rcline46

As I suspected. The plan is top heavy, is not subject to PBGC now (owner is only participant) and probably not a PBGC plan when ee is no longer excluded. An of course I do not know the 1/1/2009 funded status, but with the market may be underfunded. SOOOOO... The plan cannot be frozen and survive 401(a)(26) after 2008. THEREFORE, the only solution is make a VERY SMALL benefit formula effective for 2009 and either use wearaway or A+B. Thank you all.

Belgarath - that is ok for 2008, but in 2009 the employee is no longer excludable. It would appear that even the frozen plan is now in trouble. For example, if there are 100 eligible employees, the DB plan must cover at least 40 employees (even if frozen) (as I understand the rules). This 40% rule breaks down at 2 employees and the plan is required to cover both. My concern is that even if frozen, the 40% rules still apply in 2009, and the plan now fails (a)(26). Have I misread the rules?

Only plan participant is the owner. The only employee will become eligible on 1/1/2009. Eligibility is 2 years based on hire and anniversary of hire, nearest anniversary of plan. Owner wishes to do a hard freeze - no benefits will accrue and no new participants. 401(a)(26) says if only 2 employees, both must participate (benefit) under the plan. Can this plan be frozen?

I think Q and Gburns missed the boat. It was NOT deducted twice, it was SENT twice. The employee is unaffected, only to Co. bank account. Now next payroll comes around. Some defer the same, some more, some less. How do you reconcile? A. Liquidate the shares purchased with the extra payroll deposit, co. takes the hit. B. For those who are same or deferred more - don't deposit - employee gets loss due to timing. (Those who deferred less, carry forward some more). I think the correct way is to liquidate and co. takes a loss.

The other employees are covered under the rules of the plan, no EZ. No contribution for 10 years? This is a terminated plan unless the owner can prove no profits or other hardship caused by contributions.

Typical USAF, new kids on the block. Correct term is SNAFU.

It is my understanding that you CANNOT do shifting or borrowing if the ADP test fails. COrrecting the ADP test does not make it pass, it is still a failing test. You might want to review the ASPPA/IRS Q & As about 4-5 years ago on this.

If the large bundled provider is willing to indemnify the plan against all possible penalties, then take the deal. If they won't indemnify the client, the their advice is worthless. Have the client's attorney review the rules which allow three year testing.

In a 403(b) plan the entry date for deferrals is immediate, you cannot have a 90 day entry unless you are speaking of employer contributions only. Therefore, the otherwise excludable does not work. Hope you are not over 120 AND the DOL gives you the 80-120 rule.

Why not covert to a Roth IRA and avoid the hassle of MRD's again when he takes distribution from the 401(k)?

A FINAL Form 5500 would need to be filed for the plan year in which all of the assets left the plan.

When you have dual eligibility rules, your coverage and non-discrimination testing must use the least restrictive rules. Therefore, if you let the docs in, when it comes to 410(b) and 401(a)(4) testing, you must include those not yet eligible as -0- in the tests.

You cannot amend retroactively. Amend for the existing or next plan year to have a short year. That is if your plan year begins any date prior to 9/11/08, you can now amend for a 12/31/2008 year end. If your plan year ENDS any date from 9/12/08 to 12/30/08, wait until the plan year starts and then amend. It is not necessary to change the year end, but it will make life easier.

Just remember that for testing purposes, you have no eligibility for anyone. Could make testing interesting.

An estranged, un-cooperative spouse does not mean 'legally separated' under the regs. I agree on this. However, the couple could be legally separated and someone who thinks a spouse must always sign would be missing a possible exception. The TPA needs more information.

Also check the exceptions to needing spousal consent. There is one for 'legally' separated couples.

Setting up from the retroactive DB service still gets me into the PPA problem of benefits accruing this year, especially for the owners. That is how my initial run was done. A bifurcated (split) profit sharing account might work. It would be most interesting doing a BOY db valuation against an EOY profit sharing contribution which is unknown and discretionary to boot! There is the possibility of using a 5% Top Heavy contribution in the profit sharing as the ONLY offset. I think that is acceptable under the offset regulations even if the HCEs are getting a bigger contribution (did I mention the profit sharing is a new comparability plan?). It seems you both are agreeing that PPA does have that unfortunate affect on start-up floor plans with an existing DC plan. No cost for a year or two and BOOM, costs jump in!

Since the value of the benefit cannot go down, how about making sure the doc allows a suspension of benefits, and under that item, the 'suspended' benefits get accumulated with interest and become an additional lump sum when the suspension is released.

CLient has an existing DC plan and wants to add a DB plan offset by the DC plan. So far so good. When I load it up - disaster!!! DUH - PPA is a unit credit funding method, and the current balances in the DC plan are greater than the current accrued benefits in the DB plan (even granting the permissible 5 years past for accrual). So I took a plan which would generate wonderful contributions (in excess of $1,000,000) and instantly get a plan with a maximum contribution of $190,000, and NOTHING for the biggies. Remember they can only accrue 1/10th the max benefit in any year. Is this correct or is my software suspect?

The last 2 definitions you will note come from IRC105, which has to do with insurance and cafeteria plans and are NOT related to qualified plans.

It takes only 24 hours for an amendment to a plan to permit ROth Accounts. If the atty/TPA cannot do it in that time frame due to your emergency, fire them. Strong opinion to follow.

Ahhhhh, now we get to the point. I have never seen a DRO that specifies a method of calculation. They only say something like 'adjusted for gains or losses to the distribution date'. Now maybe you have seen something specific, or maybe you 'suggest' more clarity in reviewing a DRO. Given that I would receive a DRO/QDRO with the vague 'apply gains or losses' it would appear that you are suggesting that it be rejected unless it is a pooled/trustee directed account. In a self-directed plan I should either let the parties calculate, or be given specific instructions as to either a tracing or rate of return metod. Maybe I am unique, but I don't think I will ever be given such detailed instructions. Which brings me full circle back to - how much trouble could I be in to use a rate of return calculation in a self directed plan?

Hmmm, in a situation like this, snapshot testing is NOT an option. Unless the 10 participating employees are all NHCEs, I see a failed test, unless it is a matching Safe Harbor.

Mike, when did you become an attorney? I am trying to follow your answer and the only conclusion I get is - let the parties calculate the current value of the prior theoretical split. That doesn't answer the question as to whether a rate of return calculation is/would be just as acceptable/defensible as a 'tracing' method. I happen to think it would because it combines the gains/losses of each individual item into one number. And it is easier to prove where the values came from.

I agree with myatt. I cannot believe that you can fund the ENTIRE 415 benefit in one lump sum today, which is what the $170,000 shows based on myatt's calculations.