AndyH

You should make sure of the correct interpretation of the document. Some documents base contributions on a percentage of pay, and can be scaled upward or downward from that percentage. For example, a contribution might be allocated prorata based upon 20% of pay for one group and 5.75% for another, but the contribution is insufficient to allocate that, so the percents are scaled back proportionately. Are you sure this isn't the structure? If this isn't the case, you have a probable VCR candidate, or at least have to make APRSC corrections, depending upon the dollars involved, but it sounds like a VCR case. Get a lawyer's judgement. If done before audit, the VCR penalty is probably a couple of thousand dollars max (plus it will have to be corrected).

Is this still the general interpretation, or has anything changed? Isn't the © election almost a no-brainer, unless of course the participant wants to use the (A) or (B) election in the future. Just to clarify, for an employee covered by a 403(B) and a DB, isn't the DB effectively ignored effective 1/1/2000 under the © election, but ONLY under the © election, because it would only be included in the MEA (which is bypassed under the © election), or am I missing something? Comments please.

If a plan sponsored by a sole proprietor terminates 10/31 and Schedule C earnings for the year is $150,000, can pension comp be treated as 10/12 of $150,000, or must it be treated as made available 12/31, with no "comp" through 10/31? Assume there are no large deductions ocurring after 10/31 such as a pension contribution, if that matters.

I checked our system (ACTI). It has several 94 tables but no 93 tables that I can see.

MR With the repeal of 415(e), I don't think there would be any consequence to 415 aggregation, if required, EXCEPT if the © election was made with respect to the 403(B), then there might be an issue to contend with. The 404 limit question is an interesting twist. I wouldn't think they would be aggregated, but I'm not 100% sure of that. I would think the 404 limit would apply based upon the self employment comp alone, without considering the University wages, service, or 403(B).

My reaction is that it doesn't matter whether the 403(B) is an ERISA plan or not. What does matter is whether we are talking about 403(B) and 401(k) deferrals, in which case they are combined for the 402(g) limit ($10,500 in 2000) because it is an individual limit without regard to the source of income. In addition, this assumes, as is apparent, that the person does not own or control the University to make it subject to the affiliated service or controlled group rules, which would not appear to be the case. If the affilitated service and controlled group rules do not apply, then I think the 415 limits (lesser or 25% or $30,000) are entirely separate, but the 402(g) limit is aggregated. Therefore, the person should be able to contribute up to the 404 or 415 limits, but the combined deferrals (401(k) and 403(B)) should not exceed $10,500.

Excellent question. I don't have the answer, just a couple of comments. Hopefully this will generate some discussion. I may be wrong, but I thought you had to have a "reasonable classification" to exclude a group of people. I didn't (and still don't) think you can exclude by name. I think you can specify the benefit level by name, not the inclusion or exclusion of people in total. What I thought you needed to do was to have a irrevocable waiver (provided the plan allows it) in writing before a person becomes eligible; otherwise you have a cash or deferred arrangement. Therefore, my impression is that you have a plan that fails to satisfy the qualification requirements. Again, I am not completely certain of this. This is just my reaction. Commments are requested.

Agreed. Well stated.

How about a related question that there seems to be disagreement on: Does the profit sharing deduction limit get reduced by deferrals of participants eligible for the K portion, but not the profit sharing, e.g. terminate during year? I think not; others think yes.

I had a plan with such an "investment" audited by the IRS. The agent insisted that the taxes, if paid by the sponsor, be treated as a contribution. Looking back at it, I'm not sure that treatment was required, but we went along with it at the time, since the auditor only insisted on this treatment prospectively.

Your colleague is correct. A one person owner/employee plan does not need a bond. I haven't gone to the reg, but the Pension Answer Book cites DOL Reg 2510.3-3.

Just to elaborate on pax' comments, the decision as to survivor benefits (resulting in the reduction) is a separate decision from the amount or the percent of the pension to be split. The former spouse may or may not be named as beneficiary. One common QDRO approach is the "separate interest" approach, in which the pension is divided in two, with each having the ability to have it paid in the form he/she desires. In this case, they would negotiate any death benefits separately, or would be free to do as they chose, i.e. one could have a pension with survivor benefits, one a life annuity. Another way of doing it is that any payments from the plan get split in two. Either way, death benefits would be a negotiated item among the former spouses whether there would be survivor benefits paid to the other, or to anyone else, resulting in the reduction. These issues, and the payment options, should be specified in the QDRO. If not, it may fall short of the standards of being "qualified". The DOL's website has a publication on QDRO's which I highly recommend. I've referred clients to it who have detailed questions.

I agree with pax if there is a request for a statement, but I don't think there is a requirement to issue "an annual benefit statement" in the first place, without a request, so I would think you could issue statements without vesting (if for some reason you wanted to-I don't think it's wise), but would have to provide the vesting upon request.

