MGB

They can roll over any amount up to the total distribution. When rolled over, it is not after-tax money and that should be of no concern. The net amount not rolled over (e.g., the 20% withheld), becomes a taxable amount of income. The actual taxes on that amount will be different (a lot less) than the amount withheld and the net between the two will apply to other taxes owed or be refunded when they file next year.

The allowable use of the account balance method is only for TESTING of whether or not the distribution satisfies the RMD rules, the quoted passage is not saying that the account balance method is an acceptable form of distribution. The regulators position is that the account balance method is not an acceptable form of distribution (although it would pass the RMD rules when tested).

Why are you prorating if there is not a short plan year?

If the plan was terminated on 5/1/03, doesn't that create a short plan year? You are now more than 8.5 months beyond the end of the plan year and beyond the date you can make contributions. Current liability and FFL calculations are not prorated (but may have different interest applied to only go to the end of the year, which is now different).

It is not specifically allowed. What is allowed is a "reasonable interpretation" of prior proposed regulations. The IRS's position (i.e., the authors of the regulations -- the same ones have been working on all of them back to the 1980s) is that it was never allowed. If you can make a case that the method is a reasonable interpretation, then you can still use it. Just because you were using it before, doesn't automatically mean it is a reasonable interpretation.

The AAA Pension Practice Council recently posted a discussion of the differences: http://www.actuary.org/pdf/pension/fundamentals_0204.pdf Since this was posted, I did a lot of wordsmithing of it. A newer version should be posted soon.

They should tell you what assumptions to use. Alternatively, giving them a set of numbers based on different rates will allow them to see the range of possibilities. None of the "official" rates used by the actuary will have any meaning to their situation unless it is owners of a business with a very small plan whereby the value may have more meaning beyond the benefit itself.

Yes. The only way you can be disqualified and not get the delay is to have an option that is BOTH be subject to 417(e) and have that option less valuable than the QJSA. This will only happen with subsidized early retirement QJSA's under a DB plan where the lump sum does not include the early retirement subsidy. Note that even for the same person, every other option is delayed. Only the lump sum (or other distribution subject to 417(e) like installments) comparison to the QJSA is effective this year. Everyone else gets a delay.

The "less valuable" not allowing a delay only applies to optional forms subject to 417(e). Optional forms that are annuities for life (e.g., J&S, certain and life, life annuity) are not subject to 417(e). In my example I didn't have anything subject to 417(e), so it doesn't make any difference if the relative value is less than or greater than the QJSA...I still get a delay.

For example: A DB plan allows the participant to elect any whole percentage for a QJSA between 50 and 100. That is 51 optional forms. Assume they are not actuarially equivalent, and are instead based on a simple algebraic formula (e.g., 95% of normal form, adjusted by some amount for differences in ages beyond some amount). Rather than wanting to keep this arrangement (and needing to provide 51 relative values every time), the plan sponsor wants to eliminate 48 of these and retain the 50, 75 and 100% versions. They cannot do that until the proposed 411(d)(6) regs are final. The whole purpose of the delay is to accomodate situations like this.

Now you are invoking SFAS 112 instead of SFAS 106, with a full recognition of the liability (not pay as you go).

Yes. It doesn't make any difference what caused the difference in value.

Note that the "limit" is only with reference to filing for a determination letter. I.e., the IRS doesn't want to try and link through a pile of documents when they review it. Other than restating at the time of filing to make the IRS's job easier, there is no legal requirement of ever restating. You could have hundreds of amendments without restating.

Here is a simple example: My annual compensation is 50,000. I borrow 50,000 from the plan (a nontaxable event). I now pay back the 50,000 out of my compensation. Under their theory, I have reduced my taxable income to zero. Note that nothing has changed in the plan (it is back to whole with no loan outstanding), and I now have 50,000 cash in hand instead of my after-tax amount of the 50,000 compensation. I've transformed my entire income into nontaxable income and owe no tax. Quite preposterous.

This is one of those "trying to prove the negative" of someone else's statement that doesn't make sense. The real question here is to ask those that think you can't do it "why not?" I can't imagine any reason why you can't file an amended return.

