MGB

I don't see how the PBGC will accept a distress termination without it being in a bankruptcy court. I don't think they have the authority.

Under ANY SFAS 87 calculation, the assumption of investment income has no bearing on the calculation of liability. The liability must be measured using the interest rate inherent in settling the liability with a third party (e.g., an insurance company), or, as a proxy to that, the most common approach is to use high-quality bond yields. Nowhere in this determination do the investments come into play.

This does not appear to be formed as a multiemployer plan. That is a decision in setting up the plan, not something you determine after the fact. Without being jointly trusteed, I don't see how it could be multiemployer. There is no prohibition to a multiple employer plan being a subject of collective bargaining.

The lawsuits on age discrimination apply no matter what your annuity conversion approach is. The lawsuits on whipsaw may or may not apply, depending on how the conversion factors interact with the crediting rate. Also, you may have backloading issues (a subject of some lawsuits) if the fixed conversion rates are not congruent with the crediting rate.

I am sorry, I thought the participant only deferred less than or equal to the 402(g) limit. I missed the $14,000 reference. My comments are in conjunction with a participant that deferred under $12,000, which I had just gone through the motions of dealing with yesterday.

If this is the sole executive, wouldn't he still be an HCE even with the lower comp?

I would be willing to bet that wherever the extension request goes to, they have no record that the return was actually filed. The two just don't seem to be linked and is why a copy of the grant of the extension must be filed when the return is filed later (not applicable in this case). I don't know why this wouldn't work.

The PBGC will provide a notice of the amount they owe. Negative net worth is totally irrelevant. The only thing that will reduce the amount they owe is a formal filing of bankruptcy in court and then the PBGC becomes a creditor of the bankruptcy. Through MANY, MANY techniques of accounting, companies can be in a negative net worth position and still be a viable ongoing entity and able to pay all their bills without going into bankruptcy.

I think this depends on how the plan is written (how many times does that get said?). For example, consider the two approaches that might be written into the plan: 1) For purposes of a 415 violation, the first step is that any employer contribution is cut back to whatever would not violate the 415 limit. 2) For a 415 violation, the employee's elective deferrals are returned first. I think that you can only have the extra $2,000 become a catch up contribution in the second case. In the first case, the $2,000 could not become a catch up contribution because it is coming from the employer and not from elective deferrals.

No. Catch up contributions MUST be elective deferrals. It cannot come from the employer.

The only version that would exend DRC relief to all is the Senate version of HR3108, but non-airlines/steel would need to apply to the IRS to get it (basically the same kind of application as a waiver). The difference with this application and a waiver is that if the IRS doesn't respond in 60 days, you automatically get the relief. The House version did not have broad-based DRC relief.

