AndyH

So which approach is correct? The plan says that contributions are determined in accordance with 1.401(a)(4)-8(B)(3)(iv)©. And 1.401(a)(4)-8(B)(3)(iv)©(1) says step (1) in determining the required contribution is to "Determine the employee's fractional rule benefit (within the meaning of 1.411(B)-1(B)(3)(ii)(A)) under the plan's stated benefit formula as if the plan were a defined benefit plan with the same benefit formula" And 1.411(B)-1(B)(3)(ii)(A) says: "(A) Fractional rule benefit. The ``fractional rule benefit'' is the annual benefit commencing at the normal retirement age under the plan to which a participant would be entitled if he continued to earn annually until such normal retirement age the same rate of compensation upon which his normal retirement benefit would be computed. Such rate of compensation shall be computed on the basis of compensation taken into account under the plan (but taking into account average compensation for no more than the 10 years of service immediately preceding the determination). For purposes of this subdivision (A), the normal retirement benefit shall be determined as if the participant had attained normal retirement age on the date any such determination is made." My point is that in the first sentence it appears that projected average comp is appropriate, but in the last sentence it appears that average comp as of the valuation date is appropriate. And the paranthetical 10 years fits nowhere. So, if somebody is 15 years away from retirement and is earning $50,000 but has average comp of $40,000, which is used for purposes of the current contribution?

Target contributions for safe harbor plans are based upon benefits that satisfy the fractional accrual rule of 1.411(B)-1(B)(3)(ii)(A). The fractional accrual benefit definition there is contradictory in terms of whether the benefit is based upon average compensation at the determination date or average compensation at NRD assuming pay remains constant to retirement age. For someone more than 5 years from retirement age, then, one approach would base contributions on a benefit derived from average compensation, and another approach would use current compensation (i.e. projected average compensation). Two firms, related to a takeover case, are arguing that different methodologies are correct for plan intended to be a safe harbor. Was this contradiction addressed in a Q&A somewhere? Is one correct and the other incorrect, or is each approach arguably correct?

My computer crashed this summer and I lost the file. I'd like to get a copy as well if anybody has it at: ahartnett@angellcompanies.com

Thanks, Merlin. Someone else in my office made the call, so I don't know; I'll find out and see if I can reach her.

Thank you. I agree. But the PBGC told us on the phone that a "consulting firm" would not qualify. They said that the exemption would be for a physician office type of business structure. But in ERISA 4021 the exemption also applies for "draftsmen", "architects" as well as actuaries. But I guess they can't have consulting firms. Our public servants at work. Looks like we have to file the forms and request a formal written determination. Other thoughts are welcome.

Is there any way, short of a formal coverage determination, that we can tell if a company is a professional service corporation exempt from PBGC coverage? Are there any indicators, other filing differences, etc.? At issue is a "consulting firm" run by an engineer with 3 or 4 employees that works for power companies. We are calling the PBGC, but I thought that others might have dealt with this before.

I'll comment because nobody else has. I think this is a gray area but here are the interpretations that I understand to be generally accepted: DC plan testing service is years benefitting which could be years in which an allocation is received or interpreted as years since date of participation. I think you can argue either way. In the case of a DB plan I think you're talking about either years benefitting for 410(B) or years considered in the benefit accrual, although I have seen years considered in the formula even if not part of an accrual fraction (linear reduction for years of service less than x but accrual on participation). I think the testing service you are proposing to use is a stretch at best.

What about the same question for a plan that fails 410(B) on the match but passes on the deferrals? Same answer?

Yeah, spend the time it would have taken you at the beach.

I'm having trouble finding it online, and I don't have access to my research service right now, so perhaps someone else can help in the interim. I think this Notice followed TRA'86 and I think the TRA'86 Blue Book, if you can locate that, may be helpful as well.

I'd suggest taking a look at Notice 87-20, which I recall provided the guidelines to these rules and probably provides the background. I don't remember a time that the 120% did not apply, however.

and alarms ring and red lights flash at the processing center. Then they send you an automatic email if you're dumb enough to give the IRS your email address! oops. Actually it's just the PBGC that asks for your email address, but perhaps they "share" the Schedule B.

My understanding is that it would add to the probability of an audit, though not necessarily cause one. There are certainly worse bad answers. At least pre-EFAST, questions answered in certain manners were tallied on a points system, and if you get so many points, then guess what happens. I don't know if that has changed or not, however. I doubt it.

Any TPAs out there E-Filing 5500s willing to discuss pros and cons? I'm just beginning to look into this. Thanks.

Years ago I had one who's assets consisted solely of accrued interest and principal payments on loans and a 1948 Pontiac.

If it is a life with 5, 10, or 15 years certain as the type of annuity, the document should determine whether or not the beneficiary can be changed. And make sure there was no QDRO done at the time of divorce that might further restrict the options.

That's what it looks like to me from reading the regs. It doesn't make a lot of sense to me that you could cross test accrued to date DC data , but not test that same data on a contributions basis. But it seems to be so. Thanks for the comments.

This does not seem to be available when testing a DC on a contributions basis. Seems to be plan year only. Is that right? And a similar rule seems to apply when testing a DB plan on a contributions basis. Seems to limit you to the current plan year.

Magically well summarized.

I think that your suspicions are warranted and would not be surprised if you eventually find that the calculation was just plan wrong. I'd focus on getting the document that existed in 1988. Such a request should be in writing.

katherine, yes they can. The IRS is now consistently allowing this. Their position may have been different several years ago.

Most actuarial firms have programs that can easily do this. You should hire somebody to do the calculation for you and give you a printout of the details. One thing you might need, however, is a copy of the plan document which presumably says what to do about wages in the years that you did not work for your 1988 employer, and about what assumption to make about post-1988 wages.

Another issue with single person groups is that if someone gets no contribution that could be considered an unreasonable eligibility provision. The consequence would be that the average benefit test would be unavailable for coverage testing. The ratio percentage test must then be passed. This is clearly not a problem if the 0% group is an HCE, but a first year non-owner or someone not an HCE due to use of the top 20% can be problematic if they have their own 0% group. The IRS took this position in a recent ALI-ABA Q&A.

OOPS. My apologies to LWilson et al. My comments about writers cramp and the short answer test were about C-3, not C-2(DB). C-2(DB) and C-2 (DC) have been multiple choice and available on computer for some time. C-3 and C-4 are essay/short answer and paper and pencil only. Sorry for any confusion. But my comments about skimming the FAS#87/FAS#88/FAS#132 minutia were relevant to C-2(DB). That stuff you just need to know the cost elements and the big picture on.

No, they were pretty much replaced by age weighed and cross tested profit sharing plans over the last 10 years. Pre-EGTRRA there were still some limited situations in which they still worked, for old Doctor, young employee settings, for companies having a problem with the 15% 404 limits, and also for sponsors who had terminated their DB plans and wanted to make employees "whole". Targets were at least until recently the "textbook" replacement plan, at least that is what ASPA's programs taught. But post EGTRRA, they are almost extinct. I haven't analyzed it but it may be possible for a small company to save on employee contributions due to the exemption from the gateways. I recall somebody on this board having analyzed that, maybe Tom? I personally have not. But their usefulness is now very limited, and any such small savings is probably offset by the fact that the contribution is mandatory, not discretionary, and the fact that any deferrals to maximize 415 would require a second (401)(k) plan.