MGB

In the Summer, 2001 edition of "Employee Plans News" (a publication of IRS's EP department), they included a sample certification that satisfies the requirements of Rev. Proc. 2000-20. Anyone that sponsors volume submitter or M&P's MUST know about this procedure. If not, I would find another provider. The following is copied from the newsletter, which may be found at http://www.irs.ustreas.gov/plain/bus_info/...ep/archive.html and click on the summer, 2001 edition. "The following sample certification meets the requirements of Rev.Proc.2000-20: __________(name,address and EIN of employer)certifies that it intends to adopt __________(name of M&P or volume submitter specimen plan and file folder number,if available),sponsored by __________(name,address and EIN of M&P or volume submitter practitioner),as approved for GUST by a favorable opinion or advisory letter.This plan will amend or restate __________(name and plan number of the employer ’s plan being amended or replaced)and will be adopted within the extended GUST remedial amendment period under Rev.Proc.2000-20 as modified by Notice 2001-42. __________(name of M&P or volume submitter practitioner)certifies that an application for a GUST opinion or advisory letter for the M&P or volume submitter specimen plan identified above was filed with the IRS by December 31,2000. ____________________________________________________________ Employer ‘s signature Date ____________________________________________________________ Sponsor ’s or practitioner ’s signature Date

IRC401: The authority is a general information request (of course, this is not official authority, but gives the IRS's position) by Kyle Brown, attorney at Watson Wyatt; response from Marty Pippins at the IRS on 12/9/99. I have seen nearly identical letters sent to other attorneys and clients. The following is an excerpt (Brown's response has been published in all pension services): "Section 1.414(q)-1T, Q&A 3©(2) provides that the dollar amount for purposes of determining the highly compensated active employees for a particular look-back year is based on the calendar year in which such look-back year begins, not the calendar year in which such look-back year ends or in which the determination year with respect to such look-back year begins. Thus, except as noted below, for plan years beginning in 2000, the look-back years begin in the 1999 calendar year, and the compensation limitation for determining HCE status is therefore $80,000. The compensation limitation for determining HCE status is $85,000 for plan years beginning in 2001, based on look-back years beginning in 2000. "

The article is completely based on false information. The entire discussion is predicated on employers "removing vast sums" from DB plans in recent years according to a separate report he is supposedly commenting from. That is completely bogus. The separate report is discussing FAS 87 income to the bottom line. This author interprets that to mean this money is being withdrawn by the companies when it is not. The facts are wrong, the conclusions are baseless and the article should have never been published.

This is not just California. Many states will produce problems with all of EGTRRA, not just 457. In particular, Massachusetts is a major problem because their laws do not conform to EGTRRA.

2002 determination years look at 2001 compensation compared to the 2001 limit of $85,000. That will not change. The 2002 limit will change to $90,000 but will not be used until 2003 determination years. The IRS has not issued this update because of a technical glitch in EGTRRA in some references to 415(B) methodology. The glitch does not affect the HCE compensation amount; it is a problem with other obscure references. They have decided to go forward and issue the indexed amounts without waiting for a technical correction but it might take a couple more weeks for the release.

No. Technically, those over 50 just have higher limits than those under 50. They do not actually have a separate contribution called a catch-up. However, if a plan has its own limit (e.g., 10%), and that plan wants to offer catch-ups, they must somehow operationally allow the person to elect to make a larger deferral than those under 50. In this case, there may need to be a separate election.

MarZ, To clarify my previous post, the extension to February 28 does apply. The extension to June 30 or later does not apply.

MarZ, Your question is backwards; rather than "does not need to be signed until", you mean "needs to be signed before" (instead of being signed before 12/31). Yes, the deadline is for signing the letter of intent is also extended.

Sorry, I was posting at the same time as KJohnson, didn't see his.

Rev. Proc. 2001-55 Feb 28, all plans. June 30, those directly affected (MUCH stricter definition than previous relief). December 31, "really" affected (IRS discretion upon a request).

Latest word is that the extension will be 60 days for all; 6 months for those affected. Should be official later today.

Gary, I am surprised by your experience with the immediate benefit being lump summed out. My experience is the exact opposite - that they have all used the deferred benefit. However, I've only worked on large plans, I don't know if it is different with small plans.

Congress did not extend anything. The IRS and PBGC are allowing contributions made by 9/24 to be included on the Schedule B for purposes of avoiding a funding deficiency and for calculating premiums. They do not have the authority to waive an excise tax for these late contributions. That is what they left for Congress to change, and it is not clear that they will.

Any provision that is being increased (or new like catch up) can be done by the end of the first plan year that it is effective. You can operationally comply during that one year.

In my earlier post, I said the 415 rule incorrectly when there is a PVAB death benefit. For pre-retirement mortality, you have the option of ignoring or not ignoring it (not ignoring it gives a lower lump sum, so the IRS doesn't care that you go in this direction). For post-NRA adjustments, you must ignore mortality under this situation. (I incorrectly said this for the pre-retirement side.)

What is a "benefits compensation analysis?"

Although not part of the original question, if you extend this to a large distribution that is subject to 415, then an additional issue comes into play. In computing the lump sum of the 415 limit, you must ignore pre-retirement mortality if the plan provides for no forfeiture upon death. I.e., if the death benefit is the PV of the accrued benefit, then you must ignore mortality in determining the lump sum. But, that is only if 415 comes into play. The real answer to the original question is "what does the document say?"

