Gary

a plan has elig of 21 & 1. after an employee is hired (HCE) they amend elig to two years. Is this an acceptable amendment or an illegal cutback? It seems since he was not yet a participant and has no accrued benefit then the amendment may be permissible. Thanks

in looking at the 430 regs it seems that this approval for change in assumtpions may only apply to large plans and approval may be required by the IRS and not plan sponsor.

The instructions state "Generally, if the "Yes" box is checked and the non-prescribed assumptions have been changed in a way that decerases the funding shortfall for the current plan year, approval for such change may be required." When they use the word "approval" does that mean plan sponsor approval, or IRS approval? My understanding is plan sponsor. And when they use the phrase "may be required", what is the "may" conditioned upon? When is it required and when is it not required? Perhaps this is in the regs and I need to revisit them, but some input would be helpful too. thanks

I have one client that needs a fasb report. the prior actuary prepared the 2009 fasb report incorporating expected return on assets as a component of 2009 net periodic pension cost. this computation was done in 2010 after the actual return on assets was known. in preparing the 2010 net periodic pension cost here in 2011 I am thinking that it is more appropriate to use actual return on assets instead of expected return on assets as a component of 2010 net periodic pension cost. I sent the report out prepared in the same manner as was done last year, but I have second thoughts re: that aspect. On the flip side if actual return on assets is used then it seems that the entire asset gain would have been fully recognized and thus no additional gain would need to be recognized or folded into the unrecognized total net gains. Any views on this? For the 2011 projection of net pension cost using expected return of course makes sense. thanks.

my understanding is that a standing election can be made regarding meeting minimum required contributions and increasing the prefunding balance. However, a standing election cannot be made to meet quarterly contributions. That is, a specific election must be made to meet a quarterly. Any differing views? thanks

A one participant plan had errors in their 2009 valuation and schedule sb and were corrected. It is now a client of mine. My understanding is that the plan sponsor actually filed the SB with their 5500EZ (of course not required). I intend to prepare an amended SB for client. There are no changes to the 5500EZ. Is it recommended to file the 5500EZ and amended SB with the IRS or just provide revised SB to client since the SB is not required to be filed and no change to 5500ez? Curious to hear other views. Thanks

Of course looking at the yields in 2010 with a 5 yr maturity I could justify 3.5%, but what type of discount rate might you support? I realize 3.5% looks a bit quirky low, but I am just citing the monthly yield curve at the maturity dates. It is a good suggestion to discuss with client as you say. thanks

a one participant plan has to prepare fas 158 reporting (they have government contract work and the government is requiring this). The participant is expected to take lump sum in 5 yrs (NRA). I looked at the monthly spot rate yield curve for high quality corp bond rates and determined that as of 12/31/2010 the yiled with a 5 yr maturity is about 3%. Would this make sense as an appropriate discount rate for the 2010 net periodic pension cost calculation? thanks

A profit sharing plan amends its eligiblity from 21 & 1 to immediate eligibility effective 5/1/2010 for two NHCEs. This is done to improve the non discrimination testing so otherwise excludible employee testing does not apply. They have 5 NHCEs in total as of 5/1/10 who are less than 21 & 1. No HCEs fall in this category. When doing the general test are all 5 NHCEs less than 21 & 1 required to be counted or just the two that are receiving an allocation? Thanks.

A db plan w/ < 100 participants amends formula effective 1/1/07 on 3/5/2008. When the plan does their 12/31/2010 valuation can they reflect the 3/5/08 amendment? While 12/31/2010 is more than two years after adoption of amendment the 1/1/10 start of plan year is less than two years after 3/5/08. In other words the plan may have to use plan provisions as of 12/31/2007 to determine cushion amount for 12/31/10 valuation. Section 404(o) does not explicitly address this specific logistic from what I see, but it may be addressed somewhere. An actual cite is of course appreciated. I feel as if I have read something on this somewhere but did not see it when revisiting 404(o) thanks.

