jpm56

I’m looking for some thoughts/assistance on a somewhat unusual situation I’ve come across: Situation: Small Medical Practice Non-PBGC Plan Term with Asset Surplus. As of DOPT just the owner/participant had an accrued benefit. They also have 7 non-excludable employees that have been excluded from benefiting in the plan. Not as familiar with Non-PBGC Plan Terms and I’m trying to re-allocate the excess in a non-discriminatory manner. Benefits and Participation frozen on 4/30/12; Amended excess assets to be re-allocated to participants eff 8/30/17; Non-PBGC Plan Termination eff 8/31/17. The document is a prototype with standard language on excess assets if a plan is not covered by the PBGC. States “…if elected in the Adoption Agreement, excess assets shall be reallocated to the Participants on the basis of their Present Value of Accrued Benefit…” To allocate the excess, I used a safe harbor formula covering the owner and three other employees. (Three of the non-excludable, excluded employees) I came up with .62% x HI3 Comp resulting in accruals that produce a large enough total in PVABs for all four participants to cover the Excess Assets. (Still have four excluded employees) Note that 415 is not an issue for the owner. So, the excess ends up being allocated on a pro-rata on the PV of that .62% x Hi3. Thoughts on this excess allocation method? This formula satisfies 401(a)(26) and is a safe harbor formula satisfying 401(a)(4)/410(b). The plan was frozen and met top-heavy requirements before and after the freeze. Granted this accrual can be considered anew allocation. Thoughts on T-H requirements? On a side note, Rev. Rul. 80-229, Paragraph 2 of SEC. 3. ASSETS NOT LESS THAN PRESENT VALUE OF ACCRUED BENEFIT states: “If the assets as of the date of termination exceed the present value of the accrued benefits (whether or not nonforfeitable) as of such date, the plan will not be considered discriminatory if such excess reverts to the employer or is applied to increase benefits in a nondiscriminatory manner. One method of applying the assets to increase benefits in a non-discriminatory manner is to amend the plan to provide a new benefit structure such that (1) the benefit structure would not be discriminatory if the plan were not terminated and (2) the present value of the revised accrued benefits (whether or not nonforfeitable) as of the date of termination equals the value of plan assets, and to distribute assets equal to the present value of the revised accrued benefits. The new benefit structure must satisfy other requirements of the law such as sections 411(d)(6) and 415 of the Code.” I would think an amendment explaining how the excess is allocated, along with the formula, and included participants would work in this situation. Thoughts? Thanks in advance for reading through this whole thing. --Jeff

How about this situation: The DB Plan is frozen as of 12.31.10. The DC plan provides a SH Match contribution. A Key employee benefits in both plans so the plans are obviously aggregated for TH purposes. There's no benefit formula for the 2011 plan year in the DB Plan, however a contribution is made for the 2011 plan year. Even though there's a SH Match ONLY provided in the DC plan, (With both Key's receiving the SH Match) to meet TH requirements in 2011 based on the 12.31.10 determination date, (Val dates for both plans) wouldn't the ER still have to provide a minimum 5% TH PS contribution to Non-Key's for 2011? For the 2012 Plan Year, I would think that if only the SH Match was made by the ER, that would meet the TH requirements. I may be wrong on this. Thanks for any assistance! --Jeff

Yeah, I kind of figured as much. Thanks. I'm wondering if IRC 404(a)(1)(A)(iii) is even relevant? My interpretation of that section of the code is that for non-PBGC plans, any contribution in excess of the plan year's, (in this case 2012) deductible limit, may be amortized and deducted over 10 years.

Does anyone have any comments on this particular topic? This a 12.31.11 plan termination, non-pbgc, assets have not been liquidated yet, and they would like to deduct the contribution to make up for the funding S/F in 2012. Thanks for the assistance.

Thanks, I appreciate the replies. I did come across this topic in the Plan Termination Answer Book, which referenced IRC 404(a)(1)(A)(iii). The interpretation is that any contribution in excess of the plan year's deductible limit may be amortized and deducted over 10 years. As a non-PBGC plan, do you think this rule would apply in this situation? I find it hard to believe.