There has never been any intention of applying 120% to anyone, nor has there ever been any legislative proposals even hinting at that. The Joint Tax Committee has nothing to do with this process. The House and Senate passed different versions of the bills. When this happens, they either send the second version passed by the Senate to the House and they vote on it (didn't happen), or they form a "conference committee" made up of a handful of people from each house. Within the conference committee, they choose who's version of the differences they want in the final bill. In recent months, the Republicans have also been changing non-differences in bills and even adding new provisions in other conference committees non-pension related. The Senate picked their conference members a few weeks ago, just after passing their version. The House has not assigned committee members yet. The stalling is on purpose, but first here is what the differences are: In each case, the change would apply to the current liability interest rate used for both funding purposes and PBGC premiums, but would not apply to lump sums. The change in rate would only apply for two years and then we would revert back to current law. Both versions changed the rates from 30-yr Treasury to an average of at least two long-term corporate bond indices. The Senate version restricted it to indices that only covered the top two grades (Aaa and Aa), whereas the House version is not as restrictive. The House version provided some contribution relief to airlines only. The Senate version provided relief (i.e., a reduced amount in the next two years) to airlines and steel companies automatically, and allowed any company to apply to the IRS for the same relief. It also provided relief for multiemployer plans by delaying any loss base to not start being amortized for three years, but you could only do this in two of four years covered by the rule. The Senate version also attempted (the language is actually wrong and doesn't do this) to replace the plan's interest rate with a flat 5.5% for 415 limit lump sums. The Senate version also provides money to increase the country's supply of fish stocks. Yeah, that's how laws get passed. Now for the delay. There are many in the House that do not want the DRC relief for anyone other than airlines and also do not want the multiemployer relief. The Bush administration has hinted at a veto if these things are included in the final bill. Obviously, these are things that should be decided in the conference committee and normally would be. However, the Republicans are trying to make these "decisions" outside of the process and get agreements in place before they officially convene the committee. In other words, there is the same type of breaking of rules going on by the leadership that has become rampant in the Republican-controlled legislatures over the past few years on many, many bills and issues. Then, just to throw a wrench into the whole process, Thomas, the Republican Chairman of the House Ways and Means Committee, has come out with statements in the past week that he doesn't see any need for any type of relief becasue pension funds earned so much on their assets in 2003. Note that Thomas will be the ranking member from the House assigned to the conference committee once they actually do it. The last thing heard on this is they expect to get the committee going by the end of the week. If passed, note that the law does not specify what the rate should be. It is left to the IRS to determine it, given the parameters set out in the law. At 1/1/04, the funding rate is expected to be between 6.25 and 6.5%, assuming the Senate language survives.

Both taxes and a 10% early distribution tax if they are under 59 1/2. Also, depending on the relationship between the distribution and earned income (I assume this person is very low paid), they may run into trouble of not having enough withheld for the year (100% of prior year's tax liability or 90% of current year) and be subject to more penalties and interest. The way to correct this is to actually withhold on the distribution, increase their withholding on earned income, or file quarterly estimated taxes.

On (1): Imagine a participant has a payroll deduction on 3/1 and is invested in a mutual fund. On 3/2, they take a distribution (loan, hardship, or termination). Are you going to charge them a 2% fee for this quick round trip trade? The proposals from the SEC would.

You cannot use the 401(k) as collateral. You cannot roll over the money in the 401(k) to another vehichle unless you terminate employment. If you roll over the 401(k) into an IRA and then use it for collateral, that nullifies the tax deferral of the IRA and you will have to pay taxes (and probably an additional 10% early distribution tax) on the funds in the same manner as if you had taken a direct distribution and used the money itself.

It sounds like your employer plans to have a 53-week reporting this year (note that 27*your amount is the correct amount). There are 53 Fridays this year.

It sounds like you are confusing NON-resident with resident alien. If they are working here, they are not excluded due to their alien status.

According to the following page, the US indices for the time periods involved have never been changed (although other numbers have changed a few times in the past): http://www.bls.gov/cpi/cpirev01.htm I guess that leaves my "choice 2" as the probable situation. I.e., someone in the IRS incorrectly recorded the 331.3 figure.

There is no CPI figure ever produced with more decimal digits. The current reporting of the 3 months from 1986 is obviously 331.2, not 331.3. Although I am really stretching my memory here and trying to use some brain cells long since lost, this may have been one of the periods that were later adjusted it to reflect an error in methodology at the BLS in compiling the index. This has happened a number of times in the past few decades. So, the IRS may have written down the original 331.3 and never changed it when BLS later changed it. (Alternatively, the IRS may have just gotten this wrong and somewhere wrote down 331.3 in error and have used it ever since.) I have a fax from the IRS from 1998 on their exact methodology. It does refer to the 331.3 (without any explanation as to why it is different than BLS's current reporting, but does state it is the sum of the reported amounts from BLS, which are always to one decimal place). There is one more rounding in the algorithm that is done that is not reflected in the prior posting: 541.8/331.3 = 1.63537579.... This step is rounded to four decimals (1.6354) before multiplying by the statute amount. Note that there are other statute amounts other than the 90,000 that are multiplied by this same rounded factor. So, it is really 1.6354*90000= 147186 (not 147184, which is 90000*541.8/331.3), and then rounded down to 145000. In the example from the IRS, they gave the result of this multiplication as a whole number, but did not state that any rounding occurred. I think it is actually an exact calculation, becuase they go on to state that in order to step up to the next 5,000, it would have to be at least exactly equal to that 5,000 step.

