frizzyguy

I totally agree Hojo, I guess I was just trying to prove a point rather than just saying what I was thinking. I just wanted to be clear that if you have to file an SB, you should probably do a valuation. That's all.

Can I ask a dumb question? (Too bad, I'm doing it anyway.) Why is it "clear" that the minimum is going to be zero? I am saying this because I agree with David (not that my opinion really means a whole lot but I trust Mr. Rigby) and you should definitely make sure the required funding is actually $0. I think you could make the argument that the intention was for the client to not have required funding limits apply if the amendment was created and signed in 2013 but if that's the case you should have used a 12/31 termination date. The safe answer though, is of course, that they apply.

We use dropbox and have been really happy with it.

I would really like to see the piece you've written, sounds very interesting. That being said, can the plan be rolled over to the new plan? How does the logistics of that work?

Just an FYI, I wouldn't "expect" an audit. I have been through many of these. The times that they are usually audited are generally when you put in bad dates on the PBGC 501. I would make sure that you hit the windows or the PBGC will audit. Also, if the interest crediting rate isn't fixed, Effen is correct. I guess if it is fixed Effen is correct too... Oh math, you're a fickle mistress.

Just curious: Can we get a little background on what's causing this question?

I agree with all the comments made up to this point. RLR, we have all been in this situation where a client is asking us to find something that doesn't exist. (Not fun.) I think it maybe time to try and change their focus from outcomes to make more taxable income deferrable and switch them to focus on how to make the excess assets currently in the plan get used before termination. They need to worry about avoiding excise taxes without giving the kitchen sink to staff. How many owners are there? How many employees are there? Is the owner at the service max? Are the employees at the 415 as well? Once that solution is done, it's time to refocus on plan redesign to allow the owner to maximize their contributions under the DB-less situation it appears they may find themself in now. All the time, make sure to point out this happens and it couldn't be avoided, they had a wonderful run of deductions using the plan and make sure they understand it's time to set different expectations come tax season. If they are at the max, it's time for a new solution.

I'll blanket everyone's conversation with this little nuggest of knowledge: "IRS CIRCULAR 230 Disclosure: Under U.S. Treasury regulations, we are required to inform you that any tax advice contained in this e-mail or any attachment blog is not intended to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code unless it's found on something printed through a mimegraph or microfiche."

This is a common situation with clients that we deal with but the level of detail needed to really make a judgement is far beyond just future income. How many years of service do you have? How aggressive is your investment strategy? How likely is your business to remain open during these lean years? Do you have employees? Do you have an adjacent profit sharing plan? We would love to have a simple 'yes' or 'no' for you but unfortunately there are a lot of factors used to make this decision. I completely agree with David on his opinion. Your actuary should be able to give you a good answer. More specifically, he or she should arm you with the possible outcomes so you can make an informed decision. As Effen stated, this is up to you. If spit hits the fan, you're ultimately on the line. On an unrelated note, I am a huge fan of the 'like' button that was added recently to this fantastic forum.

What is the question? In general, you shouldn't "convert" any dc into a db or dc into db. Always better to terminate and start fresh. P.S. I believe 411(d)(6) has been around since ERISA was passed. I agree with Effen with a solo situation. I want to go as far as to say that applies to all situations but there maybe that one time exception I'm not thinking of that would prove me wrong.

My understanding is the only way they could maintain both a db and a SEP is if it is a "prototype SEP" or an "individually designed SEP". Both are generally cost prohibitive and most likely not what is being used. However, you are correct, that it is possible, but not very likely. Prohibitive? How costly are they? Don't any major institutions have them for customer use? Most do have one. They even have SARSEPs. This topic was a very large chunk of an audit. I had a client who had a SARSEP who changed providers three times around EGTRRA and I got to play find the adoption agreement. They are usually "free". That being said, I usually get them to switch to a 401k. If they are going DB, they are looking for the deductions and the deferrals really help in a solo plan situation.

What about the effect on accounting? I can't think of anything but that is an area I could see the effect making sense. They might also want to buy deferred annuities for the inactives and terminate the plan and file for a d letter to make sure that half is handled properly. Is there an attorney involved?

Maybe I'm mistaken but I believe you can fund a SEP and a DB plan. I am fairly confident on that, I just had a SARSEP/CBP audit that passed. It's SIMPLE's that have that rule. The best thing for your client would be to do a 401k plan though because they would be allowed to put 6% plus DB max plus deferrals.

