frizzyguy

Both. The answer to this questions is found in section 1.401(a)(9) Q-1. If you are distributing the entire Accrued Benefit as a single sum, you can use the DC method. If you have a 5% owner and you don't want to completely force them out, pay them in direct annuity payments and take this into account when calculating their cash balance. I would be interested to hear if others are doing this differently. "(e) If distributions from a defined benefit plan are not in the form of an annuity, the employee’s benefit will be treated as an individual account for purposes of determining the required minimum distribution. See §1.401(a)(9)-5."

I was exaggerating my situation but he's in a pretty aggressive asset mix. We told him what might happen. Maybe I should offer an ALM study for him!

I'm right now working on a one man plan who is 70 and has assets are completely in stocks...errrr a stock. My ALM expirience is from a past life and is more academic than practical.

I think the idea is not to completely minimize volatility but is a calculated way for a large pension plan, who has the law of large numbers on its side, to take on risk to allow the assets to do a bit of the heavy lifting. I don't think that this is necessarily as remote as you might think, again, only for a large plan. I think that duration is a pretty sound concept. There are actuaries who only speak greek everyday because obviously someone thinks this idea must be kinda right? (Greek, get it!)

I agree with J4FKBC. If you bring in a term, make sure they aren't 0% vested. That might get you in trouble.

On larger plans, actuaries will perform an asset liability model where they duration match liabilities to investments. This is a very expensive project though and it needs to be reviewed with the client. Also, this is only a suggestion and then the broker and the client would move the assets where they feel is a good fit. I don't know if that would make you the fiduciary if you perform that project though. That's like giving the client a recommended contribution with their valuation report. That being said, I'm in agreement with the British actuaries. Just curious, do you know how many DB plans does this particular broker works with?

I don't think he implied anything! I'm going to choose to not bet, I have to save all I can for March Madness!

I think 1, 2 and 3 should have been elected already so you shouldn't need to do it again if not already done for 2008. That being said, I think it couldn't hurt to do them every year. We have them on our election form because it's easy to do. If you were changing them then you would need a new election. I don't know much about that though, we have a lot of clients and we have never had one change these assumptions. Without an election for 2008 and subsequent years, the IRS has defaults. I believe they are a 0 month look back on segment rates and assets at market value. I have seen three audits where this form was not completed and non-defaults were used and the IRS has been very lenient and allowed them. Numbers 4, 5 and 6 are really only needed if you are reducing the carryover, using the COB or PFB, or having excess contributions increase the PFB. Those same three audits also had issues with these. All three were "forgiven" and they allowed us to use them. I was told that for 4, 5 and 6 that there are many instances of this not being done and for 2008 and 2009 (those were the years under audit) that the IRS was going to be forgiving but going forward that the IRS was going to start taking a more firm stance. It sounds like your situation is a takeover and the new actuary is saying they are non-compliant and that the old actuary is saying they are compliant. Have fun with that.

What does the document say?

It has always been my belief that you need to do both simultaneously. Get ready to turn on iterations in excel to figure that out! I believe that the maximum that can be contributed to a profit sharing plan when a DB plan exists is: .06 (Gross Income - 1/2 SE - DB Contrib - DC Contrib) = DC Contrib And I believe that the plan compensation for the DB formula needs to be: Gross Income - 1/2 SE - DB Contrib - DC Contrib = Earned Income for DB formula The way I have been told to think about it is for a corporation, the corporation takes the deduction for the profit sharing and the defined benefit and then it passes through to the owners income. I think the easiest way to perform this calculation is to tell your client to make over a million dollars and then don't worry about self employment income calculations. Insert the 401(a)(17) limit and run your calculations that way. Please let me know how that goes over.

Thanks Mike, I appreciate the comment. Here is a link to the paper you were talking about: http://www.soa.org/library/newsletters/pen...0-maclennan.pdf

I like this method. I would think anyway to measure and adjust for the "over-payment" method that seems reasonable would probably fly with the IRS. Before I read SoCal's post, I was thinking compute what the 5.5% lump sum would have been, divide it by the lump sum paid and then divide the AB at NRA for the first plan by this percentage. SoCal's method is a lot cleaner. I tried researching this a bit and then gave up, did anyone find anything concrete on how to handle this situation?

I think it depends on the employer. Most of the DB plans I see with that demographic would gladly give that out on a tested basis. The owners are usually older and make significantly more. That's not the only case though. Is this a 2011 end of year val? Would funding relief help in this case? Check out notice 2011-3. What part of the shortfall amortization is attributable to the currect year? http://www.irs.gov/pub/irs-drop/n-11-03.pdf

What are the effects of overfunding the plan in this scenario? How many people are in the plan? What percent of the PVAB belong to owners? Are the owners at 415?

