Gary

IRS is reviewing a plan with 50% premium for whole life policy and 50% premium for annuity contract to fund the projected retirement benefit under 412i plan. The projected ret benefit being funded is 100k per year at age 65. The participant's compensation for the first two years was only 80k and then the next three years is 100k for a 3 year avg of 100k. So initially it seems the flaw would be funding for a benefit in excess of 415 limit, but this is corrected when they increase their compensation. Today agent said that the death benefits are excessive and the entity is subject to a listed transaction, but gave no further details. Based on the facts presented, anyone care to opine as to what grounds the IRS may arrive at such a conclusion? Thanks.

It is a whole life policy.

A plan sponsor implemented a 412i insurance funded plan, thought the fact that it is intended to be a 412i plan should not be relevant as the matter pertains to death benefit limits. The plan includes the husband and wife as the only employees/participants. For each participant a total contribution of $200k was made, where $100k was for the life insurance premium and the additional $100k was to an annuity poicy. If the participant lives until NRA then the amounts in the two policies is to fund the retirement benefit. And if the employee dies prior to NRA then the life insurance and value in the annuity policy is the death benefit. This seems to comply with the incidental death benefit limits of rev rul 74-307. My understanding of 74-307 is that less than 50% must be applied to life insurance. So that would mean if the annuity policy contribution was instead $100,001 it would technically mean that the life insurance premium is less than 50% of total contribution. Not sure if such a technicality is truly meaningful or relevant, but just an observation. I've even seen where a DB plan could have as much as 66% of contribution be applied to the life insurance policy. Any views on the compliance of such a death benefit provision? Thanks.

My understanding from a recent conversation with someone at Corbel is that the PFEA amendment has been extended with the PPA amendment due date. I will see if I can find some actual documentation that supports the deadline extension for PFEA amendment. Not yet sure where that extension of deadline was communicated. Thanks.

Thanks again. The plans are all volume submitter plans. That is, pre-approved plans. The sponsor of the pre-approved plan would have generated a boiler plate amendment that could have been adopted by all adopting employers, just like our current pre-approved plan sponsor (Corbel) does.

Thank you. I was considering delivery to the plan sponsor of the plan termination amendment to the client along with the other amendments that should have previously been adopted. Then I would inform them that since the amendments were not adopted timely it is a plan qualification failure that could be remedied through VCP. I could provide them the filing fee and service fees and let them decide if they want to proceed with VCP. Does that make sense? In general, I know many of the DB plans my firm implemented have never adopted the PFEA amendment, since our firm did not provide the amendment to the plan sponsors. Should a VCP filing take place for just that one amendment, which never impacted plan operation? Could this be better addressed instead at the time of EGTRRA restatement and determination letter filing when that occurs? Thanks.

Thanks. I've never gone through the VCP process. Approximately how much time in hours worked might this process take for the actuary handling the matter? One hour? 5 hours? Other?

A plan is terminating and I am to preare the plan amendment to terminate the plan. The termination amendment contains the plan termination date and includes recent legislation such as PPA, and WRERA. In reviewing the plan sponsor's document I determined that the following amendments were not included with the plan: 401a31B automatic rollover PFEA 415 regulations I can provide the plan sponsor with those prior amendments along with the plan termination amendment. Any practical suggestions as to what should be done? It's a one participant plan and the plan has operated in accordance with the law, just didn't have the amendments in place (or have been misplaced). Thanks.

Ok first I better make sure I am clear on the matter of lineal descendant and ancestor. Based on your comments, I stand to be corrected. Ancestors are parents and grandparents, etc. and descendants are children, grand children, etc. A father in law is an ancestor of the owner's spouse and as we say not mentioned in the party in interest definition. I was thinking under 1563(e)(5) that the spouse was also an owner through attribution, but since the spouse is not an employee (or serve the company in any manner) of corp and does not directly own any stock (not sure exactly how 1563(e)(5)(D) is applied) then perhaps the spouse should not be considered a 50% owner and once again making the spouse's father not a party in interest. Yes, it is essential that the faterh-in-law not be a party in interest in some other fashion; like if he provided services to the plan or something. Can't think of too many ways the father in law could be a party in interest though. Thank you.

I was not sure when the DB EGTRRA VS was to be approved, but your comments (which may be from a prior rev proc eg. 2007-44) indicate that an advisory opinion letter will be issued prior to 5/1/2010 thus beginning 5/1/2010 there will be VS DB EGTRRA plans to submit, whether created by Corbel or any other pre approved document preparer.

