flosfur

David, I agree with you about not granting the PS and creating PS liability and problem down the road. As to the OBRA FFL, I can't remember ever having to grant more than 1 yr PS to overcome the FFL limitation. I come across plans where PS credits, althogh limited to 5 yrs, are as much as the future projected svc credits and wham, too much accrued and can't get zero cost even with benefit accruals frozen!

If the DC plan in a Floor Offset arrangement is a Profit Sharing plan then for DB funding cost computation purposes what contribution level is (can be/should be) assumed for projecting the PSP balances at NRA? What if no contribution has been made to the PSP for last n years or contributions have been up & down and intermittent? Can one assume zero future PSP contributions to maximize DB cost (assuming the combined 25% deduction limit does not become an issue).

An individual P owns 100% of Company A and 30% of Company B. There are no other connections between A & B and do not have any other common employees/owners. Both A & B want to establish DB plans. P, naturally, wants to participate in both plans. Questions: 1. Any problem with this? 2. Will the S415 limit apply to P's total benefits from the two plans or apply separately to the benefits under each plan (i.e. P can potentially receive "two" S415 max benefits)? 3. If there is no problem with the above and "two" S415 limits can be had, at what ownership % level will this be a problem.

Dave and Mike: 1. Well my client's CPA thinks he can allocate the total earnings any way he wants and, to boot, the allocation ratio from one year to the next does not have to be the same - go figure! Whatever legal backing he has for his position, I do not know - and should I care? The client is in Oregan. 2. I have come across quite a few husband/wife Sole Props - in & outside California. Obvioulsy their CPAs & tax advisors don't think there is anything wrong with husband/wife being a Sole Prop and don't advise them to form a Partnership. 3. Mostly, people (& their CPAs) go to a great length to avoid allocating income to both spouses so as not to pay FICA for both. The fact that CPAs are willing to split the earnings may have some legal backing? I have no idea. I was told by one CPA why should the IRS cares how earnings are split as long as the tax liability - which it is, if there was pension plans involved. As far as I am concerned, I don't understand why they all don't incorporate, especially at some of the income levels I see - one husband/wife sole prop had earnings of $9 million. And for DB plans cost calculations, I would rather have them all as Corp, failing that Sch C for one spouse and W2 for the other is preferred. Back to the problem at hand: It may not (& does not) matter how the plan cost is split between spouses if they file jointly since all of the cost gets deducted on the single 1040. What if they were filing separately - wouldn't the cost split matter? In a non-spousal Partnership, the cost split "does matter" to each partner since each partner files his/her own tax returns. To highlight the issue I raised, instead of husband/wife Sole Prop, consider a non-spousal partnership with two K-1s of $50k each. Using the DB plan cost allocation method used in the past, partners' costs are $55k & $30k. Obviously, under this cost allocation, the partner with $55k allocated cost cannot deduct more than $46,500 ($50k less 1/2 FICA, rounded), leaving $8,500 undeductible. Can the other partner use this undeductible and deduct $38,500 on his return - I think not? (Of course this does not answer the frequently asked question by the partners: We are equal partners, why our cost is not the same? But that's another Post).

What is the IRS form that is used to report and pay withheld taxes from distributions. I looked at Form 941 but that doesn't seem to be very appropriate for the purpose - purhaps there is another form? Also, Form 941 once filed, need to be filed each quarter forever even if no taxes are withheld! Perhaps, there is another form for reporting and sending in taxes withheld from pension plan distributions? Thanks for help.

Hey, folks any comments on my post? I am surprised no one has any comments given this issue must come up frequently when dealing with sole props & partnerships or am I making a mountain out of a mole hill? Desperately seeking comments [topic related, of course ]. Thanks in advance.

