Gary

Thanks carrots. So changing the method of using plan year compensation falls into a change in funding method? I'll try and validate that in some way, but it makes sense. That is, it is not one of the basic method changes such as unit credit to entry age normal, etc.

The change would help for 2008 but then of course the large cost would arrive in 2009 and then the plan sponsor will be real surpirsed and difficult, so not sure if I want to take that route. It may be better to have them deal with it now whne it corresponds to th is high year of compensation. In their case they do not have financial problems. I'll think about it some. Thanks.

Let's focus on carrots point of view for a moment. Yes, it is an 8/1/08 valuation, but we have actual compensation as of 7/31/09 and typically use it. That is where the problem lies. It increased substantially thus causing a large increase in benefit during the year and a large cost. If I use an estimated increae in compensation (ignoring what actually occurred) of say 5% then of course the costs would be manageable. That's a thought, but not sure if a reasonable method. I'll think about it and entertain other views. Thanks.

I could use a 7/31/09 val date but it wont help as I can see.

Well it's the 2008 valuation and the plan assets did not drop as we do a 8/1/08 valuation. Segment rate adjustments can help some I suppose. Yes they can take plan loans. That's true. Thanks.

Of course if formula at beg of yr were either frozen or amended where the increase by the end of the year is small it would provide the desired results for this one participant plan. We're dealing with a 1 participant plan where if the plan were to be terminated you can pay out benefits to the extent funded and thus the plan (a non PBGC plan) does not really have to be fully funded. Yet when the plan is in force the minimum funding is strict. Bottom line is that if the plan sponsor comes in at beg of yr we can freeze benefit at beg yr. Since he came in at end of yr for tax planning we can increase benefits retroactively as of beg of yr (412d2) but can't reduce benefit below the end of yr AB. This situation must be happening to many practitioners and plan sponsors. What are practitioners doing? A sponsor just says they can't afford to make payment. A plan freeze effective immediately helps for the subsequent year but not for the year that just ended. Of course the sponsor can pay a funding deficiency tax and pay the contribution when feasible, but not many sponsors are accepting of that. Ideas? Thanks.

A plan has a plan year that ends 7/31/09. As of 8/1/08 the AB was 20k after 15 years of service. As of 7/31/09 the AB is 40k. The reason for the large increase in AB is due to a large increase in compensation. So what happens is that the plan has no shortfall amortization, but a monumental target normal cost that is much more than plan sponsor wants to contribute. If the beg. yr AB could be significantly increased to say 38k then the normal cost would be low and the funding would virtually all be a part of the shortfall amortiation thus reducing costs. However, the 415 limit is only 22k at beg yr. so a large increase is not possible. Of course this could be resolved if the AB at beg of yr and 415 limit at beg of yr. were able to b e based on the end of year avg comp but service at beg yr. While the above probably isn't an option are there other creative ideas? Thanks.

I was able to get some actual data and will present this again. The plan provides for a 100% of comp benefit at NRA. Participant has 60k comp for first year. The annuity based on the guaranteed cash values at ret. and the insurance company annuity conversion rates produces pension of 47k. However, using the same guaranteed cash value at ret produces a 415 annuity of 85k if the participant takes a lump sum, which he will. So right off the bat the issue of differing conversion rates between lump sum and insurance annuity causes dilemma. Using insurance conversion rates may make sense with a plan with many employees who are required to take an insurance annuity at ret., but doesn't seem appropriate for a one participant plan who will take a lump sum. Based on the above, we have a situation where the premium paid is not large enough based on guaranteed rates, while at the same time would produce a surplus at retirement when participant takes lump sum. A way of designing the plan based on the above information may have been to provide that the plan provides a NR benefit of 47k (i.e. equal to insurance produced annuity) where AB is pro rated on participation (or equal to benefit produced by insurance values if greater). However, the participant would receive comp of say 100k per year and then at retirement when he takes lump sum the hope is that the plan can be amended to provide the higher annuity on lump sum basis that doesn't exceed 415 limit. However, based on the actual facts stated above perhaps the plan can be amended to provide the proposed technique stated in the preceding paragraph. Other views? Thanks.

