MGB

Note there were two types of "no" votes. A very few were always against the bill from the beginning. Most of the 19 votes in the end were against it because they were posturing for a better multiemployer relief; not because they were against the bill (they wanted a stronger bill). They will now introduce new multiemployer relief legislation for a future pension bill.

I would say 150,000. His "practice" is not employed by the state, he personally is. If his practice were hired by the state, he would not be eligible to participate in their plan. Therefore, he only has 150,000 of income from his practice. Note that there would be no coordination between the benefits for applying Section 415 (i.e., ignore the state plan).

It's called PORK. It is the plan for the home office personnel of the transportation union. Of course, if you know of another nonprofit organization that just happened to start their plan on June 30, 1955, they would also qualify. And, if you haven't read through the encrypted message in Section 201, that is only applicable to Greyhound Lines, Inc. It basically says that their plan has always been 100% funded so that the DRC volatility triggers are satisfied (it is woefully underfunded). You would have to go back and reread the prior law references to figure that out.

That paragraph is not refering to the FSA. They are saying that you cannot redo the 2003 minimum required contribution calculation for use in the determination of the quarterly contributions in 2004. (I disagree with this according to the legislative language, but the IRS has spoken and we must follow.)

Blinky, You are stating minimum requirements under the law. Not all plans are written that way. Other structures are allowed that provide for a person to enter the plan earlier as long as the minimum is satisfied. So, using a measurement period of the calendar year that allows the person to enter on 1/1 is allowable because it is more liberal than the minimum requirement.

You still haven't stated the critical issue from the plan document. The 7/1, 1/1 dates don't answer this. What is the measurement period for determining a year of service? Some use fixed years, some use the year beginning on the date of hire, others use a combination of the two, with the first year being from date of hire and then switching over (with a partial year of overlap) to a fixed year for later years. If yours uses fixed years (e.g., calendar year), they may have become a participant on 1/1 or on 7/1 for a different fixed year, such as a non-calendar plan year.

I am expecting 100 basis points. But, Treasury has enough latitude to come up with something different. I just put out to clients a Client Action Bulletin stating "6.3% to 6.6%, probably at the middle of that range". 100 basis points would be just over 6.5%.

In my last meeting with Treasury a few weeks ago, they stated they will be ready to issue rates very quickly (a week or two?) once it passes. That was conditioned on the language in the House or Senate bills not being changed in conference. There actually was a change. The Treasury had been focusing on the top two quality grades. The conference made it the top three quality grades. That shouldn't slow them down too much, they have been gathering data on all bonds. It is expected they will choose a small group of well-known broad indices and directly average them with no adjustments. However, they want to make numerous adjustments (option adjusting, non-US in index, etc.). The adjustments will be put into a proposed regulation for future determinations of the rate. In the meantime, they will publish the current (and back to the late 90s) rates for awhile based on a simple average. It is conceivable they could be ready for the first release a day after the President signs, but that is unlikely, given the numerous levels of bureacracy for signoffs even after they come up with it.

I disagree with mbozek's characterization that we can ignore it until it actually passes. There are numerous grandfather provisions, depending on the date of passage of the bill (or a date chosen during the final deliberations). If you want to do something this year, it ought to be contracted into prior to these dates. Similarly, if you go past one of these dates unknowingly and contract into something that the final legislation comes down on hard, there will be severe tax consequences.

You need to provide a lot more detail on the plan provisions. Is one year of service provided for 1000 hours? When is this determined? I.e., if the measurement period may be any calendar year, then the person has one year on 12/31/02 and is a participant. However, if it is measured over the year beginning on the date of hire in the first year, they are not a participant until 7/1 (but never became one due to termination).

If there is an event (e.g., curtailment or amendment) that requires a remeasurement, you would have updated numbers. In the case of a remeasurement, the quarterly numbers for the remainder of the year are adjusted for the updated remeasurement. Without that situation, everything is known at the beginning of the year and should be the same each quarter. However, for some the valuation may not be completed by the end of a quarter. The main value* that is not known until this valuation is complete is the service cost. An estimate is used for the quarters until this figure is known. Then, most auditors require the remaining quarters to reflect the updated numbers such that the total for the year is correct, rather than restating the earlier quarters to be the correct one-fourth amount. * The other number is the PBO that will generate the gain/loss amortization for the year and the interest cost. There are two schools of thought on whether this should be updated with the valuation. The first school says that whatever was disclosed at the end of the prior year is used and not changed. The second school says that you should use updated PBO numbers from the current valuation even though they do not match what was previously disclosed. I am in the first school. That is because an accounting estimate (which is what a PBO is) should not be changed retroactively without reissuing prior financial statements. Without such a reissuance, the disclosed PBO should be used. Reissuing the prior number may be warranted if the newly calculated numbers are significantly different.

