MGB

You "can" offset by benefits received, but you do not have to. That is the only point I was making. It sounded like the intentions were to be more liberal in the original question. For those over 70-1/2, you are required to give an actuarial increase if you do not pay them out. You also must provide additional accruals under OBRA'86. You are allowed (not required) to only give the greater of the two. But, you are also allowed to provide both (actuarial increase + new accruals). If you pay the person out, and provide new accruals, this is equivalent to providing both an actuarial increase and new accruals (more liberal than the minimum required). In other words, if you actuarially increased the benefits and then offset for payments received, they offset each other, resulting in just having paid them out (plus still giving them new accruals). In the case where you do not pay out: If you only give the larger of the actuarial increase or new accruals (the minimum required), then RMD's for owners need to have the actuarial equivalent of the payments offset against this calculation. Otherwise, you would be treating the RMD's more favorably (equivalent to giving both an actuarial increase + new accruals) than nonowners that continue working (who only get the greater of the two).

You would not offset for the actuarial equivalent of benefits already paid. The only time you do this is if you are suspending (forfeiting) benefits. In that case, you must provide the notice to the participants that they are forfeiting value by continuing to work. It did not sound at all like that is what he wanted to do. It sounded like he wants to pay them with no loss of value and continue to accrue benefits, in which case, there is no actuarial offset. The amendment is very simple. Just say that benefits will begin at age 70.5 and that future benefits are increased each year for any additional accrual. Remove any language in the plan that describes actuarial increases after age 70.5 for actives receiving benefits and remove any language of suspension of benefits (or actuarial offsets) for actives receiving benefits after age 70.5.

You still have a 100% of compensation limit overriding the $160,000. Note that it is not 100% of current compensation, it is 100% of projected compensation at the date of decrement (e.g., retirement), and then it must be at least a three-year average. The IRS is very touchy about using an unreasonable salary scale. Assuming the NRA is 10 years from now (to be able to get the entire amount), a 6% salary scale only raises the final three-year average to a little over $30,000. Although a longer period between now and retirement would produce a higher final average, it also would produce a lower present value in funding because of the interest discount. I am intrigued by what you are referring to in the "new literature" as implying otherwise.

There is a proposed law that is making its way through committees. It would require permission from the individual to use their SSN for any purpose whatsoever. Once that permission is granted, you would not be barred from using it on the statements. If you don't get permission, the plan administrator could not use it for identification purposes (it may even result in the plan administrator not knowing what it is), which would lead to not being able to put it on the statement. Of course, all of this is unworkable and there is a lot of opposition to the bill as well as attempts to exempt uses like this. Reference: The Social Security Number Privacy and Identity Theft Prevention Act of 2000 (S. 848 and H.R. 4857) introduced by Senators Diane Feinstein (D-CA) and Judd Gregg (R-NH) in the Senate and by Representatives Clay Shaw (R-FL) and Robert Matsui (D-CA) in the House of Representatives. Now, if I can only get my @*#$& bank to quit printing my SSN on my bank statements (right there with account numbers, etc.)

I would consider the hardship suspension an employer-provided limit. This is not mandatory, it is only a safe harbor to exhibit financial need (except in the case of a safe harbor 401(k) plan). The twist here is that the person is eligible to defer during part of the year. I am not convinced the answer is yes, but I wouldn't count it out yet.

My first impression is that a suspension is an allowable limit, but I'd be interested in hearing other's insights. However, if the suspension is less than a year, there are technical difficulties involved. To be eligible, the entire calendar year is counted in the regulations (note the examples of beginning to make catch-ups in the beginning of the year, and then stop making elective deferrals altogether - if the total deferred does not reach a limit, then it is all deferral; no catch-up). They do address this in the regulation by allowing a time weighted-average of the limits in place during the year if all of the limits are employer-provided. If the only employer-provided limit is during the suspension period, I am not sure how you would dovetail that in with a statutory limit for the remainder of the year in order to see if the actual deferrals for the nonsuspension period exceeded the weighted average limit. Good question! Certainly needs more said on it by the IRS.