Thank you for your response, Keith. I tried as you suggested before, but the response was somewhat vague. Reading it again, it was not necessarily inconsistent with your approach, that the lump sum need be considered to the extent that it was based upon a discount rate of less than 7.50%. The response further stated that the applicability of GATT rates was "controversial", but that in the author's opinion GATT rates would not be used unless GATT was the actuarial equivalent basis, which I take to mean used for monthly conversions as well as lump sums. The textbook item which caught my attention was a plan with a lump sum provision based upon 6% and 83 GAM blended. It was not specified whether this was a fixed equivalency or the applicable GATT rate. This was and is unclear, leading to my questions. Anyway, thanks again. The feedback is very helpful.

Any further comments on the treatment of a lump sum provision in general testing would be most welcome. I've received a different answer from virtually everyone I've asked. Even an "I'm not sure" or "the regs are unclear" from those experienced in DB general testing would be helpful. What do others do? This is not a hypothetical question.

Thank you both for the responses. Paul, if I understand you correctly, what a TPA should request in anticipation of determining or allocating a retirement plan contribution is: 1. Preliminary K1 "income"-which line? 2. Amount of K1 "income" subject to self employment taxes 3. The formula or methodology in the partnership agreement for allocating retirement plan contributions for both employees. 4. The formula or methodology for expensing contributions for partners partners (i.e. determining net "income" for allocation purposes). Most plans are substantially more complicated than SEP's. Allocations for many plans must be done algebraically, cross tested plans for example, and all partners are not necessarily covered under the terms of the retirement plan, so I'm trying to identify the optimum procedure, since I have no doubt many such allocations are done incorrectly. Again, thanks for the feedback.

Does anybody have a good data request procedure for partnerships which addresses self employment tax procedure and the allocation of contributions for both employees and partners? My understanding is that partnerships can have in their agreements methods for allocating expenses such as retirement plan contributions. This came up as one of the Q&A's at the October ASPA conference. There are also some circumstances in which partnership compensation is not subject to FICA. Anybody have a sound procedure to address what information to request (i.e. capital interest, allocation procedures) and how to reduce partnership income for employee and partner costs?

Let me know if you want some help with your publication. the missing link

Thanks for the comments, Tom. That's the way I see it as well. It'll be interesting to see how this would be put in a document! I talked to a couple of actuaries after the ASPA Cross tested session. They were shaking their heads and saying how this was more complicated than DB work. Those of us who have done some of this have a big advantage over those who don't understand the concepts. It would be tough starting from square one.

I agree. Where's the dunce cap icon?

Gateway for "super-integrated plans"? Any thoughts on how this would work in 2002 for a plan with a contribution of less than 5%? Just make sure no HCE gets more than 3 times any NHCE? Example, employer contribution is allocated proportionate to 3% plus 10% over $50,000?

I don't think there is a way for a self-employed person without eligible employees. Interesting observation.

Harry O: I appreciate and respect your interpretation, which makes perfect sense to me. I have no doubt that others agree. Your interpretation is, however, directly contrary to that of at least three actuaries, two of whom have expressed their contrary interpretation (albeit somewhat incompletely, resulting in my questions) in ASPA textbooks (C-4 Exam "Current Topics for the Retirement Plan Consultant"). Your interpretation appears to be widely used, however. It is amazing to me that such an old question is so differently interpreted, because the results would be significantly different. Thanks again for the help.

Thank you for the response, Harry O. Your answer is consistent with what I have read and been told by other sources provided that by "subsidized", you mean market related, e.g. GATT rates, but not "plan" rates. For example, if a plan with act equiv of 7.50% and UP84 for monthly conversions , and with no other subsidies offered immediate lump sums using the greater of 6.00% and UP84 ("plan rates") or GATT 5.83% with 83GAM blended ("subsidized rates") and the QJSA at NRA would be $1,000 on an annuity basis, would you agree that the MVAR would be the "plan rate (6%)" lump sum converted back to a QJSA at testing age, producing a QJSA for testing purposes in excess of $1,000? If I follow you correctly, this might not be true if the plan rate lump sum was based upon 7.50% or higher. The example above is a textbook example that started this inquiry.

Well, now I have two answers, one yes and one no, both from highly respected sources. One says the lump sum using GATT is used for the MVAR. The other says the lump sum becomes the most valuable accrual only if the plan specifies a fixed rate below 7.50% for lump sum purposes (presumably with GATT being a minimum), but that the fixed rate and associated mortality would be used, not the GATT amount. But, this same person says this is an area of controversy, so ...... (maybe this explains the lack of comment here). Other opinions would be appreciated.