flosfur

What big picture, planned decline in staff and future staffing plans? We are not talking about General Motors or IBM here! We are talking about a micro-employer whose fortunes change month to month let alone from year to year! If he loses one on-going contract, he may have to let everyone go (which could be 1 employee!) or if he gets one big new contract he may have to hire a dozen more employees? What if the employer has one employee and he has to let him go? Does that employee become 100%? What if the employee leaves of his volition?

A plan has 5 active participants and 1 terminated participant. Two of the actives are owners. The 3 non-owners are laid off. a) Did the plan experience partial termination? b) If yes, does the previously terminated participant become 100% vested also? c) Suppose only one employee was laid off (1/3rd of non-owners). Is there a partial termination? What if two were laid off?

1) To be used with the split funding method, what requirements must a life insurance policy meet? 2) Policy illustrations generally show guaranteed and non-guaranteed projected values at the end of each policy year. Is there a requirement to use one or the other projected values or can one use either? Here is the situation I am dealing with: A "participating" life insurance policy has the following features: a) To avoid the policy becoming a MEC (Modified Endowment Contract), no premium payments will be permitted from year 8. So basically it is a high cash value 7-premium insurance policy. b) The policy has 4-tier expense load: Tier 1 for year 1 thru 5, Tier 2 for year 6-10 and so on. Tier 2 is substantially higher than Tier 1 (ranging from 2 times Tier 1 to 5 or 6 times Tier 1), Tier 3 is lower than Tier 2 but higher than Tier 1 and Tier 4 is lower than Tier 3 but is still higher than Tier 1. The guaranteed values are projected using the 4-tier expense load and as a result the projected guaranteed values go down from year 6 thru 10 and then start going up again slowly. c) In reality, the insurance company stops applying the expense load after year 5. d) Non-guaranteed values are projected assuming zero expense load after year 5 and yearly policy bonuses of x%. The projected non-guaranteed values are much higher than the guaranteed values even after year 7 (when the premium payments stop) and continue to remain substantially higher in later years. For someone with more than 7 years to NRA, can this policy be used for split funding method ? And if yes, which projected values should one use for split funding – guaranteed or non-guaranteed? . My understanding was that for split funding, the policy premiums must continue to at least the NRA of the participant. Otherwise, what is to stop someone using split funding in conjunction with a single premium policy – and in an extreme case completely fund the plan in a single plan year?

... 2. I'd first consider potential UBI issue. .... Why would there be a UBIT issue? Is flipping RE any different from buying and selling stocks & bonds and investing in Options? Does anyone know of someone subjected to UBIT in the .com bonanza?

Sorry for not clarifying. My questions were more about "prohibited" transactions and other legal issues. For what it's worth, this is one person plan.

1. Is there a problem in a pension plan purchasing real estate property in partnership with another entity who is not related to the plan sponsor/trustees? 2. Is there a problem if the real estate properties are bought and sold frequently (i.e. flipping the properties)?

If an employer has a predecessor plan, then a new plan cannot exclude service prior to the new plan's effective date. What if the employer maintains two plans concurrently? For example, an employer has a 401(k) or a Profit Sharing plan which will continue in existence. The employer now wants to establish a DB Plan. For vesting, can the DB plan exclude service prior to its effective date? What happens if the non-DB plan is terminated after 2, 3, 4 ... years?

Yes, it does. Thanks.

For those affected by Katrina, has the IRS extended the minimum funding deadline beyond the 10/31/05 extension provided in Notice 2005-60? The filing and tax payments etc, deadline was extended to 02/28/06 but I can't find if the deadline for the minimum funding was extended beyond 10/31/05.

This is really a CPA question. But, I think the "Carryover" of deduction works only if there is a non-deductible amount involved. Here, the dedcutible amount is up to $250k. Since they deposited $200k which is less than the maximum deductible, I don't think there is any amount to be carried over Unless a deduction over $100k would create a loss for the business entity, in which case the loss can be carried forward and deducted in subsequnt year(s). But and more but, like "saeissler" I am no CPA, the carryover situation arises only when the required minimum contribution exceeds the sponsor's net profits (eg. when for a Sole Prop's required min contribution exceeds Sch C less 1/2 FICA). So if your client's net profits (before the DB's $100k minimum contribution) are $100k or more, I don't think there is carryover of any amount to 2006. This is in line with saeissler's response - one cannot use prior yea(s)'s "unnecessary" expense to reduce (avoid) taxes in subsequent years. Although, your client doesn't have a problem for 2005, he will (or should I say, may?) have a problem when it comes to taking an additional deduction in 2006 of the $100k deduction not taken for 2005.

Correct.

I know of no law/regs prohibiting someone starting a plan (DB or DC plan) at any age. BTW, if there was such a prohibition, I am sure the Age discrimination lobby would have something to say about it.

Plan provsions cannot override the law or regs or can they? The question is: what is the situation under the law/regs? Some of them could have terminated in 2003 or even 2004 with less than 500 hours (BIS).