Correct. I thought that was clear in the law.

It is only availabe in funded-types of plans. Tax exempt 457(B) plans are unfunded arrangements by definition (even if funds are created to determine investment income - the fund still belongs to the employer). Therefore, 457(B) plans of tax exempt employers may not use the catch-up provisions of 414(v). I am curious where you have seen "conflicting publications." I have not seen anything saying otherwise.

If he is over 50, he probably could get an even higher deduction than $37,000 by using a defined benefit plan instead of a 401(k)/profit sharing.

I am not sure what you are looking for or referring to. There are no calculations of benefits that EVER need review by an actuary (by the way, I am one). The responsibility of accrued benefit calculations are purely under the auspices of the plan administrator. Any automated system would fall under their review, not the actuary. An actuary is sometimes asked to provide assistance, but they are only providing that as a clerical service to the plan administrator. The plan administrator still has the responsibility of the accuracy and appropriateness of any calculation done.

The proposed regs have not been released. Last Friday they released guidance that catch-up should be included in the total for elective deferrals on a W-2, but that is all. I was on a conference call with Sweetnam and Drigotas (lead attorney on the catch up guidance) on Monday (it was set up for that time because they were sure that it would have already been released), and they kept saying "really, really, REALLY shortly." That is a step up from "very soon." The way they talked, they are obviously done, and it is just the bureaucracy of getting it rubberstamped enough times in getting it out.

Tom, I don't think the answer to IRC401 is a clear "no." The question is whether 414(v) kicks in after $11,000, or does it kick in after $14,000. Rather than speculating, hopefully this will be addressed in the proposed regulations that are on their way to the printer. (Sweetnam (Treasury Counsel) and Drigotas (lead attorney on catch up provisions) said yesterday on a conference call that they will be out "really, really, REALLY shortly." That's a step up from "very soon" that they were saying last week.)

Here's a summary I wrote (it includes all benefit provisions of EGTRRA, not just 401(k)): www.milliman.com/files/0101_C&M.pdf The "c&m" is referring to this being a corporate and multiemployer version of the bulletin. There are also public and tax-exempt employer versions. Additional updated information will be posted as it is released. Go to www.milliman.com and go to "publications", "employee benefits", "legislative information bulletins". I expect to have something on the proposed regulations for catch up provisions next week.

Your quote is not referring to a one-year interest calculation. You can pay FICA anytime on or after the deferral and before the required time. The required time is when the deferral no longer is subject to a substantial risk of forfeiture (i.e., vesting). If there is never a loss of the risk of forfeiture, FICA becomes payable when the benefits are paid out. It is better to pay before it is required for a number of different reasons (present values, keeping the calculation in excess of the wage base, etc.). For an account-based plan, that usually means paying it when it is deferred, not later. If you are paying FICA when the deferral occurs, you will never pay FICA on the earnings unless it is a stated rate of interest in the plan and is higher than the midterm AFR at the beginning of the year. If you do not pay FICA until it becomes vested, then you must pay FICA on the entire account balance at that time, including interest credited to date. It is this requirement that the last sentence in your quote is referring to. 3121(v) is short with little technical information. I suggest reading regulation 31.3121(v)(2)-1; that is where the rules are. Any "summary" will have to leave out important information (the regulation is 32 pages in CCH small type). A good summary would take 50 pages or more because there are so many specific rules involved. (I talked for an hour and a half yesterday and only provided a brief summary.)

I just gave a long speech on this yesterday. When I read this today, my heart sunk thinking I really missed something important in the regulations. But, I am sure I didn't. I, too, would like to know where the reference to one year's interest comes from. It is very clear that investment return based on an actual investment is not subject to FICA taxes, from my reading of the regs.

Actually, the two-year rule is not rare in "real" profit sharing plans (i.e., plans that were set up as profit sharing rather than just as a vehicle for a 401(k) provison). I have worked at two large employers that had this rule. It does not apply to elective deferrals under 401(k). It only applies to profit sharing contributions.