You'll have to ask your client after the audit how much money they saved by moving admin in-house.

Is your "variable" piece by chance a cash balance piece? Some statements, especially for Defined Benefit Plan that converted from a traditional defined benefit plan, might have an approximate straight life accrued benefit portion. They might have the variable piece (cash balance peice) projected to your normal retirement age and then converted to an annuity. The variable portion of the plan, most likely if it's frozen, could actually go down depending on actuarial assumptions and interest crediting rates. You're companies 5500 is public domain. Go check out that. If can be found at "http://www.efast.dol.gov/welcome.html". I don't think your CFO is hiding anything from you, I would try HR first. They can probably very easily get you the answer you need from the administrator of the plan. Not sure what you mean by "how do I quanify the risk"? If it is a cash balance plan, the definitely determinable piece is the lump sum. In theory the accrued benefit will go up every year but in a bad market, the projected annuity might go down. I hope this helps.

You know me too well! I would stay away from naming individually but that's just me. I see lawyers using individually named groups quite often. If you can easily avoid it, I would. I know for certain others don't feel the same way I do.

I think we have gone in several different ways with this and I think I am a bit confused. Gary, are you telling me that this is a DB plan combined with a profit sharing plan? And do all employees get a benefit of some sort, either profit sharing or defined benefit? (Please note, profit sharing and NOT deferral only.) If that's the case, then I believe that this thread could have ended right away with a simple, "you're 100% covered". Passes covereage, now onto non-discrimination. Sorry if I'm misunderstanding, that's not the first time that's happened. And if you're just asking how to break them into groups to target employees, there are many, many ways to do that.

Hi everyone, I have a client who hasn't made their 2009 or 2010 minimum required contribution. We told them they could have their account fill this out for them or us, they chose their accountant both years. After the 2010 missed payment, they had a compliance check performed by the IRS stating that they should have paid an excise tax. If you can believe, the client never paid their excise tax. I know, knock me over with a feather. On this form, do we have them pay 10% of line 39 from the schedule SB or line 40. Line 39 is the 'Unpaid minimum required contribution for currect year' and line 40 is 'Unpaid minimum required contribution for all years.' I have looked and looked and can't find anything. I asked around, get shrugs and guesses but know one knows for sure. And the instructions for the 5330 are the least helpful item yet. Does anyone have a cite to how this is filled out? Frizzyguy

Also, can we assume that this is for a non-PBGC covered DB plan? If the DB plan is covered by the PBGC than if you contribute 15% into the DC plan you can contribute the DB deductible maximum into the DB plan. The combined plan limit doesn't apply.

If you put in 15% into the DC plan, you can put an amount equal to 16% into the DB plan. This 31% is the deductible limit.

You may have been saying this but I just wanted to spell it out one more time. If you contribute 6% or less to the DC plan, you can contribute up the individual plan defined benefit maximum in the defined benefit plan. This limit when combined with the 6% to the DC plan is, often times, greater than 31% of pay. Also, the combined plan limit only applies to plans NOT covered by the PBGC. If a plan is covered by the PBGC than feel free to deposit 25% of comp to the DC and the maximum to the DB. Am I forgetting anything here?

We have have had one returned, I would recommend updating them if at all possible.

Howdy all, With the 2011 form not released yet, are others using the 2009 form or are they going to wait for the 2011 form? Internally we have to different arguements. Some say wait and others just want to get the form our the door with the 5500. Any opinions by others would be helpful. Also, does the IRS have any offical guidance on what to do when there is no current form to file? Thanks, Frizzyguy

Apparently the reason for the extremely long and drawn out audit was because the legal analyst and the actuary couldn't come to a conclusion. It finally ended and in our client's favor. Way to go field actuary I guess. They came with three "cautionary tales" though that we should be aware of: 1. If another employee is hired, the number of employees that recieve a meaningful benefit will need to be increased to pass 401(a)(26). (DUH!) 2. They stated that if the bank where the money was help ever defaulted that only 250,000 would be backed by FDIC. (It's one of the largest banks in the country, if they go under, our country as a whole needs to worry. Even the client laughed hysterically at that point.) 3. They stated that the AFTAP in the actuarial report should match the SB. (It's an end of year valuation, if you tell me how to factor in their current year deposit into the val, we'll make it happen. AKA, give us EOY guidance.) It was long, painful and drawn out but it's over. We stated that code trumped regs and we also stated that we wanted the offical position of the IRS on this issue. Whether it helped or not, I don't know. If this issue comes up for anyone else, personal message me and I'd be more than happy to share trade secrets. In another funny point, I got a call from the auditors manager to get a review of the auditor. I was nice and professional but boy I didn't want to be!