emmetttrudy

My understanding is that assets need to be 110% or more of Funding Target after taking into account distribution in order to pass this test. Am I thinking about this right? Total Plan FT = 3,597,271 Total Participant FT = 279,619 Total Plan FT After Payout = 3,317,652 Total Assets = 3,491,773 Total Lump Sum Payout Amount to Participant = 328,305 Total Assets After Payout = 3,163,468 So if the assets remained where they are the ratio after the payout would be 3,163,468/3,317,652 = 95% In order to get this up to 110% there would need to be a contribution of approximately $486,000.

testing based on statutory requirements. for actual entry i agree it would be 7/1/2013. but for testing with statutory exclusions i think it would be 1/1/14.

but technically the statutory requirements allow you to enter six months after you meet the 1 year of service requirement, right? if you have semi-annual entry dates defined in the Plan then yes, he would enter on July 1, 2013. but if you were figuring out his entry date based on the statutory requirements wouldnt it be six moneths later?

If an employee is hired on July 1, 2012, would the statutory requirements mean he would first become eligible on January 1, 2014? or July 1, 2013? I always thought you look at the first twelve moneys (7/1/12-6/30/13) and if they work 1,000 hours then they would enter on 7/1/13. But our testing software (Relius) calculates their entry date to be 1/1/14.

If an Employer has 6 employees, all eligible for the 401k PSP, but only three are participating in the DB Plan, when you are calculating the combined deduction limit does the compensation for all six employees count since they are all participating in the DC Plan? Or do you only count the compensation for the employees who cross over and participate in both plans?

thanks. i did check the plan document and it says to average over the period of months of employment. someone was telling me that if you do not have three full years of compensation that the monthly average is still calculated by dividing by 36, even if the participant only had for example 2 years of service. this didnt make sense to me.

Definitely do not have to contribute higher than the $25,000 now. I believe PBGC has to be notified of a missed quarterly within 60 days. And this can be done through a form email. I also agree, I think the participants need to be notified prior to the distribution of the AFN.

415 statute uses the high 3 year average for definition of average compensation. what happens if a participant doesnt have three years of compensation - how does this affect the calculation of the 415 limit for that participant?

Ok, I think I just found the answer to my own question. It appears a contribution of stock "in-kind" is a PT.

Is there an issue with a sole proprietor transferring stock in-kind as a contribution to his Db Plan? He has two accounts with the same vendor. One is the trust for the Plan. Rather than sell the stock in the other account and then contribute the money to the Plan and re-buy the same stock, he wants to transfer the shares over. Is there an issue with this? Does the contribution need to be cash?

I dont think so because no one accrued a benefit in the DB plan in 2011.

A 401k PSP currently has a pro-rata PS allocation method with a 500 hours allocation condition (no other conditions). They would like to amend the plan to be a new comparability with each participant in his own class so they can max the owner while not having to give 13% to all employees. Their current adminsitrator is telling them they can do this at any time this year "since the profit sharing contribution is discretionary". However, we have always operated under the premise that once the participants have accrued a benefit under the exisiting allocation method (500 hour requirement, which they have all obviously met already), then they would not be able to amend this method to provide different groups of employees with different %s of PS. They would need to wait till 1/1/2013 for this to take effect. Am I missing something? Or is the current amdinistrator just giving out bad information?

DB Plan (one person) was originally effective 1/1/2011, BOY valuation. Average compensation is being calculated at 1/1/2011 using K-1 compensation for a sole prop for the years 2008, 2009 and 2010. Normally the compensation for valuation purposes is adjusted for contributions made and 1/2 SE tax. Obviously in the years 2008 through 2010 there were no contributions because the plan did not exist. Does the compensation for those years need to be adjusted for 1/2 SE tax? Or can the Average Compensation for the 1/1/2011 valuation be calculated using the net income from Schedule K-1 with no adjustments because there was no plan for those years?

OK, I misread your first response. Yes, I agree the 3% TH minimum only needs to be made to the DC Plan. but the determination should be made based on the aggregation of plans.

That seems like the practical answer, and what I thought. But when I read this from the IRS site it made me think the Plans still must be aggregated. 4.72.5.2.6.4 (03-01-2006) Terminated and Frozen Plans 1. The determination of whether a terminated or frozen plan is top-heavy is the same as for any other plan. See Reg. 1.416–1, T–4 and T–5. 2. For IRC 416 purposes, a terminated plan is a plan that has been formally terminated, no longer credits service for benefit accruals and vesting, and distributed or is distributing all plan assets as soon as administratively feasible (generally within one year). See Rev Rul. 89–87, 1989–2 C.B. 81. A. The plan must be aggregated with other plans of the employer if it was maintained within the last 5 years ending on the determination date of the plan under examination, and would, but for the fact that it terminated, be part of a required aggregation group. B. Distributions from the terminated plan which have taken place during the 1-year period (5-year period in the case of any distribution made for a reason other than severance from employment, death or disability, and in determining whether the plan is top-heavy for years beginning before January 1, 2002) ending on the determination date are added back in determining whether the required aggregation group is top-heavy. If the required aggregation group is top-heavy, no additional contributions, benefit accruals or vesting is required for participants in the terminated plan, but the ongoing plans must satisfy the top-heavy rules. See IRC 416(g)(3) and Reg. 1.416–1, T–4. 3. A frozen plan is one in which benefit accruals have stopped but the plan has not distributed all the assets. If a frozen plan is top-heavy, it must provide top-heavy minimum contributions, benefit accruals and vesting. However, in a defined contribution plan, no top-heavy minimum contribution is required if no key employee receives a contribution. See Reg. 1.416–1, T–5 and IRC 416©(2)(B).