No. The bonds are held by the IRA, not you. Any coupons must go to the bondholder. Diverting them to you creates a distribution.

kdm, I don't think he was referring to his own mortgage. He is asking if an IRA may be the creditor to another individual.

You state that the DB will still be funded. Assuming that is 25% of compensation or more, no employer money could go to the 401(k) except elective deferrals. In this case, you cannot get $35,000 in the 401(k); instead the employee must elect to defer and that election is limited to $10,500 (in 2001). With it being this late in the year, even that would be difficult to do. For 2002, the maximum deferral will be $11,000 plus $1,000 for those 50 and over. Even these amounts may be substantially less if any of the nonhighly compensated employees do not defer large percentages because of the ADP test. The $35,000 refers to the maximum annual addition inclusive of employee deferrals and employer contributions. But, if you are using up all of the employer available contributions in the DB plan, you only have the elective deferrals that can go into the 401(k).

There must be a distributable event and the plan must have a provision for the distribution. 1. Terminate employment. Although this is a legal distributable event, the plan must provide for a distribution upon termination. Some plans may "lock up" your money until retirement age. 2. Terminate the plan. The employer must do this, you cannot. Other than that, the money must stay in the plan. The amount of a rollover upon the above events in no way interacts with the maximum allowable new contributions to an IRA.

By "end of October"???? I don't know who this person talks to on the inside, but Sweetnam (Treasury Counsel) keeps saying before the 15th, and may be tomorrow or early next week.

One must take extreme caution in reading short summaries. This is a very complex arrangement. There were originally two different plans; a floor-offset arrangement between a DB and DC They merged together in 1990 and created a 414(k) plan (a DB plan with a side DC account). The DB part of the 414(k) plan was converted to a cash balance plan, and continued to be a floor-offset arrangement with the other side of the 414(k). There is also a third formula which wasn't really part of the main floor-offet calculation, although part of the court case. It was an additional cash balance formula for certain members and was within the same overall plan. There were other lump sum issues associated with this plan (using 120% of PBGC rates). In projecting an annuity, the cash balance plan projected using the same PBGC rates as used in lump sums (this is pre-effective date of GATT and pre-Notice 96-8). At the time in question, the PBGC rates would have been lower than using the interest crediting rate. Adding to the complexity, if the cash balance was less than the DC account, they didn't even do this projection and just used the two account balances as a floor-offset. There were other twists and turns in this. Bottom line is that the courts said they must project both account balances into an annuity and then do the offset. At that point, discounting back at the appropriate 417 rates apply. The approaches in Notice 96-8 to deem compliance are irrelevant in a floor-offset situation.

These rates had been regularly posted on Moody's website, including histories. However, as of August 31, 2001, they no longer provide this information free. It costs a $5,000 annual subscription to find out any Moody's rates and it is illegal (copyright infringements) for anyone else to publicly display their indices unless under contract. Many actuaries use the Moody's Aa rates in their decisions on an appropriate discount rate because the SEC announced a few years ago that it was an appropriate gauge for SFAS 87 discount rates (this was when they got upset that too many firms were using too high of a rate and understating liabilities). Due to this, the Society of Actuaries pension section is trying to arrange for a contract to disseminate Moody's rates to actuaries, but that may take a few months to work itself out. They are concerned about making sure Moody's Aa rates are made available. I do not know if they will include Aaa rates. However, it is my understanding that the contract would allow any Moody's rate. If this is a big enough concern of yours, I would contact the SOA and request they include it in the contract (the actual contract was sent out as an RFP for someone to keep up the "statistics for pension actuaries" that had been published by one consulting firm in the past and no longer wants to do it -- whoever gets the contract will then need to pay the fee to Moody's to get the necessary rates).

It still applies. Why do you think it has changed?

I have age 110=1.0 If you need before 20, mine goes back to age 15. 15 0.000451 16 0.000462 17 0.000476 18 0.00049 19 0.000506 20 0.000524