Gary

Sorry for the confusion regarding the valuation date. However, you got the concept of the situation right, which is what I am trying to focus on here. Regarding the CPA running with the first set of numbers: I had informed them (couple of CPAs working on the project) that it was estiimated assets in the email with costs. Unfortunately I did not hit them over the heads in that email saying something like "THIS IS NOT FINAL'. I had informed the other CPA (not the buffoon referenced in your response) in a prior email that I needed updated assets before these estiimates could be finalized. I told them verbally (all but worthless) several times that the plan assets would need to be updated. So I think the CPA is trying to make me stand by the numbers simply because in my email with the costs, I didn't make it explicitly clear that the results needed updated assets. That is, make me take the professional risk. An hour or so later, when I did receive actual assets, I informed them of the impact the actual assets had. Apparently since they had already told the client the original results, they didn't care or want to know of my follow up. Thanks.

We'll assume calendar year plan year. Say a client comes in to see his CPA for tax planning in early December, 2006 for the 2006 fiscal/plan year. The client has a one participant DB plan. The client says he is going to take $50,000 compensation for 2006 and wants to know the minimum funding for 2006. The CPA needs an immediate valuation for the client, so the client can plan and know. Available to me is the client's 2006 actual compensation and the plan assets, plus receivables as of 12/31/2005 (assets on 2005 5500EZ). The client doesn't have (and it doesn't exist at t his time) 12/31/06 assets or any plan assets available. If say a 1/1/2006 valuation is prepared, is it reasonable to compute the present value of future benefits or increase in current liability during the year (2006) or present value of accrued benefits at year-end based on the actual compensation that is known? And then bring, for example all costs, values as of 1/1/06 to the end of the year at the valuation interest rate? The reality is that the data includes current year-end compensation and prior year-end asset data. Curious to hear suggested approaches based on the data provided. Of course the intent is to use a method that is consistent and not arbitrary and capricious as the legal minds might say. Thanks.

Ok. Let's say it is a 4/1/06 valuation with assets, liabilities at 4/1/06. Plan year end is 3/31/07. Then the next valuation is a 4/1/07 valuation for a short 3 month plan year ending 6/30/07. Where 4/1/06 assets are used for the 4/1/06 valuation and 4/1/06 assets were first used for the 4/1/07 valuation and then we were provided with 4/1/07 assets. Since assets experienced large gain the max deduction is lower than in the first valuation using the prior year assets. Thanks.

Let me try and elaborate further, since more precise detail is required at this time. It was a plan that had a 3/31 plan year end. So for the 3/31/06 valuation we compute liabilities at 3/31/06 (year-end) and used the 3/31/05 assets plus receivables for valuation assets. Then for 3/31/07 valuation we use the 3/31/06 assets plus receivables. Then plan is merged into another company with fiscal year-end of 6/30/07. Plan year is changed to 6/30/07, 6/30/08 ... So for 6/30/07 valuation (3 month plan year) I did estimate with the 3/31/06 assets as used for 3/31/07 valuation. Then I received 3/31/07 assets and did valuation for 6/30/07 with those assets and that resulted in the lower costs. Point being I can't justify using 3/31/06 assets for a 6/30/07 valuation, when 3/31/07 assets are available. One thought would be to bring the 3/31/06 assets forward with the actuarial rate of interest to 6/30/07, but again that is for 15 months and don't see how that can be reasonable. Any thoughts would be appreciated. Thanks.

A one participant owner/employee client has a plan year through 3/31. They had large windfall and are trying to maximize deduction. I prepared a 3/31/07 valuation and said based on estimated assets the max deduction (150% UCL) was $500k. Apparently the CPA reports this to the client. The client is happy. The CPA gets back to me later in day with actual assets. The assets have a large gain and the max deduction goes down to 400k. A week later, the CPA tells me that I need to use the 500k results. Any ideas? I suppose I can check into changing the asset valuation method from market value to a smoothing method. It's a year-end valuation. The plan is at 415 limit and an amendment to a lower ret age has to be in effect for two years, per 404. So that won't help right now. The facts above have been simplified for purposes of this thread. Now the kicker is that the CPA's referred to above work at my firm, thus the demand is coming from internal management. Thanks.

A company sponsors a DBPP for its two employees and excludes himself, the owner. The company is dissolving and is in the process of terminating its DB plan. The plan is covered by the PBGC or at least has been paying annual premiums. The plan assets are $300k and the plan benefits on termination basis are 450k. The employees are willing to just take the benefits covered. To my knowledge an employee cannot waive benefits even if they are willing to and thus as far as I can see the only way to terminate the plan is in the form of a distress termination. Any other creative ideas out there? Thanks.

