Gary

A one participant/owner implements his own profit sharing plan. No other employees. His plan has say 100k in assets. The owner wants to invest in art work with some of the plan assets. As far as I know this is an allowable investment. Does anyone know for certain that such an investment is permissible? Or knowotherwise? Thanks.

a one participant plan has invested in art work. To my knowledge such an investment has always been permitted. A person said that there is an IRS ruling (fairly recent) that now prohibits such investments. Actually I would expect it to be a DOL ruling if anything. Does anyone know of any rulings that prohibit such investments or changed the rules regarding these types of investments? Are we in agreement that investing in art work (especially for a one person/owner plan) is permitted? Of course the plan I am referring to is not an ERISA plan as there are no employees. Thanks

The new funding relief provides a 2 and 7 rule or the 15 yr amort rule. The question is: Say the rellief is used for a 2009 cal yr plan. Does this relief apply to a new amort base or does it apply to the entire funding shortfall including bases established in 2008? my impression is that you take the entire shortfall and apply it and not just the new base. thanks

A one participant plan owner takes a 10k loan in 2008. We find out now that he defaulted on loan at outset. So it is a deemed distribution. It would seem that the person should amend their 2008 tax return and report income. Should a 1099R be prepared for 2008 or 2010 to report distribution? thanks

The LRM to my knowledge are just suggested plan language that the IRS will approve in many cases when reviewing a plan. But they are not mandatory or actual law or regulations. Is that correct? Thanks

The only source that I have seen this infamous 66% of theoretical reserve calculation is in the LRM for DB plans. LRM 52. Does this apporach exist anywhere else? And what authority does the LRM for master and prototype plans hold? Thanks.

Agreed.

Thanks Mike My interpretation of your thread is that there are certainly additional costs above and beyond the precise cost of the face amount, such as expenses, fees, and other costs. My thought is that would all be tied to the investment return of the policy. In any event, while I need to do more research, I am trying to determine if the pure cost of insurance approach can be used to support an incidental death benefit whith a whole life policy and how such cost of insurance should be computed. For now I'll have to hold off on submitting my resume for the insurance commissioner position. Thank you.

Changing gears a little. One of the limits as I am learning is 66% of the theoretical contribution can be used to purchase a whole life policy and 33% for a term life. The understanding is that the "pure insurance cost" cannot exceed 33% of the theoretical contribution. So if the theoretical contribution were 90,000 than the pure insurance cost could not exceed 30,000. Can this pure insurance cost be computed even for a whole life policy? I don't see why not. For a whole life policy in the first year is it reasonable to compute the pure insurance cost as the face amount multiplied by the probability of death in that year? What mortality table is reasonable to use? Most importantly I am inquiring about the methodology of the computation. This would enable a whole life policy that pays to high a premiium to still meet the incidental death benefit if the pure insurance cost were low enough. Thanks.

Thanks this all should be of help.

Thanks for the help. Back to this matter re: 74-307. 74-307 addresses the less than 50% of total costs for life insurance and that the pure cost of life insurance cannot exceed 25% of total cost. I have seen the IRS do an analysis that is not in my opinion exlicitly or implicitly stated in 74-307 and that is to determine a "theoretical contribution" and that the premiums cannot exceed 66% of this theoretical contribution. Does anyone know where this method comes from and where it is documented? thanks.

Don't think 74-307 defines ordinary life insurance. I certainly know that 412i requires level premiums. By the way I was trying to obtain prior rev rulings on line and I can't find them. Their of course old ones such as 74-307 (though have hard copy), 54-51, 68-403, 73-501, etc. Google doesn't do it. Any suggestions as to h ow to obtain old rev rul? Thanks.

Thanks. Love the Bart simpson icon. The plan does not provide for match either and the contributer is the owner and HCE so TH won't apply.

A plan sponsor has a 401k plan. Note the plan does not have a profit sharing provision. Makes no sense to me. The company only has two employees. Mother and daughter. I received data from client where they state that a contribution for one participant (over age 50) received a plan contribution of $25,000 for 2009. My assessment is that since 2009 is past we cannot amend the plan to provide a profit sharing feature for 2009. The restated plan effective 1/1/2010 does include a profit sharing feature. Therefore, the participant can defer 22k 401k, but the additional amount cannot be a profit sharing contribution? Is that correct? Am I overlooking somoething? Thanks.

