AndyH

Sorry, but I couldn't resist a comment. The accountants ought to love such an unresolved debt on the financial statements, let along the lendors.

Sorry to say, but I asked a similar question here several months ago but got no affirmative answers.

Meggie, I think the arrangement you've described is fine if it meets the various requirements outlined here, in particular 401(a)26 and 410(B). In fact, if my memory serves me correctly, there was an article published in one of the ASPA textbooks (C-4 I think) which suggested this approach as a way of addressing the 401(a)17 limit. And I think it was written by Lorraine Dorsa, moderator of this board. I hope my facts are correct, but I think so. You can try emailing her if you don't have access to the C-4 study materials, "Current Topics for the Retirement Plan Consultant" was the reading compendium if I recall correctly. I can confirm the article title tomorrow, at which time I'll have access to my copy. P.S. The multiple plan approach was actually in an article which followed Lorraine's. It was in an article written by Maria Sarli and Dennis Coleman of Kwasha Lipton entitled "Planning Opportunities to Maximize Benefits for Key Employees Under Qualified Defined Benefit Plans" which started on page 579 of the book. The multiple plan idea is not a large part of the article, however.

I remember that 1998 Q&A discussion pretty clearly. I took from that the clear impression that the IRS considers such waivers to be bogus, but that they recognized the problem and intended to continue to look the other way. I know of nothing that has changed that attitude. The rationalization as I recall it was to consider it a reallocation of assets rather than a waiver. P.S. Myatt, why not call Jim Holland. An actuary in my office has called him several times and has always received a prompt reply (and a direct answer to the question posed). I don't have his number with me but I can get it tomorrow if you are interested.

Meggie, please clarify your situation. In your first post, you indicated the person in question was the owner. In your second, you said he was a common law employee. What exactly is the situation and what perspective are you looking at it from? Are you worried from the company's perspective, or this person's perspective? Are you viewing this from the perspective of representing these companies as clients? What is your angle? There are shared employee rules that I have read but cannot recite off the top of my head, but I think this depends upon the person in question's status. Regarding 401(a)(26), do 50 or more employees benefit in each plan? If not, do 40% benefit in each? If neither, you flunk 401(a)(26) if these plans are active. You then have one or more disqualified plans. What could be a bigger issue than that? And, BTW, yes, you are right about 401(a)(17).

Outstanding!

Quick list: 401(l), yes 415 YES. Absolutely Aggregate for aggregate for 401(a)(4): Not necessary if they pass 410(B) separately Biggest potential problem is 401(a)(26) I'm sure there are other issues, but the first one I'd look at is 401(a)(26)

I think you're ok if you pass the ADP and ACP test on gross wages.

Maybe it's me, but this strikes me a little like "No new taxes", (but we're still going to raise the old ones).

Thanks for your comments, Mike. To me, if this wasn't an oversight then it's real fine print. I predict considerable non-compliance with this. I haven't read anything that says that post-EGTRRA top heavy accruals must continue to reflect compensation after the "freeze" date. This change in the law could just as easily have ceased compensation as well as service measurement at the freeze date. I don't understand the logic to this. Why isn't a freeze a freeze? Here's what ASPA's summary said, "A frozen top heavy defined benefit plan will no longer be required to make minimum accruals on behalf of non-key employees." It seems to me that there should have been a "...but...."!

In 2002, a client sponsors top heavy DB and K plans and froze the DB accruals. Aggregated plans are still top heavy. 1. Is a top heavy minimum of 3% or 5% required in the k plan? 2. If the k plan adds a 3% safe harbor nonelective contribution, does this satisfy the top heavy minimum for both plans? 3. Somebody in my office thinks there's a glitch in EGTRRA pertaining to a DB frozen plan, whereby top heavy service is frozen but not the determination of average comp for purposes of the top heavy accrual. Anybody noticed this?

Belgarath, your premise is incorrect. K deferrals are deductible in 2002 even if the db cost exceeds 25% of pay.

I agree with you about the mistake of fact issue, but I would not pay the excise tax for 2002. Absent guidance to the contrary, I'd deduct it in 2002. Even if it were not deductible, I can't see how the excise tax applies in 2002. Belgarath, I don't see how you are going to get guidance on this any time soon, since it's a new EGTRRA issue. Maybe a PLR is appropriate.

