Gary

another aspect on this subject. say a participant is age 65 with AB = 16,250 at 12/31/11 (at 415 limit) can he elect RASD as of age 62 and commence receiving 16,250 as of 1/1/12 with a back make-up payment for three years of missed payments? In this case he is receiving the 415 annuity retroactively. The question as it relates to RASD regs is: does this exceed 415? that is as of 1/1/12 is an actuarially equivalent annuity determined, that is of course above 16,250 due to make-up payment and thus would be more than 415? or is the fact that all payments are no more than 415 limit, but just starting at earliest date permitted? this is a case of application of the RASD reg as a lump sum i think it is clear that payment cannot exceed pv of 16,250 using age 65. thanks

yes accd to date is another option and of course that can result in the accrual being perhaps just what the one year accrual without re: to past svc piece of amendment as mentioned above. say in my example the AB was 1000 after 5 years of svc. and after amendment it is 1500 after 6 years of svc for the one year the accrual is a massive 1500-1000 = 500 however using accd to date it is now 1500/6 = 250 (which is even less than the 1500- 1200 =300 above) interesting; accd to date based on years of participation will generate the best results. cool!

to put my question another way. if a plan makes an amendment that impacts past service and future service as in my ecample. The question is: should the increase in the benefit for past service be part of the accrual for a4 testing? or should a4 test only on the accrual related to the one year of service when using annual method of testing? so another numerical example could be: AB 12/31/10 = 1000 before amendment AB 12/31/10 after amendment = 1200 AB 12/31/11 after amendment = 1500 so should accrual be 1500-1200 = 300 or current year or 1500 - 1000 = 500 which includes impact of amendment on past service as well? obviously this can have a huge impact re: testing. the thought being that the past service amendment is determined on its own merits as either discriminatory or not and the current year accrual (ignoring past service increase in benefit) is tested separately as well. thanks

owner has 12/31/10 AB = 9,000 per month payable at 62 owner has 12/31/11 AB = 11,000 at 62 plan amended to change early ret at 55 from act equiv to fully subisdized unreduced AB at 55. 12/31/10 AB payable at 55 after amendment = 7,000 (limited by 415) 12/31/10 AB act equiv at 55 before amendment = 6,000 12/31/11 AB at 55 after amendment = 9,000 So for annual accrual for 401a4 testing at age 55 which is more correct? 1) 9,000 - 7,000 = 2,000 payable at 55 prior to normalizing 2) 9,000 - 6,000 = 3,000 at 55 prior to normalizing thanks

profit sharing limit is 6% since non pbgc plan and that doesn't provide enough allocation

i agree. actually due to profit sharing limits, the non discrimination cannot be satisfied through a PS allocation alone. thanks

A husband and wife (owners) have a one participant DB plan for several years. They hire an employee who is scheduled to commence plan participation on 7/1/11. They freeze the plan on 6/30/11 after they received an accrual for 2011. Should employee receive an accrual for 2011? The issue being: should employee receive an accrual to pass non discrimination for 2011, thus resutling in a corrective plan amendment? thanks

i have also spoken to practitioners who believe the allocation is based on value of benefit of course, if deduction and partnership are a 50/50 basis, then, one partner may have a benefit of higher value than the other (depending on design). There are a couple of regs (not sure if most appropriate) that discuss this: 1.404(e)-1 and 1.404(e)-1A. not sure which one applies as they both seem to be in connection with self employeds and one reg seems to indicate that it is split based on value of pension while 1A seems to indicate that it is allocated based on ownership percents. actually, 1A seems to supersede 1. thanks

new plan 2 partners and a few employees the employees costs are deducted on the partnership return. one partner has a target normal cost of 60k and the other has a TNC of 100k. The partners want to deduct 80k each and amend benefits to eventually be equal. if partners agree i dont see problem with above. any thoughts out there? thanks