Don, Regarding your comments. Self-insured is likely the way it will be. If it were fully insured we would probably use a 419 welfare plan since the earnings within policy would be tax deferred anyway. With that said, I am not only curious about non discrimination guidance as stated in my post, b ut also prudent and acceptable welfare (or VEBA) benefit levels, such as post retirement medical, long term care insurance, life insurance. Thanks much.

I know this is a DB Board, but since it is such an active board I thought I would make this unrelated inquiry here. I was asked to prepare a proposal for a VEBA and one of the questions is "How much can it discriminate in favor of HCEs"? For pensions I look to 401a4 and 410. For welfare plans, the place to go is 419 (or at least one of the places) So where does one go to educate oneself about VEBAs? And non discrimination? To my knowledge 501c9 presents VEBA information, but does that section and its regs address non discrimination? Thanks much.

Ok, so instead, perhaps the first two plan years are limited, but by the end of the third year (end of year valuation) the entire UCL can now be funded. So it all ends up to be the same maximum deduction (assuming the UCL is greater than the cumulative minimums) after three years; it is just that the deductions must be delayed due to the two-year wait. Bottom line, don't really understand the practical purpose of the 2 year rule, but I guess since when are many of the laws logical?

I am trying to understand the practical value of 404(a)(1)(D)(ii). If a plan has less than 100 participants, the unfunded current liability for HCEs does not apply the liability due to benefit increases (presumably includes entire CL for new plans) for two years. The only explanation for this is that the IRS does not want an excessive plan deduction for a given year, because if the plan were to terminate then the plan sponsor could fund all liabilities at that time anyway. The first question is does this apply to new plans, since they do not explicitly reference new plans? The next question is provided by means of an example. Say a plan is implemented 1/1/2005 with only one HCE participant. Say we use the aggregate funding method and we only recognize the 100% of CL and not 150% CL for purposes of this example. Year 1 minimum = 100,000 full funding limit = 200,000 unfunded current liability = 200,000 Say company contributes 200,000. They are left with a credit balance of 100,000 a deduction of 100,000 and no excise tax on contribution above the minimum since contribution is less than FFL. Year 2 minimum =100,000 before credit balance minimum = 100,000 - 100,000 =0 after reflecting credit balance (ignore interest for the example) FFL = 200,000 CL = 350,000 UCL = 250,000 (based on plan assets of 100,000 from prior year deductible contribution) We now assume that the two year period is complete and the entire CCL can be reflected for the HCE. It appears that if they contribute 150,000, they can deduct the full 250,000 from the 100,000 caryover and the 150,000 cash contribution. So after two years they can fully deduct the entire CL of 350,000, by means of 100,000 and 250,000. Without the two year wait the deductions could have been 200,000 and 150,000 for the same total of 350,000. Are we in agreement with that analysis and ultiimately what was the point of the two year wait? Thanks

The Normal Form of payment is a 100% J&S of the accrued benefit with no actuarial reduction for the survivor annuity. The 26 year certain (maximum period per uniform life table), etc. is an optional form of payment. I believe the payment can be a certain and life payment as opposed to a certain only payment form. Would like other observations on this? I believe if the period certain is based on a period that is longer than the ULT table and in accordance with the joint life expectancy of the married couple, then that payment form would need to be a period certain only with no life contingency aspect. In terms of 401(a)(9) the flexible payment method previously mentioned entails: A form of payment that is paid over a period certain, thus it is allowable for the annuity payment period to be changed (1.401(a)(9)-6, Q&A 13(b)) And the form is to be ajusted to comply with the four conditions under 1.401(a)(9)-6, Q&A-13© I will need to verify the IRC cites (and their content) stated above, but wanted to lay out the references that I have been provided. It

A client begged for as low an RMD as possible. So with a frozen accrued benefit of $50,000 per year as a 100% j&s (normal form), we provided an optional payment in the form of a 100% j&s annuity guaranteed for 26 years (per ULT) with 4.99% COLA. The outcome was an annuity of close to $24,000 for 2007. The client then tells us that he took a distribution of $40,000 for 2007. He does not want to consider the excess as a plan loan. My reaction to this is as follows: 1) when computing the 2008 RMD, base it on actuarial equivalence as a result of the actual payment made in 2007. 2) Or revise the payment form to be a method that can accomodate the $40,000 distributed, such as a flexible payment method that computes the annuity as a range from the RMD to the 415 lump sum. Then the following year a new actuarial equivalent amount is computed based on the actual payment made. Any thoughts, comments?

