AndyH

I agree. But it's the referral sources who are buying into this, not prospects. The prospects don't get that far. The brokers see their own retirement future. And I guess you're right. Let them go as well.

Right, pax, I agree. But the 2% may be the guaranteed return. How do you defend against the claim that the upside may be much higher due to possible dividends, experience, etc. You are fighting an unknown skillfully presented by a sales person. And since your initial deductions were based on 2%, this can (and is) being sold as the best of both worlds, deductions at 2% with real returns of ????????? And regarding the 8 1/2 month issue, yes, that is a concern for some clients. But not for others. How many physicians have you run into that wanted to pre-fund their plans before year end. I've seen lots of them. And, Merlin, yes it is possible to sit down with a client and convince them of your analysis. The problem is that the buyers of these things are not getting to the professional. They are being sold and purchased, not analyzed.

Well, I'm the one who posted that outline, and I'm looking for more of the same. And I agree about the life insurance. But the one that prompted this thread is offered with and without life insurance. Here is it. I have no agenda against the company; I know nothing about it. It it simply came up on a search at google.com. I find it interesting. Comments? http://www.vip412i.com/

Yes, that is helpful, and I agree with everything you've said. It is just that we continue to get bombarded by people interested in these, mostly sales people. So people who used to bring us business are now selling 412(i) plans to their clients. Guess who loses out. I did an internet search and found one that I'm having trouble poking holes in. This one has a variable annuity with presumably dozens of investment choices (not unlike a 401(k) plan with an iinsurance company) . And an insurer guarantees a positive return of, say, 2% no matter what. And I assume that the 2% is the underlying interest assumption. So year 1 and 2 there might be a huge deduction, which later becomes offset if investment experience is positive. And over time I would think that the 415 limit might catch up with the assets if the plan starts at an early enough age. Besides the commissions, which are not indicated in the proposals that I have seen, how does one shoot down the front loaded deduction with facts if the true ultimate investment return is a huge question mark? And, yes, the top heavy issue is there but I think that is easily satisfied.

Then it would seem that your "what if" is answered. I was wondering if the document has the 100 x limit or the "aggregate annual contribution" language. Since the document does not necessarily limit you to 100 x as the incidental limit, you could if you wanted to attempt to justify a higher level of insurance under the aggregate annual contribution approach. That might be high maintenance. I think that approach is in Frank's cite.

I posted a link to a discussion/analysis of 412(i) plans a few weeks ago. We are looking for more analysis. Can anybody point to any? We're trying to find a way to see through the smoke and mirrors.

Merlin, all of these comments touch upon potential problems. I'd be curious to see exactly what the document says. How much insurance should/can be purchased. What are the limits; are there "safe harbor" limits in the document? . What is paid upon death, and how does it flow, directly to the beneficiary, or as a pass through from the Trust to the beneficiary. So, in other words, is there a control to avoid disqualification by paying excessive death benefits? Mike is saying there should be such control, which certainly I agree with, but I'm not sure there always is. I know I've seen agents set up insurance as being paid directly to beneficiaries, which clearly is problematic.

oh no, don't get conciliatory; this battle was getting fun to read!

Yes, I agree if the Trust is the beneficiary, and then it would be a general investment. I guess it depends upon the wording of the document. But I don't see how it is an option for a Fiduciary to maintain death benefit policies that according to plan terms are payable to participants, with such amount violating the incidental limits, not to mention violating the the terms of the plan.

right. that is what I meant. The NRB equals the AB. I know of no exception to the incidental benefit rules for a frozen plan, and I'd be willing to bet that there is not one.

Makes sense; thanks for the feedback. Now a slightly different twist. Frozen DB (post-EGTRRA) and non-integrated profit sharing plan only. No contribution to the PS plan intended. Presumably no contribution required to the PS plan on account of top heavy, right? Without the DB there would be none required, of course.

Merlin, it would seem to me that 100 x insurance would result in an amount equal to 100 x the accrued benefits. I would think that you could keep that and consider it to be incidental, but how would you justify something above 100 x the accrued benefit as being incidental?

Client has DB and DC plans. DB freezes in 2002, presumably not requiring top heavy minimums. Does the DC plan then need to satisfy the DC top heavy minimum, or both the DB and DC minumums? Assume, for example, that the PS includes K deferrals for key employees exceeding 5%. Do non-keys need to get minimums of 3% or 5%?

