AndyH

It is the prior benefit structure rules of 401(a)(26) that is the issue being referenced here. A frozen, sufficient plan will at some point violate the prior benefit structure requirement. I'm not fluent enough to explain this in detail, but I believe that this rule is violated once the number of participants with accrued benefits in a frozen plan (that is not underfunded) drops below the 40% or 50 employee threshhold.

It was in a 2001 Q&A session by the ABA's Joint Committee on Employee Benefits. It was in Benefits LInk's newsletter. I had a link to it but it has changed. A search of the ABA website might locate it.

Sure. Why not. But of course it is not an issue of "can", it's "must".

Merriam-Webster online dictionary: entropy: 1 : a measure of the unavailable energy in a closed thermodynamic system that is also usually considered to be a measure of the system's disorder and that is a property of the system's state and is related to it in such a manner that a reversible change in heat in the system produces a change in the measure which varies directly with the heat change and inversely with the absolute temperature at which the change takes place; broadly : the degree of disorder or uncertainty in a system And that came to mind? What kind of mind does that come to! But this word did describe the state this thread at the time.

Isn't Mike saying that if the plan is not top heavy, then 1% is not needed? And aren't you saying that 1% is needed either way? I don't know what that language says. I thought I did but now I don't. The cite is too painful to read (not to mention find!) so I was hoping one of you can explain it so I didn't have to read it again! How much of our tax dollars were spent devising that provision?!!

Now I'm confused. Tom, your last sentence lost me. perkinsran, you are passing the general test because you have younger employees that have a higher EBAR than the owner with 15 YOS, right? If that is what is happening, this design looks like a pretty good idea to me with enough people to make it not top heavy. Might be something that would work with a nonprofit with some HCEs.

The deferrals go into the ABT but not the Nondiscriminatory Classification Test, which is kind of what your second sentence says. P.S. But the ABT is often not needed anyway, if each rate group in the NCT passes the 70% ratio/percentage test. In that case, the deferrals are not in the test at all.

Effen, you may find this useful: http://www.americanbenefitscouncil.org/doc...s/aa-022704.htm

Good question. In my office we refer to this question as whether or not to use the "chop method". Sal Tripodi did an outline with suggested cross testing language a couple of years ago and it touches upon this issue but simply says that this is a matter than the document should address. Guess Cobel's doesn't. Neither does ours. Maybe the answer is "What do you want the answer to be?". Not a good answer but I don't have a better one.

WOWs are hard to come by. They usually follow wildly erroneous comments by persons claiming vast experience and knowledge, and who frequently are associated with products such as 412(i) and/or annuities. Hmmmm.

Kirk, my quick read of that said that a cash value could be treated as fair market value provided that the cash value is at least equal to the sum of premiums paid plus certain interest and dividend credits , less reasonable mortality charges and other reasonable expenses. That seemed to be addressing a springing cash value situation; that is not what I am dealing with. But I also read that as support for use of the cash value provided the minimum criteria is met.

And how would I get a more thorough sampling? It seems to me that an insurer assigned a value to something that appears (from comments thus far) to be reasonably reflective of the market value. If it is reasonable, what might the basis be for arriving at a different conclusion?

Just thought of this one. Kirk, you'd be a top nominee if you went by Captain.

Excellent variety of feedback. It would seem that the stated CSV is appropriate. Thanks, all.

Got it-finally. Thanks. Buried is right. Agreed on the need for 1% if top heavy.

I don't see that subsection. Is the cite correct?

But, Mike, calm down; everything's fine. Smooth and easy. The agent who sold these single premium policies (and a couple of dozen others) to this plan has moved on and it's in my hands. Now he sells 412(i) plans full time. He's been awful busy. Seems to take summers off, though. Nice boat.

All right, Blinky. Post your "Big tax bill" document here and we'll chow down and give our takes.

But where did you get your name? We're always looking for award nominees.

That is an interesting approach. Thanks for the comments.

What I am trying to get at is does do the cash value figures make sense relative to the face amounts ($400,000) and apparent rates of return 3%-5%+, or do these policies appear to be more valuable than $72,000-$100,000. This is a little like a non-FDIC CD paying 3%-5% + but in addition, it will pay $400,000 less the CSV upon death, and the insured are in their 60s. Plus I happen to know that they worked in a toxic area. Maybe that is the source of my bias. I guess I'm asking if these have a higher actuarial value than the CSV. I'm not familiar with the inner workings of life insurance policies to understand whether or not a CSV has some correlation to the face amount and life expectancy. I assume that it does.

I'll comment since nobody else has. I haven't worked with this much, but at a glance it might be ok in terms of avoiding the gateway. But you still need to test. How are you going to pass the general test? I would think that the demographic would need to be unusual.

csk, that may be relevant to your question, but not mine. That deals with contracts that suddenly go "boing boing boing" after being distributed. Gee, what could that be? Interesting, though. Thanks, LD.

I have a related question that I'd love to get comments on. Takeover insured DB plan loaded with insurance. Plan is being terminated. Three company principals all around age 62-65 had single premium policies issued years ago. Each has a face value of $400,000, has a cash value between $72,000-$100,000 and the cash values have grown 11%-12% for 2001, 3%-5% for 2002, and 3%-5% for 2003. I don't have the policies so I have no further details other than the name of the insurer and the contract numbers. Participants are considering purchasingm(or taking a distribution of) the policies at the quoted cash value. This seems like a no-brainer for the participants. Do these cash values, with these increases and no future premiums make sense as a valid sale price from the plan's perspective? Forget the incidental and possible discrimination issues. I'm focusing strictly on the three policies for now.

flosfur, I am not familiar with the 250% owner/$100 employee example that you reference. I'd be interested in exploring it if you wish to elaborate. And it would be useful to know who the originator was if you know, as that may lend some insight.