flosfur

Just because it is done all the time, doesn't make it right? By removing the insurance, have you not reduced the death benefit? Let's say, the death benefit is PVAB. Can one eliminate this and simply provide the mandated default 50% QJSA to married participants!? If the test is failed, one is forced to buy insurance for some or all new particiapants!? So one cannot eliminate purchasing policies prospectively?

Someone selected a bad option. The Corbel (and other docs) provide other options too, such as: 1. Greater of PVAB and life policy procceds. 2. PVAB plus life policy proceeds minus cash value of policy. and so on. The worst available death benefit option (Corbel doc) is: Life proceeds minus cash value of the policy - which could end up being zero!!! If the participants was married at death, then you should also check to see if the policy proceeds are greater than the Actuarial Equivalent of the qualified survivor annuity - it should be but one never knows.

Are you saying the plan can surrender existing policies also without a problem (as long as everyone's policy is surrendered) since life insurance is not a protected benefit? Of course the document will be amended. But why and what kind of BRFs test is required? The change will apply to all participants (HCEs and NHCEs).

A 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. The plan has been purchasing Whole Life policies. The sponsor now wants to: 1. Prospectively stop buying additional insurance for existing participants resulting from increases in their projected benefits and for future new participants. 2. Somehow reduce the premiums burden on the existing policies of all participants so more money can be invested in non-life insurance investments. As to 2, is there an anti-cut (or any other) problem if the policies are converted to Term assurance? I don’t see anywhere in the plan document where it is says that the policies have to be Whole Life – it just says life insurance policies.

1. $30,000 or you could dig up the past 10 years' comps and compute the 3 yr average based on all available comps. 2. $200k. However, under the recently proposed regs, if made final as they are, it would be $103,333 - but they are far from being final! The above are accrued averages. For funding purposes, you could use the 3 year average of past and future comps. For example, if in example 2 you assume that the participant will continue to earn $500k each year until retirement, then your projected averages would be: S415 - $500k; S401(a)(17) - $210k.

First to point out the obvious: Are you aware that the $200k contributed in excess of the $200k deductible is subject to 10% excise tax - that's $20k in excise tax! Now to the second year - the owner cannot decide what the pension compensation would be - it is decided by the amount deducted for the pension contribution which in turn depends on the computed contribution and earned income. Since in your case you need to use up the $200k of excess contribution from the prior yr, you want to deduct as much as possible - which cannot be more than $150k. So you start with a pension comp of zero and compute the S404 plan contribution. If the contribution is $150 plus, you are OK. If the contribution is less than $150k, then you would use a pension comp of greater than zero and recompute the contribution. Repeat this process until Pension Comp + S404 contribution = $150k. In the end you will still have $50k or more of undeductible contribution which is subject to 10% excise tax.

Section 404(a)(a)(A)(i) reads - the amount necessary to satisfy the minimum funding standard provided by section 412(a) ...... In your example, the amount required to satisfy the minimum funding is $80k (not 100k), so the answer is $80k.

I have two situations with EOY valuation date. In both, there is no prior credit balance. Situation 1: A plan has assets of $250k @ 12/31/2004 which include advance contribution of $100k made during 2004. For S412, the interest credit on the advance contribution using the funding rate is $2,000. So, the funding assets are: S412: 250-100-2= $148k; S404=250-100=$150k. Normal costs under the individual Agg. method are: S412: $91,300; S404: $91,000. EAN NC + AL @ EOY for S412 and S404 = $201k. So the FFLs are: S412: 201-148 = $53k; S404: 201-150= $51k. What would be the maximum deductible contribution? $53k or $51k? ---------------------------------------------------- Situation 2: A plan has assets of $332k @ 12/31/2004 which include advance contribution of $165k made during 2004. For S412, the interest credit on the advance contribution using the funding rate is $3,000. So, the funding assets are: S412: 332-165-3= $164k; S404=332-165=$167k. Normal costs under the individual Agg. method are: S412: $173,000; S404: $172,500. What would be the maximum deductible contribution? $173,000 or $172,500? ---------------------- Higher numbers feel wrong but I cannot explain to myself why except that why should making advance contribution increase the deduction?

