emmetttrudy

Small Cash Balance Plan is considering terminating. One of the owners retired in 2011 and has not been able to take her lump sum because the plan is restricted by the 110% test. If the Plan were to terminate and the assets are not sufficient to cover the payouts, the 2 remaining owners are willing to forgo benefits. However, the question is, does the one retired prior owner, who is no longer an owner, fall into the rank and file employee group in terms of who gets paid out how much? Typically how we handle underfunded terminations is the rank and file are paid out their benefits in full, and then the owners are paid out with the remaining assets (pro-rata if there is more than one).

Because the standard output from the valuation software (Relius) shows the results from both tests.

A Defined Benefit Plan must pass either the ratio test or the ABT to pass coverage, correct? We submitted a Plan to the IRS for a DL upon termination and they are questioning why some of the variations of the ABT fail, and are wondering if this means the coverage test fails as a whole (interestingly, they are posing this more as a question to us, as opposed to a statement off act - shouldnt the IRS know the rules??). Seems to be a moot point however, since the Plan passes the ratio test, which means it passes coverage.

Can an owner (max comp) receive a $49,000 profit sharing contribution and then make a $5,500 deferral, classified as catch-up? Or is a deferral not classified as catch-up until you hit the $17,000 limit.

Thanks. Yes, the first couple of years is all we really tend to want to use it to our advantage. Starting in year two, once there's a funding target typically the maximum is high enough that they can contribute what they want to anyway. We work with a couple of different actuaries. One uses this method consistently while the other doesn't necessarily like it.

You cannot elect to be covered. If your business falls under professional service organization and you are 25 employees or less, you are excluded. Check their definition closely, perhaps you don't qualify as a PSO.

First year for a Cash Balance Plan, using an end of year valuation date. The nature of the MRC calculations means that the minimum required contribution is actually lower than the sum of the credits for the first year. Vesting service is excluded prior to the effective date of the Plan so in Year 1 the FT = 0, which means the MRC is just equal to the TNC (again, which is less than the sum of the credits allocated on Year one). Is it ok to consider the Plan "at-risk" for the first valuation so the maximum deductible contribution turns out higher than the minimum required? Or are you stuck with a maximum equal to the minimum for year one, and not being able to fund the sum of the credits.

They previously communicated that they wanted to wait for the DL to be issued before doing any distributions. But now are inquiring about just paying out two NHCEs and no one else. It seems like if they're going to pay out one or more NHCEs they should just pay them all, no? There might not be any discrimination issues since it is an NHCE, but if I were one of the NHCEs who did not get paid, I'd start questioning.

Plan is undergoing a PBGC termination. Possibility the majority owner will forego some benefits. A couple of the NHCEs have inquired about taking a distribution. It is past the 60 day review period for the PBGC. Are there rules against paying an NHCE or two out before everyone else? I know there are several issues why this is not a good idea. But I'm more looking for the answer to is it allowed?

If a plan sponsor has a DB Plan with a flat beneit x% of Average Comp for all participants (HCEs and NHCEs), and they also have a 401k PSP, can the 401k PSP be tested on its own for 401a4 since the DB formula is a safe harbor? This is a PBGC Plan so no combined deduction limits to worry about.

thanks everyone

Does anyone know if a good process for checking to make sure retirees are still alive? Social Security Index has a ebsite you can search on, but for plans with lots of retirees that can be cumbersome. Is there a regulation on this, on what is required to be done by the plan sponsor? Just trying to make sure the plan sponsor does their fiduciary liability by doing a periodic check...

Ok, I figured. So my next question is let's assume she works 1,000 hours (vesting requirement) in 2011, 2012 and 2013. The CB Plan has 3 year cliff vesting. Her first RMD would be due on 12/31/201, correct?

DB plan originally effective 1/1/2011. Son is 100% owner. Mother (100% owner by attribution) becomes a participant on 7/1/2011. Servcie prior to effective date of plan is excluded for vesting so at end of 2011 plan year Mother's hypothetical account balance is $800 but her vested hypothetical account balance is $0. Her DOB is 2/12/34. Are there any RMD considerations for 2011? Or does she actually have to have a vested accrued benefit, in ehcih case her first RMD would not be until 2013? NRA is defined as 65/5 so that would not make her 100% vested.

i believe that is correct. and employee deferrals do no change the calculation at all, right? the comp is only reduced by employer contributiosns.

