MGB

The PBGC has two funds (single employer plan system and a separate fund for the multiemployer plan system). The premiums are commingled with the assets obtained from terminated plans. Overall, about 75% is in government bonds. These are tradable bonds, they are not the special-issue bonds that the government uses for the OASDI and other trust funds that are mandated to invest in government securities. They change their asset mix depending on circumstances and most of the rest of the fund is invested in equities. For more specifics, see page 30 and footnote 3 of the Annual report: http://www.pbgc.gov/publications/annrpt/02annrpt.pdf

Note that under the new 401(a)(9) regulations, the only way to have a variable payout from a DB plan is to buy a variable annuity (but not with the bells and whistles of the one described here). We do have clients that buy special products (not high commissioned individual products) from insurance companies specifically designed to accomplish the ability of the participants to have a variable payout. In the original posting, it did not say...what is actually paid to the participant? Are they just receiving what the plan said they will receive (and the plan is receiving the variable payout), or is the participant's payout variable under this arrangement?

You look at the highest compensations in all years (not just the current). Choose the 25 highest people. If he is in that group, he is still restricted. What they are trying to say is that he could drop out of the high 25 if new compensation amounts by anyone are higher than the compensation that put him in the high 25. For example, a person could be restricted when they retire, but are no longer restricted the following year because there are enough new HCEs with compensation that is higher than the person's formerly highest compensation, resulting in the person getting bumped out of the high 25 for the current year. At the recent CCA meeting, Holland started going off in a tangent in trying to delineate between those still in the plan and those that are not (e.g., prior lump sums) and claiming you only count the 25 that still have benefits under the plan (whether or not current or former). It was more "discussion" than fact, so I don't know if I agree with him on this.

The way my logic was going, the issue is constructive receipt. If the partners are allowed to change from getting a profit sharing contribution to cash (without it being an allowable cash or deferred arrangement), then those that are getting the profit sharing contribution "may" be determined by the IRS to be in constructive receipt and have to pay taxes. So, the actions of one partner end up causing a tax liability for the others.

Withholding is not an issue. The issue is what to report in box 1 of the W-2.

What will happen once elected out? Will his part of the partnership income be adjusted for this? If that is so, then I don't think it is proper because you are treating the profit sharing as an elective deferral.

I am running into the same problem again as my previous post from last year. Does anyone have an answer to this? The current situation is more complex. The W-2s showed the gross amount paid from the 457 and the participants paid tax on the full amount. However, they have large amounts of basis (previously taxed when the substantial risk of forfeiture went away) and should not have paid taxes again. Obviously, the participants need to file 1040X's to get refunds. But, what do they provide to the IRS? If the payor does not issue revised W-2s with a net amount, how does the participant verify that only part of it is taxable? Again, should the payor be using a gross or net amount on the W-2 going forward?

The answer is some number between $12,000 and $23,000. The 402(g) limit ($11,000 in 2001; $12,000 in 2002) is on a calendar-year basis only. The plan year is irrelevant. The amount they can defer from 12/1/02 to 12/31/02 is $11,000 minus the amount they deferred between 1/1/02 to 11/30/02. (The answer is something from zero to $11,000.) They can defer a full $12,000 between 1/1/03 and 11/30/03. However, if they defer the full amount, they will not be able to defer anything in the next plan year between 12/1/03 and 12/31/03. So, the answer is $12,000 (although this limits their ability in December 2003 to defer) plus whatever they deferred in December 2002. Of course, if this gets very high, they very likely will be failing an ADP test. (It is much, much simpler to keep all 401(k) plans on a calendar year basis because the limits are calendar year.)

RBeck: His instructions are completely irrelevant to the money being moved to a new provider. The plan can move to a new provider without the participant's permission...period. His instructions are to make a rollover. He is not instructing them not to move the money (he can't do that). Whether the rollover occurs before or after the transfer is not in the control of the participant. As long as the rollover occurs within a reasonable time, and follows the plan's procedures, nothing has been done wrong.

With the request being made in December, and it is now only the second week of February, I would say that they are still within a reasonable time period to act on the request. What does the plan administrator say about what is going on (we have only heard the result to date; not what they intend to do)? Some rollover requests take months to process. What does the plan say? Some plans will only make distributions at certain points in time (e.g., at end of quarter or plan year).