A client wants to receive coins to meet RMD requirement. My understanding is that a distribution in-kind like the one above is fine, as the plan allows for it. My impression is that the amouont must be a fair and marketable value of th coins. Additionally, it would seem like a good idea to have the coins professionally appraised, but if the trustee (who is also the plan participant) wants to determine the value it better be reasonable as this can come back to h aunt trustee in the event of a plan audit. Are there other views or interpretations on the above situation? Thanks.

A plan was drafted with 100% immediate vesting. They now want to amend the plan to be 100% 5 (or three) year cliff vesting. For employees with less than threee years of service (i.e. not eligible for the election of old schedule) would this be allowed? Or does it fall under the 411d6 rules? My interpretation is that it would be a 411d6 violation, but curious if anyone knows of any exceptions. It is a plan with five participants who all qualify as 5% owners, so all key EEs and HCEs. One employee is over 70 at hire. The employee has 1 year of service, participation. Obviously the goal here is to enable employee to defer receiving an RMD.

Why not contact the IRS DL department and ask?

Thanks so much for the comments.

I haven't spoken to the client yet, but I would presume that a rollover without sale would be the desired option. Thanks.

Say a one participant DB plan has $500,000 in plan assets, where $150,000 is the value of a piece of real estate. Say the one participant terminates and is to receive his lump sum which is computed to be $500,000. Of course if the property is sold, deposited into the plan and then distributed, it is straight forward. However, say he rolls over the $350,000 of stocks, bonds and does nothing w/r/t the property. The rollover thus not being subject to immediate taxation. It would appear to me that the appraised value of the property would be considered a taxable distribution to the participant and would alos be subject to the 20% withholding rules. Does that make sense or are there other procedures in this situation? I didn't find anything on the distribution of real estate and it is conceivable that the real estate must be sold and distributed in cash. Thanks.

Fortunately, the employees terminated before the distributions.

A plan with two employees terminated in March 2006 and distributed benefits in July 2006. That is, a standard termination. The plan is covered by PBGC and did not terminate with PBGC process. What are consequences of not filing with PBGC FOrm 500, notices, etc.? And if they were to do so now, what would happen? That is, would PBGC disqualify plan, change termination date, some other approach?

thanks

So for example if the plan provided 100% cliff vesting after say 3 years, then since the NRD is 65 & 5, the participant over 70 1/2 would have at least the three years of service to complete?

A plan is sponsored by a company that is 100% owned by a husband and wife. The plan covers three of the owners parents. If a plan covers only substantial owners then it is exempt from PBGC coverage. It seems that the attribution rules of IRC section 1563(e) apply in this case. And those rules seem to indicate that if the adult couple directly owns 100% of the stock then the parents would not be considered to own any of the stock in the plan and thus would not be considered substantial owners for purposes of the PBGC requirements. Thus this plan would not contain only substantial owners and would not be eligible for that particular exemption. Any comments on the use of section 1563(e) and my interpretation of such section? Thanks.

Say we have a plan that is sponsored by a married couple who fully own (100%) a company. The other three plan participants are the parents of the couple. For purposes of determining 5% ownership as applicable to the RMDs, it seems that IRC section 318 provides that the parents would be 5% owners. Let me know if anyone disputes this reasoning. With that said, it would follow that once the parent reaches age 70 1/2 he would be required to receive his RMD. However, let's say that the participant enters the plan at age 74 and the normal retirement provisions provide for age 65 & 5th anniversary of participation. Could the plan provide that the participant can wait until he reaches NRD before being required to receive his RMD? That is, could the plan enable the participant to defer his pension at least until NRD? Thanks.

The following scenario is presented in an effor to better understand the application of Qualified Employer Secrity as a pension investment. Say a one participant/owner DB plan has $400,000 in plan assets. Say this owner has another company (Company B) in which he owns 100% of company. Say Company B is worth $500,000. Say the owner wants to use $30,000 of pension assets to invest in Company B. It appears that the investment satisfies the 25% limit under ERISA 407(d)(5) and 407(f), since $30,000 is less than 25% of value of Company B. It appears that the 10% DB investmeent limit under ERISA, since $30,000 is less than 10% of $400,000 (plan assets). However, it is clear that the 50% requirement under ERISA is violated, since the issuer/owner of Company B owns 100% of Company B. What if the owner owned only 50% of COmpany B and the other 50% were owned by a partner. Would this investment be an acceptable pension investment of Qualified Employer Securities? Or is there more to it? Thanks.