Say A db deduction limit is 100k and the employer contributes 120k. That is an excess of 20k. Pre PPA if a plan contribution did not exceed the full funding limit there was no 10% excise tax. It appears now that 4972©(7) essentially allows an employer to elect to not take into account contributions in excess of such full funding limit and thus as I understand it "not be subject to 10%" excise tax. Is my understanding accurate? And if so, does the employer/plan sponsor simply sign off on an election prior to deadline for filing tax return? And finally, while the 2010 tax return is not due until 9/15/2011, what can sponsor do for an excess 2009 contribution where tax return was already due and filed? thank you.

A company sponsors a profit sharing plan and a defined benefit plan. The plans are a required aggregation group and the combined plans are top heavy thus making the PS plan TH and the DB plan TH. Ordinarily under 416 if an employee participates in one of the TH plans he receives that plan's TH accrual/allocation and if he participates in both plans he receives the 5% PS plan allocation. The question is: If the plans are part of required aggregation group and an employee only participates in the PS plan should such employee receive: 3% since only in PS plan or 5% since the two plans are aggregated for testing? Thanks.

I am essentially reviewing a combined DB/DC plan that I did not work on in prior years. A couple of points to address. The plan is a doctor and employees. DB plan mostly for doc and his wife and PS plan for employees. Issue #1 There are three employees who are children of the doc's spouse from prior marriage. They were not coded as key HCEs in prior years; however as I see it they should all be key HCEs. Am I missing something? Issue #2 2 of the children from prior marriage and one child of both spouses each received compensation of under $200 in each of the past couple of years. They were included in the testing and by considering 2 of them NHCEs their high rates helped non discrim testing. Of course if they are now moved over to HCEs they would make testing more difficult. It seems that individuals with such low pay should not be included in the non discrim testing; or at least when they were considered NHCEs. Any thoughts on including such low paid EEs in testing? Thanks.

they plan to meet 410b and 401a4 by providing a large profit sharing contribution to the employee. so maybe they can do it.

A plan provides for participation after 21 & 1. The employer is a husband and wife and one common law employee. The employee is hired 1/10/2009 and would be eligible for DB plan on 7/1/2010. They also have a profit sharing plan. On 6/20/2010 (just before employee is eligible) they amend plan to change eligiblility to 21 & 2 and to only include shareholders. Thus the common law employee would never enter DB plan. If such a plan provision were incorporated prior to an employee being hired it would seem perfectly acceptable. However, this amendment was done after date of hire and before date of participation. Is such an amendment allowed? I haven't found much in the way of plan amendments during the period between hirre and participation. Thanks.

thanks fapinjax

I know there have been posts related to this, but I present this fact set with question or verification. Numbers used are for simplicity and not necessarily precise. To my knowledge regs do not address quarterly interest adjustments for end of year val dates, but software provider does make an adjustment for min funding in connection with late quarterlies for end of year val. Val date 12/31/2010 Actual assets 12/31/2010 = 1,000,000 Plan contribution of 100,000 for 2010 plan year made 12/1/2010 (before val date) Contribution applied to minimum funding: Such contribution would be discounted back (2010 eff rate + 5%) to the due dates of quarterlies and then credited to 12/31/2010 at eff rate. So result of contribution credited was $98,000 for 2010 minimum. That technique is pretty straight forward. Calculation of 12/31/10 actuarial assets: My impression is that val assets would NOT be 1,000,000 less 98,000 = 902,000, but would be along the lines of: contribution of 100,000 at 12/1/2010 would be increased to 12/31/2010 at eff rate to say 101,000 Valuation assets would thus be 1,000,000 less 101,000 = 899,000 Moral of story is that contributions are adjusted to include quarterly interest penalty for minimum funding crediting, but are not adjusted with quarterly interest penalty when determining plan assets for the valuation. Is that correct? Thank you.