Husband and Wife opearte a Sole Prop business and file separate Sch Cs. Total net Sch C for the business is $100k which is split 50/50. Therefore, net Sch C for each owner is $50k and 1/2 FICA is $3,500 (rounded for illustration). The sum of their Sch Cs less 1/2 FICA is $93,000. Total plan cost is $90k say, which is less than the $93k in total Sch C less 1/2 FICA. Actuarially allocated costs are: $55k for husband and $35k for wife (computed individual costs under the Ind Agg method or allocated under the EAN or FIL methods using a reasonbale approach). Scenario #1 - A joint income tax return is to be filed. What can be deduced for the pension plan: full $90k or $81,500 (Husband's Sch C less 1/2 FICA of $46,500 plus $35k for the wife), carrying foward a loss of $8,500? Scenario #2 - Separate income tax returns are to be filed. What is the deduction for pension plan for each of them: $46,500 for husband and $35k for the wife or can the pension plan be split 50/50 and $45k deducted by each? (they each have a higher Hi 3 average established in the past so current year eligible compensation does not affect the cost).

My question about the wordings was for the pension plans in general. I know, for pre-approved (prototypes & volume submitters), the IRS can & does dictate the wordings. So I take it, for individually written plans there is no legislative requirement for how the document should be worded - of course this all changes when one applies for a favorbale determination letter. --------------------------------------------------------------- I still am perplexed about why I would lose the prototype status if I have an addendum listing prior formulas with respective effective dates for each formula. Those dates will clearly tell anyone looking at the document which formula(s) was applicable to participants during various periods. In fact in large plans' documents (individually written, of course) you will see a long list of formulas going back to .... (whatever is the opposite of eternity). And how would having freshly adopted amendment(s) alleviate the problem(s) you envision or overcome the hurdle of negating prototype status. Because I am told by the prototype doc sponsor (and by others) that "not" filling in the adoption agreement for each change since 1/1/97 (say), would negate the prototype status. Finally, let's assume the IRS does say that prototype status was negated. What would be the possible consequences of that? If they argue that the language in the plan document is not in compliance and hence try to disqualify the plan, would they have a leg to stand on? After all, except for the addendum (or separate amendments in your approach), the document has the wording which was approved by them. If they pick on something on the adoption agreement which was not completed correctly but that would have negated the prototype status anyway no matter what else was done to negate the proto status. For consideraing the above, let's ignore the fact that the IRS/DOL can try anything because they have the big stick of authority....

Why you say, "May be not"? Is there any doubt and if so why the doubt? I prefer the addendum because: The amendments were actually adopted and signed in the past. The addendum just memorializes the fact that there were certain changes to the plan since the effective date of the GUST restated document. Whereas re-doing the amendments would require signing and dating them - what date(s) does one use? Original adoption date of the amendment or the current date? Either choice does not make any sense to me at all and only creates unnecessary extra work. I know, I know - the law and its enforcement does not have to make any sense. A question just arose in my mind. Where in the actual law (IRC/ERISA etc) does it say that IRS or DOL has an authority to dictate the actual wording of a pension plan document etc?

Since the GUST restatement has effective date of 1/1/97, the adoption agreement will have the benefit formulas in effect @ 1/1/97. The addendum will contain the benefit formulas that were effective after 1/1/97. The corp resolution for restatement will make a reference to the addendum. What did I change in the adoption agreement to negate the proto status?

Plan uses a Prototype document. Plan year is the calendar yr. Since there is a remedial amendment period for adopting EGTRRA changes, the EGTRRA amendments were not adopted by 12/31/2002. For computing S404/412 Cost (especially 404 Cost) for 2002, can the EGTRRA's provisions be taken into account?

A Prototype DB plan was effective 1/1/94, say. The plan's benefit formula was amended 1/1/97, 1/1/1999 and 1/1/2002. The plan is being restated for GUST, effective date of which is 1/1/97. The adoption agreement has room for only one formula. I am told I will have to complete 3 adoption agreements to accommodate the 3 formulas. Question: What are the potential problems with the following approach. Complete one adoption agreement with the 1/1/97 benefit formula in it and then add an addendum showing the benefit formula effective 1/1/99 and 1/1/2002. Thanks for your help.

