AndyH

Good questions. Regarding the NAR calculation Look at (d)(2)(i) Consistency requirement "..If plan benefits are not expressed as straight life annuities .......they must be normalized." Regarding the MVAR calculation and the need to convert to J&S, others here have expressed the same reaction, and I happen to agree, that it does not seem to make a lot of sense to convert to J&S if there is no subsidy. The answer seems to be that you need to do it that way because the regs say you need to, not because it makes any particular sense. If you were to keep searching, there has been some discussion of this exact question. One person said he/she was not going to do it that way to which others responded that to do so would be at their peril. Regardless of whether or not you think it makes sense, it does seem that you must do it that way.

I was probably the one asking those questions. I find your question to be confusing. Your third paragraph seems to say convert to a SLA but your fourth and fifth seem to say convert to a QJSA. Apparently in the third paragraph you are discussing the NAR and thereafter you are discussing the MVAR, where any subsidy might be captured. Right? I just thought some clarification might help any responders. Three years later, I've yet to find anything that conflicts with this method (as clarified) but there is clearly room for interpretation so I'd like to hear other views as well. FWIW, I submitted one done exactly this way (it had a 10 C&C normal form) for a FDL and it was approved no questions asked.

dmb, I'm wondering why you are doing the ABPT at all with this weird allocation schedule. How old are the owners? How old are the other participants? This schedule seems to increase EBARS then starts to decrease them beyond a certain age. Jerome probably has a point, but I'm curious first about the rate group results aside from the gateway issue.

If I'm following this (and that is by no means certain), then not separately testing otherwise excludables (including top heavy only people) might result in some people in the rate group test not getting the gateway, which means that you can't test in that manner at all. So you must test them separately. Or am I missin somethin?

When did he leave the IRS? Wasn't it some 20 years ago or so? He must not have been there that many years after ERISA I would think.

Then, as Tom correctly points out, you need to make sure that your plan document doesn't have some language that forces you to do a certain thing, namely bring in more employees. If it does not, try passing coverage by using the Average Benefits Percentage Test. If that fails, you need to correct the failure by an amendment under 1.401(a)(4)-11(g).

Have you considered a "special UL"? Only kidding of course. How about a 412(i)? Oh, late Friday again. We're all jumping at cross testing questions cause they're few and far between at times. My guess is that dmb has a plan that fails the NCT portion of the 401(a)(4) general nondiscimination test. If he can alter his allocations so that they are uniform, then this test is unnecessary because the allocations would qualify for "safe harbor testing". dmb, if this is true, then forget rate groups. Does you plan as a whole pass the 70% ratio/percentage test? If you allocations qualify for "safe harbor testing" and your passes the ratio/percentage test as a whole, you are DUN.

The question is a bit unclear to me but I think the answer is yes. Safe harbor status is only for 401(a)(4) testing. The plan also needs to pass the coverage requirements of 410(b) by passing either the ratio/percentage test, which you say fails, or the average benefits percentage test. But for coverage the plan is tested as a whole. There are no rate groups. Does this answer your question?

nadiarott, CODA is an acronym for Cash of Deferred Arrangement. Under certain conditions, giving people the option to take something or not take something could be viewed as an arrangement subject to testing under 401(k) discrimination testing rules. This is merely a fringe consideration in the situation you presented. That is why I said potentially or possibly. Others can speak more fluently to this issue than I can without brushing up on the regulations. Janet, she meant DB plan.

First, see if your document tells you what to do. Second, consider doing the 401(a)(4) general test. Third, do a corrective amendment in accordance with 1.401(a)(4)-11(g). You need to add something here, not take something away. You could incrementally add contributions so that everybody gets a uniform allocation including bonus.

Thanks, Blinky. Any other opinions? There is some common ground and some differing interpretations apparent.

Agreed. The intent to maintain permanently is sufficient, in my experience. I've always told prospective clients that they should commit to five years, not three, but there really isn't any rule on this as far as I know.

I am not as well versed in the potential CODA issue as many out there are. Perhaps someone else could chip in on that issue.

I'm passing this question along. Confirmation (or disagreement) would be appreciated. Situation: Doing 1/1/2004 valuation. The plan year is 1/1/2004 - 12/31/2004. Plan benefits were frozen as of 10/20/2003. In accordance with Rev Proc 2000-40, the funding method was switched to Unit Credit (was Aggregate). The base determined for the change in funding method was determined in accordance with Rev Proc 2000-40, 5.01(2), as follows. All numbers were determined as of 1/1/2004: AL new method = $328,076 AVA (FMV) = $371,365 Net outstanding balance of prior bases = $0 (because plan was Aggregate) Funding Deficiency = $136,200 Change in method base = $328,076 - $371,365 - [$0 - ($136,200)] = ($179,489) Rev Proc 2000-40 allows a negative base if the method is Unit Credit. Q1: Is this correct? Now, the next problem comes with calculating the full funding limitation. It comes out to $0 as follows. All results are determined as of 1/1/2004 UCAL = $328,076 UCNC = $0 (frozen plan) AVA = $371,365 FMV = $371,365 FFL = $328,076 - $371,365 = $0. (Note, FD does not get added into assets. So now we believe that there is no contribution for 2004 due to the FFL Q2: Is this correct? Now let's look at the calculation of the minimum funding deficiency as of 12/31/2004. Is it just the $136,200 * 1.07? (assuming 7% interest rate). But how does the FFL of $0 fit in? Does it eliminate the FD? Yes. Q3: Is this correct? Thanks for any help.

