David MacLennan

Now you have a complication. The prior sole proprietorship sounds like a "predecessor employer" in the new 415 regs, similar to Lear Eye Clinic case, where sole proprietor preceded a partnership. This means the prior DB plan must be aggregated for 415 and you have a MASD for the older doctor due to the prior DB plan. The MASD rules are not out yet, so if you are funding for a benefit close to the reduced 415 limit (reduced by the prior distribution), then your actuary could have unresolvable issues and/or you may need custom drafted language in your document with a FDL. Also, David Rigby's concern about 404a7 is a good point, and should be looked into.

You are OK, assuming the spouses are really employees. Sometimes doctor's spouses are paid a salary but don't really work. Remember 401a26 applies to DB plans and you must benefit 40% of eligible employees.

There is a grace period for coverage and participation rules - it ends on the end of the plan year following the year of the change in status. 410(b)(6)©

The IRS (finally) caved on this. See Q & A-5 of Notice 2007-28. New plan is not treated as a plan amendment if there was no other plan covering HCE in the last 2 years.

flosfur: You are right, ERF stands for early retirement factor. BERF=WERF is an (almost) self-evident equation that can be considered "generalized actuarial equivalence". I can email you articles on BERF=WERF if you would like to read them. Send me an email through BenefitsLink. merlin: The article on the interim MASD rule will be in the Summer 2007 edition of the Journal of Pension Benefits. This is available by subscription and the cost is approx $200 per year (4 issues per year). The publisher has given me permission to send a few people the draft, so I can send a copy to you if you send me an email.

I would argue differently! The early retirement factors in the 415 comp limit, equal to 1.0 for any age, creates a de facto actuarial equivalence assumption that must be recognized if you are going to treat all participants equally, as the Code requires in my opinion. Given the 1.0 ERF's, the prior distributions do not create any offset under the correct mathematical solution (BERF=WERF). I guess you could say that you are considering the prior distributions, but that they don't affect the limit. However, if the prior annual distributions are large enough, say some exceeded the 415 comp limit, then it would create an offset.

Blinky, you might be mistaken about what the 415 final regs say. There will be newly proposed MASD regs at some point in the future. The final 415 regs have an interim rule, which at first glance appears to be a stricit actuarial equivalent offset rule. However, it is not - it is really just a good faith standard. Marty Pippins has confirmed this publicly during the 415 ASPPA webcast, and there are other reasons to conclude it is a good faith standard. I have written an article on the interim rule which will be published within the next couple of months. I'll send the draft to you. So, you are fine doing something more reasonable and fair. "You just have to do something, what you do is up to you."

Question: why does the excess increase to 300k after 12/31/07?

I'm not an attorney, but it seems that with real property the physical location of the deed is not material, since US Courts would not have jurisdiction over seizure of the property, etc. . .

Jpod, probably either a one-participant DB plan, or a rollover account in the DB plan.

The Canada exemption would not apply. Is this an ERISA plan? If not, perhaps the ERISA rules don't apply at all. "Section 404(b) of ERISA provides that "[e]xcept as authorized by the Secretary by regulation, no fiduciary may maintain the indicia of ownership of any assets of a plan outside the jurisdiction of the district courts of the United States." Regulation 29 CFR §2550.404b-1(a)(2)(i) provides, in relevant part, that a fiduciary may maintain the indicia of ownership of certain plan assets outside the jurisdiction of the district courts of the United States if: "such assets are under the management and control of a fiduciary which is a corporation or partnership organized under the laws of the United States or a State, which fiduciary has its principal place of business within the United States and which is -- (A) A bank as defined in section 202(a)(2) of the Investment Advisers Act of 1940 that has, as of the last day of its most recent fiscal year, equity capital in excess of $1,000,000. . . ." And from the ERISA reg: (b) Notwithstanding any requirement of paragraph (a) of this section, a fiduciary with respect to a plan may maintain in Canada the indicia of ownership of plan assets which are attributable to a contribution made on behalf of a plan participant who is a citizen or resident of Canada, if such indicia of ownership must remain in Canada in order for the plan to qualify for and maintain tax exempt status under the laws of Canada or to comply with other applicable laws of Canada or any Province of Canada.

The same fractional Year of Participation rule is in the final 415 regs (applies when benefit service can be accrued in fractional amounts).

I believe 6/10 is the correct answer. See the final 415 regs: "A participant is credited with a year of participation (computed to fractional parts of a year) for each accrual computation period for which the participant is credited with at least the number of hours of service (or period of service if the elapsed time method is used for benefit accrual purposes) required under the terms of the plan in order to accrue a benefit for the accrual computation period . . ." As I read this, it does not say that you must accrue a benefit, only that you must satisfy the hours requirement for a benefit accrual. The language would be different (and simpler) if they wanted to link the 415 YOP with benefit accrual. I'll be interested to see if I have persuaded AndyH, and what others have to say.

It is $4,000. See the final regs: (f) Total annual payments not in excess of $10,000--(1) In general. Pursuant to section 415(b)(4), the annual benefit (without regard to the age at which benefits commence) payable with respect to a participant under any defined benefit plan is not considered to exceed the limitations on benefits described in section 415(b)(1) and in paragraph (a)(1) of this section if-- (i) The benefits (other than benefits not taken into account in the computation of the annual benefit under the rules of paragraph (b) or © of this section) payable with respect to the participant under the plan and all other defined benefit plans of the employer do not in the aggregate exceed $10,000 (as adjusted under paragraph (g) of this section) for the limitation year, or for any prior limitation year; and Paragraph (g) is the proration by service.

