flosfur

If the wages for a non-owner employee (even if the employee is the spouse of the owner) are irrelevant, then what stops the owner's cousin Vinni or uncle Harry being covered by the plan, if the owner so desires? What if they are not legally married but are living together?

The spouse of a 100% owner of a corp works for the corp and was taking a substantial salary for few years and has established the desirable Hi 3 average for maximum projected benefits. If the spouse stops taking a salary (while still working), can service credits be given to the spouse for plan benefit purposes?

It is irrerevalent to the situation under consideration - current year accrual method using "current year" comp. Again, for the situation under discussion - testing as % of pay, the testing comp needs to be determined. Where is the ambiguity?

No, not quite. Fractional is based on 1000 hours, so he gets 0.650 year service credit. It would balance out approximately if fractional accrual was based on 2000 or 2080 hours. Anyway, how the fraction is determined or how the comp is annualized should not affect the testing comp for the current plan year testing method - should it? One could have a formula of $x per year of serice which is totally unrelated to comp but one still has to determine the testing comp for computing the accrual rate.

An employee became eligible to enter the plan 1/1/04. During 2004, he worked for 4 months and earned $11,500 with 650 hours of credited service. He needs to be included in the plan to pass the 410 (b) coverage test. Benefits are based on Hi 3 average comp during participation. The average compensation is averaged over the actual number of months worked "if the completed Years of Participation" are less than 3. Given the above, his benefits will be based on his monthly average of $2,875 (=11,500/4). His annualized comp would be $34,500 (11,500*12/4). For the "current plan year" testing method, what is his annual Testing Comp - $11, 500, the comp actually earned during the year or $34,500, the annualized comp? Section 1.401(a)(4)-3(e)(2)(ii)(A) reads: ".......... If the measurement period for determination of accrual rates is the current plan year or the plan is an accumulation plan....., then plan year compensation may be substituted for average annual compensation." I am inclined to use $11,500, since it is irrelevant to testing how the benefits are determined - 1.401(a)(4)-3(e)(1).

If the Look-Back year is the 12 months period immediately prceeding the PY, in determining HCE for the first PY, can one use the first PY comps or must one obtain the compensations for the prior yr? I would say yes, but some have siad that first PY comps can be used.

IRS disagrees on that - i.e. you cannot avoid or minimize reversion by doing this. They have said so, in some of the Q&A sessions I have attended, when this was brought up, even when people argued that they have an approved document with the 414(k) language!

A non-spouse beneficiary "must" receive the distribution of the account balance under one of the following two methods: (1) within 5 years after death (year containing the 5th anniversary of the death) or (2) over the life of the beneficiary or over the life expectancy of the beneficiary, starting with the year following the participant's death. See IRC S410(a)(9)(B)(ii) & (iii) and regulations.

No one has any input on this question?

Doesn't all this controversy concerns "Conversion" of a DB plan to a "Cash Bal Plan" and has nothing to do with setting up a brand new Cash bal Plan - right!? So not all Cash Bal Plans dead - just the converted ones, if that.

The only funding method change, under Rev Proc 2000-40, for the year of plan termination is per section 4.02. A question about the sufficiency of assets (exclusive of receivable contributions) @ plan termination date - section 4.02(3)(a): For a calendar year plan, @ 1/1/2004 plan assets are $200k Vs PVABs of $150k. Assume the plan is terminated 11/30/2004 by which time the participants would have accrued an additional year benefits Without the additional 2004 accruals, @ 11/30/04 assets are $210k Vs PVAB of $158k - nothing yet has been contributed for 2004. However, with the additional accruals in 2004, PVAB jumps to $225. The sponsor would be contributing $25k (min required) for 2004 after 11/30/04 and may be as late as 9/15/05 say. Is the $25k excluded from the assets for determining sufficiency of assets for section 4.02? It doesn't seem right if the additional accruals are to be taken into account but not the contributions payable! Assuming one can ignore the 2004 accruals and contribution paybale for 2004 for sufficiency of assets .... The plan is amended (at the same time as the plan termination) to increase the benefit accruals effective 1/1/2004. As a result of the amendment, PVAB @ 1/1/2004 jumps to $218k Vs assets of $200k (and jum)and . Does this violate the sufficiency of assets condition of section 4.02?