Where is that "like" button again! I do like this one a lot but my favorite comment on this board is definitely "To a hammer, every problem is a nail".

The Boards were much more lively and interactive when 412(i)'s were thriving. Posters like Quint the Shark Hunter were well fed. I spent more time than I should have today reading the old posts, they were fantastic! They kinda remind me of open MEP discussions now. I also enjoyed them because now I knew what was eventually going to happen to them. The irony was that after I did that I had a prospect call who asked me about 412(e) plans vs. cash balance plans and I had to put my professional pants on and I am curious if y'all thought my response was okay. The accountant asked if the deductions were bigger. (Suprised anyone?) I said a better way to look at it was that the maximum allowable benefits were exactly the same, but because fees tend to be higher on insurance products, that they would need to pay more to get there. I also wanted to play nice so I also said that there was probably less exposure to investment gain and loss and that was why the fees were higher. Then I unplayed nice and threw in a 412(i) jab. The broker instantly backed me up after I mentioned 412(i)'s.

Should 412(e)'s be allowed...no. Oh you meant the disability rider. I guess it's been long enough where no one has any past expirience on it. Gut feeling, if a defined benefit plan can allow for disability, I guess I don't see why not. That being said, I am just guessing. 412(e)'s make me sad. Final two cents, you shouldn't be the one making that determination. The broker is making big time bucks off of that policy, have him pay an attorney to get the answer for the client.

Haha, now you're thinking! They aren't looking to ever add to staff so I think the payroll for that participant would probably be more than the tax savings. I am going to start telling my husband-wife plans that if they get divorced they could get a larger deduction. Haha. No, they maxed out Profit Sharing in 2011.

I just recieved a call from a sole prop solo DB prospect who is having a really good year (900k) and wants to max his 2012 deduction. Unfortunately, he already contributed 50k for 2012 in 2012 to a solo(k) plan. Because 50k is over 6% of pay, he would be limited to 31% of pay on a combined basis. I can't think of a legitimate way to get that money out in a manner that won't get him in trouble so he can open a DB plan and get the full DB maximum. Besides the discussion of "is he going for a one year deduction or is it indefinite" which I already had with him, is there anyway to make this work. I'm lost.

I posted something last year about an audit of a plan of this design. It could go either way upon audit. The IRS eventually said that the design was okay but I found out that the auditor's manager and the legal analyst were definitely not okay with the design but the IRS actuary was on our side. I am fine with the design but I always look at the cost savings to see if it's even worth it. I also see no way you can pass testing without a profit sharing plan.

I completely agree with Dave. (Just messing with you David, only Mother Rigby calls him Dave.) Even if you know the rules through and through (nobody does) you never get the full story. This is a topic most ERISA attorneys can answer pretty easily and the fee isn't too ridiculous. I usually send a some literature on the topic to my prospects or clients and give them the name of a good ERISA attorney in town.

I completely agree. Can you also ask about EOY valued DB plans, clarification of 2000-40 in a PPA world (particularilly switching from EOY to BOY wihtout approval), and whether or not a client can file taxes before they actually make their contribution? Any others anyone wants to get answers to?

Just so I can fully understand, do you mean a participant recieved payments smaller than due? I figured that's what you meant but wasn't 100% sure.

I hardly think that the IRS can reference the gray book upon audit. It is a book given out only to enrolled actuaries at a conference and doesn't fit any where in the pecking order of rules that govern plans. Also, funding dates apply to all qualified plans. How is a DC consultant expected to reference this book. Just my opinion though. You can maybe make the arguement (BIG MAYBE) that you can use the Gray book for actuarial topics but that's still a stretch. Also my opinion, I tell clients they have until 9/15 but if they funded on the 17th I'll still put it down on the 5500. If the IRS throws a tizzy it's really easy to reference the code that was discussed in this thread.

§ 7503. Time for performance of acts where last day falls on Saturday, Sunday, or legal holiday When the last day prescribed under authority of the internal revenue laws for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday. For purposes of this section, the last day for the performance of any act shall be determined by including any authorized extension of time; the term “legal holiday” means a legal holiday in the District of Columbia; and in the case of any return, statement, or other document required to be filed, or any other act required under authority of the internal revenue laws to be performed, at any office of the Secretary or at any other office of the United States or any agency thereof, located outside the District of Columbia but within an internal revenue district, the term “legal holiday” also means a Statewide legal holiday in the State where such office is located. I think that your client has until Monday to contribute.

It's embarassing how much this joke busted me up. Thanks for that!