MGB

Robin, I totally agree with your "unfair" conclusion. Catch-up contributions by a person over 50 can and will affect the ability of HCEs under 50 to defer. Examples like this were drawn up and shown to Treasury when they were putting together the proposed regulations last year. (I saw the first such examples within a week of EGTRRA passing.) There were many people requesting that they come up with a way to prevent this from happening. However, they ignored this and the "unfair" result is now just "the way it is."

When Prudential sent out letters last year to terminated defined beneift plans, I didn't expect them to actually give stock to nonparticipating nonmutual contracts such as group annuities upon a plan termination. Well, now they did. There have been many threads on these boards dancing around the issues involved without clear guidance. Has anyone received official guidance from the IRS on the various tax issues? Has anyone received official guidance from anyone on various trust/employer/reporting issues? I can list more than 40 specific (semi)unanswered questions, but first need to find out if the IRS has given any insight on this (I am not talking about extrapolating general principles from other similar situations - I am looking for concrete info directly on these demutualizations; and the information from Prudential is worthless).

This was a change under EGTRRA. The only situation is when there is a deminimus result of deleting the option. This is supposed to be directed at mergers where they two plans had similar, but not exactly the same options. This requires the IRS to provide regulations to interpret correctly.

Actuarysmith, You have the proposed regulations exactly backwards. Nothing is deemed a catch-up contribution until you are eligible (have hit a limit or subject to ADP). You may not designate deferrals as catch ups ahead of time.

Qualified plan and IRAs are not allowed to borrow (sorry, don't know the exact site). Buying on margin is a type of borrowing. Wouldn't that be all there is to it?

It is the additional minimum liability (=ABO-assets-accrued expense on books). (A review of any of the example disclosures in SFAS 132 should convince you.) Don't ask me why SFAS 132 used different terminology than the definition of the calculation under SFAS 87 (which defined it as "additional minimum liability").

How soon we forget... There is another reason for keeping track of the old numbers. There is that little issue called a SUNSET provision in 2010. As we move further into deficits instead of surpluses, it is going to be very difficult to get every EGTRRA provision extended.

To all interested: The IRS has informally stated that they may provide a release that gives the numbers under the pre-EGTRRA rules. In addition to states needing this there are also plans that are not amended for EGTRRA (particularly union plans that won't amend until the end of the current cycle) and need the numbers. Jeff, Be careful about the calculation. It is not just an increase from year to year. The 1.0270 that was included in the release is for adjusting the section 415 100% of compensation limit after retirement, which is a year-by-year adjustment. The adjustment for the 402(g) limit (and every other limit) is a calculation of the ratio of the CPI (the average of the three CPIs in the third quarter) in the year before the adjustment divided by the same CPI average in the "base year." Every limit has its own base year depending on when the provision was put into the law. This one is 1987. The ratio is then multiplied by $7,000. Whether you do the actual calculation using the base year or the year-by-year calculation, you would almost always get the same result after the final rounding (they may not match if the result were very close to the rounding figure). The unrounded amount will be off slightly because the CPI calculation and the ratio detmination only uses a few digits. The unrounded amount for 2002 (using the proper base period calculation) is $11,268. Applying 1.027 to $10,973 from 2001 would produce $11,270; doing the year by year all the way from the beginning (assuming you never knew the intermediate figures and just kept your own running total of the unrounded amount) would produce $11,266.

It is illegal to require such payments from the employees.

If they can wait awhile (e.g., use a conduit and later roll to 401(k) if appropriate), they would have a much clearer answer. Both the House and Senate passed bankruptcy reform bills early last year. When it went to conference committee, the Senate couldn't agree on who to assign to the committee (this was when there was still a 50-50 split). It is still sitting there on the back burner (isn't there some way to kick these elective officials in the butt to do their jobs?). The problem is that there is different language in each version of the bills on protecting retirement assets. Therefore, the final version may be different than what is expected. Then again, it could all die and revert to current law, or they could go back to the drawing boards and start all over again. One of the more troubling aspects with respect to retirement plans is a clause that requires the plan to have a "current" determination letter from the IRS in order to be protected.

