Hojo

No worries. The deadlines were big here which brought my initial confusion (that plus lack of sleep). The 5330 has not been filed yet so I don't have to amend but I'm sure there will be additional penalties once this all goes through. Thanks for you insight. It goes along with what I was thinking after processing this 400 times.

It's an EOY valuation.

So the CPA deducted the $60,000 because it was made 10/12 (prior to the extended tax deadline as Mike Preston noted). I agree the $60,000 doesn't show up on the SB, but what comp is used to calculate the minimum? Larry - the contribution was made after the funding deadline but before the tax deadline.....does that change any of your answers. I'll keep digging in archives but I was unlucky last night.

I've talked myself in circles about this so I'm hoping for some guidance. I'll throw out some rough numbers to hopefully help. 2017 Schedule C of $250,000 after 1/2 SE tax is taken out, owner only DB plan. Assuming that no contribution is made, there is a minimum required contribution of $50,000 for 2017. They make a contribution of $60,000 on 10/12/2018 (late). The 5500 was filed 10/10/2018 showing an unpaid min of $50,000. If I take the $60,000 out of comp, the new min required is only $30,000. Do I refile the 2017 5500 and SB showing an unpaid min of $30,000? When do I show the $60,000 contribution, the revised 2017 5500 and SB or on 2018 5500 and SB? I feel like I have more questions, but I don't remember them right now.

Age 65

Yes, the plan can offer a lump sum window during plan termination. IRS Notice 2019-18 essentially allows it again.

"Long story short, the actuarial was unable to accurately anticipate the aggressive nature of our client's investing and currently has a nearly $1mm overfunding situation." This is my favorite line. Your client didn't listen to the actuary and it's the actuary's fault.

I actually had a CB plan have a last day rule that got IRS approval. I questioned the design annually and they fought me on it every time indicating the IRS approval letter. I still wonder how that got through.

It was not yet paid out. If it was, then I think it's pretty straightforward in that he is due no further benefit.

I have a plan that is terminating that also requires employee contributions. As we know, ee contributions are always 100% vested and upon plan termination all benefits are 100% vested. The total benefit for the plan is 2% of average comp (which includes the ee contributions). Assuming 5 year cliff vesting, I have a participant who terminated in 2008 with 2 years of service who had made employee contributions. Upon plan termination in 2018, the employee contributions remained in the plan. Do we have to restore the 2 years of service accrued benefit to pay out upon termination or do we assume that the nonvested portion was paid out since we have a BIS?

It was a husband and wife plan. The intent was to freeze the benefit at the $5,250 level so we proceeded under that assumption.

That would also be my thought process as well. I just wanted to get some other opinions. I worry that if it's not implicitly stated that participation service would continue to accrue and therefore the limit would continue to increase. There is a note that no new employees who meet the eligibility requirements after the freeze date would become participants (which I could argue means that no one can earn additional participation service). I think any other interpretation would lead to a26 issues as well as other non-discrim issues.

Yeah, that's where I started and as I said in the original post, it was eerily quiet.

I've tried searching for an answer to this and cannot find a direct source for a response. Also, my plan document is eerily quiet on the issue so I thought I'd look for some ideas here. I have a plan that was effective 1/1/2013 and frozen 1/1/2016. The formula is 10% of comp per year of service and 3 year average comp of $260,000. As of the freeze date, the monthly accrued benefit is $6,500, but is limited to the 415 dollar limit of $5,250 (due to the limit of 3 years plan participation). As of 1/1/2017, the plan formula is still $6,500, but does the 415 dollar limit increase to $7,000 due to another year of plan participation?