A plan sponsor implements a 412i plan for himself (the owner and only participant). The plan formula is a 100% of avg comp annuity at NRA. He is to pay 50% life premium and 50% annuity premium as level premiums until NRA. Say the policies guaranteed values result in a life annuity at NRA of 50k per year based on the life insurance annuity conversion rates. Of course the owner will actually take a lump sum at NRA. So while the policies can support a life annuity of 50k from the insurance rates, it would actually be worth a life annuity based on lump sum conversion rates of say 60k (the 415 limit). Now the owner only received compensation of 40k in this the plan's first year. So in effect the policy provides a projected pension (50k) that is greater than what the plan provides (40k) based on the comp of 40k. Now in subsequent years the owner takes higher compensation and after three plan years he has an average comp of 75k. So now his projected plan formula benefit is 75k, the insurance policy guarantee rates benefit is 50k and the 415 lump sum based on guaranteed values is 60k. Instead of increasing premiums to address the increase in projected benefit the owner maintains the same premiuim level. The thought being that if he terminates the plan at say NRA and the insurance values are not high enough to cover the 75k annuity he simply pays out benefits to the extent funded (ignore 436 for this discussion). And if the values increase greater than the minimum guarantee, he has some space to avoid a surplus or at least the srplus would not be as substantial. Now what would one suggest in terms of remedying th is situation? That is, to safeguard against an inevitable IRS audit. Thank you.

An owner only plan terminates where say plan assets equal 70% of value of benefits. 436 would not allow full lump sum distribution. Does anyone know of a practical example where such a plan distributed plan assets? And if there were any consequences, violations, damages, etc.? Point being, if such a plan distributed lump sum to owner, what might IRS do? Anyone know of ramifications? Actual better than theoretical. Thanks.

If a plan (10 employee plan) is frozen say 1/1/08 is it required that emplyees still receive vesting years of service after 1/1/08? My recollection is yes and that this is fairly fundamental, but I did not observe anything explicit on this at this time.

I have just taken over plan document duties at my office. As I understand it, EGTRRA restatement occurred some time ago. Perhaps in 2008? My understanding is that all volume submitter DC plans must be restated for EGTRRA by 4/30/10? I also believe all DC plans have to include the PPA amendment by the end of the 2009 plan year? So if a plan does not restate for EGTRRA do we agree that the plan could be disqualified? Same for PPA? Thank you.

For the record. The automatic freeze provision is not something that Corbel created. Apparently it came from another source. Thank you.

I agree with your comments. I was wondering if trustees, plan administrator, employer, employees needed to receive such a notice? I'm of the belief that only affected participants should receive it, but though I am not a lawyer, I work at a law firm that is a bit argumentative about stuff. Even the paralegals are a nuisance. So I told them that other than affected participants those other categories stated above need not receive such notice. Thus the reason why I presented it here for any other views.

Based on what I have seen in connection with 204h reduction in future accruals notices, theys/b provided to all plan participants and beneficiaries receiving benefits and alternate payess of a QDRO. As far as I know such notice does not have to b e provided to a trustee, or employer, or plan administrator, etc. I'm not sure what employee org (i.e. DOL) should get such notice or where it would be delivered, etc. I am curious for comments on the above. BTW, the plan subject to this reduction is a 2 participant plan Thanks.

We have a Corbel SUngard plan document for a pension client where such document includes a resolution to adopt the plan. The plan also had a tack on amendment (and separate resolution) to reflect changes due to EGTRRA, PFEA and Rev Rul 2001-62, which also was provided with the plan. And subsequently we added another amendment to adopt the 415 regulations, along with yet another resolution for that amendment. All the above materials are provided by the Corbel system. We are now in the process of preparing a plan restatement that Corbel provides that allows for the plan to be amended to include an automatic annual plan freeze provision, where the plan can be unfrozen at any time to provide accruals and then automatically frozen again at the end of such year. The question is regarding document logistics. I expect to provide the newly restated plan with a resolution, along with the tack on amendments for the 415 final regulations (and separate resolution) and the EGTRRA (et. al stated before) amendment with separate resolution. And if it is appropriaate I will add yet another tack-on amendment (and separate resolution) which is for PPA. Does anyone have comments regarding the appropriateness of the above approach? Of coourse I could consider preparing one resolution that applies to the restatement and all tack-on amendments. Thanks.