It has only been "filed." That means we are many, many months (if not years) away from resolution. It is a suit charging that revenue sharing in general should be declared illegal (using prohibited transaction laws). It is not something that Nationwide, per se, is doing wrong. It sounds like a frivolous suit that isn't going anywhere. The news stories to date have been one-sided by those that filed the suit and their constituents. Therefore, they make the situation sound like this is some type of great rip-off of everyone, everywhere, etc. Employee Benefit News carried the story last week.

jaemmons, Although your conclusions make obvious sense, that is not how the IRS sees this. They tried to make it very clear in the proposed regulations that they have no authority to allow what you are describing. Universal availability under the statute applies to the entire controlled group, period (except for Puerto Rican plans). Numerous discussions with Treasury personnel (Sweetnam, Drigotas, etc.) have repeatedly confirmed this.

No. If the union does not want catch ups, then the rest of the controlled group cannot have them either. Note that there is a transition period (see last paragraph of proposed regulations) for union contracts. You can put in catch ups in other plans now without the union as long as the contract was in existence on 1/1/2000. If the union does not have catch ups in their plan within one year after the contract expires, then the rest of the controlled group can no longer have catch ups.

The IRS does not have the authority to change it to 25%. Technically, the law still reads 15%. There was an EGTRRA technical corrections bill that was attempted to be attached to the Victims Tax Relief bill that passed late in December. However, it didn't make it. It will again be tacked on to some bill when Congress reconvenes, but it is anyone's guess how long it will take to get passed. It would have changed the 15% reference to 25%.

Thanks Everett (and I agree with your list; we already went through it). Pax, I also suggested to our practitioners that they have their clients add a statement that everything in the notice is with regard only to Federal law and that state laws may not follow Federal law with regard to rollovers and they should consult their tax advisors. (This is the EGTRRA compliance issue and it is generalized because of many of our clients are multi-state organizations.)

Everett, As long as you are being so helpful, what are the changes? (I've got it but I don't want to go word-for-word through it, which it sounds like you have already done.)

Traditionally, there has been a lot of good pension-related information and background in the actuarial exams beyond what is in the enrollment exams (of course, this information is overshadowed by a lot of content that is not applicable). Also, in the larger consulting firms, the only way to advance is to have a broad knowledge of all benefits. That knowledge can be picked up in the actuarial exams, too. The combination of more pension material, other benefits material, and other related material (economics, finance, etc.) that is found on the actuarial exams makes a person more "well-rounded" in the eyes of the employers. There is also a misperception by the consulting firms' clients that an FSA means more, and the consulting firms do not try and change that because they like to flaunt the number of SOA members they have on staff. Will an FSA (or ASA) help you to do a pension valuation or fill out a Schedule B? No. Will it help you communicate more effectively with executives of Fortune 500 firms? Maybe, but it is only one piece of what you need. Although you would be more well-rounded knowledge-wise, you still need to have communication skills, which are not covered on the actuarial exams (although prior to the '70's, the first actuarial exam was an English exam - maybe they should bring that one back). The SOA is about to embark on a revamping of the entire examination system (the fourth or fifth such overhaul since I decided to become an actuary in '71). It will move more in the direction of technical matter of quantifying risk. When that happens, many actuarial employers in the pension arena will probably reassess whether that is what they are looking for. My conversations with chief actuaries at the large consulting firms indicates that they do not like the direction that the SOA is taking (the changes are being driven by the academics in the Society, rather than the consulting practitioners, and the insurance people have been somewhat on the sideline accepting that the more academic-nature of the future exams would probably help them with their needs). I have been employed on all three sides in the past (a professor teaching actuarial science, an insurance company employee and a consulting pension actuary - although now I don't do any of the three), and my personal view is that the SOA is about to diverge away (even more than the perception that you may have of it right now) from what the pension consulting profession needs in the background of their employees. So, in the future you may not see such a strong statement that a person must be a Society member from the pension consulting firms.