Did not make myself clear - My point was that cash balance plans do not control costs well at all. As for the impact of the SOA mortality tables, unless one assumes no pre-retirement mortality, the SOA tables will impact the funding target of people in a cash balance plan who are not yet at the assumed retirement age. The funding target for people not yet at the assumed retirement age cannot be just set equal to the current account balance. The funding target will reflect interest accumulations to assumed retirement age based on the plan's interest credit rules and then discounting at the segment rates (and, if pre-retirement mortality is assumed, with mortality for the deferral period) back to the valuation date. The expected pay credit for the year, similarly, cannot just be used as is as the target normal cost. These things can operate in unpredictable ways. I think you may not understand these plans as much as you think you do, especially in the small plan market where no pre-retirement mortality is a standard assumption and the PBGC hit is minimal at best. In addition, with a cash balance plan, the minimum required contribution will rarely, if ever, be as much as the value of the contribution credits. There's really very little unpredictability unless the plan sponsor decides to fund in unpredictable ways or has a very unpredictable cash flow. If the plan is set up correctly and the sponsor funds the contribution credits annually, the plan will last for 10 years with much higher deductions than a DC plan alone and have very little volatility.

Restrictions do not apply for the first 5 years of the plan (except for the restriction on payment of lump sums).

I think this is overcomplicating the matter a bit. If the owners are looking to maximize contributions (as is usually the case) then the 436 restrictions would rarely come into play. Additionally, as you state, the amount required to be contributed is not going to generally equal the value of the year's accrual, but luckily enough for the sponsor can contribute more than the minimum amount required (in the first year this is generally equal to the accrual and then increases almost exponentially). Unless they are looking for a big one year contribution and can use past service there is little difference between using a traditional DB or a CB plan.

That's because the son became a substantial owner (over 10%). I think the problem here is that attribution rules don't apply to sole-props. It's crazy, but from everything I've gathered it's true.

Specifically in regards to something on the ACOPA message board.....I'm quoting directly from someone on there,,, Facts: 1. DBPP sponsored by a sole proprietor in a Community Property State (CA); 2. The only rank-and-file participant in a DBPP was cashed out by 12/31/2013; 3. As of 1/1/2014 the only participants are the sole proprietor and his wife. In a letter last November sent only to the Plan Sponsor with no copy to me, the representative who filed the request for determination, the PBGC ruled that even though the wife "owns 50% of your 100% ownership of the Company, this ownership stake still falls below the threshold for substantial owner status in a sole proprietorship. See 29 USC section 1321(d). Furthermore, because the Company is not a corporation, the constructive ownership rules, including the rule for spousal attribution, do not apply. Accordingly, the fact that California is a community property state does not make X a substantial owner of the Company for purposes of Title IV of ERISA. Therefore, the Plan is not maintained for a substantial owner and is a covered pension plan under title IV of ERISA." After some conversation, it was held that the family attribution rules under IRC 1563 only apply to corporations (which do not include sole-prop) and thus their response is "technically" correct. This was also brought up at a recent conference (I believe ASPPA).

Has anyone revisited this topic recently? From some things I'm reading, the answer has changed (although the regulations have not).

I think the problem from the original post is contained in this quote, "If a plan uses an interest rate that is more favorable than those prescribed in IRC 417(e) for determining LS". If you are not using 417(e) you have to do the most valuable testing.

I was going to write about the identity theft part, but ESOP guy beat me to it. Seriously, you're worried about identity theft because these people see a check with your name on it? If they wanted to really steal your identity they already have all of the info to do that without a measly check for $10k. In addition, there are probably more safeguards in place at the "non-financial" TPA than at your financial institution.

Agreed, I see no way 417(e) doesn't apply.

That depends if they have elected to add to their prefunding balance. If so, then what is the prefunding balance as of 1/1/2015 (again, look at the SB instructions).

The answer to Q2 leads into the answer to Q1. So Q2 - yes, your asset value in 2a and 2b is $0 since (per the SB instructions) you do not include receivable contributions for the current plan year. Therefore, for Q1, your FTAP is 0/0 which the SB instructions also state is 100%. Your AFTAP is a different story since it is already known. I don't have the link in front of me, but this is not technically defined in the regs. However, standard practice says that your AFTAP is equal to (AVA + discounted receivable contribution)/[(FT + TNC) x (1 + EIR)] If this is over 100%, then done. If not, then [AVA + discounted receivable contribution - (COB + PFB)]/[(FT + TNC) x (1 + EIR)]