thanks tom and if it is passing by means of combined db/dc plan then i presume it has to pass with and without qnec. the qnec can also be applied to meeting the gateway too? of course excluding 3% qnec can make it more difficult to pass tests; i.e it can fall below 70% abt or even cause a NHCE to have his accrual rate fall below the HCE. thanks

generally the plans i work with pass adp test by means of a safe harbor and i dont use and apply qnecs. with that said: say a sponsor implements a 401k profit sharing plan in december 2011. say there are % NHCEs and one owner the owner earns 245k and defers 5% or 12,250. no other employee defers in 2011. the plan then allocates 3% to each NHCE to meet TH. the plan is not a 401k safe harbor for 2011 and does not have prior year testing method in plan for 2011. can the above 3% be a QNEC and thus enable the plan to pass the adp test for 2011? of course it would thus be like a deferral in that it would be non forfeitable thanks

no, the only past employee was the daughter and a son worked for two months so he would never enter plan. thanks

a husband and wife plan. They employed their daughter from 2006 through 2009. they want to amend plan such that a year of service requires only 50 hours instead of 1000. and this amendment is effective 1/1/2008 (adopted in restated egtrra plan). the intent of the amendment is to have daughter enter plan 1/1/08, receive accruals from 2008 and reflect in 2011 valuation. i am thinking that the amendment (or actually plan provision in restatde plan) should specify that the provision also applies to former employees, otherwise I am not sure if it would apply to a former employee who previously left without entering the plan. thoughts? thanks

a 401k plan with only deferrals and a safe harbor match as I understand is exempt from the top heavy allocation requirement. The company then adds a separate and new profit sharing plan and a new defined benefit plan. All three plans are part of required aggregation group. the group is tested to be top heavy. for employees only in the 401k match plan: do they need to receive a top heavy allocation OR is that 401k plan still exempt from top heavy? rev rul 2004-13 seems to make clear that if within same 401k plan there are profit sharing allocations, the exemption does not apply. However, I am not sure w/r/t situation above. thanks

A company sponsors: 1. 401k with discretionary match plan 2. new profit sharing plan 3. new db plan required aggregation group 401k passes discrimination on its own db and ps plans combined and cross tested to pass discrimination. say it is a TH group and thus the 401k plan provides TH to those only in 401k plan. However, since 401k plan not being tested with other plans for non discrimination should they provide gateway? I dont think so. thanks

since the life insurance is less than 100 times the projected benefit why not provide the same life insurance to all active employees and amend the plan to provide for the higher death benefit? thanks

I am reviewing a DB plan. It has 6 participants. Two of the participants are family member owners. The plan was at one time a 412i plan for only the two owners and life insurance purchased on their behalf. The plan is now treated as a traditional DB plan. The plan provides a death benefit equal to PVAB for all employees. Issues: 1. Re: two life policies, one policy has death benefit greater than participant’s PVAB, so I can see this being a case of excess deductions due to a policy above what the plan provides and I don’t see it permissible to have the plan be the beneficiary of such proceeds 2. And if policy proceeds has to go to specified beneficiary then plan is discriminatory re: available benefits, rights, features 3. Even if plan could be beneficiary and only PVAB paid to beneficiary, there still may be a benefits right discrimination issue What else am I missing? Solution: 1. Go thru VCP and determine if polices can be sold to participants at FMV, or surrender policies 2. Stay away from plan Thoughts? Thanks

except that it is not the same percentage for all eligible employees. these two employees will receive a relatively higher allocation. all employees have their own allocation group. thanks

a profit sharing plan is cross tested. allocation requirement is last day and 1000 hours. by providing top heavy and gateway the plan does not pass 401a4. two employees worked less than 1000 hours but employed on last day so received gateway. if these two employees receive a higher allocation than plan would pass a4. under 401a4-11g it appears that the plan can be retroactively amended (before 10/15/2012) if the plan is amended to provide the specific allocation amounts for the two employees for 2011 it would pass a4. are there any issues re: above? i.e. do the two employees need to be provided such allocations for 2012 and 2013? thanks