If a person, such as myself (not a participant or beneficiary), requests a copy of an SPD from the DOL, they politely say they do not have it,....but they'll get it for me. I.e., ANYONE asking the DOL to get an SPD will get the DOL to request one. I was confused as to whether this would invoke the penalties if the company did not respond. It seems it would. Next issue is what happens when a company doesn't respond? Shouldn't that raise a red flag to the DOL that maybe they don't have an updated SPD to furnish? (Do I hear the word "audit" here?)

Pax, It is too late for this year's questions in the Gray Book. The group that works with the IRS has a pre-Thanksgiving cutoff for submission. Although the questions (and suggested answers) have already been submitted to the IRS, the answers are not known yet. I think they are meeting next week to finalize the answers.

I disagree with Wolfman's and Tom's original statements that a discretionary administrative limit on HCEs triggers an allowable catch up. The preamble to the proposed regulations addressed this and stated only limitations expressly in the plan count. In conversations with Drigotas and Sweeney at the Treasury, their internal discussions centered on the idea that they believe the administrative limitations are illegal because they are not definitely determinable benefits within the plan. But, rather than broach that subject in general (and really upset a lot of administration), they side-stepped it and just made the remarks in the preamble to the catch up regulations. "An employer-provided limit is a limit on the elective deferrals ian employee can make under the plan that is contained in the terms of the plan, but that is not a statutory limit. ... The condition that an employer-provided limit be contained in the terms of the plan is intended to correspond with the requirements of section 1.401-1 that a qualified plan have a definite written program and provide for a definite predetermined formula for allocating contributions made to the plan."

RCK, I used the same argument a few times last year and kept getting defeated. The problem is that a filing of a form doesn't restrict you from what you actually are doing. If we assume a retroactive merger actually could have occurred, then all that happens is that you pay a penalty for filing the 5310A late. That is when I latched on to the "assets available" reasoning (actually, a lawyer used it on me).

I sort of agree with Rigby, but the actual calculation isn't that simple. You cannot use the present value of the remaining payments (looking prospectively). You must do this with a retrospective calculation. The person had an amount coming, but was not allowed to take it. Now they can take it (presumably the overall assets gained enough to lift the restriction or the plan is terminating). In many situations, they did not receive just the single life annuity amount because they weren't "fully" restricted. They may have received more. The general approach would be to take the lump sum amount they would have had coming at the annuity starting date, subtract what they actually received, and roll it forward to the date of any later payment. This can be done with multiple payments to date, too. Revenue Ruling 92-76 implies that the rolling forward should only be done with interest, not an actuarial adjustment (with mortality). In the original question, if you instead calculated the present value of the remaining life annuity, that is mathematically equivalent to rolling forward the previous amounts with an actuarial adjustment. But, that would not be appropriate according to RR 92-76.

Although I agree that the valuation should not consider the contributions, how do you back them out (the original dilemna)? In a normal on-going situation, assume there have been contributions during the year. At yearend, you have a market value of assets. How do you get rid of the contributions? If you just subtract them, then any investment income/loss associated with them enter into the calculations. That is the original setup of the problem, except that it happens to be the first year of the plan and subtracting ends up with a negative result. The only way to end up with zero in this case is if you both subtracted the contributions and netted out any actual investment income/loss associated with those contributions. I don't know how you could calculate that in a normal ongoing situation. (And, what happens to the amounts you netted out? They are not in the contribution figure itself, so it somehow will have to show up in the second year's gain/loss.) In the first-year situation, figuring out what to net out it is pretty simple because it is whatever is left over after subtracting contributions. But, that means you are approaching a first-year situation different from later years. I don't like that answer. I vote for using the negative market value (actual market value minus contributions).

Yes, all limitation years must be the same within a controlled group. See regulation 1.415-2(B)(ii).

I agree with Andy. I struggled with this numerous times last year with many clients wanting to do retroactive mergers (due to high contribution requirements in one plan and not the other). The requirement that all assets be available for all liabilities of the plan is not satisfied until the asset transfer takes place. Of course, this doesn't answer your original questions of which date is better and whether you need a 5500 if it is on 1/1. I don't have a clear answer on that.