Assume vesting is 100% immediate - is there an MRD for 2004?

Is there an MRD in the following situation: A new DB plan is established for 03/04 with PYE 01/31/04. The valuation date is EOY and is 01/31/04. The principal is 75 in 2004. Under the 401(a)(9) regs, for computing the MRD, the account balance (PVAB in this case) to use is the balance @ the valuation date in the year preceeding the year of distribution. The year of distribution is 2004 and the year preceeding is 2003 but there was no valuation in 2003! Thanks.

Why should it be unavoidable? (I know the Rev Proc says so). If I takeover a case and can reproduce the prior actuary's #s, why should it be a change of funding method merely because it is a takeover case!!? Heaven's to Betsy, IRS, please call it anything but a change in funding method!! Similarly, why should changing one's computer system be a change in funding method? Just venting ...

And going from Lotus 1-2-3 to Excel would alter your calculations!? These are clearly not changes because there is no change in the business organization. I would be more concerned about switching of an actuary within an organization which happens because one actuary won't certify to something to which another actuary in the same firm will - sure it is a question of differring opinion but fishy... Also, the likelihood of a replacement actuary producing different results is much much higher than switching from Lotos to Exce is much much higher!!!

We are not talking about ownership per se. There is no question about the spousal "ownership right" in a cp State whether or not there are any minor children. But the spouses are specifically exempted by (e)(5), if conditions of (A) to (D) therein are satisfied, no matter how the attribution comes about. Ownership rights notwithstanding, I think S414(b) is concerned more about "control of power" in running another entity's business. All those who can control/influence how your spouse's business is run, please step forward.

Well this appears not to be that "obvious" of an issue. Otherwise there won't be conflicting opinions on this message board and in the "legal" community as pointed out here. As to the IRS accepting the State's law, we are back to the Chicken & the Egg thing - as stated before, Federal law & federal agencies do not always defer to the State law! I quoted few examples - should I mention some more? Anyway, for S414(b), it is not the question of "ownership right" per se but the "level of control" one person/entity has over the running of another person's/entity's business. Also, in the case of pension plans, we are not concerned with the business entities with passive investment income. So let's focus on "active participation" businesses and... Consider an MD with his own medical practice and his wife (for simplicity) who sells Mary Kay products living in a cp State. Are you saying that their businesses must be aggregated and considered a controlled group? So if the MD sets up a pension plan for his business, the plan must cover his wife's employees, if she has any? I fail to see how the MD can control his wife's business of selling Mary Kay products & her employees and Vice Versa! Same goes, if his wife is also an MD with her own practice. What if the two had their businesses before they married? Is that considered an ipso facto merger if they live in a cp State?

Unfortunately anyone (legal counsel or otherwise) can opine whatever they like and collect their fee - but would it hold up when challenged? That's the problem. And the opining person may be long gone when this happens and the taxpayer is stuck with the consequences.

Only mention of minor children is in 1563(e)(5) is in (5)(D) which reads: (D) Such stock in such corporation is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such stock and which run in favor of the individual or his children who have not attained the age of 21 years. I don't read this as: If there are minor children then the spousal exemption does not apply. It is only so, if the spouse is restricted/limited from disposing of his/her stock and the restriction run in favor of minor children. Doesn't this refer to a situation such as - a person inherits some stock and is not allowed to dispose of it until children are 21? How could a spouse owning 100% of a business actively run by him/her and which he/she started be restricted from selling any part of the business just because there are minor children unless of course they had an agreement that he/she will not sell the business without spouse's consent and/or until kid are 21!? Also, I don't see any mention of living in a community/non-community proprty State. And this (e)5) exemption is not excluded by section 414(b), which refers to 1563 for controlled group determination. Is there another Code section which overrides 1563©(5) if living in a comminty proprty State?

