MGB

See page 54-55 of IRS Publication 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

Also note that some of us disagree with the IRS's releases. They never did this in the past, they only started including the old compensation limit in the COLA notice for the last two years. The old compensation limit was adjusted by 4th quarter CPI changes instead of the current 3rd quarter CPI changes. It also had a different rounding (5000 versus 10000, if I remember correctly). The IRS numbers being published are using the new methodology to bring forward the old limits. I don't think that is correct. The new methodology was not part of the plan provisions back then. In some years you might get the same result, but usually they work out to be different numbers. We have some very large governmental clients that use our numbers and ignore the IRS's announcements.

In order to give retroactive benefits, the plan must provide for a retroactive annuity starting date. In TRA'97 (I think), Section 417 was amended to allow a retroactive annuity starting date prior to the issuance of the J&S forms. In 2001, the IRS issued proposed regulations on retroactive annuity starting dates as amendments to the 1.417(e)-1 regulation. That also requires interest on the past payments. They expect to finalize this regulation this year. I suggest reading that proposed regulation to see if your plan complies with the requirements. If not, it should be started 1/1/03, but perhaps with an actuarial increase (again, depending on the plan provisions).

Some other things that are going on: The code/reg references are all being garbled because (X) creates various things for different X's. For example, b is ( , etc.

Note that this information is not exclusive to ASPA's announcement. The information originally came from the Spring issue of the Employee Plans News from the IRS, page 10: http://www.irs.gov/pub/irs-tege/spr03.pdf

Sorry, this is not for 1099 reporting (which nicely have the taxable/gross boxes), but for W-2 reporting (which do not have a similar setup).

Once again, I'll repeat the question. The problem is not with what code to use... What amount do you put in box 1? The taxable amount or the gross amount paid? If it is the gross amount paid (which is what the instructions imply, how does the individual reconcile that the amount on the 1040 doesn't equal the amount on the 1099?

You can always have any amount of service (I know of a plan that grants prior service for any work a person has ever did with any employer before becoming employed by the plan sponsor). There is no need to offset prior accrued benefits.

The difference is that state employees have a special provision in the federal tax code which allows the employer to "pick up" the contribution. This effectively keeps the contribution subject to federal tax and is similar to a deduction for federal tax purposes. At the state level, they are not allowing this deduction, so the contribution must be added back to the federally-derived taxable income. This provision of the federal tax law is only applicable to governmental employees, so there is no reason to have a cross-check with other employees (they don't have this deduction).

The $160,000 only applies to the employer-derived benefit (the total benefit under the formula minus the employee-derived benefit). Employee contributions will produce a certain amount of benefit by themselves (the "employee-derived benefit"). To calculate this amount you need to use the IRS rules under Section 411 (this use of the calculation rules under 411 for this applies to governmental plans, even though Section 411 doesn't apply to them). So, the actual limit in a contributory plan is greater than $160,000, because you add on top of that the employee-derived benefit.

There are a number of issues that "is this legal" could be questioning. The IRS and state tax agencies have long shared information for cross-checking. That is obviously legal. As far as what the state defines as taxable income, that is set by the legislature in the state. The state tax agency does not make that decision. Presumably, the law in that state does not recognize the reduction in taxable income that the feds allow. Differences between state and federal income tax laws are very common (some states have thousands of differences). Each state has its own statute of limitations. I presume this one has a three-year and that is why they are checking the three returns. Something more disturbing than this sharing of information is the SSA's recent announcement that they will be sharing all the personal information (address, phone, DOB, etc.) they have on people with any state agency (family services, law enforcement, etc.).

In Enron, the DOL is claiming fiduciary standards are not preempted by insider trading rules.

Widow's benefits are not payable during those years unless she is caring for a dependent child at the time. Any SS benefit (own, widows, etc.) is cutback (if prior to age 65) for earnings. So taking a widows benefit now and continuing to work will wipe it out. When she eventually quits working, she will still have the early retirement reduction factor applying (assuming she applies now). So, it is better if she does not apply for the widow's benefits until she actually quits working. These statements may not be true if she is working at very low wages. You cannot claim benefits for which you haven't previously applied for.

Brian, Do you have a cite for your last comment? It's been over twenty years since I worked with a floor-offset plan, so I haven't had to think about this in a long time. The exemption from PBGC premiums for some participants is surprising.

Read Rev. Rul. 77-2. It very clearly states what to do. If the amendment is adopted on or before the valuation date, you recognize the change pro rata (do a valuation with and without; pro rate between them based on the number of months into the year that the change is effective). If the amendment is adopted after the valuation date you have the option of doing the pro rata approach or ignoring the change completely. So, for yours, you must recognize it in the 1/1/2004 valuation, but only partially. The inconsistency of the responses are the "except as provided by the Commissioner". The Commissioner provided a pro rata rule in 77-2 that is not in the regulation.

Actually, if Enron still had a floor-offset plan with their ESOP, then no one would have lost any money from the loss in value of the ESOP (they still would have lost the stock they had in their 401(k)). That is because when the ESOP value went to zero, the defined benefit plan would have picked up the difference. However, they got out of the floor-offset arrangement in the late 90s and froze the amount of the offset based on the share prices at that time. So, when the shares went to zero, the defined benefit plan was no longer a floor and they lost out.

Generalizations will not work on safety of investments. PERS plans invest in the same risky investments that all retirement plans do. I just looked at the Mississippi PERS webpage. You are not in a defined contribution plan. That means that your contributions are not invested in a fund that you will specifically see produce a payment in the future. Instead, it is a defined benefit plan. The amount of benefits that will be paid by the plan is determined by a formula and has absolutely nothing to do with the investments of the plan. The statement that a private 401(k) is anything close to resembling what you have now is disingenuous and an outright misrepresentation. There is no way that a 401(k) from a private employer will be anywhere near as generous as the PERS defined benefit plan. I guarantee that one of the reasons for privatizing your work is to save money by not having you in the expensive plan that you are in now.

