David MacLennan

Scott, conceptually I think you are mistaken. It's not the deduction that is limited. 404n trumps 404a8C. It's the 415 limit that is relevant here.

$10,000 - because of the 415© limit. Also, makes no difference if there are catch-up deferrals because of 414(v)(2)(A). I believe this is poorly understood and when I last checked a few yrs ago some software vendors don't follow this and allow 401k deferrals when they should not, even in a DC only plan w/o the DB plan complication.

Not so fast - you probably want to consider deduction limits. 404(a)(7) combined plan deduction limit also applies to SEP / DB combination. Also, is the compensation earned income or W-2? Does the business have employees other than owner? If so, is it PBGC covered?

Not so fast - you probably want to consider deduction limits. 404(a)(7) combined plan deduction limit also applies to SEP / DB combination. Also, is the compensation earned income or W-2? Does the business have employees other than owner? If so, is it PBGC covered?

OK, I'll say it again. Insured post-retirement death benefits are not permitted in a qualified plan. It's a violation of the incidental benefit rules. Hopefully you have a DL on your plan.

PRLI provided by a qualified retirement plan? I thought at least one old Revenue Ruling says that post-retirement insured death benefits are verboten.

The 1563 attribution rules apply and I believe the son would have to own 50% or more of the company to be attributed his parents ownership - in which case he would be a substantial owner already. So, the plan is definitely PBGC covered.

Yes. This would be a more complex question if it were a cash balance plan . . . I assume you are talking about an immediately commencing 10-yr annuity. Has the plan actually been amended for PPA 417(e)? If not, there may be some grandfather issues.

415 comp includes comp from a related employer, therefore I don't think the other business needs to co-sponsor the plan. Check your plan document 415 provisions, and your final 415 reg amendment, to see if it correctly reflects this.

Your document probably does not allow for a change in form of payment after commencement of benefits, as it would be unusual. You could amend the plan to allow for it, but remember that this provides a more valuable benefit because of "selection" by participants (e.g., participant gets fatal disease and wants a lump sum).

A transfer from a home equity line of credit to a DB plan would not be a rollover. It sounds like it may be that the transfer was intended to satisfy a funding requirement (DB plans can have a funding requirement in any given year, and more often than not do). Some avenues you may want to look at: 1) Is the plan qualified? (proper plan documents and amendments and/or favorable determination letter from IRS). 2) Do (non-spouse) employees participate in the DB plan? If so, it is an "ERISA qualified" plan and such plans have absolute protection (e.g., OJ Simpson) 3) Was the contribution required? Request the actuarial reports. The Plan's Enrolled Actuary determines the funding amount each year. 4) Normally, funding is done by the business sponsoring the plan. If not, and the contribution came from personal funds, this perhaps could bring into question the status of the "contribution". This guy may have gotten some very good advice to shelter his assets in the DB plan.

I beg to differ - or at least I will play devil's advocate. There is nothing more ambiguous and perhaps meaningless as the word "effective" in a plan amendment. It does not necessarily follow that the word "effective" in this context implies a reduction of benefits. In fact, the plan document probably already has a provision that prevents a reduction of benefits once accrued.

Yes. But, I believe the monthly benefit does not reflect any salary scale in the projection to NRD (double check this if it is relevant for your case, as I could be wrong). Don't ask me why it does not say "projected". I'm a DATAIR supporter/user and like their fee structure, and they generally do things well, but there are a few quirks like this. Reminds me of Microsoft Word - page formatting is on the file menu - its so illogical but it remains there year after year.

Why don't you just prepare the amendment? Under Notice 2007-69, the effective date would be Jan 1 2009. The amendment shouldn't have any impact on the plan. You might even be able to argue no amendment is necessary, since the plan term date is pre-effective date. IRS reviewer might argue that the relief does not apply to terminating plans.

The intent of freeze amendments can be unclear. Some things to consider for your amendment: 1) What is your benefit formula based upon? Is it your intent that, after the freeze, accruals still occur for the year based on hypothetical account balance increases using YTD compensation in the formula as of the freeze date? 2) Is any participant's benefit limited by the IRC 415 limits? Will their benefit increase when the 415 limits increase? 3) Freeze of plan entry/participation. 4) Fresh start provisions. You can't stop the counting of Hours of Service. I suspect you may be in over your head here. I respectfully recommend you get some professional help with this - if not an attorney then a very experienced actuary.