I am not sure that everyone is in sync with what the person's concerns are. Sue stated she "worked for a college." Is she still working? Perhaps she just finds it unreasonable that she is receiving a pension at the same time she is working. It may be that she sees this as "double-dipping." Her concern may be that she is somehow harming the college and is getting away with something. So, to rectify her guilt (the "religion" aspect), she doesn't want the pension.

Even more important about the article is that Portman ® doesn't back it. The vehicle for getting the Presiden't proposal moving in Congress is the Portman-Cardin legislation. Instead of adding the President's proposal to it, they are going to introduce their legislation without it next week. See http://www.washingtonpost.com/wp-dyn/artic...6-2003Feb6.html

They must be the same. The only time they are not the same is if one is at the top of the corridor and you want to use a higher rate for the other (both don't need to be at the top of each respective corridor).

The AAA is planning to discuss it during "Hill" visits the first week of April. ERIC and ABC will also be addressing this through whoever takes the lead in drafting actual legislation in Congress.

AndyH, The economic stimulus bill and Bush's proposal are two completely different topics. No lobbyist group has any input whatsoever in anything Bush says. He makes these things up as he goes along (with nearly all of this coming from his listening to Pam Olsen at Treasury who doesn't talk to advocacy groups) and no one had heard anything about this prior to last week (I know that because I am in the middle of all information within ERIC, ABC, and the AAA, and to a lesser extent, ASPA). The advocacy groups can only be reactionary to it, rather than the standard proactive approach with ideas that go through Congress.

Besides making comments to the press, no organization has any input into the process yet. These are only descriptions of what Bush will be including in his proposed budget for 2003-2004. That doesn't even rise to the level of proposed legislation yet. Don't forget, the Administration has absolutely no authority to create law. Someone in Congress (Portman-Cardin have already indicated they are holding up their reform bill to include this) will take his ideas and draft actual language to introduce in Congress. It isn't until then that the lobbyist organizations will have any affect on the process.

"The Handbook of Executive Benefits", by Towers Perrin, published by Irwin (over 300 pages). I have a 1995 edition, I don't know if they've updated it.

What is really odd is the next question which states that nothing is changing for DB plans. Which means they would have different definitions of comp. and HCE and would still be subject to top heavy, etc.

Yes. This had become so pervasive in the 1980s (doctors would work for multiple unrelated doctors every Friday on a rotating basis and be covered under multiple DB plans with full benefits in each) that it prompted them to add the 15% excise tax on excess distributions. Although they later repealed it, the reason for it originally was this very situation. There is no way for them to stop the multiple 415 limits, so they had decided to penalize them on the back end instead. In the current environment without the 15% tax, the multiple employer scam is back in full force. Obviously, there are legitimate situations where multiple employers are involved and they can each provide a full 415 limit, too.

It is an inartful way of saying they have no idea what the actual proposal is. They were only trying to score political points. The White House was supposed to meet with industry people Wednesday to describe the actual proposals. However, once they realized they didn't have any yet, they postponed any more discussion of the issue until next week.

Yes, they are serious. I presume it is to make their life easier scanning the information into their systems rather than receiving the information in multiple formats that they must manually deal with.

Perhaps the DOL rules would not apply. However, the SEC rules on the same subject probably do.

Is it allowable? Yes. A plan can always limit compensation more than the law requires. Is it mandatory? No. (There is one case where it is: If the accrual of the benefit is on other than annual, e.g., monthly, and the salary for that month determines the accrual for that month, then it must be prorated. However, there are very, very few plans designed like this.) So the real question is whether or not they applied the plan's provisions correctly.

Yes. This provision was specifically added to the Code to accomodate the standard practice in DB plans of having age 55 as the earliest early retirement age. You cannot receive your DB early retirement benefits without terminating employment. In fact, it originally said that the exception is only available if the plan has an early retirement provision (it was later changed to be any termination of employment). The 10% penalty is designed to support the idea that these are retirement plans and people should not have access to the money until they retire, i.e., terminate employment. Of course, "making sense" has never been a major driving factor in the comparisons across various rules in the Code.

Age 55 should have nothing to do with avoiding the 10% excise tax. The only way the 10% can be avoided is if it is after 59-1/2 or is paid in substantially equal payments over life expectancy. Age 55 only applies to distributions on account of termination of employment.