Well, the firm I work for, before I enlisted, used to have beer and (I believe) pizza on Friday afternoons. I'm uncertain about the dress code, however, though there are picture albums that I have not delved into. When I started, the owner said he wanted to end the "country club atmosphere". The place I worked before was apparently known to competitors as a sweat shop. Gee, talk about bad timing!

Establish an employee-only 401(k) plan and terminate all employer-paid plans or benefits. Employees seem to appreciate that much more, especially if it is valued daily! Oh, and don't forget the loan provision!

Hope their bodyguards, accountants, and other paid entourages are not employees, not to mention housekeepers, gardeners, and nannies!. Q: Can they pay their spouses a salary and cover him/her in the plan?

Imagine doing a general test for a plan with such a NRA? Testing age of 30 or 40? That would be bizarre.

Right. I agree. Put part of it (the db) in time for minimum funding but after the time that it could be deducted for 2002. If the corporate tax return is extended to 9/15/2003, this no longer works, however.

FWIW, just about everybody in this business, perhaps everybody without exception (I know of none), shares Mike's opinion. But I still wish he (DW) hadn't kicked me and my other standing room only colleagues out of the session he moderated at ASPA last October. I told everybody what a "show" he put on, then the "show" was sold out! Something about a fire code! Get there early next time I guess. And a p.s., Mike's (also full) session was outstanding as well. Just like the old ad, when EF Hutton speaks, people listen. We are very fortunate to have his contributions here.

How are the groups defined? Is one of them exclusively collectively bargained people? If so, a lot of your problems go away.

Yes, the spouse and the NHCE in her component plan are being tested on a contributions basis. The one rate group in that component plan is the spouse and everyone in that component plan with a equal or greater employer nonelective contribution (as a percent of pay). So as long as she gets no more than the NHCE as a percent of pay, that rate group is 100% and it passes and avoids the ABPT.

Thank you, Mike. Your analysis makes perfect sense as usual.

Mike, I do not mean to be a pest about this issue but I respect your views immensely. I suspect that my question was not clear enough. Unknown to me at the time, a colleague of mine asked the same question of TAG. Below is the question, and the answer we received. Maybe this is clearer. I have redacted the names. Do you agree? I agree with the conclusion except that I would replace "non key participants" with "HCEs". QUESTION With the changes in EGTRRA, I understand that matching contributions can be used to satisfy the top-heavy minimum requirement and also be used in the ACP test. My question is, does the employer allocation provided to participants who have not received a match, assuming there are HCEs, who did not defer and did not receive a match, and are thus receiving a full 3% employer allocation, now subject to 401(a)(4) testing since HCE(s) are receiving 3% employer allocation, and many NHCEs are receiving 0% or less than 3% since they deferred and received a match? ANSWER Good question. EGTRRA amended Code Section 416 to allow matching contributions to be used to meet the top heavy minimum contribution requirement. EGTRRA did not amend the nondiscrimination rules applicable to top heavy minimums, though. Unless and until we get some guidance to the contrary, the top heavy minimums allocated to the non key participants that are not matching contributions must be tested under 401(a)(4), as an employer nonelective contribution. EGTRRA SEC. 613. MODIFICATION OF TOP-HEAVY RULES. (B) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS. Section 416©(2)(A) (relating to defined contribution plans) is amended by adding at the end the following: ''Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies).'' Please let us know if you have additional questions. NAME REDACTED Technical Answer Group, Inc. http://subscribers.tagdata.com

You can only go back to a date in the plan year, so on February 2, 2003 you could go back to 1/1/03 if the plan year were calendar, or you could run a plan year from 2/3/2002 to 2/2/2003 if you wanted to, but I don't know why you would want to do that except in the old days when insurance plans were written that way, so that the first day of the plan year would be equal to the effective date of the insurance contract.

Pensiondoc, what do you mean by "he was advised to take out as much as he could?". How were his withdrawals determined? Did he make an election as to how his benefits would be paid? If so, did such election also dictate what happens upon his death? Or did he just take the value of his pension divided by a life expectancy factor, which as I understand the IRS now says was never a permissible method (but which was commonly used). Sounds like a real mess. I think you better start with what elections were actually made while he was alive, and how such amounts were determined. You need to determine that before proceeding to the other questions.