Hopefully someone can help me with this situation - I have a small DB plan that is not covered by the PBGC and terminated on 12/31/11. Anyway, the assets are not sufficient to cover the liabilities, so the plan sponsor has decided to make a contribution that is sufficient to cover the unfunded liabilities. The company has already filed their corporate tax forms for 2011. Can this contribution be deducted in the 2012 plan year? I know if this were PBGC covered, under IRC 404(g) they can certainly deduct amounts paid under various sections of ERISA, (i.e. 4062) however since this plan is NOT covered by the PBGC I don't think these regulations apply. Thanks for your assistance!

I have a post-NRA actuarial increase 401(26) and 410(b)/401(a)(4) scenario I’d like to get people’s thoughts on. I have a plan with an active career average benefit formula, (annual accumulation plan) with two participants entitled to a benefit of 13% and 0.5% of plan year comp respectfully. Both participants have compensation and have worked the hours required for a benefit accrual. The participants’ post-NRA actuarial increase is greater than what they would have accrued under the benefit formula. FIRST, in regards to 1.401(a)(26), I would think they are considered benefit. Under 401(a)(26)-5, it states that in general "an employee is treated as benefiting under a plan for a plan year if and only if, for that plan year, the employee would be treated as benefiting under the provisions of §1.410(b)–3(a)". Under 1.410(b)-3(a)(2)(iii)(F), an employee is considered benefiting if "The employee has attained normal retirement age under a defined benefit plan and fails to accrue a benefit because of the provisions of section 411(b)(1)(H)(iii) regarding adjustments for delayed retirement." I read 411(b)(1)(H)(iii) to basically say that the employee benefits due to the actuarial increase. SECOND, assuming they are considered benefiting, they would need to be included in the 410(b) and 401(a)(4) tests. Under 1.401(a)(4)-3(f)(3), the general rule indicates to me that the accruals for the plan year are taken into account; it states that any actuarial increases in an employee's accrued benefit solely because the employee has delayed commencing post NRD may be disregarded. In reviewing the examples in the code, it looks to me that the benefit accrued based on the benefit formula would be used for testing. Any thoughts would be helpful. Thanks! Jeff

I have another scenario I wanted to get people's take on. This single ER plan has two participants entitled to a unit benefit of 13% and 0.5% of plan year comp respectfully. Both participants’ post-NRA actuarial increase is greater than what they would have accrued under the benefit formula. Under 1.410(b)-3(a)(2)(iii)(F), an employee is considered benefiting if "The employee has attained normal retirement age under a defined benefit plan and fails to accrue a benefit because of the provisions of section 411(b)(1)(H)(iii) regarding adjustments for delayed retirement." I read 411(b)(1)(H)(iii) to basically say in this case that the employee benefits due to the actuarial increase. From a 401(a)(26) perspective, it looks to me that they would be considered benefiting, and therefore be included in the test. Assuming they are considered benefiting, they would need to be included in the 410(b) and 401(a)(4) tests. Under 1.401(a)(4)-3(f)(3), the general rule indicates to me that the accruals for the plan year are taken into account, however it states that any actuarial increases in an employee's accrued benefit solely because the employee has delayed commencing post NRD may be disregarded. In reviewing the examples in the code, it looks to me that the benefit accrued based on the benefit formula would be used for testing. Any thoughts? Thanks, Jeff

Thanks for your take on this. The two did have 1000 hours worked, both are 5% owners.

I have a plan with an active career average benefit formula. (annual accumulation plan) There are two participants receiving $0 compensation for the plan year, so they do not receive a benefit accrual for the plan year. However, they're accrued benefit is actuarially increased because they are both post NRA, and the plan takes the greater of the two. I would think that for 1.401(a)(26) purposes they would not be considered benefit, however under 401(a)(26)-5, it states that in general "an employee is treated as benefiting under a plan for a plan year if and only if, for that plan year, the employee would be treated as benefiting under the provisions of §1.410(b)–3(a)". Under 1.410(b)-3(a), it states that an employee is considered benefit in a defined benefit plan if "the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6)." Technically, the participants do have an increase in their benefits accrued. Would you consider them benefiting for 401(a)(26) purposes? Thanks for any feedback on this, Jeff