My 2 cents

Andy T. A.'s law: When you're the last blacksmith in town, you are no longer in a competitive market. What about those actuaries who still use DOS systems. How do they make their calculations when their PC has no mouse? I am having a lot of difficulty picturing an actuary who uses a DOS system that has been updated for PPA and MAP-21 and WRERA and HATFA etc. It must be awfully hard to update those basic and assembler programs!

Sounds like another case of spell check run amok!

Is the plan intended to be tax-qualified, even if not subject to ERISA? That might matter.

If the plan terminated 3 years ago but the assets have not all been distributed, is the plan still considered terminated?

The draft 2014 5500 Schedule SB now requires the vested funding target and the total funding target for inactive participants in pay status and also for terminated vested participants with deferred benefits. Are there any enrolled actuaries out there who are including any non-vested benefits for inactive participants in the funding target (as opposed to treating all non-vested accrued benefits as forfeited as of the date of separation from service, or is there something else this is looking for)? When would the two columns (vested funding target and total funding target) show different values?

Try to think of it this way: Suppose we are talking about a doctor's practice. The doctor has to take in enough to cover outstanding medical school and college loans, maintenance of an office (brick and mortar, presumably with parking available), with staff to handle patient interactions and appointment scheduling and to handle all the billing paperwork, large malpractice premiums, medical equipment and tests etc. with enough left over to make a reasonably decent living. When was the last time you got (for example) to pay $5 to have your blood pressure checked, because, truth to tell, the marginal cost of taking someone's blood pressure is low? Remember, this is about setting up a new defined benefit plan. [Why does the original post even talk about loans? Loans have no legitimate place in defined benefit plans.] And don't things get real hard real fast if the owner-employee hires any non-owner employees without providing them suitable benefits? One presumes that if cost is a consideration, the defined benefit plan will be one that meets all of the IRC Section 401(a) safe-harbor rules (none of that new comparability stuff!). That non-discrimination testing makes the costs for a plan document look cheap.

I may be showing my ignorance, but it is my understanding that the first minimum distribution is taxable in the year in which paid, not in the year for which it is a minimum distribution (if the years are not the same). That is, if someone is treated as separating in 2014 (having attained age 70 1/2 by the end of that year), is it not the case that the 2014 minimum distribution, if paid in 2015 (as is certainly permitted), while representing a minimum distribution for 2014, would actually be treated as taxable income in 2015? Granted, another distribution may be required by 12/31/15, for 2015, but if the first was paid in 2015, then nothing would be added to taxable income for 2014, so the fact that the person earned compensation throughout 2014 would not put the entire 2014 MRD at the top of the participant's marginal tax bracket.

For a frame of reference, see recent thread called "Based on a Posting Under the DB Board"

Two comments on this: 1. Just to be sure it's understood - that's the chances of buying one powerball ticket and winning $10,000 vs being strangled by the bedsheets during an entire year. 2. But wouldn't that be the ultimate irony? Buy a powerball ticket, win $10,000 and then be strangled by the bedsheets!

I can't get over the idea that several times as many people died by getting tangled in their bedsheets than died from being electrocuted by high-voltage power lines (both as reported by the CDC). Who knew? Also, I am not so sure that the correlation between arcade income and the number of computer majors is a false correlation. Think about it. Arcade income comes in large part from video games. Computer majors like video games, and after they graduate, what better work is there for them?

Out of curiosity is the Plan AE $6K or the 417(e) rates $6K? If the later is it possible that that PVAB will be under $5K next year? If so maybe use that as leverage to get spousal consent to rollover to IRA and have them divide the IRA in the divorce? The November 2014 417(e) rates that were published a couple of days ago, to the extent applicable to the terminating plan (for example, if it is a calendar year plan using the rates from the second month preceding the start of the plan year for 417(e) purposes), are likely to increase the value of the benefit. The second and third segment rates are a good deal lower than the November 2013 rates, which could significantly push up the lump sum equivalent for a participant well below retirement age. That $6K could easily go up to $7,000 or more (and it almost certainly will not fall below $5,000). Also, how long can payment be delayed before the termination itself is jeopardized? Isn't it 180 days after the 60 day waiting period following the Form 500 PBGC filing (or, if applicable, 120 days after receipt of the IRS determination letter if later)?

From IRS regulations 1.436: (iv) Treatment of plan amendments that do not take effect. If a plan amendment does not take effect as of the effective date of the amendment because of the limitations of section 436© and paragraph © of this section, but is permitted to take effect later in the plan year as a result of additional contribu- tions under paragraph (f)(2) of this section or pursuant to the enrolled actuary’s certification of the adjusted funding target attainment percentage for the plan year that meets the requirements of paragraph (g)(5)(ii)© of this section, then the plan amendment must automatically take effect as of the first day of the plan year (or, if later, the original effective date of the amendment). If the plan amendment cannot take effect during the plan year, then it must be treated as if it were never adopted, unless the plan amendment provides otherwise.