I was in a conference call with Elizabeth Drigotas of Treasury (she was one of the lead authors of the proposed reg) on Wednesday. There is no relief for separate lines of business. They (Treasury) feel they are bound by the statute that is clear that the entire controlled group is subject to the universal availability requirement. That does not preclude the possibility of a change by Congress through a technical corrections bill or other legislation in the future. However, they need to become aware of the issue from companies that want this relief. Otherwise, we are stuck with the law as is now written. By the way, it is clear in the proposed reg ("employer" in the referenced regulation is defined as the controlled group; separate lines of business are in a different regulation): (5) Other definitions. (i) The terms employer, employee, section 401(k) plan, and highly compensated employee have the meanings provided in § 1.410(B)–9.

I ran into another unknown controlled group issue many years ago. A privately owned company (multiple generations of one family) was bought out by management. In order to finance it, they went to a large fund that specialized in these buyouts. The fund ended up getting a large enough equity stake that the company became part of a controlled group that included all of the firms that the fund invested in. How about that? Being a part of a controlled group of companies and you don't even know who they are. The fund would not divulge that information, either.

The nonissuance of 30-year bonds only means their yield will continue to decline. There are still $600 billion of them in circulation and will be around for almost another 30 years. None have ever matured...they only started being issued in 1977. Although the first maturities are a few years off, the Treasury has a separate program whereby they are buying back a small portion of outstanding bonds. That will probably recede with their higher cost and our movement into deficit spending.

Maynard, I am not sure whether you can benefit from "waiting awhile" or not. This depends on your plan provisions. If the lump sum includes the value of the early retirement subsidy, then you slowly lose that subsidy as you wait (it will all go away by the time you reach normal retirement age). That subsidy (as described in the previous post) is huge if you can get it and a decrease in rates won't override that. Whether you are getting the subsidy or not, you also lose some opportunity cost by waiting. For example, if the discount for one year is 5% and you could have invested the money at 8%, then you lost out on 3% by waiting a year. However, if the lump sum increased by more than 3% by waiting, you come out ahead. (For every 0.1% drop in rates, your lump sum increases in a range of about 0.75%.) I am only guessing here, but I think 1998 was when the Treasury first announced their buy-back program, so there was an immediate illiquidity premium put on them, driving down rates. That is what drove down rates in the last 24 hours, too. They will become even more illiquid and unavailable with no new issues. Note that waiting may backfire. The Treasury is not "locked in" to their current policy. They could flood the market with new issues in February (the next sale date that was just called off) if they find out they are spending a lot more than expected in Afghanistan, loss of tax revenues here, etc. There have been many economists that have publicly decried their announcement yesterday, saying this is the time (when rates are low) that they should be issuing long-term debt instead of short-term to lock in the low rates for the future. (It is similar to a house mortgage...do you go with the long-term refinance and pay off short-term debt when rates are low or do you wait until they are high?)

The IRS has repeatedly said that nondeductibility is not "a mistake of fact." You cannot move the money.

Although they quit issuing them, there are still over $600 billion of 30-year treasuries in circulation (none have ever matured, they started in 1977). These will continue to be traded and a yield rate will continue to be published for many years to come. Separately, the Treasury has a buy-back program in place to buy up some of the outstanding 30-year bonds. According to the WSJ on Monday, they will continue to do this buy-back even if we go into deficit spending because they want to keep the interest rates on 30-yr treasuries artificially low. (Note that the interest paid to the trillion+ in the Social Security trust funds is pegged to long-term government obligations, so these low rates mean that the government is paying less in interest to these funds, too.) The net result is that there is a dwindling supply and a huge demand. This will continue to drive down the yield (it dropped below 5% on the announcement this morning - the largest plunge in a long time). As these rates continue to fall, lump sum calculations will continue to rise. There is massive lobbying going on in Congress to remove the reference to 30-yr treasuries from this and other calculations. Up until yesterday, there was little movement towards any change. With the new announcement today, the playing field has shifted and there is a better possibility of something changing next year.

It never was MRD. That is probably just a term used by some people as shorthand. The law and proposed regulations from 1987 only refer to "required distributions." there is no "minimum" in any of the language, nor is there any reference to an acronym. However, in the newly proposed regulations issued in January 2001, they use the term "required minimum distribution" over and over again (even in the titles of the regulations). They never use the acronym RMD, like they do with MDIB (minimum distribution incidental benefit), which was used in both the 1987 and 2001 proposed regulations.

Both of you are right and wrong. It depends on which provisions you are talking about. In general, most provisions are expansions of options (e.g., catch-up contributions) or increases in limits (e.g., annual additions). For these, you need the good-faith amendments by the end of the year they are first effective. This is generally the end of the 2002 plan year, although some are sooner if you have a noncalendar year plan. For provisions that are reductions in future amounts, the amendment must be in place before the participants accrue benefits under the new rules. For example, the top-heavy changes fall into this category. If a person were to accrue a minimum benefit under old rules and not under new rules, then the only way for them to not get the minimum benefit is to amend the plan before they accrue that benefit.