So when people take their car to (i.e. farm it out to) the mechanic, do they know exactly how and what the mechanic is doing? We all hire experts all the time including experts hiring other experts. Auto shops (including dealers) farm out transmission, engine rebuilding and body work. Dcotors send their patients to other specialists; surgeons, cardiologists & so on. And who has not heard of surgeons amputating the wrong leg or foot. So should the doctor (or better yet the patient) perform the surgeries himself! As to the quality of the in-house actuary being superior and the business owner having a better idea of what the actuary knows and is doing, I would disagree. Anyway, if the business owner was that knowledgeable, why would he hire the actuary? If he does have some knowledge then he is more apt to dictate to the actuary how to do his job and that's not a desirable situation!

SoCal - where is this group? Do they have a website?

No Name - couple of observations: qs are generally printed to 6 decimal places. Your qs are missing the 6th digit and therefore your APRs won't exactly match APRs computed by most other people. For computations under Section 415 & Section 417(e)(3) (lump sums and certain other equivalence) you must use gender neutral tables published by the IRS. For gender neutral GAR 94's qs, see Reveune Ruling 2001-62. Using sex distinct tables for computing lump sums under qualified plans have not been permitted for many many years ago. For mortality tables to be used for RPA '94 liability calcs, see Rev. Ruling 95-28.

Because this is the mortality table required to be used for determining certain Actuarial Equivalences under Section 415 and S417(e)(3).

What makes any old attorney qualified to draft plan documents especially for the DB plans? As one plan document provider (himself an attorney) said in a workshop, an attorney who drafts plan documents and has no experience of day to day plan administration should be forced to administer those plans to appreciate the monster he has created. For one of the national document providers, the volume submitter DB documents are drafted by an actuary and I find their doc to be the best I have seen so far.

A calendar yr plan's entry dates are 1/1 & 7/1. A participant who was eligible to enter on 07/01/04 terminated on that date with 1,040 hours of credited service. Hours required for benefit accrual are 1,000. Assuming, he worked on 07/01/04, does the participant accrue a benefit under the plan? I think he does.

Thanks but that only defines it as the change in net assets ... during the period arising from transactions/events from non-owner sources. The comprehensive income from a DB plan will be part of the total comprehensive income defined above. The question is how would a DB plan create comprehensive income? I think I found the answer. FAS 132, para 5c(5) says - Any intangible assets and the amount of accumulated other comprehnesive income recognized per per para 37 of FAS #87. FAS 132, para 5i requires a disclosure of "... amount included within other compresensive income ... arising from a change in the additional minimum pension liability recognized per para 37 of FAS 87.." The second sentence of para 37 of FAS 87 reads "If an additional liability required to be recognized exceeds the unrecognized prior service cost, the excess (......) shall be reported as separate component (that is, a reduction) of equity ........". Is this "accumulated other comprehensive income"? From this I would say: For FAS 132, para 5c(5), The accumulated other comprehensive income equals (the recognized additional liability minus unrecognized prior service cost), if greater than zero. and For FAS 132, para 5i, the compresensive income would be the change in the recognized additional minimum liability from last year. Should this not be the change in accumulated comprehensive income? Here are some hard numbers: As of 12/31/03: Additional Liab = 455k. Unrecognized prior service cost = 470k. Therefore, Accumulated other comprehensive income = 0 (because 450k < 470k) . As of 12/31/04: Additional Liab = 320k. Unrecognized prior service cost = 450k. Therefore, Accumulated other comprehensive income = 0 (because 320k < 450k) . Is comprehensive income for 2004: -135k (=320k - 455k) or 0 (0 minus 0, accumulated income is zero for both years)?

What is Comprehensive Income, how does it arise and how is it computed?