A Plan Sponsor has a DB Plan and DC Plan. The DB Plan terminated 12/31/2009. Because they chose to wait for the issuance of a Determination Letter the assets were not distributed completely from the DB Plan until midway through 2011. The Determination Date for determining whether the DC Plan is top heavy for 2011 is 12/31/2010. Do the DB plan assets/benefits still need to be taken into account in determining the top heavy status (i.e. the two plans are aggregated?). Or is the DC Plan tested on its own since the DB Plan terminated in a prior year?

A DB Plan is a Cycle B filer and was filed timely during the first Cycle B, deadline 1/31/08. On October 14, 2011, an amendment was adopted changing the Employer's Name (and this Employer has a different EIN). The new Employer is a new entity that was created January 1, 2011. The last number of the "new" EIN is 5. Rev. Proc. 2007-44 deals with changes in Cycles due to certain events. Am I reading it correctly that due to this change in EIN, the Plan would now be a Cycle E filer, and the next time it would have to amend and restate is by 1/1/2016, and NOT by 1/31/2013, which would have been the Cycle B deadline had the plan not changed cycles? The first time I read through Section 11 of this Rev. Proc. I got the impression they would have to file again on Cycle E (deadline 1/31/2011) even though they would be granted a 12 month extension on that until 1/31/2012, because of how close the cycle changing event was to the end of the new cycle deadline. But now that I am re-reading it, I dont think that is the case, nor the intent, to have the plan file twice in the same 5 year cycle period (Cycle A through E). Any help is much appreciated.

thanks, i came across that same question i asked back then but i was just making sure nothing had changed since then because we recently have come across a couple of scenarios where TPAs were having the fees deducted from the participant's payout amount, and i thought this was always a no-no. thanks for the confirmation.

I was always under the impression that Defined Benefit Plans could not charge a distribution fee against the participant's accrued benefit in a DB Plan because it was essentially a reduction in their accrued benefit. However, it seems as though a lot of people do this? I'm curious what the consensus is. Is this allowed or not? For example, we have always processed them such that if the Lump Sum = $1,000, the Participant receives $1,000, and usually the Plan Assets will cover the fee. However, what I am seeing sometimes is the Charge for Distribution Forms = $200 and this is coming out of the Participant's Lump Sum, so they receive $800...

Yes. As long as he met the accrual requirements. Did he work 1,000 hours?

We recently took over the administration on a one person DB and DC Plan from another administrator. Almost immediately we realized the DB Plan was broken. In late 2010 the participant took a $50,000 loan from the 401k Plan. No problem with that. But then in May 2011 the administrator allowed him to amend his DB Plan to allow for loans, and he subsequently took out another $50,000 loan, this time from his DB Plan. We are discussing going through the VCP to correct this. The options seem to be repay the loan or deem a taxable distribution. Let's assume he would like to take the $50,000 as a taxable distribution. Two questions come to mind: One, the 1099-R would have been due earlier this year if it is to be considered a 2011 distribution. So is that just filed late? Secondly, he has made loan repayments per the amortization schedule, so the current outstanding balance of the loan is about $36,000. At this point, does he take the full $50,000 as the distribution, and then consider the $900 loan repayments he has been making as contributions to the Plan?

No, but I also don't find anything about what date I am required to use accrued benefits from for a DB Plan with a BOY valuation date.

Plan Sponsor has a 401k PSP and CBP. The vesting service for the CB Plan started at the effective date of the CB Plan (1/1/2010) so as of the determination date for TH testing (12/31/2011) there were no vested benefits in the CBP. When performing the TH test do you look at the present value of the vested accrued benefits (in this case, all $0)? Or the present value of the benefits without regard to vesting? Also, the CBP uses a BOY valuation date. For determining if the Plan is top heavy in 2012 is it ok to use the 12/31/2011 401k balances and the 1/1/2011 benefits in the CBP? Or do the CBP benefits need to be projected forward to 12/31/2011?

If your plan is covered by the PBGC you are not subject to the combined plan deduction limits.

The Plan Document doesn't seem to comment on a termination where assets are not sufficient. It is not a PBGC Plan so there is no majority owner issue.