i was trying to take position that no payment before age 62 thus no MVARs computations before age 62. that is, whether it be death or termination, payment is deferred to when participant is or would have been age 62; granted administratively it is inefficient, but with small plans (< 10 participants) it likely won't be relevant. intent being that the HCEs do n ot have the high MVARs at young ages (like age 30, 40 or so), thus making testing easier to pass. thanks

generally the plans I work with provide that if an employee terminates with a vested benefit before NRA, for example age 40, he can recieve his benefit as an act equiv. life annuity at age 40. so when computing the MVAR I compute the EBAR for each age from 40 to NRA of 62 for eg. This often results in an MVAR that is much larger than the normal EBAR. It appears in the above eg. vesting percentages are not applied. If a plan (though not common) has terms that only provide for payment of benefit at NRA (aside from plan term) then it would seem that the MVAR would only be computed at NRA. This would minimize the disparity between normal EBAR and MVAR. Perhaps small payouts (under 5k) could be made and that is it. The above is presented in the context of a small plan (i.e. less than 10 participants). Why not? Am I missing something? Thanks

A one participant plan owner is age 65 and has been at 415 dollar limit. NRA is 62 and plan allows for in service dist. plan allows for Retroactive ASD. If plan were to terminate now does it seem reasonable to have RASD at age 62 where the distribution is essentially = missed payments (with interest) for three years plus pv of future benefits at age 65? The above of course is much more than simply pvab of future payments, since at 415 limit. If plan did not provide for in service dist and/or RASD then I dont think that amending the plan now to provide those things would work. That is, I believe it had to be in the plan provisions at the time he reached age 62 or whatever the RASD is. thanks

the pension contributions for the partners are claimed on the 1040. what is odd is that the partners also received some w-2 from partnership. i don't think they should. thanks much.

additional thoughts that came to me include: if it were taxed as an S corp then there would be no deductions on the 1040 as I see it, so it must be taxed as a partnership if partners have deductions on their 1040. and I still think if it were taxed as a 1065 partnership, the employees' costs appear on 1065 and the final net income on 1065 is distributed to each partner. and it makes sense if the actual cost for each specific partner were applied to their 1040, but not sure if the total cost for partners pension is divided based on ownership (i.e. if 50/50 then if total cost for two partners is 100k it would be 50k on each 1040) thanks

the information below may make it clear that it may be necessary to consult with CPA of plan sponsor with that said, i have data for a partnership: this is a takeover case I am not sure if the partnership is taxed as a partnership or an S corp (as of yet) The two partners have equal shares (though I think it is 46% each) of company. One of the partner's page 1 of 1040 for a prior year is as follows: W-2 shows 194,146 (sposue included too) where it is itemized that of that amount a total of 63,235 is w-2 from the partnership. This additional W-2 from partnership only appears this one year. My understanding is that if a partner receives W-2 then it may be taxed as an S corp The 1040 shows scedule C business income of 11,511 (this may have no relevance to the partnership) Line 17 of 1040 (which includes income from Schedule E from partnership) shows income of 174,784. If it is taxed as a partnership then this may include non passive income and/or passive income, guaranteed payments, and perhaps self employment income (all part of schedule k-1). If it is an S corp than I believe this is all pass through income not earned income for pension purposes. If I add the W-2 comp from company and the Schedule E income the total is 238,019. The SE deduction is 4,869 (being so low it makes me think that some of the income may be passive income) and the pension deduction is 115,000. So the net income is 238,019 - 4,869 - 115,000 = 118,150. Of course I am not even sure if this is close to what the earned income should be as of yet. The valuation for that same year shows plan comp of 111,002. Surprisingly not too different from calculation, but nontheless doesn't solve much. And finally, my understanding of deduction allocation is that the deduction on behalf of commonlaw employees is shown on 1065 if partnership or 1120S if S corp and the deduction for the partners on their return is split 50/50 since they have equal share in partnership. And the allocation for partners can be revised if they sign an agreement to do so. Any thoughts of above preliminary analysis? thanks