MGB

The IRS just released a new publication (963) on this issue, but there really is no new guidance. It is just a comprehensive review of all of the different state agreements and rules that apply. http://www.ssa.gov/slge/pubs.htm

You will probably get better replies if posted under a retirement category...this is health and welfare plans.

There is only one way to calculate the minimum amount. That results in $600. The plan can do other things (like the immediate annuity calculation) if it produces more, but if not, it is still overridden by the minimum mandatory calculation. The law specifies a calculation at NRA.

The employees are eligible for Medicare when they retire, no matter what kind of replacement retirement plan they have. Therefore, they must pay the HI tax. No new guidance can change that fact -- it is the law. There are technical issues with grandfathered older employees that are not covered by Medicare. I presume that is what the guidance will be focusing on.

I've looked into this recently and agree with Mike. It all depends on whether an extension is filed in a timely manner. It makes no difference when the return was filed. You can file for an extension on Jan 1, and file a return on Jan 2, and take a deduction on the Jan 2 filing for a contribution that is made many months later, as long as it is within the extension period.

Also note that this requirement usually only comes into play with retiree medical, not actives.

I do not know anything about Mass. law. This is a new auditing requirement for self-funded plans that have a trust fund (primarily only found in multiemployer plans). In Statement of Procedure (SOP) 01-02 (modifying SOP 92-4), auditors are required to state the relative magnitude of the employee contributions versus total contributions. This is included in the footnotes to the audit report attached to the 5500. Although it need not be communicated to the participants, they have the right to ask for a copy.

Note that a TPA is usually NOT the named plan administrator and is therefore not authorized to file. I find it very strange that they allow professionals to file without holding a power of attorney. It seems the "or" at the end should be "and".

I think the answers are yes, then no. You get a free pass if adopted at the earliest date; no free pass at any other time. They specifically said this under the 415 limit guidance; I don't think it mentioned the compensation limit in that guidance. However, even if they didn't, it seems the same logic would apply.

Yes, it is part of the accrued benefit. No, it does not have to be included in the lump sum. When a participant elects a lump sum, you only need to commute the value of the normal form of annuity at the normal retirement date. Any other retirement-type subsidies are forfeited.

What is an "Alternate Benefits Program"? I am unfamiliar with that terminology. Is this a pension plan or some other type of benefit?

There is no official or technical definition to a "thrift plan." Whoever is using that name may imply just about anything they want to. Before 401(k)'s, there were many plans called "thrift plans." These usually meant after-tax (because we didn't have section 401(k) yet) employee contributions with or without an employer match. If they are still following this old nomenclature, I would guess a "thrift 401(k)" is one that allows after-tax contributions. Again, that is not an official term and the user may mean something completely different.

Yes, Mike, EGTRRA changed the law to allow after-tax rollovers. Sorry, I don't work with IRAs, but I would presume any distribution from the IRA now would be pro rata after-tax and taxable amounts. If they are under 59-1/2, this will also invoke the 10% additional tax. Of course, perhaps the law has changed on this one, too, but I doubt it.

Look at proposed regulatioin 1.414(v)-1(f). The only time you aggregate catchups and apply one limit is if the underlying limitation is the same for both. 457 is not subject to 401(a)(30) (which refers to 402(g)) like 401(k)s are. Therefore, they are separate underlying limits (you can do 11000 in each) and they both can have separate catchups. On the other hand 403(B) and 401(k) are aggregated for purposes of 401(g), so only one aggregate catchup is allowed between these two types. "If elective deferrals under more than one applicable employer plan of an employer are aggregated for purposes of applying a statutory limit under paragraph (B)(1)(i) of this section, then the aggregate elective deferrals treated as catch up contributions by reason of exceeding the statutory limit under all such applicable employer plans must not exceed the applicable dollar catchup limit for the taxable year." The above only references different plans of one employer. A technical correction under JCWAA extended this same logic to plans of multiple employers. None of this is affected by the last-3 years rule coordination of 457 plans.

It depends on whether or not SIMPLE deferrals are coordinated with deferrals subject to 402(g) limits (which the 401(k) is under). (I do not know anything about SIMPLE plans.) According to the proposed regulations on catch-ups, separate catch-up limits apply as long as there are separate underlying limits. For example, 457 plans are subject to a separate limit and not coordinated with 402(g). Therefore you can use a full $1,000 catch-up in both a 401(k) and 457. So, if you can defer amounts under a SIMPLE and not affect the liimitations under the 401(k), the same rule applies to the catch-up. If the regular deferrals are coordinated, then you only can do one coordinated catch-up, too.

2. is not exactly correct. It is the termination liability as defined in PBGC regulations under ERISA 4041(d), which includes PBGC assumptions, XRAs, etc. I am sure that common practice will ignore this and do what you describe. 1. contained a drafting error in the conference committee at the last minute. (Remember that EGTRRA was thrown together from competing proposals during a 48-hour round-the-clock conference.) The purpose of the provision was to protect the PBGC by allowing full funding of current liability. However, professional service employers with less than 25 employees are not covered by the PBGC, so this provision was not supposed to apply to them. Both the House (Portman-Cardin) and Senate (Grassley-Baucus) bills (before the conference) included a new clause 404(a)(1)(D)(iv) that stated this provision did not apply to these employers. Then, during the conference, they decided to add an additional clause (v) with your item (2) describing the termination liability. However, they made a mistake and overlaid the existing clause (iv) (PSC exception) with the new termination provision. When EGTRRA passed, the title of clause (iv) still stated "Plans maintained by professional service employers," but the content was the termination language and there was no clause (v). In a technical correction under JCWAA, the title was changed to reflect the actual termination language of the clause. Surprisingly, they continued to allow the PSCs to have this deduction even though the legislative history clearly did not want to extend this provision to them. Bottom line is that there should be no reason for your "software" to be referencing professional service corporations.