If the PVAB is $26,000, it looks like it would take more than 3 years, since you would be limited to $4,000 per year in any payment form.

I'm not an expert on this, but here is my 2 cents: I think the valuation issue is more complicated, because I believe the IRS standard is to use the valuation principles in Rev Rul 59-60. The principles in this Rev Rul I believe would probably yield a value that is considerably less than the typical "professional appraisal" for objects such as coins or jewelry. Again, I am not an expert, but I think Rev Rul 59-60 would yield something closer to a "wholesale" value, due to discounts for liquidity, etc. Something more like what a coin dealer would actually pay for the coins. Maybe someone who has more detailed knowledge and experience with Rev Rul 59-60 can confirm or deny my above impressions. Be sure to transfer all of the risk to the client on this. Because of the risk I would advise the client to not distribute the coins. There is no guaranty any valuation could not be challenged during an audit. I think the audit guidelines do mention Rev Rul 59-60, so it would be best if any valuation referenced principles in this ruling.

I used to think you need a trust ID when a participant gets paid, for the 1099R & 1096, but Ann 84-40 blesses the use of the employer EIN for the tax forms connected with plan distributions. Certainly it makes more sense to have a separate trust ID, but consistency is probably a better guiding factor.

mwyatt: "However, in order to produce these forms using their document software, we have to open up each plan, update it to the newest version of the language, and then build and print the form. Seems pretty time consuming for 800 plans, especially for what is essentially a nonbillable item" Why would you think this is a non-billable item?

I looked at the statute and the Explanation by the Joint Tax Committee, and it only says it applies to years beginning after Dec 31 2006. My take is that is applies to ASD's for plan years beginning after 12/31/2006. I don't see this as a problem for the ASD, since they have lengthened the consent period, but as a courtesy one could inform the participants that the 90 day period mentioned in the distrib forms has changed. So for lump sums, the distribution might occur later than the participant expects - without the update that the 90 day period has changed to 180 days, the participant could conceivably complain "Hey wait Mr. Plan Administrator, you can't pay me out, my consent period expired" (not very likely a complaint as we know). For annuity forms of payment you have presumably fixed your ASD in the distrib forms and the greater 180 day period won't change anything. Now if they had amended the 30 day period that would cause the ASD's to possibly change and new distrib forms might be in order.

1) You should be able to in my opinion, but I think the IRS position is that you cannot. 2) This is not just a question of what interest rate. Since it is an MASD issue, you have the question of methodology. The adjustment of the comp limit will certainly be different from the dollar limit adjustment or the plan benefit adjustment. Hopefully you wont be bumping the 415 limit, but if you are you don't have any clear method to follow at this point. There is the flawed method in the proposed regs, the flawed percentage used method, and what I believe is the mathematically correct method. All yield adjustments that can be quite different from each other. So, I would explain to your client there is no guidance on how to handle this if it materializes. Perhaps put something specific in the document and try to get a FDL. Or, wait and see what happens with the final 415 regs, but the MASD rules may not be finalized anytime soon.

Susan, I echo the above comments - you will never see a deduction challenge over this go to Tax Court because the outcome is certain to go against the IRS. Although the Grey Book answers are apparently given considerable thought before release (input from Treasury, etc), they have no legal reliance. Interesting how the "literal interpretation" of the Code can be so selective (think of the recent pre-participation 415 comp issue where public statements were "we must follow the Code"). The IRS could issue regulations or other guidance but they have not. My position is that if the client is the type that defers the decision to me, I would of course be conservative and assume new plan = amendment. If the client wants to make decisions and be involved, I will inform them and let them decide. I would not lose any sleep over your earlier valuations.

The participant is entitled to defer distribution until the later of age 62 and NRA (no longer "immediately distributable"). Keep in mind that a QJSA is a benefit payable immediately, so the participant would not now elect a benefit payable at a later date, which is what the 2nd paragraph in your post suggests you were thinking. They would elect to have their benefit payment deferred, so you need a deferral form in your distribution package. Later they would again be given election forms. Of course I am assuming PVAB > $5K.

Yes there was an extension in PPA 2006, until the end of the 2008 plan year. I think there was some confusion earlier this year because Marty Pippins had said they were required by the end of 2006, but I heard on another board that he has reversed on this. The statute is pretty clear.

If your participant is at NRA (probably is), you can distribute his entire benefit, and use the account balance method to determine the RMD. You don't have to terminate the plan. Then he will get additional accruals in later years and you can handle them the same way if you want, although each year will presumably be a small increase dollar wise with a smaller RMD, so the client may find the annuity method acceptable. This does create MASD issues, which are harder to handle with lump-sums (less consensus). Another option (which I believe originated first with Mike Preston), is to use a form of distribution which is a period certain with a 4.99% COLA increase, with the period certain from the Uniform Lifetime Table rounded down to a whole number. This will give you a RMD which is close to the account balance method. Most plan docs probably don't offer such a form of distribution, so that means amending the plan, etc. Both of these methods can give your actuary a headache, and with the MASD issue, it can make what used to be an easy plan to administer, double in difficulty.

Yes, PBGC filing is required. Attribution under 1563 does not support substantial ownership of the father. ERISA Bond Coverage also required. Re RMD for father, I believe you need to look at the year in which the father attained age 70.5. Did daughter (owner) have ownership or had started her company that year? If so, then father is 5% owner by attribution under 318. You look only at the year the ee atttained age 70.5 to determine 5% ownership (per the final regs). This same reasoning would mean that a person who starts a business after age 70.5, say at age 72 for example, would not be a 5% owner. I might be wrong - I have not seen this rather surprising result confirmed by anyone else, and it is the first time I have given it thought.