Gary

A one participant owner/emploee DB plan. Plan in existance three years and owner has never made minimum funding payment. Only plan assets are close to $500,000 of IRA rollover (prior to withdrawals). Business owner makes numerous withdrawals of approximately $330,000 over two year period. No proper loans taken. The above appear to be all deemed distributions to the owner subject to income and early distribution penalty taxes (under 59 1/2). The above also appear to be Prohibited Transactions, perhaps all charged to the corporation (or perhaps some charged to individual) and subject to excise taxes. Assuming we are in agreement with the above (altenative opinions accepted): It seems if owner terminates the plan he may be able to runa way from future funding deficiencies' excise taxes and just waive his benefits. However, if the owner were to just terminate the plan and never pay back the loans/withdrawals, what happens to the PT excise taxes? Do they disappear once plan is terminated? Let's keep in mind any possible leniency due to the fact that it is a one participant plan. Thanks.

A husband and wife have a DB plan that covers only the two of them. The IRS disqualifies plan for not covering employees. The IRS states that according to 402(b)(4) present value of accrued benefits are now taxable on personal tax return for the two HCEs. Say PVAB = 500,000 and plan deductions total $200,000 over the years and current value of assets is $250,000. Is there anything that would limit the amount subject to taxes to be no more than the value of say the greater of plan deductions or actual value of plan assets? It seems a bit quirky to b e taxed for amounts in excess of what was contributed into the plan, plus investment earnings. Thanks.

My impression is that the IRS is not considering the trust (in this situation) as a bonifide means of avoiding the controlled group or ASG issues. So the question might be how to respond to such an IRS position? I don't know, but would be curious if anyone has any thoughts.

I would say the plan table of GAM83 (blended). In general I would say to use the plan table, as long as the lump sum amount does not exceed 415 based on the statutory 5.5% and applicable table.

In reading the Act it appears to me that if a DB plan is covered by the PBGC, it appears that the combined limit will not be applicable. Or to put it another way the DB plan would not be factored in the 25% deduction limit for the DC plan. Assuming the above is correct, my question is "When does this become effective?" Is it for plan years beginning in 2007, 2008? Thanks.

Thank you very much. Very good resources.

A this time I would like to obtain a table of UP84 mortality rates for ages 16 or so to 111. Where can I get this table? And other tables as necessary? Thanks.

Generally, my understanding is that the RPA '94 CL is the pvab on a termination basis using prescribed interest and mortality and all other funding assumptions. Now let's say we are valuaing a 1 participant plan and the NRA is 55 and the ARA is say 60 (i.e. participant is to work past NRA and not receive pension until ARA). Therefore, Sch B will have ARA as 60. The question is: What ARA to use for CL for PBGC premium purposes, 404 and 412 purposes? If CL is supposed to be on a plan term basis one would think that an ARA age greater than NRA is unreasonable. However, CL requires that you use funding assumptions w/r/t ARA, which is after NRA. Bottom line, is it reasonable to use ARA higher than NRA for CL and for PBGC? It seems ok to use ARA greater than NRA for funding if participant intends to work beyond NRA and not receive pension until actual ret. Of course the participant is suspending his pension as required. Thanks.

A plan was adopted 6/10/05 and its first plan year ended 5/31/06. After looking at the regulations or at least the section related to the effective date it is not entirely clear if this plan could provide pre participation compensation in determining the average comp limit. On the one hand it seems that plans in existance prior to 1/1/07 could use old regs until proposed regs are finalized. On the other hand it seems possible that this option is not available for plans adopted after 5/31/05 and those plans have to apply the proposed regs immediately. Any helpful knowledge out there? Thanks.

Yes Effen I agree with your points. So for example if the company never had any other prior employees then it should be no problem to grant past service greater than 5 years. And I agree that 10% of the 415 dollar limit is the maximum annual accrual. Thanks.