Bill, Are you asking for the rationale of the Gray Book answer, or the rationale for the "soft freeze" issue brought up in the session? I agree with their Gray Book answer. It is an issue of the proper allocation of costs to prior and future service (not clearly defined anywhere, though). Mark Beilke

The 60 days is only the "trigger date". As long as you make the required payment within the 60 days, you don't need a participant notice. If you pass the 60 days (in either situation - regular or after a waiver denial), that triggers the participant notice. It does not define when the notice must be provided. The law says the Secretary will provide a time to make it...which they never have.

Courts have stated that a plan is under no requirement to answer to what if scenarios, even if someone wants to pay for it. The plan only needs to give a rough estimate of the withdrawal liability, not an actual number. A 5500 would not provide sufficient information to be able to determine withdrawal liability.

I have not seen it in a long time, but I worked with an EA 20 years ago that always rounded all amounts to $1,000 on the Schedule B (obviously, these were very large plans where this did not lose any significant digits). To my knowledge, the IRS never questioned it.

"Unreasonable allocation of costs" is like pornography; no clear definition, but I know it when I see it. The Rev Procs on changing a funding method give some insight as does reg 1.412©(3)-1.

I've worked on many large plans that use very complex age/service based salary increases, with no fixed rate involved. In fact, one that I did was such a scale with inflation stripped out. The assumption for inflation was then factored back in each year's valuation as a separate assumption and changed from time to time. The real issue here is whether the IRS accepts a decreasing salary pattern. I could see Jim H. immediately saying absolutely not because it produces an unreasonable allocation of costs. Just think about this scenario: my salary is 200,000 this year, and I will only take a salary of 1 for the next 9 years. Therefore, I can fully fund my full 415 limit benefit this year. This seems to open up way too much gamesmanship that I am sure Jim H. wouldn't accept.

He gets a higher rate if the definition of "compensation" as used in the matching section of the document is not limited. I.e., if the match is based on the 350,000, producing 14,000, this will translate into 7% in a discrimination calculation. This was all conjecture, based on the language of the plan. Obviously, if a plan had this kind of language, it has a problem. But, just because poor drafting will cause a problem, that doesn't preclude the possibility that it is written that way.

I don't see why this is a law issue. I see it as a plan document wording issue. What does the plan say? Of course, there is the problem of nondiscrimination because when the match is compared to the limited compensation, it will be a higher percentage than the match received by others.

The conferees are meeting and dealing with a number of different issues in the bill. This part of it has been settled, but the status of the overall bill is in jeopardy because of DRC and multiemployer relief provisions. They must finish their work within the next week and a half, or else will not be able to do it until late April (after the first quarterly contributions are due). This is because Congress recesses for two weeks on April 1.

I don't know how you are linking the participant notice for late quarterlies to the participant notice for variable premium payments. They are completely unrelated issues...one governed by the DOL and the other governed by the PBGC. They should have not bearing on each other whatsoever.

I have reviewed the Schedule A instructions. The only participant notice that I could see discussed was the notice of a variable rate premium being paid. Notices for missing a quarterly contribution are not a PBGC issue, it is a DOL issue. Is there a reference there that I missed?

The requirement is to notify participants if the contribution is not made within 60 days. That does not say that the notice has to be sent in that time period. I know some plans that include the notice in their SAR the following year with the additional explanation that the amount has since been paid. Obviously, the intent is to notify participants within a reasonable time near the failure, but there are no official guidelines. See ERISA 101(d)(1): "Such notice shall be made at such time and in such manner as the Secretary may prescribe." They never have. Note that the PBGC Technical Updates are at: http://www.pbgc.gov/laws/techupdates/techupdt.htm

Were the terminations bona fide terminations, even though they were re-employed? If so, I don't think there is a problem. On the other hand, if they were transfers within the organization, that is a problem (I don't know the correct correction, though).

You are confusing issues here. There is no return assumption EVER in calculating liabilities. There is a discount rate. It has no relationship to any investment. It is set by standards in SFAS 87 that are the same no matter if there are investments or not. The rate of return assumption on investments is used in determining costs. You cannot use this element of cost in the case of a Rabbi trust. The costs are determined as if there were no investments. The investments themselves are carried on the asset side of the balance sheet and actual return enters into the income statement...not the assumed rate of return that would apply if it were included in the pension costs. I suggest a review of the definition of plan assets in SFAS 87. Because of the ability of creditors to access the assets in a Rabbi trust, they are not plan assets.