Could you define your question better? "deferred compensation alternative arrangements" sound like a generic phrase without defining any particular type of plan.

It depends on the type of death benefit. The IRS wants you to take into account any preretirement death benefit in this actuarial adjustment. If you have a PVAB death benefit (no forfeit upon death), then you can only bring forward with interest (the calculation you were doing above). Note that the "sample" good-faith amendments under EGTRRA are wrong on this point. The language in there states that mortality (additional increase based on the benefit of survivorship) is never used in the post-65 actuarial increase of the 415 limit. That is not what prior guidance on the issue has said.

You have not given an actuarial increase in the first calculation -- you have only increased with interest. Same thing in the second calculation -- you are only bringing forward the payment with interest. This is not the actuarial value of the prior distribution. In each of these, you need to roll forward with the benefit of survivorship, not just interest. That is why the final calculation is off by the mortality factor.

It depends on the actuary chosen. The assumptions for determining contributions are chosen by the actuary. If the interest rate chosen is high, the age cutoff is high and vice versa. Not all actuaries are comfortable pushing the envelope towards too low of an assumption. Generally, the age cutoff is going to be less than age 40. As an example: They can get approximately $2 million lump sum at age 62. Discounting at 6% to age 35 produces $414 thousand. Spread this over a 10-year contribution horizon and you get $53 thousand per year contribution. Although it is initially spread over 10 years, additional amounts will be allowable as the 415 limit increases. Once they are "maxed out" on the DB side, they can return to the DC contribution at whatever level it is at that time. So, if an actuary is comfortable with these assumptions, at age 35 they can contribute $53 thousand. If the person is older when they start, assume a 6% increase in this amount all the way up to $143 thousand per year at age 52 (it starts to slightly decline after that age). They can still do 401(k) deferrals on top of this and if the contribution to the DB is less than 25% of comp (not much room there between $40,000 and $50,000), they can still put in a little more to the DC.

I taught collegiate actuarial science using the current Actuarial Mathematics textbook. My suggestion to the students was to pick up an old copy of Jordan because they will run into commutation functions throughout their career. This is especially true in pension actuarial work. One only needs to read the law (e.g., PBGC regulations) to run into numerous instances of commutation functions. Anyone entering the pension field must learn commutation functions, not to mention it makes writing formulas so much more efficient. Of course, I could have broken the equations down into summations of discounted future probabilities, but it would have taken four or five times as much space (and probably introduce a dozen errors). (I am currently writing a comment letter on the proposed 1.401(a)(9)-6 limitation on COLAs and am struggling with how to explain my position without using commutation functions -- it would only take a simple formula with them.)

Assuming there is no IRS position on this (however, I think there is one out there), one could look at other federal agencies and how they define age. For example, the SSA has very defined methods for determination of age for SS benefits. They define age as the day before your birthday. I.e., if the birthday is June 5, then you became 59 on June 4. As for counting days versus using the day of the month, I seem to recall the IRS using the day of the month for 1/2 years in some pronouncement out there.

The whole point of giving an "actuarial increase" is to recognize the that the earlier payment is now worth more due to both interest and the benefit of survivorship. Offsetting for the "actuarial value" of prior payments does the same thing. Assume the original payment is P. The actuarial equivalent of prior payments since x, spread over an annuity at age x+t is (all N's are upper-12's): P*(N(x)-N(x+t))/N(x+t). The annuity payable at x, actuarially increased to be an annuity at x+t is: P*N(x)/N(x+t). If you take this actuarially increased amount and subtract the actuarial equivalent of the prior payments, you get: P*N(x)/N(x+t) - P*(N(x)-N(x+t))/N(x+t) = P (If you have access to old transcripts, these equations and examples of actual numbers are in the transcripts of a presentation I did for the 1990 Enrolled Actuaries meeting, session 4F, "Benefit Accruals after NRA," repeated in 1991 and are in those transcripts, too.)

What do you define as a vendor? Are you talking about investment services, administrative services, actuarial services, auditing services, legal services, etc.? Or, are you looking for a vendor that packages all of these services? I also note that you are in Wisconsin and you posted this question under the "governmental plans" board. It is my understanding (I used to be a consultant in Milwaukee, but am no longer there) that in Wisconsin under state law, no governmental entity can set up a 401(a) plan. Only the state can (the Wisconsin Investment Board), except for the existing Milwaukee County and City of Milwaukee plans.

As a follow up to ishi's statement: Assume there is no further accruals and there is only an actuarial increase. When you actuarial increase a benefit, and then subtract the actuarial value of the prior benefit paid, you arrive back to the original benefit amount. That is a mathematical fact. The only time that the subtraction would result in a lower amount (or higher amount) is if you are using different assumptions for the actuarial increase than the conversion of the actuarial equivalent of the prior payments. However, when this occurs, I think you have problems with plan design. The only time that the new calculation should be different is if the new accruals are greater than the actuarial increase...but note that the person loses out on the accruals up to the amount of the actuarial increase (I have said repeatedly since OBRA '86 that this was a poor result of the language of that law...people effectively do not get the continued accruals when you do this offset for the actuarial increase, even though that is what everyone says this law provided...which is false.) Perhaps there is some type of actuarial increase described elsewhere in the document, but it is not encapsulated here. Having said all that, I am only responding to the prior two responses. I do not think that the language in the plan document does this. It does not provide for an actuarial increase in the prior accrued benefit. Therefore, there needs to be separate language in the plan for suspension of benefits and there must have been a suspension of benefits notice provided to the participant at NRA. If such notice was not provided, you are not allowed to subtract off the actuarial value of benefits already paid.