A small employer with say an owner and 5 employees wishes to implement a combination DB/DC plan and intends to pass non discrimination by using cross testing. The owner sees he can get a lot of mileage out of a DB plan since he has many years of past service as compared to the employees (no other employees previously worked in company other than the current five), and is older than the 5 employees. Say the employer implements a DB plan with a unit credit accrual of 2% per year for him and 1% per year for the employees and by implementing a DC plan and using cross testing and combining plans he intends to pass 401a4. So what happens is the owner enters the DB plan with an AB of 20% of comp due to his past service, subject to 415. The question is can the owner be deemed to have an accrual of 2% on the annual accrual method or do we need to base the accrual on the fact that it is a new plan and he had $0 at start of year and now has an AB of say $15,000 at end of year due to past service leverage. So based on one method his accrual is 2% and say his compensation is $75,000 then his accrual would be 20% based on the change in AB from $0 to $15,000. Any thoughts? Obviously a key technique re: ND testing. Thanks.

Say you have a plan with just owners and one owner is 70 1/2. What about converting the owner's benefit to a cash balance account and computing the RMD using the account balance method? Also if plan's NRA is 65&5 and employee/owner joins plan at age 68 can he wait until age 73 to commence benefits or does RMD 70 1/2 override?

And just to add a little more to the post as follows: Regarding a plan with life insurance. Can a participant contribute a portion of the premium? I presume this would be a PT or perhaps simply a loan from employee to company to be paid back. If a one participant plan pays the reserve of a policy that provides 100x benefit, plus the auxiliary fund, does the remaining proceeds revert to plan, thus causing a surplus, since no other participants? Not a good idea (it seems) to provide this type of death benefit in a 1 partiticpant plan. Regarding the funding of a plan with life insurance there is the method known as envelope funding where the total retirement benefit normal cost is offset by the one year term cost of the life insurance. Is this term cost computed by the actuary determining reasonable assumptions? Or must the term cost be obtained (and used) from the insurance company? Not sure if this cost must actually be known anyway, since the premium covers the term cost and additional funds to create the cash value. Thanks.

I have a client (I took over in 2004) that implemented a 412i plan back in say 2000. The plan they implemented was a 100% life insurance plan that clearly violated the incidiental death benefit requirements and thus many other qualification issues. The client was aware of this, but prospectively chose to handle new participants more in line with the rules, such as limiting the insurance premium to 50% of the employer contribution, but made no change to its original participant. The IRS will not allow the plan sponsor to enter its national global settlement program for 412i plans and the plan will thus likely be subject to a full local audit and be disqualified. Does anyone have suggestions as to how this situation can be remedied in some fashion? That is, pursuing a voluntary compliance intiative of some sort or somehow minimize the damages? I can come up with a suggested solution that essentially converts the plan to a standard 412 insurance funded plan where a side fund is established and ultimately consists of at least half the costs, and perhaps the insurance is converted to a paid up policy thus lowering the death benefit and not requring future insurance premiums. Of course my main question is what can be done with the IRS to get on track, before a specific approach is even relevant? Thanks.

Say we have a 1 participant DB plan. Under 74-307 the maximum death benefit allowed is either: 1. The proceeds from a life insurance policy where the premium represents less than 50% of the total employer contribution, plus the amount of the auxiliary fund. My understanding of the auxiliary fund is that it is essentially the total value of the side fund that is used to fund the retirement benefit. Is that correct? Of course the death benefit must be at least as much as the QPSA, which in this plan's case is a 100% j&s of the AB (unreduced). 2. The maximum of - 100 times the projected monthly benefit or - the reserve (not the face amount above) plus the auxiliary fund My understanding is that the Reserve is amount obtained from the insurance company. That is, the actuary doesn't compute it based on what he considers reasonable assumptions. Is that correct? So the two questions pertain to the auxiliary fund and the reserves. Thanks.

Thanks for you rresponse So Cal. I'm in San Diego myself. Anyway, my understanding is that you indicated using specific names for allocations in a cash balance plans, profit sharing plans, etc. was acceptable and permitted. I presume you consider that approach acceptable for DB plans as well, as long as non discrimination is met. Assuming you agree with my preceding paragraph, then that technique allows for criteria that I wasn't sure would fly. That is, I thought I might have needed to arrive at some sort of objective-type criteria. Please confirm that we are on the same page. Thanks.