ERISA Section 3(14)(F) and 3(15) provide that a party in interest includes: "a relative of any individual described in subparagraph (A), (B), ©, or (E)" where relative is defined as spouse, ancestor, lineal descendant, or spouse of lineal descendant. There is a corporation with two 50% shareholders. So the question pertains to the scope of who falls under party in interest. The definition of relative does not explicitly provide for lineal descendant of spouse. It does address spouse of lineal descendant which is not the same. So for argument's sake that might exclude an owner's father in law, since he is the lineal descendant of his spouse. That is, the father in law might not be considered a party in interest. However, after further review, 3(14)(E) provides that a 50% owner (3(14)(E)) is a party in interest and thus the spouse would also be a 50% owner due to attribution rules and therefore party in interest would include lineal descendants of spouse (i.e. father of spouse). Does that make sense? Finally, what if the owner was a 49% owner, than it would seem that spouse would not be a party in interest under 3(15)(E) and thus lineal descendants of the spouse would also not be a party in interest. Does that make sense? So in conclusion if the 50% owner is willing to be a 49% owner than the spouse's father would not be a party in interest. Which means that the plan could invest plan assets in the father in laws business without causing a PT. Make sense? I'm just trying to verify my interpretation. Thanks.

I am submitting a VS plan and my understanding is that the GUST document is the most current VS document since the EGTRRA VS plans have not been approved yet. So I would submit the GUST VS document with tack on amendments subsequent to GUST, such as 415, EGTRAA, PPA. How else can or should a VS DB plan be submitted now? Thanks.

Thanks, I agree.

Back in 2004 the PFEA legislation was passed. It included changes in connection with 415 lump sum payments. It also required that DB plans be amended for PFEA by the end of the 2006 plan year. I observe a one participant plan that of course did not make any pension payouts during 2004 and 2005. This plan does not have a PFEA amendment. Of course it will be amended for PPA, which includes the current 415 lump sum payout rules. Does it seem necessary to add a PFEA amendment now? Thanks for comments.

I have seen new plans created, either an EGTRRA 401k plan or a GUST DB plan, that include tack on amendments for PPA, 415 regs and in the case of DB plans good faith EGTRRA amendment. When filing for an initial DL would you just file the Plan document with or without the tack on amendments? Thanks.

My initial impression is that the plan as you say is ordered to recalculate benefit according to the terms of the plan, which created the whipsaw in the first place since it was not drafted in a way that avoided the whipsaw. The plan would likely be amended prospectively to avoid the whipsaw matter in the future, so the account balance is the accurate amount of payment.

Thanks. Good advice.

Thanks. Yes, I do have notice 97-11 and the DOL publication "The Division of Pensions Through QDROs" and will be reading them more thoroughly, but I didn't notice anything addressing the "format" of the QDRO and that was what I was inquiring about.

This thread is also on QDRO board but that board is very quiet. I prepared a 2 page QDRO. It is essentially a basic word document that provides all the necessary information that s/b contained in a QDRO. I was hired by the two spouses. That is, they agreed to use me. My question is: Is t his sufficient? That is, does the QDRO have to be in some fancy legal format, like that of a lawsuit, or is this simple presentation allowed? My understanding is that the draft QDRO, if agreed by the two divorcing spouses is then presented to a judge who approves the division of assets as a domestic relations order. Of course the plan administrator has to determine that it satisfies the rules to be a qualified DRO. Then once that is all complete the two spouses sign off on the QDRO and it can be executed. Is that a correct uunderstanding? Thanks.

I prepared a 2 page QDRO. It is essentially a basic word document that provides all the necessary information that s/b contained in a QDRO. I was hired by the two spouses. That is, they agreed to use me. My question is: Is t his sufficient? That is, does the QDRO have to be in some fancy legal format, like that of a lawsuit, or is this simple presentation allowed? My understanding is that the draft QDRO, if agreed by the two divorcing spouses is then presented to a judge who approves the division of assets as a domestic relations order. Of course the plan administrator has to determine that it satisfies the rules to be a qualified DRO. Then once that is all complete the two spouses sign off on the QDRO and it can be executed. Is that a correct uunderstanding? Thanks.

The pension professional at our firm did not have the defined contribution plans amended for the final 415 regulations. That professional is no longer with firm. My understanding is that the 415 amendment should have been done by the due date of the tax return for the fiscal year beginning on or after 7/1/07. So this indicates to me that many of our plans may not have amended their plans by the deadline. My speculation is that the prior pension professional might have intended to amend for 415 at the time plans were restated for EGTRRA. DC plans need to be amended for EGTRRA by 4/30/2010 so it is conceivable to be timely for EGTRRA restatement but late for 415 amendment. Am I missing something here? What remediies are suggested? Thanks.

It seems the concensus is that the plan would be disqualified nullifying all prior deductions. Yes, plan termination is always an option. Thanks.

Say a one participant (owner) plan has a plan year from 8/1/08 through 7/31/09. On 8/4/09 they decide to adopt a plan amendment to freeze plan accruals effective 8/1/08. Of course we know that accrued benefits as of 8/4/09 cannot be reduced, so this would violate 411d6 and 412d2 for funding purposes. What are the consequences of such an amendment? Plan disqualification? Other? I always read that it is not allowed, but never do I see anything reporting on the consequences. Thanks.

Thank you.

Excellent points. My only remaining question is how do you determine the compensation issue to be a funding method change as opposed to an assumtion change? Is it just that using an actual pay versus an assumed pay is a method change in how valuation compensation is defiined as opposed to an assumption change? Another actuary views it as an assumption change. Do you know anything concrete that supports this as a method change or is it more of an interpretation you have? Thanks.