero allocation to the owner.

TBob - thanks for your comments, I understand your concern a little better now. The attorney offering the comments was reaping doubt, in my opinion. But then again, maybe that person sees a litigation risk I don't see. When the plan sponsor selects the individual rates for one-person one-rate testing, they can give their guidelines on who should receive contributions. If the TPA or actuary advises a set of benefit rates that works for 401a4, the plan sponsor can still insist on minimums or other changes in treatment. This actuary does not feel comfortable saying when age-discrimination is real or perceived, because I have no feel for the legal arguments made successfully or not in court. Therefore, if I offer a design solution that passes a4 and 410b, the final decision is still with the plan sponsor. If they are concerned about age discrimination, sex discrimination, racial discrimination, or nepotism, then I need to hear it from them. Your point was interesting.

You start with the provisions in the plan document. Look for the treatment of rollover funds, and the duties of the plan administrator after an employee terminates. Generally, benefit managers don't like to keep accounts for terminated employees, in part because of the fiduciary duty, but even more for the notification requirements. There is a large market of IRA providers who want the rollover of the funds. Generally they can invest in the same style funds and investment choices of the employer plan, so the participant is not hurt by rolling their funds.

MBozak - Just political rhetoric. I don't see any. But those who do say: DC plans generally don't provide the same retirement benefit as you get older. Therefore lower benefits by age. DB plans provide higher value when you get older, so you earn more benefit value than a younger person getting the same pay. Therefore higher value by age. If politicians, social engineers (do-gooders?) and regulators could just agree that both db and dc plans are legitimate benefit delivery programs, then we could eliminate such absurdities as age-discrimination lawsuits in cash balance plans. TBob - if you make value judgements on plan design for discrimination testing, it is an interesting philosophical perspective. Remember that 401a4 testing forces the plan sponsor to give some participants the same high benefits provided to the older & higher paid leaders of the business. It's not "fair" that some get more than others. So what? Following the reg's and keeping the clients out of trouble with the IRS and DOL are enough trouble without trying to be the unappointed union rep for the other employees.

The upfront fees for Relius & ASC, along with Datair, cover the initial software licenses, manuals, minimal training, and installation expenses. They are not monthly charges. These small plan systems (Relius may be called mid-range) have a number of other comparison items for your spreadsheet, which I will attempt to revise sometime after the rush of October 15.

Ah yes, and a girlie-boy for president along with a clutz and a crook.

My understanding is that PR is subject to US labor code, but not Tax Code, since they have their own tax structure. Thus Title I & IV of ERISA apply. However, if the plan is sponsored by a US based company, you probably don't get away with the PR tax rules. In addition, PR has their own labor rules, which prohibited 401(k) plans long after US plans allowed them. This was eventually changed. Best answer - contact a PR specialist, especially one with substantial numbers of plans there.

jved: Did you actually administer pre-ERISA plans? Maybe you actually created EBS-1 forms too? I did, and even had advanced training on it in 1973. Back then, we even worried about how Isadore Goodman felt on pensions.

My experience with distress terminations is limited, so I will give you anecdotal advice. 1. The stockholders of A will be held responsible. PBGC will try to look for their other assets as well. 2. Transfer of employees to B could be looked upon by PBGC as an attempt to subvert the intent of PBGC rules, so they can get their attorneys involved if the dollars are worth it. 3. Sale of B to C was a stock sale, implied in your posting. Thus C assumes the liabilities of B. Was the stock sale fully disclosed to owners of C, including the potential of pension termination liability? If not, then owners of C will probably have a general liability claim against owners of A who sold B. If so, then owners of C may have liability to PBGC. We had a similar plan termination some years ago, where A was sold twice in a year, attempting to get away from PBGC liability. We advised client that the sellers of A were still responsible, even into the estates of the deceased former owner. They eventually paid up and took a standard termination with all non-owners paid in full. As always, see ERISA counsel for a better opinion.