Our firm completed a 2010 5500EZ for a client who has a 2010 calendar plan year. It is my understanding that the 2010 5500EZ is not yet available, thus our firm used the 2009 form and hard coded the plan year from 1/1/2010 to 12/31/2010. That seems reasonable assuming the 2010 5500EZ is not available. My firm also did the same technique in preparing the 2010 Schedule SB. My understanding is that the 2010 Sch SB may in fact be available as I already possess the instructions to the 2010 SB. Is that correct? And if so it seems it would be more appropriate to use the actual 2010 Schedule SB form? Thanks

I think Effen's comment re: accrued benefits is logical and reasonable. I suppose for an underfunded plan the reality is that the min funding would be a lower contribution then the total shortfall, but the min funding s/b based on FT and TNC on the basis of an immediate decrement (since plan terminating), which requires plan act equiv lump sum assumptions which is a higher cost than on going plan using segment rates. So in conclusion the minimum can still be steep even though not as much as full shortfall. Of course if plan does not make minimum funding the excise tax is as I recall only through the year of termination, so it may be better to pay excise tax if cash is an issue and distribute benefits as funded. thanks

I believe it does make a difference. For example say the plan act equiv is 5%. With immediate decrement the PVAB is the greater of the lump sum using plan rate (immediately) or funding segment rates. With deferred decrement for say 20 years (age 42 deferred to age 62) then during the deferral period it uses the segment rates (actually 3rd segment rate) and at retirement age the plan rates can kick in. This results in a lower PVAB if 3rd segment rate is greater than 5%. Of course all calcualtions are subject to 415. thanks

Say a small plan (two or three particiapnts) is terminating 12/31/2010. The reality is that all active participants are going to receive an immediate lump sum equal to PVAB. It seems the valuation should have an imediate decrement and turnover is 100% for that year and the assumed ret age (line 22 of SB) is essentially Not applicable due to plan termination. How are others viewing this? Still using ARA of 62 (NRA in plan) for the SB? Other? thanks

Say a calendar year plan sets the termination date as 6/30/2010 and distributes assets 12/15/2010 to the three participants. For minimum funding for 2010: The plan was frozen in 2005 so there is only an amortization base and installment. Would this be considered a short plan year (i.e. 1/1/10 to 6/30/10) thus resulting in a pro rated amortization payment or is it still a full plan year from 1/1 to 12/31? The only bit of information seems to indicate per rev rul 79-237 that the plan year goes until the end of the year of plan termination. I suppose a case could be made that the plan year could end at the time assets are distributed (not much of a difference in this case). It seems a short plan year generally just occurs when there is a change in plan year. It would seem reasonable to reduce the accd benefits of the two onwers to avoid shortfall and funding if desired by employer, but tpa firm administering plan does not use this approach for min funding (but does so for the distribution). Any views? Thanks.

So in response to Calavera's comment number 5: Contributions in excess of the deduction limit, while not able to be deducted in that year, are not subject to the 10% excise tax if the plan sponsor makes an election as specified in 4972©(7). So if the sponsor contributes 120,000 and the deduction limit is 100,000 for 2010 than they can deduct 100,000 and the remaining 20,000 can be deducted in a later year and not be subject to 10% excise tax? Why would anyone not make this election? Is that how it works? Thanks.

A client made a contribution in excess of deduction limit by more than 25,000. The plan provides for the refund of an employer contribution, but it does not explicitly say that a contribution is conditioned to it being deductible. In order to get a return of such contribution the IRS request requires that the plan provides for a return of contribution and either in the plan or by means of a resolution a statement stating that plan contributions are conditioned on their deductibility. If plan sponsor creates a resolution today can it make an IRS request for return of a prior contribution? That is, the contribution maed prior to the resolution. Contribution was made less than a year ago as the plan requires such refund within the year. Of course by the time they hear from IRS it would have been longer than a year. Any thoughts? Thanks.

Say a one participant owner plan. We assume he takes a lump sum at retirement, which for this example we'll say he is age 60 and will retire with lump sum at age 62 for valuation. The plan act equiv for lump sum is the greater of 5% or the 417e rates. For valuation purposes it would appear that for: 417e calculation we use the PPA funding segment rates and the applicable mortality table to determine FT. For 5% lump sum we sould use PPA funding segment rates for deferral period from age 60 to age 62 and then 5% at time distribution commences to determine FT. With the greater FT of 417e and 5% calculations above prevails. Of course the lump sum is limited to 415 lump sum to give the final qualified FT. Any other views? In conclusion the valuation system does not handle the above matter it only does one of the calculations (i.e. with the PPA funding segment rates) subject to 415. Thanks.