DB/DC plans are to be aggregated for general testing. DB's accrual rates are computed using the Accrued-To-Date method. DB grants pre-plan service credits for benefit accruals. For computing the equivalent accual rates under the DC plan, can the current year accrual method be used or must one use the Accrued-To-Date method? If the Accrued-To-Date method must be used: 1. What amount must be used in the numerator for computing the annual allocation - actual account balance (which reflects gains/losses, expenses) or aggregate allocations to date minus withdrawals, if any (i.e. ignoring gains/losses, expenses etc)? 2. What comp must be used - current year, average comp during benefiting years or average comp during the period used for the DB plan's average comp (e.g Hi 3).

Since the maximum accrual after 1 YOP can only be the lesser of [1/10th of the $Max or YOS/10*Hi 3], S415 should not be an issue? And S404 issue (I presume you meant S404 issue related to exceeding S415 benefits and not the 25% DC/DB combo deduction issue) should not be an issue.

An employer maintains a non-safe harbor DB & a safe harbor DC plan with no common participants. Both plans separately pass the 401(a)(26) and 410(b). DB plan is a non-safe harbor plan and is to be tested for non-discrimination without aggregating with the DC plan. In computing the rate groups's ratio percentages and the average benefit %, are the non-excludable employees who are not in the DB plan taken into account with zero accruals? S1.401(a)(4)(2)©(3)(i) says they must. I am being told they don't need to because: "Since the MPP is a safe-harbor plan (and passes testing) and the DBP passes non-discrimination testing, then the 2 plans are broadly available separate plans." The DB passes the 401(a)(4) if only DB participants were taken into account.

How could considering the S415 create a problem (if you meant it could)? Since S415 would most likely limit the owner's benefit and reduce his accrual rates, doesn't S415 makes it easier to pass the test?

Employee enter the plan on Jan 1 and July on or after the eligiblity is met. Some employees will enter on 07/01/05, which is a Friday and happens to coincide with the pay period ending 07/01/05. Paychecks will be cut on 06/30/05. Are the new entrants eligible to make deferrals from the 07/01/05 paychecks? The problem is that the plan provides a matching contribution and 3% safe harbor contribution.

Yes, that's what is going on here. This way, owners' funding cost as a % of total is higher than it would be otherwise and thus it is to "sell" the plan to the client (I am not fond of the term "sell" but that's how the small plan industry operates) . I have taken over many so called "BOY valuation" where the only thing BOY is the val date and the plan assets @ BOY. The compensations taken into account are those actually earned during the val yr, employees terminating during the val yr are treated as terminated (with no accrual after the Val yr) and if they are non-vested they are excluded from the calculations. On the other hand, the employees eligible to enter during the val yr are included [which is permitted under reg 1.412©(3)-1(d)(2)] in some cases but not in others. By the way, in small plans, turnover rates are rarely used. I have seen them used in couple of cases and made no sense to me given that the majority of the laibility was for the owner(s) and they are unlikely to be terminating the employment soon!! Anyway, crux of my message was: if the "unreasonable funding method" is changed to a reasonable method for 2004, is that a funding method change! And if so, is it an approved change under Rev Proc 2000-40 - I don't see this in the Rev Proc. Or is this a non-issue altoghether?

2003 was the first plan yr and all terminees were non-vested because vesting service is from plan's effective date. What kind of assumption is "ignoring non-vested terminees"? It is more like a method than an assumption.

I have a takeover case with a BOY valuation date. Employees enter the plan immediately. Year of Service for benefit accruals is 1 hour credited svc during the plan year. For the 2003 valuation @ 1/1/2003 the following approach was used. Eligible participants who terminated during 2003 but after 1/1/2003 were treated terminated and if they terminated non-vested, they were excluded from the funding calculations! As a result, line 2b of Sch B has, say, 20 active participants but only, say, 15 participants were considered for the funding calcs! Questions: 1. Is this a reasonable funding method? 2. Is one required to continue with this method even if it is not a reasonable method? 3. If the method is changed (to include the participants who terminate during the val year but after the val date), would it qualify for automatic approval under rev Proc 2000-40? I don't see anything on this.

What would be your answer (& why)?