Well that's what I want to determine and it would be beneficial in the case I have if successor/predecessor relation can be used because: Longer the past service a participant has, higher the PS liability which results in higher 10 year amortization charge and total plan cost for Section 404 purposes. Let's look at the flip side of this problem. Let's say the prior entity maintained a DB plan and the 50% owner had an accrued benefit in it. Can the accrued benefit in the prior entity's DB plan be ignore for determining Section 415 maximum limit under the new entity's DB plan for the 50% owner in question? In this case it would be beneficial "not" to treat the prior entity as a predecessor plan? If this could be done then a person can disolve or sell one business and start another business entity every 10 years and get the Section 415 limits from each entity's DB plan each time .... A long time ago I was told by my boss (legal reference was not asked by me and none was volunteered) that if someone had a 1/3rd or less partnership in a prior entity, the accrued benefit in the prior entity's DB plan can be ignored for Section 415 max. I cannot find any regulations under Section 414(a)(a)(2) and the code itself does not define it - it leaves it to regulation.

A 50% owner, Owner1, of a business sells his share of the business to the other 50% owner(s). Owner1 then sets up his own practice (same profession). Is the sold business a "Predecessor Employer for Onwner1 for purposes of using the prior service & comps for a new pension plan (DB plan) to be set up for the new practice. Onwer1 signed a non-compete for the same area and the new practice is located many many miles away from the sold one - It should not matter but I thought I'll throw that in, in case it matters. Cites with the reponse would be very helpful. Thanks for your response(s) in advance.

Thanks. What is the Notice # - anyone?

This is the closest forum I thought would be approriate to post this message. For a Volume Submitter plan document, what was the deadline for amending for OBRA '93's $150k comp limit?

Does anyone have a one or two page summary of features of various qualified plans: 401(k), Simple, Profit Sharing, Money Purchase and DB plans.

I heard the IRS is either significantly reducing or eliminating user fees effective 2002! Where can I find the IRS announcement/notice to that effect?

During 1999 I contributed 2k to Roth IRA. Because of my income level, I was in-eligible to make the contribution and I withdrew the investments purchased with the contribution on 4/17/2000. The value of the investment at time of withdrawal was $700, a loss of 1,300 (ouch!). I received a 1099-R showing a distribution of $700. 1. Do I show $700 on Line 15a and zero on line 15b (taxable amount)of Form 1040? 2. How do I reflect the loss on my return? What if I had made a gain on the investment – would I show the gains on line 15b of Form 1040? If under age 59½, am I subject to 10% early withdrawal penalty? I am getting different answers from different experts, so please give cite if possible. Thanks for help.

I know of SSA program re: locating missing participants. But I have been unable to find IRS program! What is the internet address or the snail-mail address & phone/fax number. Could you please also send me info of 2/3 commercial locators, if you have it. Regards. Basharat

S415 limits override any or all other entitlements. So anyone on 100% Hi 3 limit is loosing money with each passing years if he/she doesn't take her distributions! Another interesting situation occurs when Lump sum value on S417(e) interest rates exceeds S415 Lump Sum - e.g. when PBGC rate are 4% and S415 rate cannot be < 5% (and using 30 year treasury rates wmakes this even worse). S415 overrides S417. Basharat

Actuarial increase must be provided - see IRC section 411(B)(1)(H)& Propsed Regs (never finalized) 1.411(B)-2 - this was brought about by the Age Discrimination Act in 1988 or so.

Joe: Thanks for your response. Unfortunately I am still lost & even more confused. Pardon my ignorous please, but I have not heard of a year-to-yaer health insurance policy having a cash value! Are there such policies? Back to my problem: One employee (out of 13 or so) bought an individual dental insurance for his spouse. Simple Question: Is the premium a reimbursible expense under S125?

Dave: Thanks for your such a quick & detailed reponse. Any opinion on the second Q. Pub 502 allows health insurance policy premium as a deduction (subject to the 7.5% threshhold).