These audit requests are virtually always handled by people with under one year of experience under the direction of an auditor higher up, often with two-year people in between as managers. They do not like to go to the higher ups to find out if they can disregard issues when told to disregard them by others such as actuaries. This eventually will probably require a communication to the partner in charge at the audit firm to get them to back off on such ridiculous questions. I had some auditors like this once that would find errors in the data used in the actuarial valuation such as a birth date or a hire date off by a few days or even a year. They would then ask how much that changed the benefits being valued and the contribution requirements for the year. They (the newbies and their managers) absolutely refused to accept a general statement that it was inconsequential or negligible (the errors were typically with an employee in their 20s and a plan with many thousands of participants). After fighting them on this over and over, I finally had to have the CFO of the company (a Fortune 100 firm) tell the audit partner to tell these people to back off. So, for a $1 difference in valuation results, it ended up costing the client thousands of dollars in fees (between the audit firm and the actuarial firm) by the time it was resolved.

Read paragraphs 57 to 61 concerning annuity contracts. Generally, they are excluded from the PBO and assets and the cost recognized in the year is the purchase price (if nonparticipating). I would say that 412(i) plans do not meet the rigorous requirements of an annuity contract. See paragraph 62 for what to do with other insurance contracts that do not meet those requirements. Basically, they are only plan assets and a full SFAS 87 valuation and methodology of determining costs apply. I would say it needs to be valued in a full valuation, just as the auditor is asking for. Unless, if you can be absolutely sure that the contract can be construed to meeting the requirements of paragraphs 57 to 61, then in that case it is just the cost each year. But, I would need to know how the contract worked before saying that is really the case.

Note that dsyrett's explanation should be followed EXACTLY. If your assumption is that 2% will decrement in the next year with total lump sums of 100,000, the expected benefit payment is 2,000. This is true even if only one person is being valued and the actual lump sum can only be zero or 100,000. You should not adjust for benefit payments (e.g., a pre-retirement lump sum) that actually occur that you had not assumed would occur at the measurement date. I.e., the adjustment should be based on your knowledge at the measurement date, not what you know later in the year as you are doing the calculations. The same is true for expected contributions. Note that the adjustment for these cash flows is done for interest on both the obligation side and on the asset side. Therefore, the bottom-line result is only affected by the difference in these two rates (the discount rate and the expected return on assets) times the timing of cash flows. As PAX said, it should result in a very insignificant change to the bottom line however you do it.

I misunderstood your initial comment. Absolutely -- just how the partial year works must be spelled out in the plan document.

There is no clear answer, the rule is a "facts and circumstances" test. Assuming you say it is not a partial termination and a participant sues you in court, the answer will depend on which court you get and what precedent they look at. Most will use a 20% standard (although PTs have been found in lower and no PT in higher percentages from time to time). This comes from an old IRS internal document on plan terminations that is not around anymore. Then, different courts look at the counts differently. In some jurisdictions, they would call your layoff 90/2000 = 4.5%, probably not a PT. However, some courts have recently used a nonvested count standard (i.e., only look at those that could have their vesting affected). In that case, you would count the number that are laid off that are not vested and divide by the total that are not vested. This is typically a much different percentage than the above calculation and could be more than 20%, even though the above calculation is only 4.5%. The fact that 90 of 100 at a location are laid off is irrelevant. It is based on the whole plan.

mbozek, Not if you give a full year for 1000 hours (under 1000 hours gives nothing, even if they terminate in a year when they would have worked full time if they stayed). If you use a higher threshold for a full year, then you must give partial year accrual.