Gary

Under PPA the funding is based on a unit credit method. So a plan freeze may not reduce a funding to $0 since the FT may be greater than assets. Alternatively, it is my understanding that an owner can irrevocably waive benefits in order to reduce funding requirement. So let's say an owner's AB is 40,000. Can the owner waive 10,000 to result in an AB of 30,000? Or does h e have to waive the entier AB? So, for example if the owner can waive 10k he can in effect still have his gross AB increase and then be offset by 10k which would presumably be an irrevocable wiaver. Curious to get thoughts and cites (notice, rev rul, etc.) if popssible. Thanks.

This arrogant attorney makes the statement that a DB plan can be frozen and thus have no funding requirement. My understanding, is that while future plan accruals can be frozen, a minimum required contribution calculation must be performed and may still result in a contribution greater than $0. Seems pretty straightforward to me. Any comments on the above?

My understanding is that the new law allows account balance participants to avoid an RMD for 2009. However, my understanding is that DB plan participants must receive an RMD in 2009? Furthermore, if a DB participant receives a lump sum distribution in 2009 and is over 70 1/2, a portion of such distribution must be received as an RMD and the remainder may be able to be rolled over. Agreed? Thanks.

Mike, You say "the latter". Meaning that I first cross test the allocation into an accrual rate and then apply permitted disparity on the accrual rate. Do you have a specific cite in the regulations supporting that? Thanks.

I have a combined DB/DC plan. I am in the process of researching these items, but wanted to get the ball rolling on my questions anyway. 1. My understanding is that only one of the two plans can apply permitted disparity in the non discrimination testing? 2. Let's say we apply permitted disparity to the DC plan and that we are testing the combined plans on the accrual method, i.e. cross testing the DC allocation. Is permitted disparity first computed and then followed by conversion to accrual rates OR is conversion to accrual rate done and then permitted disparity applied? I perceive that it is the former. Thank you.

Based on the volatility of the client's income, I use the current 3 year average. That is correct.

The attorney who filed for determination letter filed this plan by itself, though the Form 5307 does state that the employer sponsors a DC plan. The IRS of course says that this plan on its own merits violates 401a4. No surpirse, without the DC plan combined. The 5307 asks if plans are combined for coverage purposes and the Form state "No". Of course if the answer was "yes" than the DC plan would have to be combined for discrimination testing. It is simple enough to answer "yes" and combine plans for coverage and non dsicrimination and that would work just fine. As an academic question, though, is it allowable to answer "no" for combining plans for coverage and then still combining plans for non discrimination testing? Because while the DB plan would not pass non discrimination on its own it would meet coverage on its own. Just curious. It doesn't appear that Form 5307 explicitly provides for not combining plans for coverage and then combining plans for non discrimination, although it is possible that the attachment to item 9a provides for that. Thanks.

An employer sponsors a DB plan and a 401k profit sharing plan. The DB plan provides a formula of 10% per year for the owner and an accrual of 0.5% per year for the employees. The 401k profit sharing plan provides an allocation of 7.5% for each NHCE to meet gateway. On a combined plan basis the plans pass the non discrimination tests. Based on the above facts, does the above appear to be a reasonable non discriminatory plan design? The IRS is just reviewing the DB plan and claims the plan formula is discriminatory. Any suggestions on how plan sponsor should submit fopr determination with this type of plan design? That is, somewhere report that the plans meet discrimination on a combined plan basis. I don't work on plan determination process, so without researching the plan determination forms, I am thinking it would have a section to indicate plans pass on a combined basis. Interested in comments. Finally, what if Db formula provided 0.5 to NHCEs and offset DC value? On the basis that the plan passes general test and is of course not a safe harbor offset plan? Just another perspective for consideration. Thank you.

It is a small contribution for a DB plan. I was not a part of the planning regarding the decision to implement a DB plan. So it appears there are no further comments regarding the accuracy or reasonability associated with the impact of going from old law individual aggregate to PPA funding in our example? Thank you.

The TNC is close to 55k at BOY as compared to 75k increase in CL at EOY. The CL was done at a 5.31% as compared to the 6.09% 3rd segment rate so it is not surprising that the CL is higher than PVAB under PPA. Regarding AB At the beginning of the year the AB was 28,667 (BOY avg pay) * 14/32 (total service pro rate accrual) = 12,542 At the EOY the AB is 47,667 (EOY avg pay) * 15/32 = 22,344 There is also a 100% j&s subsidy but that is the same for BOY and EOY accrual so not relevant to address here. So due to the large increase in AB we have a large increase in PVAB accrual from BOY to EOY. Perhaps this helps support this old law aggregate funding versus PPA disparity? Thanks

Under the old law valuation The minimum was close to 23k based on aggregate level funding. At BOY the Unfunded CL is 65k and the increase in CL during year is 75k. So as you can see there is a large unfunded CL, and large increase (due to large increase in avg pay) thus allegedly explaining the large PPA minimum funding. The 2 participants entered the plan with 10 years of past service and after the 4th year their AB is 25k and 7k, respectively. So yes we can say that the one participant has a fast accrual. The projected benefits used for individual aggregate are 48k and 14k, respectively. Does the disparity make more sense now?

I have a two person plan that has been in existance for about 4 years. The employees are in their mid to late 30s with NRA of 55. Under the pre PPA rules the minimum funding ($0 credit balance) was close to 23,000. Low due to the many years that the funding can be spread under the individual aggregate funding method. Under post PPA the minimum funding was close to 70,000. Due to the difference in the funding method, i.e. individual aggregate to a unit credit it is not surprising to me, but have others found such a dramatic increase from pre PPA to post PPA in some cases? It can be a bit overwheliming to a client. And lastly, I read in a summary of the Worker, Retiree and Employer Recovey Act of 2008 that under 415(b) the mortality table for adjustments is the 417(e)(3) table. Does this mean that instead of GAR94 the 417(e)(3) table is used for both pre age 62 early retirement adjustments and for maximum lump sums? Thank you.