Sorry, I don't think I completely understood the original question. I had thought that the question had something to do with needing to adopt an amendment to fix a discrimination testing issue but possibly being unable to do so due to the operation of Section 436. Is the question "Suppose you adopt an amendment to a plan making a change to the formula which, if it were to become effective, would require non-discrimination testing and possibly corrective actions. However, because the AFTAP was not certified before the end of the 9th month of the plan year, the plan is deemed to be funded less than 60% so the amendment to the formula cannot become effective. Do you still have to perform the non-discrimination tests in later years?" Is that the question? I am not sure that putting it that way makes any sense to me. Remember, unless the amendment contains special language, if it cannot go into effect this year, it becomes entirely void at the end of the plan year. So if it is blocked by Section 436, it doesn't exist. What would be the point of adopting such an amendment in any event, especially if you know it cannot take effect? I guess I am just confused.

Maybe because the thread is in the "401(k) Plans" forum? This is the sort of thing that happens when those of us with 11 months' worth of brains try to do things in December!

I am trying to remember - if the AFTAP is deemed irretrievably to be below 60% through the end of the plan year, can one make a 436 contribution equal to the full value of the increase in the funding target or is it impermissible to adopt any amendments increasing the funding target at all?

I wouldn't think that they would affect actual benefit administration.

Whose idea was it to not certify an AFTAP by the end of the 9th month? Backed the plan into a corner for sure! Otherwise they could have paid for the increase in the funding target (if the plan after the amendment would have been under 80%) and gone on to less intractable problems, like running a profitable company. It's one thing to skip AFTAP certifications on a plan frozen since 9/1/2005. Why would anyone ever do such a thing for any other kind of db plan? Especially a plan that is not clearly a safe harbor plan!

Probably tastes better than corrections of $180,000 in little more than a year!

Doesn't service with any member of the controlled group count for vesting purposes? Based on my understanding, the answer is no, "terminating" from one controlled group member is not a distributable event when the employee remains in employment with any other controlled group member. The employment relationship must be severed with respect to the entire controlled group. I may be wrong, but I don't think that going from A to B would be considered a separation from service at all. Accruals might cease but that does not make it a separation from service.

Thank you. I guess my defined benefit plan focus was showing. Was it mentioned anywhere in the previous posts that the plan would be a 401(k) plan (or is that implicit)? If the only way to set up a new plan was to exclude all HCEs, would the employer still be interested in setting up a plan?

It has always been OK to exclude hourly employees from a plan if doing so does not cause coverage, non-discrimination or participation issues. If there are hundreds of excluded employees who don't meet the regulatory standard for being considered excludable and only a couple dozen employees who would benefit, how could you hope to pass the 401(a)(26) requirements? Given that the intention is apparently to provide nothing to the hourly people, how could you hope to pass coverage? It is unlikely that the average benefit test could be passed. Is it not the case that the compliance rules are designed to stop employers from setting up plans benefiting a small, select group of employees without making adequate provision for the others? The favorable tax treatment may make it more palatable to spend the money on an annual audit and benefits for rank and file employees, but if the only real objective is to set up retirement savings for a small subgroup, it needs to be recognized that a qualified plan is not necessarily going to be "efficient" on an after tax basis. This is not the same thing as saying that establishing a plan is a bad idea.

What about someone who quits or gets fired on 12/31? Do you give her a 1/1 termination date because you can be employed and unemployed on the same day? Firing someone over 70 1/2? On New Year's Eve? That's cold.

Of course, if the "laborers" are covered by a collective bargaining agreement under which retirement benefits were the subject of good faith negotiations (hey - it could happen), they need not be taken into account for coverage purposes and there would thus be no coverage problem.

Speaking as a taxpayer and not a tax expert: Doesn't one have to put in the claim for reimbursement of the prior year expenses within three or four months of the end of the prior year? I thought that any amounts contributed to an HSA that were not claimed by the deadline in the immediately following year had to forfeited outright. So I don't understand the apparent question here about claiming unreimbursed amounts from years earlier, since they would have been forfeited long ago. Is this not so? Given that in general any amounts to be reimbursed for last year's medical expenses from an HSA would have been reimbursed prior to the filing deadline for last year's taxes, I think the question comes down to whether you can count those expenses that were reimbursed towards the 7.5% threshold. It seems to me that the answer to that is no - in effect you never paid those expenses, because they were paid by the HSA, so you can't recognize them in any way in completing your taxes. You do need to be able to demonstrate that you had initially incurred or paid covered expenses to justify the reimbursements, however.

So, as is usually the case, the mantra is "What does the plan say?" In my opinion, a well-written plan would lock in the participant's vested percentage at the time they separate from service and no subsequent events would cause the vested percentage to increase (unless a partial or complete termination of the plan occurred close enough to the separation from service to apply, say prior to the completion of a year's break in service). If someone terminates with 40% vesting and then, a few years later, dies or the plan terminates, the 40% should stick (especially if the separation from service was not directly connected to the death or plan termination).