It is clear that a retirement plan or combined plans cannot discriminate in favor of HCEs. It is also clear that there is an objective numerical test to demonstrate that the plan accruals for a plan year are non discriminatory. So let's say a company wants to implement a profit sharing plan or the company could perhaps implement a cash balance plan instead. Say the company wants to contribute 20% for some HCE owners and 5% for some other HCE owners. And consequently, the company might then need to provide 20% to a few NHCEs and perhaps 5% to the remainng NHCEs in order to pass the allocation rate ratio test (whether the plan uses the ABT or not). It would thus seem that the plan would then have to provide some criteria or classification in order to provide one rate of pay to some employees and another rate of pay to others. This seems a little bit subjective. With that said, I am curious to canvass what types of classifications practitioners use when designing such plans for small employers (i.e. less than 20 non excludable employees)? Thanks.

I am a pension actuary and re: pensions, I know what benefits are allowed and what methods and assumptions are reasonable to value pension liabilities. However, re: H&W plans I do not know what a reasonable level of post retirement medical benefits, long term care insurance, life insurance are. Additionally, I would need to know premium rates, out of pocket expenses, etc. at various ages. So while calculating liabilites may not be the difficulty, it is determining the above information that I certainly would appreciate assistance as a starting point. Thank you.

I am trying to first determine a reasonable level of benefits for eg. it could be monthly health insurance premiums plus out of pocket expenses. And then I would want to be able to determine what those costs might approximately be for eg. for say each age from say 55 through 90. Then it is easy for me to determine a present value of such benefits. Perhaps the same for long term care. I am also looking for a reasonable amount of pre-retirement life insurance, for eg. it might be 10 times compensation. My thought is that mayber there are statistical resources available. Thanks.

Regarding the IRS stating a 24 month lookback rule re: determining HCE benefits for the UCL, where is there a cite on that? I imagine somewhere in the 404 regs. Thanks

In designing a welfare plan I am trying to assess the level of benefits. For example regarding pre-retirement death benefits, they can be funded by life insurance and of course require annual premiums. However, any suggestions regarding a value for the level of benefits for post-retirement medical or long term care insurance. For example say normal retirement is age 55 and I want to establish a reserve by the employee's normal retirement age. How can I determine a reasonable level of reserve to target for post-retirement medical costs (inclusive of an insurance policy), or long term care costs (inclusive of an insurance policy). For example if post retirement medical costs consist of health insurance and other out of pocket costs, then there must be a target dollar reserve that would cover these expenses over the course of the retiree's life time. For example perhaps $300,000 might cover the life time expense. So an annual deduction to accumulate to $300,000 would be necessary. Likewise for long term care. Any help or reference to statistical data resources would be appreciated. Thank you.

In designing a welfare plan I am trying to assess the level of benefits. For example regarding pre-retirement death benefits, they can be funded by life insurance and of course require annual premiums. However, any suggestions regarding a value for the level of benefits for post-retirement medical or long term care insurance. For example say normal retirement is age 55 and I want to establish a reserve by the employee's normal retirement age. How can I determine a reasonable level of reserve to target for post-retirement medical costs (inclusive of an insurance policy), or long term care costs (inclusive of an insurance policy). For example if post retirement medical costs consist of health insurance and other out of pocket costs, then there must be a target dollar reserve that would cover these expenses over the course of the retiree's life time. For example perhaps $300,000 might cover the life time expense. So an annual deduction to accumulate to $300,000 would be necessary. Likewise for long term care. Any help or reference to statistical data resources would be appreciated. Thank you.

If an owner of a company that sponsors a DB plan takes a loan to use as a down payment for a personal residence can the interest on such loan be deducted? It is clear that in non home related matters the interest is not deductible, but in the above case I am not so sure. Thanks.

Good one pax. I'm available too. I wish it were that simple.

If the plan were unfrozen for service credit and participation retroactively than her 415 limitgoes from 30% of 3 yr avg to 50% of 3 yr avg thus increasing the 415 limit from 30k to 50k, thus enabling her to receive 50k (still less than plan accd ben of 60k). Thanks