AndyH

All good points. But consider the age difference between your parents and a 7 year old. Those are two different sets of risk tolerance and perhaps liquidity requirements. So, Mr. Burns, I submit to you that the child's investment should be able to perform at least at 8%-10% if properly invested in equities over a 13 year horizon based upon past history. I challenge you to show me a life insurance product that should be considered instead.

I am not opposed to insurance or life insurance. I just think there are investments and there is insurance and the two are for two entirely different purposes. And when an insurance guy tries to advocate insurance as an investment I get cynical (obviously). What happened to "buy term and invest the rest"? Was that before universal life was invented? What is the average rate of return on equities since the early 20th century? What is the average rate of return on universal life insurance? I admit to being dumbfounded that someone is advocating life insurance as a college tuition savings vehicle for a 7 year old. I am having trouble giving it serious consideration. Effen, do you think that universal life merits consideration under the circumstances? Do others? Teach me something. "High cash accumulation", "guaranteed cash values", "tax fee withdrawals" equal sales gimmicks IMO. What information do such comments provide? If a product performs at 1%, what good does it do to have that "guaranteed"? Or are we feeding off stock market fear? Is that it? The guaranteed positive return. Is that what is being sold for a 7 year old?

Well stated. And, Mr. Burns, you do have a point that you did say "consider". But I still don't understand why it should be considered under these circumstances. Would you advocate an annuity purchase for a 7 year old?

I have never heard even an insurance agent say with a straight face that a life insurance policy is the best long term investment when accumulating funds is the objective. Not to mention for a 7 year old's future college tuition! The reasons are quite simple: 1. Part of the money is going towards death benefits, not college savings. 2. The insurance company wants to make money. 3. The agent wants to make money. And this assumes all the other barriers are removed such as surrender charges, conservative investing, and gargantuan commissions. You listed 8 reasons why it makes sense. None of them fly, IMO.

You would argue that a life insurance policy would be the best way to save towards college for a 7 year old? That merits further comment?

Well, thanks for the response. I happen to disagree with each point.

Why would you recommend a universal life insurance policy, Mr. Burns? I am extremely skeptical, but perhaps I can be convinced.

ERISAfried, how about sharing the background and qualifications of the "consultant"?

Chicken.

Yes, you are describing a benefit increase that would be subject to testing. And it would not by itself pass.

If I may interject. Erisafried, are you of the (false) impression that the arrangement you describe is somehow an accepted qualified plan design that might be approved by the IRS? You are describing a scheme. "Opting in" and "opting out" are not acceptable plan terms for a DB plan. What you describe is intended to be shielded from IRS scrutiny, not submitted for approval. Your apparent skepticism is well founded. I know these arrangements are not uncommon to some law firms, but these terms that you describe are not exactly in the SPD. Setting up one of these things is a business decision that is not without risk.

......plus you are funding for projected benefits including projected participation (subject to the full funding limit of course), not current accrued benefits, so you can perhaps "shelter" more than you can immediately accrue, and accrue it while in bed. What a fun client this must be.

Tom, the MVAR isn't normally part of the NCT or the Average Benefits Percentage Test. It only applies if there is a heavy Early Retirement Subsidy (reduction less than 4% on average if memory works today). Otherwise, it only applies for a(4) testing.

Interesting point. Let's also remember that 50% R/P does necessitate a coverage failure. The NCT is passed, so the ABPT is available. And then you throw in everything but the kitchen sink. Granted, passing is unlikely unless there is another plan such a K plan, but the ABPT gets left out of too many discussions.

Normal cost and IA funding in a non qualified plan? There are technically no assets. That would be one weird animal. I suspect that Bob was younger than the owner and therefore Bob's Normal Cost included a salary scale which never materialized because the plan terminated before he reached NRA but the owner did reach NRA (or was closer). Bob, in that case, the Normal Cost for you would have been inflated and ficticious. So the "surplus funding" for Bob that was "intended" to accrue to him in his later years actually went to the Boss. Either that or the funding was on a level dollar basis and Bob didn't age sufficiently before the plan was terminated. My best guesses.

Yeah, as long as you were not the person who hit Pedro in the head!

I'm not following this. Admittedly I haven't dealt with many terminations in recent years. Blinky, are you saying that an accrued benefit in excess of the PBGC limit can simply be reduced at plan termination because there is not enough money? That is what it sounds to me that you are implying. Just do a cutback because the plan is insufficient, even if it is not covered by PBGC? Please clarify.

Bob, intentionally or not, you were misinformed about the significance of an actuarial cost method, as I tried to explain to you in your other post. You had misinformation or disinformation. What you get is stated in the plan document. It has absolutely nothing to do with the actuarial cost method. Employee contributions are not a good analogy because they are subject to some specific, rather strict rules that do not apply to the situation that you have described. It seems to me that you have some type of employment agreement issue, not a retirement plan issue. You did not understand what you got youself into. You probably need an attorney versed in labor law or employment contracts.

I don't think that is possible. Sorry to say, but I think you've got some facts wrong. Someone guarantees the "defined benefit". Who is the plan sponsor?

I don't think that there is a generic answer to this question. I think it depends of course on the language in the document, and also perhaps on the nature of the classes. Can, for example, an employer arbitrarily change a person from one class to another during the year? If so, then I would lean towards an interpretation of the definition as applying at the beginning of the year, so as to "preclude employer discretion". Also, does the plan have conditions for receiving a contribution, such as a last day requirement? If so, then that is the way I would lean, towards the definition on the val date. But I would try not to make that decision. Lean on the document provider for an interpretation, or better still, explicit language. I'd be curious what the major documents say, e.g. Corbel's. My company has it's own, and the language is ambiguous!

Correct.

A rate group consists of each HCE and each other participant who has an equal or greater Allocation Rate or EBAR. If someone would be an HCE but for the top paid group election, then he is not an HCE and therefore he does not create a rate group, in such case there is no rate group testing for such person. p.s. Oh, re-reading your question, rate group testing does not apply to a 401(k) plan, just a plan or plan component that provides for employer contributions that are not part of an match program, and do not comply with safe harbor requirements.

There are several people on these Boards that promote 412(i) plans. Of course they claim to advocate only the compliant ones. Can we coax comments from one or more of you? I am not going to name names this time, but we have not heard from any of them since the IRS scrutiny started last year. I'd be interested in hearing more about this "material advisor" thing. That could be a useful description of some of the people pushing the abusive ones.

Dave, what do you mean by: ?Under the a(4) testing regs, you are permitted to have a "fresh start" amendment and effectively freeze benefits at a certain point, and index those for comp changes, so except for the question I am raising, it appears that you have an A + B formula, except that A is frozen but indexed for comp 1 year and B is zero. If formula A is in compliance, then it looks ok to me, except for the part that I am questioning.

Just an unrelated tangent to Harry O. I couldn't pass up the chance. I'm working on one of your spinnoffs (very very very slowly for 3 years now). Now let's talk about accrued benefit definitions that I wish were illegal! The most complicated thing I've ever seen, times 12.