An attorney drafted a new 401k profit sharing plan for a company to take effect in early 2009. The company never used the plan and came to my firm to have us administer the plan. The owner would have wanted plan to be a safe harbor match plan so they could make a maximum deferral. SInce plan never used, no deferrals made yet, what is thought about amending plan to be effective say 8/1/09 as a mid year new safe harbor match plan with deferrals first beginning at that time? I realize an ordinary on-going 401k plan cannot make a mid year conversion, but thought this has different applications. Any thoughts? Thank you.

Say a small defined benefit or defined contribution plan (less than 15 participants) wants to make a plan amendment. While conceptually and operationally such a change is straight forward I want to discuss paperwork logistics. My belief is to keep things simple and that there is more than one way to skin a cat. For purposes of this thread let's ignore the participant notices 204h, etc. I just want to focus on the plan itself. With that said, to make a plan change is it satisfactory to prepare a written consent by the Board that also satisfies a resolution and provide that with the plan amendment (both for signature)? And finally, is there specific language that must be included in the consent and amendment, in addition to the actual substance of the plan change? I would think that there is not a precise way that this be done as long it accomplishes a few basic things. Curious to get comments, with the goal of keep it simple. Thank you.

Say a small defined benefit or defined contribution plan (less than 15 participants) wants to make a plan amendment. While conceptually and operationally such a change is straight forward I want to discuss paperwork logistics. My belief is to keep things simple and that there is more than one way to skin a cat. For purposes of this thread let's ignore the participant notices 204h, etc. I just want to focus on the plan itself. With that said, to make a plan change is it satisfactory to prepare a written consent by the Board that also satisfies a resolution and provide that with the plan amendment (both for signature)? And finally, is there specific language that must be included in the consent and amendment, in addition to the actual substance of the plan change? I would think that there is not a precise way that this be done as long it accomplishes a few basic things. Curious to get comments, with the goal of keep it simple. Thank you.

Yes, it is the GUST approval letter. It appears to be a glitch. Thanks.

I recently generated a volume submitter defined benefit plan document and form 5307 using the Sungard Corbel system. The Form 5307 stated that the date of advisory letter was 3/31/08 but did not provide a serial number; which would appear to be an EGTRRA pre-approval opinion letter. However, the advisory letter we have is dated January 17, 2002. The Form 5307 automatically generates the date of the advisory letter and the serial number. Has the IRS issued favorable opinion letters for volume submitter plans yet? If not, then I don't know why the form 5307 lists the date of such a letter. Anyone have an explanation for the above? I have a call into Sungard but don't when I will be able to talk with them as they are difficult to reach. Thanks.

Thank you. Some helpful suggestions. The owner here implements/sells the plans and may not (or I should say does not) always tell them that you have to fund these plans regardless of profits, hence part of the issue.

I'm an actuary at a firm that provides tpa services for small pension plans. We have clients come in to get their tax work done after the fiscal year is complete in many cases. They come in and say they had a bad year and can' afford to contribute to their pension. Based on PPA there iss't much we can do for the j ust completed plan year due to the unit credit cost method. Sure I can freeze their plan immediately, but for the just ended year it doesn't necessarily help. If the plan were frozen at the beginning of the just completed year it would have helped some, but that can't be done. So if I report a plan minimum required contribution of say 50k in such a situation, the client isn't happy and my employer isn't happy as we may lose a disgruntled client who might go elsewhere to get the answer he wants. So in conclusion from the client and my employer's point of view I'm the bad guy. Any suggestions?

I would provide them with the prior plan document and all amendments. Thus the plan would be current and compliant in form at the time of termination, even if it is possible that it did not have all up to date amendments prior to plan termination. It may have all necessary amendments, but it is just a little tedious to reconcile. Thanks.

A client has a DB plan that he wants to terminate. The plan was effective around 2002 or so. Over the years the attorney may or may not have kept up with all required amendments, such as GUST, EGTRRA, PFEA, PPA, HEART, WRERA and so forth. My thought is to restate and terminate the plan using the approved Sungard Relius document with all pertinent amendments in the plan and of course the salient plan provisions re: plan formul included, instead of trying to patch the old plan with various amendments. The approach of using a Sungard document with their approved and/or current amendments seems like a clean and efficient technique without trying to sort through the old document and its amendments or lack thereof. Does this seem like an acceptable approach? Thanks.