frizzyguy

Regulation 1.415-8(1) states all qualified defined benefit plans (without regard to wheter a plan has been terminated) ever maintained by the employer will be treated as one defined benefit plan. This supports SoCal's arguement but I believe that the term "employer" is clarified under 415(h). It states: 415(h)50 Percent Control .— For purposes of applying subsections (b) and © of section 414 to this section, the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1). It is by 415 control group. I believe, and I would love to hear the opinions of others, that if an employer owns less that 50% of a company than that company's benefit isn't part of the 415 controlled group of their 100% owned company. They are the same rules as controlled group for nondiscrimination purposes only 80% is replaced by 50%.

There isn't a table with these numbers but I calculated about 1.4mil as being the maximum. To be honest, I round up more than I would feel comforatble to get 1.4mil. I just did a quick calc though. Nothing offical. Next, how much of the corporation did you own? If you owned over 50% of the corporation than I think I agree you're maxed out. I don't have enough information, nor am I getting paid to give an offical answer. I wouldn't blame your people, these topics are very complicated. <insert circular 230>

Did this seriously happen?

I couldn't agree with this more. Also, if a plan is going to turn foul because of economic or demographic reasons, a good consultant should be able to see it coming and get you out before it's "the biggest mistake" you've ever made. Things happen from time-to-time in a business that has a DB plan and knowing how to manuver them is as important as anything when it comes to consulting.

I was told that they are statutory employees and not common law employees. He instructed me that there is no gray, every practice they do with their agents is to ensure that they stay statutory.

That logical approach, in this case, could get you in trouble. I definitely think that makes sense and was the way I was originally leaning. Here is why I think it's not allowed from a logic standpoint. "Statutory Employees" are generally not allowed, under any circumstances, to participate in an employers retirement or heath plans. They made one exception to this rule allowing full-time insurance salesmen to participate in an employers' benefit plan without violating the exclusive benefit rule. I believe this exception can be found in 7701(a)(20). I did a lot of research and another conclusion I came across was that a full-time life insurance saleperson is not considered an employee of himself or herself under the 'Self-Employed Individuals Tax Retirement Act of 1962.' I found several summaries of this but couldn't find the actual act: http://ir.lawnet.fordham.edu/cgi/viewconte...amp;context=flr There are also some references to full-time insurance salesman in IRC 3121. If anyone has anything more concrete, I'd love to hear it. (Especially if it says they can set up a plan.) I would love to be able to offer these plans to these types of employees but won't do so unless I find something concrete.

This is the direction I am leaning as well. Oh well, it was worth investigating.

That's a good question, they may not be the same company but they definitely are in the same controlled group. It could be an umbrella company.

On his 1099 income which flows through his Schedule C he is responsible for both sides of the SE tax. If this had been any other type of industry I would feel confident it's okay. I find guidance in several places saying that a statutory employee can set up a plan on their earned income except full time insurance salesmen. The logic behind that is because there is an exception allowing them to be in the insurance companies plan where generally statutory employees earned income isn't eligible. But if it's not being used for the plan, then what? This is way too much thinking for a Friday afternoon... I do really appreciate the idea of going through his home office/legal department. Also, that groundhogs day reference is awesome. "Ned, Ned Ryerson <PUNCH>".

I am working with a financial advisor who sells insurance for one company. He is classified as a "statutory employee". He also sells other products but I think insurance and annuities are his principal business activity. (Code Sec. 401©(1)) He receives payment through both a W2 and a 1099. Because of the 1099 he files a Schedule C and pays SE Tax. He is under the assumption (he is going to get back to me) that only his W2 compensation is eligible for the insurance company's retirement plan. Here is my question: Can he open up a DB plan for his 1099 income if this income is not eligible for the other plan? If he got this 1099 income for any other profession than a full-time insurance salesman (at least I think he qualifies as such) this wouldn't be so confusing. Has anyone seen this situation before? I would really appreciate any help I can get. I have researched and researched but haven't found anything too concrete. I was told by an accountant that he thinks it's okay but his confidence, or lack their of, didn't make me feel better about it. Of course, so I can stay ahead of Mr. Rigby, I will be following up anything I tell the client with "but you'll want to check with an ERISA attorney on that".