Some small plan clients just provide year-end asset values and dates of contribution and not brokerage statements. They report if they have non qualified investments (and its details), but otherwise they just report asset values. Of course the 5500 and Sch B can be prepared with this limited info; just no real accounting done. Is it required for the TPA preparing the return to have the brokerage statements on hand? Thanks.

In looking at 74-307 the 2nd to last paragraph says "Accordingly, death benefits under a pension plan of any type will be considered incidental within the meaning of section 1.401-1(b)(1)(i) of the regulations if either (1) less than 50% of the employer contribution credited to each participant's account is used to purchase ordinary life insurance policies on the participant's life,... So if 50% of the contribution is used to purchase life insurance and 50% of the contribution is used to purchase an annuity contract (if a 412i plan) or into a reserve fund if a traditional plan it would appear to compy with the above statement? Thanks

So if plan in force for 5 years for an owner and he did not report PS 58 cost till now he would have to catch up on reporting this income? Either by amended returns or some other way? Thanks

Just a quick comment before further analysis: One of my beliefs to date is that a 412i plan can be funded where 50% of total premium is for annuity contract and 50% of total premium is for life insurance, thus not violating the exceeding 50% of total costs requirement of 74-307. Is that one approach that is satisfactory? Cost of life insurance. 412i plan is for the two owners (husband and wife) and only employees of company. Is it always required that a cost of life insurance protection be reported as taxable income per nitice 2002-8 currently or are there situations where cost of insurance is not required or reported as income to participant? Thanks.

Say a one participant plan has a pvab worth 50k and a separate rollover into the plan of 100k and he is 100% vested in his AB. Does the rollover have the same requirements as his formula AB? For example if he is under age 62 (i.e. less than NRA) and he withdraws 70k of rollover portion. Could it simply be a taxable distribution possibly subject to 10% tax? Or is it disqualifying premature distribution and prohibited transaction? Is it subject to spousal consent? Like to think that the rollover could be treated separately, but don't quite think that is the case. My understanding is that the value of the entire AB is 100k + 50k or 150k and that the maximum loan is 50k for this person. So a withdrawal of 70k could conceivably consist of a 50k loan and a 20k excess loan and if the total was defaulted then the first 50k could be a deemed distribution and the next 20k would be a deemed dist, a premature distribution and a prohibited transaction (since it is the owner). Thanks.

Right. I was meaning that taxation could not be deferred indefinitely whether as a life payment or a lump sum there would be some taxable event. Thanks

Thank you Sieve. So in conclusion if an adult child is a beneficiary of an IRA or pension, it is a taxable event within 5 years. That is, not able to be deferred to age 70 1/2 as a personal IRA for example?

Thanks Sieve, Now if the individual is receiving payments under the life expectancy rule for a few years and then decides he wants the remaining balance of the inherited IRA in a lump sum. I presume that this also would not be subject to the 10% early penalty?

I prepared the form 5500SF and Schedule SB on the IFILE system. As the actuary my understanding is that I need to print the Schedule SB, sign it and then scan it as a pdf file and then attach the pdf signed schedule SB to the Form 5500SF filing along with all the other Schedule SB pdf attachments. Is that correct? Can't think of another way to get actual signature, etc. Thanks.

A DB plan provides for the 5 year rule for payment to a non spouse beneficiary. If say a participant dies on July 1, 2010 at age 65 (i.e. < RBD) can the adult child beneficiary choose to roll over the death benefit (act equiv of pension) of 100k to an inherited IRA prior to 12/31/2011 and begin receiving payments over their life expectancy? Say this same individual has an IRA could the IRA become an inherited IRA to adult child and be paid in same manner as above? Thanks.

A DB plan provides for the 5 year rule for payment to a non spouse beneficiary. If say a participant dies on July 1, 2010 at age 65 (i.e. < RBD) can the adult child beneficiary choose to roll over the death benefit (act equiv of pension) of 100k to an inherited IRA prior to 12/31/2011 and begin receiving payments over their life expectancy? Say this same individual has an IRA could the IRA become an inherited IRA to adult child and be paid in same manner as above? Say in the case of the DB plan above the child waits until 2012 to roll over the death benefit into an inherited IRA account. Does this mean that the inherited rollover account must be distributed by 12/31/15 and be subject to tax and the 10% early payment penalty if child is under 59 1/2? Thanks.