Excerpt: "The rate of interest on 30-year Treasury Securities for February 2002 is 5.40 percent"

Belgarath, for 2001, if the plan has 100 or more participants, the excise tax does not apply to deferrals up to 6% of eligible wages. I think it does apply if the plan has less than 100 participants. Go figure. For 2002, deferrals are not counted for the 404 limit, so you can deduct both. I'm not sure if you would lose the 2001 deferral deduction permanently or if it would be deductible in 2002. Maybe someone else can comment on that.

dmb, this is quite common.

Yes, but the employee can only contribute up to the 402(g) limit, i.e. $11,000, not $40,000. Anything beyond $11,000 (or $12,000 if a catchup provision applies) would need to be funded by the employer, and then you might run afoul of combined plan deduction limits. I don't know how a 412(i) limit would work, but for a normal plan the combined limit would be the greater of the amount required to fund the DB or 25% of aggregate eligible payroll. The fully insured arrangement may work the same, but I'm not sure of that. Beginning in 2002, the employee deferral does not count towards the deduction limit, which makes a jumbo DB and a 401(k)-employee only combination feasible, and I doubt that there would be anything prohibiting the DB from being fully insured under this combination.

Agreed, but of course the allocations must not contradict the terms of the plan, and if the plan has an FDL which states that it was approved as a safe harbor, then by extension the allocations should probably follow the regs as well. It seems to me that allocations that violate the terms of the plan may be worse than (or just as bad as) violations due to errors on the part of the prior TPA.

I'll take a look at that, but note that Notice 2001-42 gives you until 5/31/02 (3/31/02 if the plan uses elapsed time) to amend to change the top heavy rules in a DB plan without causing a cutback, on the basis that the top heavy benefit does not accrue until somebody works 1,000 hours. So even if you are right, it seems clear that there is time to remedy it. p.s. I looked at T-5. There's nothing new there. My opinion is unchanged. I think it depends upon the language in the freeze notice and amendment. Other opinions?

Merlin, are you sure about the top heavy requirement remaining for a frozen plan until the plan is amended for EGTRRA? What is your basis for saying that? I would think that most freeze notices either freeze without differentiation of the types of accruals, or the freeze notices cease accruals except as may be required under section ___ of the plan, or section ___ of the Code. Maybe in the second case you might have a point, but otherwise I'm not sure I'd agree.

I can't help you with the spreadsheet, but I can address the comp issue. I don't see how a "fresh start" would affect average comp. A fresh start I would think is normally a transition period where the plan went from a non-safe harbor design to a safe harbor design, and there may have been a recomputation of the "theoretical asset". I don't think this would affect average compensation. If a plan is a safe harbor plan, it must base it's contributions on average compensation. So, I'd focus on getting the 10 year comp history and determining which are the highest five consecutive years. That should be the comp used. Just make sure you are applying the correct 401(a)(17) limits, or perhaps more to the point, see if you can prove that the prior administrator did not. If you want to be specific about what the plan document says about the "fresh start" period, I'll try to help confirm whether or not it is relevant. Also, you should try to determine whether or not the plan is intended to be a safe harbor. If not, there are several ways that comp used could deviate from average comp per the document. I'd look at the most recent FDL for this issue.

I agree, and would guess the employer's deduction is fine. The money is in the hands of the Trustee, so it is no longer a company asset. If a check in the mail is ok, so would a check in the hands of an independent Trustee.

It seems to me that the answer depends upon what the plan document says. Is the match discretionary or required? Is this part of a safe harbor arrangement where employees were told there would be a match, and therefore there is a requirement to deposit a match? What I find interesting is the TPA question. I thought TPA meant third party, i.e. not the sponsor and not the investor. If so, why does the TPA have the check to deposit in the first place?

Thank you. That does seem to resolve the specific question that I needed to address. Having resolved that, I would welcome any additional general information how plan design would help in the event of bankrupcy. I know little of such matters, other than I've been told that a rabbi trust helps dedicate assets to the particular SERP debt, but does not help in the event of insolvency.

I don't want advice. I'm looking for something quite specific. My question is not about the investment product. It is about a product which supposedly insured a SERP participant from loss of entitlement due to bankrupcy of the SERP sponsor. I am told that there was at least one such product which will no longer be available. I am looking for another such product, not a life insurance investment or trust structure. Those items address different issues.