AndyH

B, the owner's plans are aggregated if he/she owns more than than 50% of newco (this is a modification of the controlled group rule) From the IRS audit guidelines: "IRC 414(b), ©, and (m) provide that for IRC 415 purposes, all employees of all corporations which are members of a controlled group of corporations, all employees of trades or businesses (whether or not incorporated) which are under common control, and all employees of the members of an affiliated service group are treated as employed by a single employer. IRC 415(h) provides that for purposes of applying IRC 414(b) and ©, the phrase "more than 50%" shall be substituted for the phrase "at least 80%" each place it appears in IRC 1563(a)(1)."

The question seems to be (I think) can $300,000 earned in 2014 ever be worth more than $260,000 and the answer is NO, under current law.

No, for an active, the benefit may not exceed the high 3, period.

Belgarath, the benefit at NRD is not relevant for a PPA valuation. It is the benefit accrued or accruing in the year of the valuation date (depending if BOY or EOY) that drives the numbers. You can have a formula that results in a benefit of $2 billion but the benefit that counts for funding purposes is limited to the benefit accruing in the current year (or prior years if past service is granted), but it is still limited by 415. Look it another way. The plan might say that comp starts at DOP which would produce an average of $255k but the benefit is still subject to 415 which requires the use of the high consecutive 3 if there is one.

Agree

Well, what if the plan credited actual earnings, or some equity index and the result was a one year huge rate. If you were locked into that forever the cost would be bizarre. And on the flip if the return tanked the participant would lose big time. Either way that would be a result of the decision to terminate the plan.

Assuming the interest crediting is a floating rate, the language seems clear that it is the average during the 5 year period ending on the term date, so wouldn't that be your first proposed 4/12, 8/12 solution? But if this is an amended, fixed, rate it would seem that the answer is 6%

Unless I'm missing something, Lou is right and AtA's suggestion would confirm that.

For what? ditto Huh

Thanks for the additional information. This is consistent with my memory. I don't understand the Gray Book SB link even more now. But, yes, we all know or should know this is not our call.

Thanks. Reluctantly agree.

Thanks David. Someone else tells me he heard the IRS say it must be on the SB - not sure if it was this same Q&A being cited or not. That interpretation seems like a stretch to me though since it is deposited in time to be deductible. Didn't they used to say the tax year designation could be via either tax return or SB, and they don't have to necessarily be the same? Also, this seems to contradict the "includible contribution" or "flip flop funding" schemes if for example the tax return were filed by 4/15 and the deposit was made 9/15. Or maybe it was the flip flop advocates who had it wrong. Or another case would be when the plan and tax years are not the same.

2012 Calendar year DB sponsored by a self employed person who's tax return is on extension to 10/15 2012 Minimum Required contribution $0 2012 Maximum Deductible Contribution $400,000 Contribution is made 10/1. Is it deductible for 2012?

Almost certainly not unlikely.

This is a bit vague. Maybe. Probably. Maybe not if the participants are under 21 or have less than 1 year of service. Maybe not if the plan can be tested on a contributions basis. Maybe not if the annuity value of the CB satisfies the gateway requirement. Maybe not if the plans can be considered primarily DB in nature. Need many more details.

Belgarath, It sounds to me like the subsidy is not required to be included in the lump sum in this particular case. Andy, I don't see the revenue ruling that you cited as affecting the lump sum. If a participant makes a benefit choice, and establishes a benefit option and current annuity starting date at time of termination, I think the Revenue Ruling no longer applies by choice of the participant. I believe that it is when the participant defers an choice, such as through default to a deferred annuity, that the subsidy needs to be built in to the future annuity, either as managed/administered by the insurer or by outright granting, through plan amendment, the terms that the participant would have had to meet, e.g. x years of service.

The averaging of the DB accruals only applies to participants who benefit under the DB plan. 1.401(a)(4)-9(b)(2)(iv)(D)(3) So anyone that does not get a DB benefit must get the 7.50% PS.

The plan in the Gray Book states that the lump sum is the greater of the immediate or the deferred. The original question does not seem to pre-suppose this. Clearly if the plan states that the greater of immediate or deferred is required, then 417(e) must be satisfied, and 1-4 must be checked. The issue I am bringing up is whether the plan must state that the immediate is considered. If it does not, if the plan says that it is the deferred only, is that ok? As far as I know it is.

I think 1 and 2 are required, but not 3 and 4 unless the plan so states. Having said this, I was once told by an actuary that I respect that an IRS regulation (I don't remember the cite) does require 3 and 4. I never found it. Has anyone else?

As Calavera mentioned, this is a 4062(e) issue. Once notified, PBGC will smell blood in the water and have a 4062(e) field day. You should educate yourself, then the client, about 4062(e). It's a big ouch.

P.S. After quite a bit of time researching this issue, in particular my question #1, I have learned that the election forms provided by the insurer need to be "modified" by crossing out "annuity' wherever it exists in order to facilitate transfer to a non-insured inherited IRA. In other words, the forms issued by a major insurer were, in my opinion, grossly misleading. I would bet that no more than 1 out of 100 people would transfer the money to a non-insured IRA based on the options presented on the election forms. In other words, thank you all, the answers provided in this thread were correct, and I could find them nowhere else. (I confirmed my conclusion with an inside contact who works at the insurer. He said the forms needed to be modified. The customer service people would not or could not answer any of my questions)

Thanks, I have the same observations on each point.

Thank you for the comments. Very useful.

Non-spouse beneficiaries (2) inherit Individual Retirement Annuity from person past 70 1/2 and receiving minimum distributions. Annuity was long term, and was crediting 4% interest currently. Not a lot of money, about $50,000 split to two beneficiaries, both in high tax brackets unlikely to change soon. Beneficiaries in late 40's. Options presented by insurance company seem to be: Immediate payment and taxation Five year deferral of total but annual Minimum distributions required Transfer to another Individual Retirement Annuity Some type of conversion to an annuity over beneficiary's lifetime with the existing insurer The distribution paperwork is of course full of sales nonsense and legaleze, and is very unclear. Questions: 1. Transfer to a non-annuity IRA does not appear to be an option. Is this true, and if so why? 2. If converted to an annuity over the lifetime of the beneficiary, is this like an individual fixed immediate annuity where the insurer prices the annuity however it chooses, including interest, mortality, expense assumptions of it's choosing? 3. What other considerations are important to minimize taxes, commissions, and maximize return?

Well, still hoping for comments on this. The 2011 Gray Book says that the annual method must be used. But I don't find the explanation convincing if each employee is being handled consistently. Opinions? QUESTION 12 Nondiscrimination: Equivalent Allocation Rate for Cross Testing Gateway Under the minimum aggregate allocation gateway of §1.401(a)(4)-9(b)(2)(v)(D) for cross-testing an aggregated DB/DC plan, equivalent allocation rates under the DB plan are added to allocation rates under the DC plan. Must these allocation rates and equivalent allocation rates be determined on the annual method? Or can they also be determined on the accrued to date method? RESPONSE The annual method must be used. §1.401(a)(4)-9(b)(2)(iv) requires that for purposes of calculating aggregate DB/DC allocation rates, a consistent approach, including the same measurement period, must be used for all employees for the plan year. The description of the minimum aggregate allocation gateway in §1.401(a)(4)-9(b)(2)(v)(D) refers to the definition of the aggregate normal allocation rate. This is defined in §1.401(a)(4)-9(b)(2)(ii)(A), for the DC plan, by reference to the definition of allocation rate in §1.401(a)(4)-2©(2), which requires the use of the annual method.