I agree with the prior responses. I have run into a couple of situations recently that are difficult to determine the correct answer. 1. Assume the opposite and the benefit accrual rate in the future has been negotiated to be lower, rather than higher, than it is now. For example, they have been getting 20 each year of accrual and starting next year it will be 15. Given that this is a 413 plan, it appears you can recognize this in the current valuation. However, there is a catch. The law only allows you to recognize INCREASES in the future. The question here is, under the EAN method, what would you project as the accrual rates in the future? (My answer, though I don't like it, is you must project 20.) If this was not a 413 plan, would you recognize the 15 in a projection method? (Again, the answer is no.) 2. Getting away from 413 plans, assume a plan adopts an amendment to freeze the final pay at 12/31/2005. The plan will continue to credit service. Under any projection method, would you recognize the freeze? (Again, I don't like it, but the answer seems no.) 3. Assume you have a vanilla x% of final pay times years of service. You pass an amendment putting a cap on service of 25 years. Would you use this cap in a projection method for those that have less than 25 years? If you've answered this differently from (2), what makes these two scenarios different under the law? The problem with reconciling the above with the law is the phrase "effective, whether or not retroactively, in a future plan year" in the regulation. Are the above amendments really effective in the future, or are they effective when the amendment is passed?

Items 1 to 4 are the service periods that do NOT apply towards the five years.

See the descriptions in item (4) (this is from USERRA): `© Subsection (a) shall apply to a person who is absent from a position of employment by reason of service in the uniformed services if such person's cumulative period of service in the uniformed services, with respect to the employer relationship for which a person seeks reemployment, does not exceed five years, except that any such period of service shall not include any service-- `(1) that is required, beyond five years, to complete an initial period of obligated service; `(2) during which such person was unable to obtain orders releasing such person from a period of service in the uniformed services before the expiration of such five-year period and such inability was through no fault of such person; `(3) performed as required pursuant to section 270 of title 10, under section 502(a) or 503 of title 32, or to fulfill additional training requirements determined and certified in writing by the Secretary concerned, to be necessary for professional development, or for completion of skill training or retraining; or `(4) performed by a member of a uniformed service who is-- `(A) ordered to or retained on active duty under section 672(a), 672(g), 673, 673b, 673c, or 688 of title 10 or under section 331, 332, 359, 360, 367, or 712 of title 14; `(B) ordered to or retained on active duty (other than for training) under any provision of law during a war or during a national emergency declared by the President or the Congress; `© ordered to active duty (other than for training) in support, as determined by the Secretary concerned, of an operational mission for which personnel have been ordered to active duty under section 673b of title 10; `(D) ordered to active duty in support, as determined by the Secretary concerned, of a critical mission or requirement of the uniformed services; or `(E) called into Federal service as a member of the National Guard under chapter 15 of title 10 or under section 3500 or 8500 of title 10.

Technically, it is a blackout. However, that only means that you must receive notification that it will occur. Blackouts are not prohibited, they only need to meet notification requirements. If this is a regularly scheduled event, and it is communicated through an SPD or other form of notification, then they do not need to renotify you that it will occur each quarter. You state that you have been not been notified. But, how did you know this? This type of blackout is often there if the plan contains your employer's stock. The reason for it is that many people within the organization have insider information at the end of the quarter just before the earnings announcement is made public. By having a blackout, it precludes those insiders from buying or selling their stock in the plan just before a large movement in the stock price due to a quarterly announcement.

The match on the 401(k) is completely up to the plan sponsor. They may match some or none. The most common match is 50% of the first 6% of compensation that you contribute, which means a maximum of 3% of compensation they will contribute. They may also have additional contributions not associated with a match, although this is not as common. Every plan is different. Also, every plan is different in the investment options offered. There is no way to make generalizations of the nature of the PERS investments versus a private company's 401(k) investments without knowing what the specific options are. Also note that your PERS "may" be a Social Security replacement plan. I.e., you are not contributing to, nor will you get Social Security benefits because you are a governmental employee and covered by the PERS. (Not all governmental plans are this way - do you pay 6.2% of your salary to SS?). If that is the case, you will now start paying into Social Security and receive SS benefits.

jaemmons, The crediting of service only applies if they actually return to the employer when they leave the service (not all will). They can also lose their USERRA rights if they are discharged under anything other than honorable discharge (a very large percentage leave the service under a general discharge and some more under a dishonorable). Therefore, the additional benefits are in a "contingent" basis during their leave. I would think that it makes more sense to not consider them active. Also, on a technical note: The five year limitation only applies to VOLUNTARY service. Being called up for the reserves does not start the 5-year clock running. For example, a person could be called up for 3 years involuntarilly, then reenlist for 4 years. They come back after 7 years and they still have full USERRA rights because they have not outrun the 5 year limit (they only had 4 voluntary years).

Note that if there was ONE active participant, 4980(d)(5)© provides for a reallocation to the active participant of the amounts that you cannot give to the retirees. A similar situation and reallocation can occur due to 415 limits. In the 1996 Enrolled Actuaries Meeting Gray Book, Q&A 41, a similar issue was posed in the context of having only one participant already subject to 415. In this case, the IRS said the reversion is subject to the 50% because there is no one else to allocate the 20% to. I think you are stuck with the 50% excise tax. (Unless they amend the plan to add one or more active participants.)

The burden is on the participant. Note that the letter from the SSA does NOT say they have benefits coming. It only says to check with the former employer because they MIGHT have benefits coming.