David MacLennan

Makes zero difference. Step back a little. There are at least a dozen different ways to do it so that it appears OK - but the timing will still be discriminatory.

What you describe is similar to an example in the -5 regs of an amendment with clearly discriminatory timing. The aspect that may be different about your proposal from the example in the regs is that you did not mention the "winding down of the business". IMO you have to, at a minimum, give benefits to the employees for 9/30/2010 PY. Just give ees enough to pass and have a good actuary well versed in 401a4 design the plan. It often is not that expensive to cover employees. I would also insist on a DL application that highlights the issue, or an ERISA attorney's opinion that takes responsibility. Fully explain in a letter to the client what is going on and the worst case scenario.

The two plans must be aggregated and treated as one plan for 415. You might have some plan document issues if they were not carefully drafted, and usually they are not.

I have no direct knowledge, but I recall seeing this on a website some time back. I think it is probably legit. I sense that in general TPA's would not always check both the General Rule Method and the Alternative Calculation Method to see which gave the smallest premium. Or, in the year of a termination forget to apply for a refund due to a proration of the premium. For a large plan there can be significant dollars involved.

Terminate the plan and distribute the 450K as a lump-sum. You could then use the DC RMD rules on the 450K lump sum. I presume you can do the RMD this way but I have not carefully checked the regs - maybe someone else has thought about it and can chime in. On termination, 411 says the benefit is vested to the extent funded, and your document probably has this language. RMD's are computed with respect to vested benefits. That would be the reasoning but check your document. With such a large shorfall you will probably want to terminate the plan anyway.

I would not use Express Mail. Better to just mail it with a August 2 or earlier postmark. My experience with Express Mail is that the delivery guarantee is worthless. I would estimate 4 out of 5 times the delivery is not as promised. Sometimes they disappear for days before being delivered. I acknowledge others may have had better experience with Express Mail but I would only use it for very limited reasons.

A recent ASPPA ASAP gave the following address for private delivery of Form 5558: 1973 North Roulon White Boulevard Ogden, UT, 84404 Not sure where ASAP authors obtained the above. Perhaps direct from the IRS folks? The address I posted above is different in that it is the equivalent of the Service Center mailing address and may not be appropriate for a private delivery service where a hand off to a person and a signature is needed. Curiously, the USPS conformed database address is as follows: 1973 Rulon White Blvd Ogden UT 84201-1000 Note that "north" is omitted, and the "Rulon" spelling is different, and the zip code is different. Not sure what to make of this. Perhaps the address is different because the one provided in the ASAP is not recognized as a postal delivery point, but is still valid for a hand off to a person? But what about the different spelling . . . If you try to FedEx to the ASPPA ASAP address using FedEX Ship Manager online, it will change it to the USPS address (unless you uncheck "perform detailed address check").

Postal software, such as Stamps.com, adds the steet address to any mail going to the Ogden IRS Service Center: Internal Revenue Service Center 1160 W. 12th St Ogden UT 84201 I have sent 5558's and more to the above address for years and so I figure it must be valid. Stamps.com software must conform the address by using the USPS database.

Perhaps you could have a unique SPD for every participant, which has their formula only. Then there would be no vagueness in the SPD.

I still don't see where the QRP would make sense, when the 415 limits are not an issue. You can do anything in the DB in terms of benefits that you can in the profit sharing plan (general tested DB). You are on the hook for DB top heavy benefits already. And you only have to benefit 40% of participants in the DB vs. 95% in the QRP as I recall. Maybe I'm missing something, but the successor plan's setup fees and resulting years of admin fees are the only advantage I see . . . ;-)

JAY, according to the post they are well under the 415 limit, so the QRP would not be applicable.

You have a 401a26 participation issue you need to address first. I recall that for changes in controlled groups, you have a grace period until the end of the next plan year, but you said that this change happened several years ago so that grace period is over. Participation and coverage issues cannot be self-corrected and must be submitted under VCP. Regarding your question, a good actuary well versed in 401a4 regs can most likely design a benefit formula that the plan sponsor would find acceptable.

I see no problem with your proposed approach. Former HCE's are restricted employees under the regs. Although the regs may not be explicit on this specific allocation, you can get to your allocation with the thought-experiment (or reality) of paying out the NHCE's first. If you submit a 5310, the IRS would normally require such an allocation. Incidentally, this could help in handling the former owner. But you should have no worries since 411d3 says the benefits are vested only to the extent funded, and most docs have this provision, so he would have no case IMO.

