jpod

You guys are really milking this one for all it's worth.

Deals involving cattle, horses, unicorns, etc., almost always have some tax "shelter" element to them, legitimate or bogus, so if that's the case here an IRA is not the right source of investment dollars.

I would say, perhaps the gateway was satisfied by using the lesser of the two, but if the 5% figure was lower and you only gave that, then the TH would not be satisfied. Good catch. The required contribution is the GREATER OF (a) or (b).

I think he's saying my idea is toast and must make a 5% TH contribution. However, for someone who's 1-year entry date is July 1 in a calendar year plan year and entitled to a TH contribution, can the gateway be the LESSER OF - (a) 3% of full year compensation, or (b) 5% of 7/1-12/31 compensation?

But, can't you bifurcate the "plan" into two plans: one for those with 1 but less than 2 YOS and another for those with 2 or more? HCEs and NHCEs with less than 2 YOS would get the same 3% TH minimum (except HCE Keys, who would get 0%).

Thanks, I've heard that, but I am having difficulty linking that answer up to the regs. Do you know off the cuff where (at least approximately) I would find the basis for that answer in the regs?

DC Plan has a 1-year service requirement for elective deferrals, and a 2-year service requirement for fully vested employer contributions. Plan is top heavy, so N-Ks receive the TH minimum if they have satisfied the 1-year service requirement, even if they haven't satisfied the normal 2-year service requirement for employer contributions. Does the minimum gateway have to be made for N-Ks who receive a TH minimum but haven't satisfied the 2-year service requirement for regular employer contributions? Yes, they "benefit" under the Plan by virtue of the TH requirements, but it doesn't seem logical to require that they receive more than the TH minimum.

This is not responsive to your Qs, but you can file the silly top hat notice late and get relief under DFVCP for $750.

He needs to be in a trade or business to have a qualified plan, and I think the way the deduction rules work he can only deduct to the extent he has earnings from that trade or business. It appears that he is out of luck.

2 cents: Exactly! Your hypo illustrates how ridiculous the IRS position is, at least as to your facts.

D. Rigby, I understand your caveat, but then why are you citing it like it's the gospel (you said "the IRS let its position be known . . . .")? Also, identity is very relevant. I would like to contact a knowledgeable person at IRS (hopefully one of the same people who offered the gray book answer) and inquire as to whether, if the plan follows the gray book answer, the plan could expect that if this issue is picked up in an audit the auditor would follow the unofficial answer given in the gray book, that's all.

This is all very interesting, and quite a conundrum. The separation from service complicates the thinking process, and I agree it would be even more complicated if the pension had commenced at the time of the first separation. I don't see any stock language in the DB LRMs that articulate rules comparable to the answers to (b) and © in the Gray Book questions; I find that odd. I am not an actuary and I don't think I can get my hands on the Gray Book. Does the 2008 Gray Book identify the Treasury/IRS people who would have answered those questions? I suspect one was Holland, but he's gone.

The statute and the reg say that the AB cannot be reduced "on account of" any increase in age or years of service. It is not being reduced on account of age, or on account of years of service. It is being reduced because his comp. went down. If there was published IRS authority for what you seem to be saying, the employer would be happy with that result result and could simply apply that rule administratively without having to amend the plan. Unfortunately there is no such authority, or at least I could not find it. If the drafters of ERISA intended that an accrued benefit could never be reduced as a result of the operation of a perfectly valid formula, I think they would have drafted the statute to say so. They would have said something like "your AB can only stay the same or go up but can never go down." However, what they said is that it can't be reduced "on account of" any increase in age or years of service, which has to mean something much narrower than "it can never go down."

1. There have been no distributions, lump sum or otherwise. 2. "Final Average Compensation" means Compensation averaged over any 3 consecutive years within the last 10 immediately preceding date of termination during which Compensation is highest. 3. I've heard before that some believe that 411(b)(1)(G) might apply in this situation, but I don't see how that's right. The benefit is reduced because of the combination of a long period of separation and a reduction in compensation when he came back.

Fairly plain vanilla DB plan; uses high 3-year average compensation out of last 10 years preceding termination (not last 10 "years of service," but last 10 years). Employee works 20 years and leaves. Comes back five years later and completes 3 or four additional years of service and terminates again (younger than NRA). Upon rehire he took a lesser position paying less than he made when he left the first time. His high 3-year average drops significantly, so much so that even with the additional years of service his accrued benefit is less than what it was before he left the first time! Is there some overriding rule in ERISA that says this is not allowed to happen? Assuming there isn't, do DB plans ever have plan language to prevent this from happening?

OK, asbks, now I understand. I guess the question you pose cannot be answered without first answering a different question: What are the standards for covering someone as an "active" participant"? Once you have the answer to that question, you apply the facts and see where you come out, and that leads me back to my original thought, which is that the owner may still be slaving away full time at his business even though he may not be receiving current compensation or actually engaging in any commerce with 3rd parties. I realize this is a tough issue, but the COBRA issue is rendered moot if the Plan can defend continued coverage of the owner as an active participant.

Unless TPA has undertaken some fiduciary role, and believe me it will deny that, the claim is a contract type claim that should not be preempted by ERISA. I say "should" because some times judges do strange things, but the correct analysis I believe is no ERISA preemption.

We say "January 1, 2013" if we want it to be taxed in 2013. The way I read the language you presented, if he is employed at 12:01 am on Dec. 31, he's vested, and there ceases to be a SRF, so it's includable in 2012. Probably the best result for all concerned, given that you don't have to start over with a brand new Social Security wage base.

Can you tell us what does the owner here wish to accomplish? I'll assume he wishes to have health insurance. So, does he wish to stay on as an active participant or does he wish to go on COBRA, or does he not care? What is the purpose for all this analysis? Is there a difference in the amount which needs to be paid to the plan under COBRA vs non-COBRA? If the owner is still working full time but not getting paid, why is COBRA relevant? Please clarify the reasons for your inquiry?

I didn't finish my thoughts. 3. A duty? I don't know and I don't care. The first duty is to protect yourself, and this is the USA and anyone can sue anyone for anything, and the client probably would have no hesitation over suing her if his plan is picked up for audit and disqualified and she hadn't warned him.

1. Why does the status as tax-qualified or not have anything to do with the preparation and filing of a Form 5500? 2. What's the big deal here? After preparing the 5500 and collecting her fee, she should tell the client in writing that she feels plan may have qualification issues based on document she has seen, but she has not reviewed it in depth and in any event is not permitted to practice law, and recommend the client consult with an attorney. Send the letter or memo in an envelope marked confidential. Can't get sued for sending a letter.

I am not able to imagine how this could ever be a real issue. In the first place, is the employee population large enought to cause the plan to be subject to Federal COBRA? Assuming it is, and the owner wants health insurance, why is COBRA even an issue here? In other words, why, factually, are you assuming that there is even a qualifying event in the first place? Reducing his salary to something minimal or even zero temporarily does not mean he has terminated employment. He still may be working 30+ hours per week (or whatever the policy establishes as the minimum threshold for coverage) to save his business. If you can be very specific on the facts maybe we can be of more assistance.

I have this vague recollection of there being a court decision many years ago involving an employer who reduced pay when it came time for the employees' SEP participation. Even if my recollection is accurate, I don't remember the result in the case!

I don't think it is even that sophisticated. I think you are simply increasing the benefit at age 62.

Isn't the Title I penalty assessed against the Plan Administrator? Who was the Plan Administrator?