I agree with Tom. I don't think it is as vague as others say. "(b) Minimum Allocation Gateway Amount. The amount of the Minimum Allocation Gateway is equal to the lesser of (1) five percent (5%) of the Participant's Code §415©(3) Compensation; or (2) one-third of the Allocation Rate of the Highly Compensated Employee with the highest Allocation Rate." They got a non-elective, they need to get a gateway minimum.

Using the at-risk method isn't aggressive. Using the load factors of $700 and 4% may or may not be pushing it a bit.

Yes sir, I don't have a cite off hand but I know the rule exists and I have seen it through audit. You can always use this method but it generally is only bigger, in my expirience, in the first few years of the plan. There is the question on whether you can apply the $700 per participant and 4% load though. I would be curious to see what others are doing with that.

Also, I keep saying 1/2 SE out of habit, I really should be saying the employer portion of the SE tax because of the recent adjustment to FICA that will probably be going away. It is the SE deduction from page 1 of the 1040. I keep stating it wrong, sorry SoCal. Per the usual, you are spot on. Check out ERISA Outline Book, Ch. 1A, Part A, 3b. The whole section is applicable. For the plan formula, you don't take out deferrals but for overall deductions, you can't go over 100% of pay.

The maximum allowable deduction takes into account deferrals but they do not get subtracted for the compensation in the DB formula. Deferrals are NOT a business expense. They are an individual expense.

Arguement? It's not really an arguement. Deferrals aren't subtracted for earned income. They are part of the overall deduction limit though. You can't deduct more than the total of your formula above but the compensation used in the DB plan formula doesn't subtract deferrals. That's why your software doesn't do it.

My office has been through this arguement several times, including looking at switching to beginning of the year. We came to the conclusion of 8/31, it was end of year and therefore wasn't a switch in assumptions.

If they're worried about fees, than wouldn't two plans drive their fees even higher?

I think the main thing is just to make sure the plan allows it. I have little expirience with SEPs and I really don't see that changing.

Haha, you're 100% right. I went chasing after one several months ago during an audit. We thought our client was a non-amender because the advisor who sold and "administered" the plan said there wasn't a timely EGTRRA restatement. We had another issue come up later and the advisor said something to the effect of "I think there might be something in the stack of adoption agreements in the client's file that addresses this"... My response was "Ummmm, what adoption agreements?" I told him to scan everything and send it over and because of when the client changed custodians he had not one, but two timely adopted EGTRRA restatments. The auditor luckily had a chuckle at the advisors expense and wasn't frustrated. I think both ML and Schwab have them. If you want to see your client's face go pale white, show them a quote from an attorney to do an individually designed SEP document.

You can deduct a SEP and a DB contribution during the same year. You may be thinking of the SIMPLE. You have to use a non-standardized SEP proto.

Good call, I was only thinking of the basic calculations. Bringing it back to the original question, if you are projecting one year, I would think you would use 110k for the average compensation in the BOY AB calculation. (Excluding the PUC calculation discussed above of course.) This of course is a plan where past compensation and service is excluded. Then I think you would use 115k (average of 110k and 120k) for the EOY calculation to determine NC. Also, I would use a consistent salary increase assumption. We rarely use one on the plans I work with but when we use one we do a percentage increase. I am assuming that your example was just to discuss the mechanics but I figured I would throw that out there. I have never seen a flat dollar assumption but that doesn't mean they don't exist.

Can you only use pay projected for one year in this situation? I would think that is all that PPA would allow. I could definitely be wrong though. And to bring it a step further, is that only for the projected EOY benefit used for TNC and no projection for FT?

Sorry, I left off a part. 1.401(a)(9)-6 Q-1. (e) is in the answer.

Mbozek is right though, cash balance plans are DB plans. If you are researching how to handle them, they are always DB. The reg I quoted saying you could use the DC method is true of all DB plans.