Do many of you prepare Forms 1099R for your small plan clients? I am faced with about 100 clients in such a situation. Thanks.

These are plans that are in their second year or so, so at thsi point the 401k account can be segrregatewd between 401k deferrals and 401k safe harbor amounts. That is why I am raising the issue now, to determine what other practitioners do in such a situation. It sounds like most practitioners are advising the client to make an additional sub account for the safe harbor amounts so it can be tracked. The clients I typically work with want to do as little as possible, but my impression is that it is easiest in the long run if there are 3 sub accounts for each participant. One for profit sharing account (with vesting) one for the 401k deferrals and one for the 401k safe hearbo contributions. Does that sound right or are there are other recommended approaches? Thank you.

Say we have a sole proprietorship, where the husband owns the company and the wife is an employee (or it can be a non wife employee). Point being, we have owner and one employee. The owner files a Schedule C. The pension costs for the employee are a Schedule C deduction and the net earned income flows to the owner's Form 1040 where the earned income is allocated between: notional pension compensation pension deduction 50% SE tax deduction. Does anyone have a standard technique of dividing the employee pension cost and the owner pension cost? Assuming PPA funding calculation. Do people use the increase in PVAB as a ratio? Or the PVAB at the end of the year as a ratio? Or perhaps the PVAB at beginning of year less assets (where assets are allocated by ratio of PVAB) and then add increase in PVAB and use the ratio of that sum? Thanks.

I have a client that sponsors a profit sharing plan, a safe harbor 401k plan and an offset defined benefit plan. The client has, I belileve, created sub accounts for each participant. One for the profit sharing plan account and one for the 401k plan account. So determining the 401k account balance and profit sharing balance is not a problem. The 401k plan is a 3% non elective contribution safe harbor plan. So that means the participants' 401k accounts consist of 4012k deferrals and 401k non elective contributions. Which means that some of the 401k account is employer provided. Any suggetions as to a suggested way to determine how much is the employer portion and how much is the employee portion of the 401k account? Of course if we created 3 sub accounts for each participant then that would work. Or our firm can do record keeping of the 401k account to allocate the amount that is employer and the amount that is employee. The employer portion is relevant in order to compute the accrued benefit under the defined benefit offset plan. Curious to hear comments, techniques. Thanks.

Say a participant has an accrued benefit under the plan terms of 50,000. Say the 415 limit is 30,000. Now say that the 415 limit has increased to 45,000 as of next plan year. If the plan amends plan where participant's AB next year is 40,000, is this a violation of anti cutback? That is, the qualified benefit increased from 30k to 40k, but the Ab of 50k from the prior plan year which would be limited to 45k in the current plan year is not preserved. Long story short, is the 30k preserved or the 50k (subject to 415) preserved? Thanks.

Yes, the AB is based on credited service. So the benefit is 60% of avg pay after the first plan year is limited to 415 limit. So the question is, for the accrued to date ND testing, is it acceptable to use all past service (up to 6) for the DB plan accrual testing and then combine that with 1 year of service for the accrual under DC plan to arrive at a combined plan accrual rate? Thanks.

For example if a plan provides 10% per year DB pension then after the first year of the plan the owner participant would have accrued the 415 limit for one year of participation, yet it is spread over 6 years due to the 5 years of pre plan participation service. The one year PS allocation (at say 7.5%) to the young non owner is powerful due to cross testing. Thanks.

Say a plan sponsor implements a new DB and a new 401k PS plan. Say the DB plan provides past service credit up to 5 years. If the plan is tested for non discrimination testing on the accrued to date basis would the following make sense? DC plan account balance is based on one year of service since it is th eplan's first year. DB plan is based on service to date (up to 5 pre participation years as well). Plans are cross tested on using accrual method. This results in relatively low accrual rates from DB plan since the accrued benefit is spread over all years of past service and the accrual under DC plan is spread over only one year of service. Thanks.

Under PPA Assume new plan. Say you have a beginning of year valuation (we'll use 1/1/08) and determine that the maximum deduction is 100,000 as of 1/1/08. Can this figure be increased at the effective rate of interest until 12/31/08 as a maximum? That is, if eff int rate is 6% could it be $106,000 for max deduction? Other views? Thanks.

Yes he owns the company that sponsors plan.

A one participant plan invested in loans. That is, they did what appears to be a private promissory note and loan that was secured by real estate. The appeal is interest rates on the loans of above 10%. Does anyone detect any problem with such arrangement? The loans are to non parties in interest. Thanks.

First of all; how low is the stock market going to go? 7000? 6000? Anyway, Say a one man plan is implemented where the individual has 5 years of past service at plan inception. Let's assume we do not have prior years' compensation. Say in year one he earns 50,000 and in year 2 he earns $0 (but is credited with a year of service). Therefore, the average compensation goes from 50,000 to 25,000. Say benefit is 10% per year. Then theoretically in Year 1 his AB would be 5 * .1 * 50k or 25k, limited to 415 limit of say 18,500. Then after year 2 his AB is 6 * .1 * 25k or 15k. And a negative accrual results in a negative TNC. Any problem? Thanks.

However, while the tax year of the participant is the calendar year, that doesn't clarify that more than the 402(g) limit can be deferred in the plan year. For example 15,500 can be deferred in 12/07 for 12/1/07 PY. And 15,500 can be deferred in 12/08 for 12/1/08 PY. In the above example 15,500 is deferred in 2007 and 2008, and 15,500 is not exceeded in any Plan year as well.