There is an office at the IRS where releases are filed. (They must be filed prior to 4 pm Eastern. This was filed at 4:08 pm, but they probably begged and begged to allow it to be filed, given the timeframe coming into 7/1.) All sorts of people within DC physically pick up the filings at that office, including BNA and other wire services. Because of the late filing (most do not expect a late filing), only those that were on top of it and expecting it kept looking for it. So, it did not get out fully yesterday as it would under normal conditions. Normally, with a filing during the day, everyone gets access about the same time through electronic services. Also, some of us know people within the IRS and get it by email. These are not official lists, but are from working directly with them on related topics (or the regulation itself). For example, Bill Sweetnam sent the notice out late yesterday (after hours) to a large list of people because he knew we were all chomping at the bit pushing him for the relief.

It is only some of the QJSA notices that are delayed. The only reason for the delay is to allow companies to delete optional forms at retirement under the proposed 411(d)(6) regulations, prior to having to illustrate them under relative value regs. That can't be done until the proposed regs are finalized next year. That regulation has no effect on the QPSA notices, so there is no reason to delay them. Similarly, you cannot delete a lump sum option under the proposed regulations, so there was no need to delay their QJSA relative value disclosure, either.

If this were the case, I'd be borrowing/repaying/borrowing/repaying....ad infinitum because the tax preference keep doubling up each time. If I am in the 28% tax bracket, I make 28% on every borrow/repay. My time to retirement affordability just got cut back from years to months. Preposterous nonsense.

In addition to the document, I think this is a case where communication materials will come into play. What does the participant expect? Otherwise, there is no law that says you must do it one way or the other. This is totally in the control of the design of the plan...but it must not be ambiguous leading to administrative discretion.

No matter how many hours they work "it is paid", although at a different hourly rate. If hours are not tracked, they must get 45 (assuming the plan is using weekly equivalents), no matter how many hours (more or less) they actually work. If the plan is counting hours, then they get whatever they work (it is all paid, even if on a fixed salary). You cannot jump back and forth and pick and choose, based on the current situation. The plan must specify what it is doing.

Yes, it applies. It doesn't make any difference how the services are purchased, it is a liability that should be accounted for over working lifetimes.

AndyH: There is a very good economic paper done by some researchers at the Federal Reserve about two years ago. They build off of the generally accepted academic theory that the stock value should be equal to the present value of future income plus the current book value (equity), but perhaps discounted for equity that will get "used up" in the production of future income. Their study shows that the only thing that investors pay attention to in pension accounting is the expense, and do not factor in any under or over-funding that is in the footnotes (which should be added to equity first under the general theory). However, other comprehensive income from an underfunded plan will affect investors' pricing of a stock in a direct manner (because of the immediate decrease in equity), without relating it to being a pension accounting item. In other words, investors are only looking at net equity and not adjusting it. So, your comment is correct on companies that did record an additional minimum liability in recent years. When interest rates go up and they reverse this out, it will have an effect on stock price because of the immediate effect on equity. On the flip side, the change caused by interest rates in over or under-funding for plans that have not generated an additional minimum liability will have very little effect on stock price, except to the extent that the expense figure changes (and then it needs to be a large compenent of overall net income to have a real effect). So, yes, buy large caps, but only those with previous AML. The Fed paper (Did Pension Accounting Contribute to the Stock Market Bubble? by Coronado and Sharpe - it doesn't say so, but they are with the Federal Reserve) is the last one at the bottom of the linked page (when I first read it, a group of us were in the middle of organizing the financial economics & pensions seminar in Vancouver last summer; I immediately wanted the paper to be the keynote address): http://library.soa.org/library-html/m-rs04...ofcontents.html

"I am curious as to why anyone would want to do this." Many large plans had to use this provision in the past couple of years because they were contributing enough (over the deductible limit) to avoid the additional minimum liability on their financial statements. IBM alone would have lost over one-half of their equity (7 billion) had they not done it.

Blinky, in large plan conversions in recent years, this approach is as common (or more common) than any other approach.

Distribute it to him in the same manner as you would anyone else. There are a handful of other threads on this same subject.