AndyH

Bye Bye Edgar! Yippee!

Since Dad's group is being tested on a benefits basis, a younger person can get a lesser contribution and have the same Equivalent Benefit Accrual Rate. Example, if Dad gets 10% and is age 60, and you test using 8.50%, someone age 59 that gets 9.22% (10%/1.085) would have a higher EBAR, so if you have somebody age 35, they would only need to receive (10%)/1.085^25=1.31%. But because you have the gateway issue, he needs 1/3 of Dad or 5%. Discrimination, no I don't think so. Give all staff the same contribution rate-ages are used for testing only and justify only the higher allocation to Dad. I agree it might be a bad idea to give older staff lower allocations than younger staff but I am not proposing that. They can get the same. Only testing separates them. Is that clearer?

In my opinion, no. The allocations taken into account are the employer contributions made during the measurement period. The measurement period is generally the period benefitting under the plan or plans being tested, benefitting for 410(b) purposes that is. I think the SEP rollover would be handled in one of two ways: (1) ignored because it preceded the measurement period or (2) ignored because it is rollover money, just like any other rollover money would be ignored.

PC, I said 410(a) NOT 401(a). Section 410(a) sets eligibility standards. It lays out diferent requirements. Read the examples. If 410(a) is violated, how you propose to pass 410(b) or 401(a)(4) are irrelevant. Disguising a violation of 410(a) with a 0% allocation group is transparent.

You'd then be aggregating a db with a sep and the consensus of opinions that I have read is that you cannot do so because a SEP is not a "Qualified Retirement Plan" under 401(a)(4).

The son, yes. The owner, NO. Remember, that group is being cross tested, so a much smaller contributon for the 3 staff will be needed to produce the same EBAR as the owner. You've got 22 years of interest to work with, so the 1/3 or 5% gateway (which all NHCEs must receive) would be more than enough. If you give everybody else 5%, Dad can get up to the 415 limit. If the staff gets less than 5%, Dad can get no more than 3 X that.

If the younger 3 staff members have a greater cross testing EBAR, and they should, depending on how much Dad received, then the following will work: Restructure the 401(a) 4 testing group into two groups: Group A is Dad and the three youngest staff Group B is Son and the three older staff Each Group, or "Plan" has a ratio/percentage of 100% so each pass coverage. Test A on a benefits basis. If the 3 staff have a higher or equal EBAR to Dad, then Dad's rate group is 3/6 over 1/2 =100% Test B on a contributions basis. Son has the same allocation rate. His rate group is also 3/6 over 1/2 =100%. Since each rate group passes ratio/percentage the Average Benefits Percentage Test is not needed and the deferrals do not enter the test. This is restrucuring or "component plan testing"

Yup. If you provide the ages of the people I have an idea.

Tom's busy singing God Bless America and is not practicing medicine. (Sorry Kate, I could not resist just once-now I feel better) No, I think Tom was simply highlighting the ambiguity. The clearer the better. Owners vs Children of Owners are fine unless the children don't directly own stock then where are you? That's why TBob's design wins the prize IMHO.

Another angle to this: Would an amount in excess of the 412(l) limit still be deductible over 10 years, as provided under the regs, or was this superceded by changes in the law under EGTRRA and the Technical Correction?

Now I have one of these, non-PBGC underfunded terminating plan. Anything new or any dissenting opinions on the applicability of this only to PBGC-covered plans?

I could be completely wrong, but while I agree that the level ILP method contribution might be higher, the growth of prior deposits might be lower than the growth on non-annuity investments. Combine that with the insurance and "costs" and top heavy requirements and then add the requirements of 417(e) and I don't intuitively get it. But, just a curiosity anyways. Isn't that the gimmick to 412(i), that you can jack up the deduction by assuming a lower asset return? So I guess it depends upon how mature the program is, but these hurricane victims certainly don't sound like they're able to play out the scheme optimally.

mike, I do like the thought of migrating this time of year.