First, what does the plan document say the death benefit shall be? Your post suggest that you may be assuming it is just the PVAB. Pay particular attention to the distinction between pre and post retirement death benefits in your document, and how pre and post retirement is defined. In small DB plans, post-retirement death benefits are normally only what the elected annuity form provides, but special "ancillary" death benefits can also be provided. Your client probably would prefer that the owner's beneficiaries be given as much of the plan assets as possible. Have you considered amending the plan to allow for a (larger) uninsured death benefit? Your post also suggests that you may not be aware that death benefits are not limited by 415 - they are only limited by the incidental death benefit rules. Although it is unusual to add a death benefit post-death, it is not unheard of. You could submit it as part of your plan termination 5310. Since this is not a routine plan termination and you would be navigating some gray areas with the death benefit amendment, the client should get ERISA legal counsel.

I don't believe a general last day rule is allowed in any DB plan, including a cash balance plan. See DOL Reg 2530.204-2c and IRC 411(b)(4). However, I believe you can have a last day rule for those with less than 1000 hrs (but not for anyone with 1000 hrs or more). I think some plans have tried to get around this requirement by making a distinction between "benefit accrual service" and benefit accrual - clearly I think this is on very shaky ground since it amounts to the same as a last day requirement. Whether they have an IRS determination letter or not does not make the plan safe, since these are ERISA rules. All it would take is one complaint to the DOL and they would probably look into it . . .

It depends on what business the LLC is. If it is a different business, say making candy, for example, then I would disagree.

Option 1 would require that the law firm be a "predecessor employer" under the regs, which may not to be the case. Review the 415 regs. Re the predecessor employer issue, if the new LLC is a law firm, would it be considered "continuation of all or a portion of the trade or business of the former entity"? Since the former law firm is owned by others, one could argue that it is not a predecessor employer. However, it does not seem reasonable that lawyers or others would be allowed to have a series of DB plans with a fresh start for each on 415 limits, just by selling their practices. Thus the IRS would probably think that for lawyers and other professionals, the business is "them" and it follows that the prior business is a predecessor employer. Note that common ownership is not relevant - they are not a common control group since ownership is not coincident.

What is it that the actuary is agreeing to when they sign?

OK, here is my 2 cents: The principles for adjusting a plan benefit due to a prior distribution are identical to the principles for adjustment of a 415 benefit limit for a prior distribution, but they are different calculations. The benefit adjustment methods offered above could be appropriate methods for that plan participant in that plan, but not appropriate for another participant in the same plan under different circumstances, and altogether wrong for another plan. The commonly used offset calc methods might seem reasonable but if you tweak the facts a little you will see that they are not based on any general principles and lead to nonsense under certain conditions. Tread carefully with these offset calculations. I recommend you don't make any calculation decisions on your own, and that every offset calculation be explicitly approved by the Plan Administrator. This doesn't mean that you shouldn't make suggested calculations - just let them know that there is no standard of practice in our actuarial profession (shame on our professional bodies - this is an essentially simple mathematical problem). I have written several papers on the topic of offsets and I would be happy to email copies to anyone who requests them. Re the offset calc, the first question one should ask is how accrued benefits are adjusted for late retirement, in your case 65 to 70. In other words, what are the late retirement factors, or is it just A.E. adjustment? That would be a starting point - again I would refer you to my papers for details.

A detailed discussion of this issue is beyond the scope of the limited forum here. I would be happy to email you several papers I have written on the subject of MASD adjustments. Send me an email through BenefitsLink. That said, I can still offer some help. Note that until the MASD regs are re-proposed and finalized, we are operating on good faith compliance during the interim period. So presumably any reasonable method will not result in retroactive problems during the interim period. But terminating the plan ASAP might make sense, so that you don't have problems down the road. It would be prudent to give the client the option of submiting the MASD method chosen for approval with a Form 5310 application (I have never done a 5310 filing like that and don't know how the IRS would approach it). Choosing among your options is not meaningful, except to say that the 3rd method comes closer to a mathematically sound answer. But the method itself is flawed, as are the methods in #1 and #2. So, getting into a discussion about which is better is IMO a waste of time. Under a matematically sound method, most of the first distribution can be ignored, since it gets "absorbed" by the 62-65 period where the early retirement factors are equal to one. I would also prefer to see the prior lump sums converted to annuities using the terms of the plan in effect at the time of the prior distribution. Then of course after the adjusting offsets are determined using these annuities, any final lump sum must adhere to the provisions of the plan currently in effect.

What 415 limit are you adjusting, the comp limit or the dollar limit?

Nice program Mike. I am one of those who would love to see optional forms added to the program, with all results able to be output to a data file to be used to generate customizable distribution forms.

One minor note: the notation for a deferred annuity is not correct. 20|ax+8 is an annuity commencing at age x+8+20, not age x+8 (where a is an annuity due - please mentally add the dieresis, can't do it here).