From the discussions so far, the arguments in favor of aggregation invoke the fact that the US Federal law/IRS pays deference to the States' law. I am not a constitutional lawyer (or even a lawyer) but that should not stop me from opining and with all due respect to the "gurus" on this topic ... Firstly, I thought it was generally the other way around, i.e. the State law should defer to the Federal laws. If such was not the case, some States in the US will still have "legalized" slavery, separate drinking fountains, seating areas on the buses and trains, segregated schools and other "state level legal" segregation practices. Secondly, and very topically, as we are all aware, recently the IRS, US Attorney General Ashcroft and other federal authorities have opined that parties in the same sex marriages are not afforded the status of "spouse" and its attendant benefits under the federal laws (including ERISA) even though some States (one for now) confer such status and its attendant benefits. Thirdly, let's not forget many other conflicting State & Federal laws - such as: medicinal use of "weed" in California and Euthanasia/assisted suicide in Oregan being OK but not OK under the Federal law. So what comes first - the Chicken or the Egg? Federal law or the State law? Who knows! Finally, the IRC does not (and did not) say that a married couple can file separate tax returns (when, in the days of marriage penalty, it was tax advantageous to do so) "if and only if" they live in a "non-community property" State? Or does it? So why would the applicability of IRC 1563(e)(5) depend on where the married couple lives? Above pontification notwithstanding, is there a case law where, absent minor children, the IRS have successfully prevailed in courts in imposing aggegation of separate businesses owned by spouses in a community property for section 414(b)?

Do you mean "does"? Apprently, Merlin seems to be stating that having a minor child "creates" a contol group!?

I think you might be out of luck on that too. Because this is a Takeover plan, it fails the requirement 4.04(7)? Additionally, you have a Takeover and a change of software situation. Is this situation covered by the Rev Proc? If not, one has to apply for an individual approval under Rev Proc 2000-41 with a user fee of $540 (last time I looked at it)!? Imagine the reaction of a small plan sponsor when he is asked to fork out $540!! And there is no guarantee that the approval will be granted. --------------- I have couple of questions on Takeover situations. Is a TPA, a "business organisation providing actuarial services" if the TPA hires an outside actuary to do the work? If so, what if there is no change of TPA but the TPA hires another actuary? Is that a change in fuding method? What if an in-house actuary leaves an actuarial services provider and the firm hires a replacement actuary? What if within the same firm a different actuary is assigned to work on a plan? Do these cause a change method? If so, then these situations are not covered by the Rev Proc and one must apply for an individaul approval?

I always wanted to bring this up for a discussion. I was puzzled when I saw this in Rev. Proc 2000-40. It doesn't make sense to me but I would like to know the rational behind such, what to me is, a rediculous promulgation. From which planet did the drafters of this hail from? Why would going from Lotus to Excel be a change in funding method? Do these softwares produce different results for the same calculations? Similarly, does going from one vendor of commercial valuation software to another vendor produce different results for the same calculations? Is it a change of funding method if: 1. One upgrades from Excel 2000 to Excel XP? 2. One upgrades the computer with a Intel Pantium II chip to a computer with a Pantium 4 chip or worst yet to one with a an AMD chip? After all the chips have inbuilt software!! 3. Going to the new version of the software of the same vendor - which happens frequently for many reasons - law changes being one of them. and so on..... It won't be bad, if it was a matter of just checking the box on line 5i of Sch B & Line 7 of Sch R but one is supposed to redo the prior year valuation to see if one gets the results within 2% margin!! Was this put in by lobbying pressure from the software vendors to discourage people from changing softwares!?

Husband and Wife run separate businesses as Sole Props and file separate Sch Cs. Husband's business has no employees but the wife's business has 3 employees. They want to set up two separate DB plans. One plan covering the Husband only and the other covering the wife and her employees. Are they controlled group to be considered as one Employer for 401(a)(26) and 410(b) etc?

The following is an excerpt from the PBGC's Model Notice which is required under ERISA section 4011. ------------------------------ [iNCLUDE THE FOLLOWING WITH RESPECT TO ANY UNPAID OR LATE PAYMENT THAT MUST BE DISCLOSED UNDER SECTION 4011.10(b)(6):] Your plan was required to receive a payment from the employer on . That payment [has not been made] [was made on ]. ------------------------------ Reading it literally, it only requires the date(s) to be listed and not the actual amount of contribution paid/unpaid. But what use is disclosing just the date(s) without the amounts? Am I misreading it? Assuming amounts are required to be listed and the Participant Notice is required for 2004, which must be issued no later than 12/15/2004. A plan's valuations are performed @ EOY and therefore the 2004 required quarterly contirbution will not be determined well after the notice's deadline and may well be zero when evenually computed. What amount(s) should one disclose on the notice?