"...my guess is that the cash values would also be greater than, say, the PVAB under the fractional rule in a traditional defined benefit plan" Why might this be? I would have guessed the opposite.

That is right. If the creation of a class and giving them $0 has the same effect as if the class were excluded from the plan by definition then IRS reps have opined that you have an unreasonable classification for purposes of coverage; in such case you would need to pass the ratio/percentage test for coverage testing. So, to summarize, the eligibility definition does not need to be reasonable provided that ratio/percentage is satisfied for coverage testing. Allocation groups do not need to meet the reasonability standard so long as either (a) no class gets nothing or (b) the plan passes coverage by using the ratio/percentage test. Much of this is not clearly written anywhere (actually unless Tom put it in his book-I haven't checked there); it is the interpretation that IRS reps have expressed and generally accepted practice. p.s. which is why requesting a determination letter is a good idea in a situation where you push the envelope a bit

"migrating"??? Maybe that could be useful some day. "Converting" cannot be done. You must terminate the DB and establish a DC.

Both of the last two responses make terrific points.

BTW, if you want to Blame Ted for something else, Blame Him for your probably disqualified plan. You've created an eligibility condition of 5 years of service - a 410(a) violation- for somebody making $50,001. Everybody needs to be in at least one group. Also, I wonder if the use of comp as a class could be challenged as being improperly within the discretion of the employer, i.e. not definitely determinable.

Just another note that you have an HCE who is not active, you do have to be aware of the benefits, rights, and features aspect of the 401(a)(4) regulations and under some circumstances some testing might be needed. But if all benefits, rights, and features are available to all participants on the same terms then that is a non-issue.

COPA CABANA Can't anybody ever be serious? It's the steering committee of the fan club, obviously. http://www.barrynet.com/

Right. You have the normal issues to watch for, e.g. top heavy, 415, 404, and the plan document must support the groupings and allocations. But you have no a(4) or 410(b) testing.

Cross testing is one method of satisfying Reg 1.401(a)(4), which states that a plan cannot discriminate in favor of HCEs. If a plan has no HCEs then it does not discriminate in favor of HCEs therefore the requirements of 401(a)(4) are satisfied without the need for cross testing or any of the alternative testing methods.

Evidence, no. An opinion, yes, that your comments sound right on. What you describe does not jive with what I have heard described as reasonable, and it also smells of the abuse that resulted in warnings issued about "short term employees" and such about a year or so ago.

I actually had a much less sinister thought process in mind (for once). I handle a plan that is a spinnoff from a plan (trekkies think "Viger") that must have travelled the universe including the yellow brick road for quite some time because it managed to absorb every kind of optional form of benefit know to mankind as it presumably acquired more and more plans and attempted to maintain each option. Clearly this was at least in part a very dark forest because some of the forms are brutal. A real collection from hell including levelling options on each form, often payable at different starting dates, etc. (with all kinds of early retirement provisions and bridging conditions) And some of the provisions involving dates seem to require a decipher key to understand. My thought process is who would want to administer this? Surely no investment company (e.g. Fidelity) would be able to fit it within any kind of normal document or administrative platform. Along come these regulations that look like a godsend. The investment house is my Wizard for the moment. With their lobbying powers maybe they have created an ability to prune away some of the more nasty denizens and debris. Or maybe there is an open field day for flying monkeys to take away some of these provisions by such and such a date. But look to the detail of these regs and they don't have much beef at all to them. In fact they are quite wimpy. Time to get back to work on that case. A couple of Board members are familiar with that of which I speak.

Those regs do not allow any plan changes such as suggested here. Those regs simply allow disposal of some options that are similar to others. Kind of like a company follows the yellow brick road and picks up and merges plans of subsidiaries along the way and wishes to shake off some of the collected de minimum debris. They can'd ditch the scarecrow, just the bugs that accumulated on both the scarecrow and lion so that they can fit into the Wizard's platform.