Two partners have a DB and 401k Plan. Let's say each have $150,000 in self employment income before any deduction for the DB contribution. They make a $200,000 contribution to the DB plan, which they split the deduction for. They both alos make the full 401k deferral contribution to the 401k PSP. What is their limit for a profit sharing contribution. Is it 6% of compensation after deducting the DB contribution and 1/2 self employment income tax? Ie 6% of $150,000-$100,000-1/2 SE tax? Or is it 6% of SE income before any deductions?

This is how they file the Schedule Sb for all of the Cash Balance Plans they administer. I'm not sure how many that is. But I am at a loss for words. The TPA firm is insisting there is no comliance issue with this, when clearly they are in violation by not filing a Form 5500 for the Cash Balance Plan. I'm not sure how much more clear we can be in telling them a form 5500 is required for each plan of the employer.

A one person plan had a $50,000 loan from his 401k Plan. Less than 6 months later his TPA inexplicably amended his DB Plan to allow him to take a $50,000 loan from his DB plan also, apparently not knowing that all plans are aggregated for the loan limit. The DB plan loan occurred in mid-2011 and he has been making loan repayments monthly. What is the correct way of fixing this? Should he pay the money back immediately? Does he need to go through one of the correction programs?

Ha, I would love to have it. This is one of the most egregious errors I have ever come across.

We are a TPA in the process of taking over a Cash Balance and 401k PSP from another TPA. We have noticed that no 5500-SF or 5500 has been filed for 2008, 2009 and 2010 for the Cash Balance Plan. Instead, the TPA has been filing the Schedule SB with the 5500-SF for the 401k Plan!! We have already discussed going into the DFVCP with the client for this egregious error. I just wanted to cover all my bases and put the question out there (in case I am missing something) to you all to see if under ANY circumstance the way the current TPA is doing this is ok? The current TPA says this is how they do all their Cash Balance Plans which worries me a lot, sounds like they have a major problem on their hands (as do their clients).

The plan sponsor is doing most, if not all, of the work. For them it is more the principle than the cost.

thank you, i missed that the first time through.

We have a Cash Balance Plan that ceased to be covered as of May 2010 (all participants were terminated and paid out except the owner, and the plan did not terminate). At the time, the plan sponsor sent a letter to the PBGC explaining it was no longer covered and why. The PBGC sent a letter in response agreeing, and memorializing the actual date at which the plan ceased to be covered. We in turn filed an amended 2010 filing, requesting a pro-rated refund because the plan had paid a premium for the entire year of 2010. The refund in question is approximately $400. After the amended filing was submitted, the PBGC first sent a letter saying the plan was not eligible for a refund. The plan sponsor wrote another response letter explaining the situation and re-requesting the refund. The PBGC then called the plan sponsor and informed him that they refund, or allow pro-ration of, premiums in only two circumstances: plan termination; or, change of plan year--creating a short year. They also claimed the instructions clarify this. I read the 2011 PBGC premium filing instructions and could not find this explained anywhere. Anyone know of any backup for their position?

A participant has a loan set up with quarterly repayments. They would like to pay off the outstanding balance as of 12/1/2011. The prior repayment was made on 9/30/2011, and the next is due 12/31/2011. My thinking was that a daily interest calculation needs to be done to calculate the payoff amount at a date other than a date that shows on the amortization schedule - to calculate the additional interest accrued from 10/1 to 12/1. But others I speak to seem to think this is not required, and that the payoff balance at any date from 10/1 to 12/31 is the amount that shows up on the amortization schedule as the outstanding balance after the 9/30 payment was made. Most vendors with a daily platform (ING, Hancock, Hartford, etc.) calculate interest on loans daily. It wouldnt make sense just because this loan is through a vendor without a daily platform, that the interest is calculated differenty. Is there any guidance on this issue? Must it be done one way or the other?

From the EOB... 5.g.2) Tax treatment for transfers exceeding 25% of the surplus. Rev. Rul. 2003-85 discusses the tax consequences of transferring more than 25% of the surplus to the qualified replacement plan, as well as the application of IRC §4980 to any portion of the surplus that is not transferred. (1) The transferred amount, including the portion that exceeds 25% of the total surplus, is not treated as a reversion to the employer for tax purposes. That means that none of the transferred amount is includible in income under IRC §61, none of it is deductible under IRC §404 (or any other tax code section), and no reversion excise tax applies under IRC §4980 with respect to the entire transferred amount. So does this mean if there is $100,000 surplus, and all of it is transferred to a replacement plan then none of the $100,000 would be subject to excise taxes?