An employer maintains a DB & a DC plan and the two plans are aggregated for 410(b). DB plan covers the Owner and owner's Spouse [spouse was included to pass 401(a)(26)]. Spouse took a nominal salary for plan yr 1 and accrued a benefit. For plan yr 2, the spouse took no wages and as a result did not accrue additional benefit during plan yr 2 (because her average comp was halved – benefit formula is flat % with fractional accrual). For 401(a)(26), did the spouse benefit under the plan for plan yr 2?

I read prior discussions on this topic on this Board and have couple of question. Prior discussions and Pension Answer Book appear to say that, in general, any partially vested participant paid out prior to the plan termination date need not become 100% vested. Is there a minimum period between the payout date and plan termination date for this to apply? Suppose, in a calendar year plan, some partially vested terminated participants were paid out in March, June, August and October 2005, say. 1. If the plan is terminated in November 2005, say, is anyone of the participants paid out in 2005 required to be vested 100%? 2. What if the plan is terminated January 2006, the plan year following the plan year during which the distributions were made? 3. What if some of the payees had 1+ year of break in-service and some did not as of the plan termination date?

For minimum funding purposes the waiver of benefits by a Key/HCE cannot be ignored. See IRS Private Letter Ruling (PLR) #91-46005.

Under EGTRRA, top heavy accruals for non-keys are not required if no key employee benefits during a plan year. What if the keys's accruals are less than 2%? Unlike DC plan, for DB plan, the Code says 2% regardless of the keys' accrual rates! Just wanted to check if there is anything put out by the IRS which says otherwise i.e. the non-keys accrual can be at the highest accrual rate for the keys.

Now that the OBRA FFL is gone, what happens to the prior OBRA FFL bases? Do we continue to maintain them? Also, suppose if the plan hit OBRA limit in 2003, should an OBRA base be established in 2004?

I am not in insurance so I cannot say without reading the policy.

How new are the regulations to which you are referring to? The ones I looked at were taken from BNA's website service (my service provider) earlier today - which are current at least up to last two weeks! Also, if you have not read them, why even bother to refer to them? I wish people (on this board) would take time to research before opining and have some definitive cites to back up their opinion(s) other than I have seen/heard it done this or that way. To which I always respond by saying: I see people driving at 85 miles an hour but that doesn't mean driving at 85 mph is legal in USA (notwithstanding it is not a problem on autobahns of Germany). I know this is a free website but, please, we are not just shooting the breeze on this Board or are we? Well at least I am not! (not meant for you Belgarath): To be sure, sarcastic respsonses may amuse the writer and provide chuckles to the all knowing but they neither answer the question(s) posted nor help other readers in their research if they are searching this site for "legally correct" answers.

I don't see death benefit listed in 1.411(d)-4(d) Q&A-1(d) "Benefits that not section 411(d)(6) protected benefits"! It lists "ancillary life insurance protection" which is not the same as death benefit. Death benefit of PVAB is directly linked to actual accrued benefit.

A calendar year DB plan’s death benefit is the greater of PVAB or the (insurance) Policy proceeds. The face amount of the insurance policy to fund the death benefit is 100 times the projected benefits. For purchasing the insurance policies, the plan states: “….. as soon as practicable following the Anniversary Date coincident with or following a Participant’s satisfaction of the eligibility requirements, the Administrator will direct that a life insurance contract be purchased with a face amount …………….. The Anniversary Date is January 1. A participant met the eligibility late 2002 and entered the plan on 1/1/2003. A life policy was purchased for him based on his projected benefit computed @ 1/1/2003 (BOY val date in case the actuarial val date is of any consequence). As a result of increased projected average comps, projected benefits computed @ 1/1/2004 and 1/1/2005 increased and additional polices were required for 2004 and 2005 for all participants (for both years the required policy face amount was above the minimum threshold required for a policy to be purchased). The participant died (suicide) during January 2005. Except for the deceased participant (obviously too late to buy a policy), the required additional policies for 2004 were purchased in April 2005 (made effective in 2004) for all participants. The additional policies for 2005 have not been purchased yet. Admittedly, there was not enough time to perform calculations for 2005 to determine the additional policies required let alone purchase them. But what about the required additional policy for 2004? Do the beneficiaries have a claim against the Plan/Plan Administrator? Does the following affect the answer? 1/1/2004 computations were done mid 2004 and the sponsor had funded the required 2004 contributions, including the required premiums (split funding method) for the existing policies and for the additional required policies for 2004, by December 2004!

I have always accepted this at its face value. Is this is a requirement? If it is, I don't understand since if the death benefit and hence life insurance is not a protected benefit why is one required to offer this option?

So it's either all or nothing! Can eliminate life insurance completely but cannot freeze it!? Doesn't make sense to me.

Yes. The prototypes and volume submitters from document vendors (Corbel, Datair, AccuDraft...) list many options for death benefits such as: Vested PVAB, PVAB, Policy proceeds, Policy proceeds minus cash value of policy, greater of PVAB and policy procceds, PVAB + Policy proceeds - Cash value and so on. The x times projected benefit as such is not one of the options, presumably because small plans cannot self insure such a benefit and must buy insurance if they want to offer such a benefit.