It is possible that he executed a "242(b) election" during the latter weeks of 1982 if my memory works. Such an election could have grandfathered a later start date of his choosing (back then). People used to elect start dates of age 90 for example. You could revoke such election, but then you were subject to the new rules. (I cannot be old enough to remember this-it must have been in my last life that I saw boxes of these elections). katienny, I recommend that you determine if he was a participant in 1982 or 1983. If not, you can rule this out.

Typically an organization that wishes to switch from a DB to a DC would freeze benefits and participation in the DB plan. If there is enough money to terminate it, then that is what they would do. If not, the plan can generally be maintained in a frozen state until there is enough money to terminate it. Either way, a new DC plan is established and everybody goes into it. Many DC plans have allocation formulas that work similar to the way that employees accrued benefits in a DB plan, that is older employees get more. A target benefit plan, an age-based profit sharing plan, and even a cross tested PS plan all do this to some degree. An age-based profit sharing plan has a different allocation rate for each age. Allocations are based upon points. A point might equal the present value of a pension accrued benefit of $1 at age 65, discounted to the present age. Each employee gets an allocation proportionate to their points. This method can closely reproduce accruals from some DB plans, in particular those of an "annual accrual" or "career average" design.

Giving employees a choice between the two will at some point cause problems under 401(a)(26) 410(b) and 401(a)(4). Plus, I'm not sure if you can even do that without it being considered a CODA. Perhaps you somehow can, but it is a bad idea due to the issues you will face. The typical answer is an age-based allocation in the DC plan. Another option is a cash or deferred profit sharing allocation based upon an age-weighted PS allocation formula. The particulars would depend upon the DB provisions. Unfortunately, I've been doing a lot of these "replacement plan" studies recently. p.s. The model replacement, at least a few years ago according to ASPA's C-4 exam material, was a target benefit plan, although I personally happen to prefer a discretionary design such as an age based or tiered DC.

Very simplistic question. What, if anything, would happen to this debt if a law passed that allowed employers to offer (voluntary only) lump sum benefits at a discount rate of, for example, 7%. Yes, I know of the objections, but what if?

No, there is no recapture provision for NHCEs, only (in limited cases) HCEs. The answer might be different if fraud were involved, however. Here is a link to the limits. In addition to the dollar amounts, someone should check about potential changes to the guaranteed amounts for plan amendments. http://pbgc.gov/benefits.htm

The solution is obviously to set aside a portion of future PBGC premiums in a DC type account and let them be self directed in the stock market.

The GATT/GAR rate is caused by IRC 417(e). This only applies to lump sums. These factors are not required to be used for early retirement annuity calculations. They seldom are. I think the first guidance on this was IRS Notice 87-20, if you want to track the history and origin.

You are correct about the need to offer the immediate annuity in the situation you describe. But, no, the GATT/GAR rate is not normally a factor in the calculation of the immediate annuity. The immediate annuity is ordinarily the NRA annuity reduced by whatever the plan says it is reduced by. If the plan defines actuarial equivalence for all purposes as being the GATT/GAR rates, then it is possible that the result is as you describe, but I believe that would be the exception rather than the rule. The determination of the immediate annuity is plan specific.

Bird's comments are right on. Belgarath's questions are good and appropriate and constructive; I'll leave that to others more knowledgeable than me in such areas to answer, although I'll say that the tax deduction opportunity is a 529 plus. I wish my vocabulary was larger so I could think of another wizard name to give Mr. Burns. He challenges Bird to compare some vague theoretical policy which he admits does not exist. Just throw a little pixie dust and a special UL appears: So some Wizard puts together an illustration. And then the cash accumulation is known, per Mr. Burns' quote above. And just what is illustrated, some guess at a cash accumulation rate? Some guess at an interest rate? Some guess at a an expense charge? What a wonderful wise wizard that must be. But then Mr. Bill chirps in: "Oh, no"; there is a slight hedge So we buy from the insurance wizard on the faith of his projection? Didn't that game get exposed decades ago? Once he gets that illustration he becomes instantly enlightened with the all-knowing's knowedge based upon the look-see of the wizards's projection skills. Unguaranteed of course. Mr. Burns, you did in fact teach me something based upon one of your links. Apparently you are not alone in advocating these schemes. That surprises me. I guess it's just another example of repackaging old schemes.

The FASB's rules together with lack of legislative relief have destroyed non-tax shelter DB plans. And of course the perfect storm was central. This new FAS stuff will just be another nail in the coffin. And I think much of it relates to CPA bias against DB plans which in part relate to not wanting to understand and deal with the FASB's rules.

Well, there you go again (yes, credit to Ronald Reagan). Here is a message board on the subject. Let's see if anybody else is advocating insurance in such a situation. Only one "insurance" thread: http://www.savingforcollege.com/messageboa...TML/008594.html I'm not even necessarily advocating a 529. I think a low or no load equity or balanced mutual fund would do just fine. I just happen to think that life insurance is for death benefits. And there is nothing wrong with that.