My position on this dismisses the past service grant and the service eligibility, at least as a way to pass -5 (the past service grant I concede would make it look much worse). The lack of a past service grant does not make it compliant with -5. Neither does the situation where no ees are eligible in 2010 (if no ees past or present would ever have been eligible, that would be a different matter though). Giving benefits to ees in 2010 just gives a nod to the regs, a middle of the road approach, since not allowing any plan seems way too harsh IMO.

I don't think establishing the plan in 2011 will solve the -5 issue. Giving benefits in 2010 is not guaranteed compliance either, but is reasonable approach IMO.

What's that old saying about pigs vs hogs? I would benefit the employees in 2010, at least a little. Otherwise it is a -5 issue IMO. Tell them it is the cost of having the plan. And, you can charge more for your creative plan design and ERISA admin! If they want to take a risk, insist they get legal counsel, put your advice in writing, etc., etc.

As far as I know there are no regs or other guidance on how to allocate the deduction. More importantly, this is not your problem. Tell the client his CPA needs to advise him on this. The CPA should choose a "reasonable" method (perhaps with input from you the actuary) and stick to it year after year.

Account balance method. See Reg 401(a)(9)-8 Q&A 1.

Seems like it could be a violation of the permanency rule - one could argue about it anyway. But there are no regs on permanency and as far as I know there is no enforcement. What makes it look worse though is that it was clearly a device to get around the in-service distribution rules. Just in case, do what you need to protect yourself . . . Another issue is the new plan will have MASD calcs for the 415 limits on the new plan, and we have no regs and no standard of practice for MASD's. Tip: keep the NRA in the new plan at 62 or less and it will simplify the MASD calcs in the new plan for the 415 dollar limit. If the 415 comp limit governs you have a more complex calc with MASD's . . .

I've had good luck with emailed requests to the PBGC on coverage determinations. Surprisingly, they have responded promptly. You want it in writing anyway. They sometimes give you the answer you are looking for even when it is clearly (IMO) incorrect! So try it and see. Engineers are a listed profession for exemption but I suppose what you mean is that these guys are not real engineers but are just calling themselves something?

The reasoning for b & c is so lame - it's really absurd IMO. I'm all for giving a participant a break, but I wish they would just say to the effect "we strongly advocate give them a break" and not invent an absurd reason for it that invites disrespect of all the rules.

I've been anti-Apple forever . . . But, I like my iPhone. The apps are a big reason why. For example, for $5, you can get an iPhone app that emulates the HP12C exactly (looks like the HP12C too). The Hewlett Packard hardware version costs $70. The apps make the iPhone the best option IMO.

I've never seen the doc, but it's near certain the Corbel non-standardized prototype would not allow cash out of an annuity after commencement, so you would be converting to a document w/o reliance unless you submit for an FDL. There are probably lots of issues, but one that first comes to my mind is the requirement that the QJSA be the most valuable form of payment. Letting folks choose an annutiy and then cash out when their health goes south is more valuable, if the QJSA is the act equiv of the LO annuity (standard provision). So how you draft the amendment would be important, and extremely difficult to do correctly IMO. If it says something to the effect that cash-out is only upon plan termination then it might be less glaring, but I think the issue is still there. Are either of these two annuitants at the 415 limit? Even if they are not, it would need to be addressed in the document somehow - again, extremely difficult to do correctly. Good luck drafting that 415 language with MASD's etc.! Are either HCE's? Just might be a 401a4 violation to give them a more valuable benefit option . . . Work smart - discourage the client on this and just buy the annuity. If they insist, tell the client to hire an ERISA attorney and you will execute what they tell you.

Yes, the PV gets smaller as one gets older, that is the nature of the 415 comp limit. Assuming the 415 limitation year is the calendar year, why don't you take one year's distribution equal to the 3-yr high average comp, prior to Dec 31. So for example, if your 3-yr average comp is $75,000, distribute $75,000 as a lump sum. Then taken another $75,000 in 2010. You would of course need to recognize these create MASD's, and 415 MASD rules are not nailed down right now - but the distributions I just mentioned will not lower the 415 comp limit. You said the plan is only "somewhat" overfunded, so this approach should help a lot. It should have been started at 62 at the first hint of overfunding - better late than never. Forget the annuity idea, IMO. Also, you can't go further with my suggestion and claim retroactive distributions for earlier years, IMO.

My bad. I had thought 404(n) completely overrode other sections.