Blinky the 3-eyed Fish

Just to clarify, the follow-up was not my line of thought. There are some legitimate reasons to implement a 412(i) plan and there are some very foolish reasons to do so. Because the latter is very prevalent, this question is important.

Your last post does not jive with the first. No one would make a contribution for 2002 in 2003 if it's in excess of the deductible limit when the 2003 contribution could just be treated for 2003. Can you re-post the facts with more detail about when the contribution is actually made and when the deductions are taken?

I agree with the last 2 as well. I was thinking only deemed distribution, when there is the possibility, depending on plan language, for the loan to be offset.

If your current PS plan does not allow for in-service distributions before NRA, then it might be easier to simply amend the plan so that all monies are subject to J&S and not distributable before NRA. This saves you from separate tracking of the money types and most certainly would be an easy amendment to your existing PS prototype. This, of course, is not possible if you currently have pre-NRA in-service distributions in the PS plan due to 411(d)(6).

My understanding is that a deemed distribution of a loan is for tax purposes only, so that you cannot force payout upon this participant because his balance is still in excess of $5k for that purpose. Why the timing of deeming the loan distributed today? Is the loan in default and is today the day it is required to be deemed distributed?

There is no requirement to prorate the hours requirement for a contribution in a short year, termination or not. I thought from your comments you wanted to provide the allocation to those with reduced hours, but I guess not. You just need to be careful about 410(b).

In my brief experience with 412(i) plans, I have found that interest in these plans in many cases is for the wrong reasons. Depending on who is providing the recommendation, the biggest hook is the very large deduction available. What is not expressed is the fact that there are many other issues to consider. I have seen promotional material from insurance agents, mostly, that are absolutely filled with hyper-aggressive tactics that the IRS has expressed over and over again they will disallow. They are still touting the springing cash value and disregarding the 415 lump sum limits. Am I saying insurance agents are the only ones to blame? No, but they are the head of the monster, and most of the body I might add. So, to understand why this client would want to convert, I posed the question. The original poster's question was answered as far as I know. And where is the hypocrisy? Hypocrisy is saying one thing and doing another. What I see is people, whether ASPA members or not, pointing out the flaws in 412(i) arrangements and calling out insurance agents (mostly) for their sham tactics. P.S. Are you from Canada?

Why not amend the plan in conjunction with preparation of the termination documents?

Nobody ever told me what type of fish I am (I have a fish brain that doesn't allow me to figure it out), but I discourage eating my cousins in the waters of the world.

The answer is the same as in the commercial for that fancy mustard. Q. Do you have any Grey Pupon?

You are correct. As far as whose responsibility it would be, I would think both. It would be to the plan sponsor's detriment to allow after-tax dollars into the plan and operate the plan outside the document language. It would be to the individual's detriment to roll over post-tax dollars as pre-tax.

In order of your questions: Maybe, depending on your EGTRRA language. Yes, if allowed to be rolled over. It would depend on how your language reads whether the conduit IRA's were now excluded. The EGTRRA Amendment should have a choice to now allow after-tax money to be rolled over into the plan. This will solve your problems on this subject. There have been many discussions on this in the message boards.

I don't agree that that would be permissible.

Just curious, but what is the situation that makes this client want to switch to the 412(i) plan?

Harry, more specifically, the actuarial increases must be provided for those past 70 1/2 that do not commence minimum distributions, i.e. certain non-owners, correct?

Cites? Sorry, too lazy, but I will provide my thoughts. A1. Yes A2. No A3. No

The former.

Katherine, you do agree though, that in this case where the allocation formula was amended to 0% before the merger date, that your stance is a non-issue; in other words, no contribution is required period? To me your posts are well taken, but not applicable to this case.

The participants don't accrue the right to the contribution until they work 1,000 hours AND are employed on the last day of the plan year, so sorry, but that is not the real issue.

I agree that a reasonable approach that takes into account that the Hi-3 limit is decreasing in value can be taken. Personally, I would consider converting the prior lump sum to an annuity at the point of distribution and then subtract out the annuity amount. In your example then, the 84,000 would be subtracted, leaving the 415 limit at 104,000. Of course without specific guidance it's all a crap shoot.

Effen, you don't say for what purpose your question pertains. Is it for the Sch C as MGB addresses or for Rev. Proc. 2000-40? The criteria for that promulgation as set in section 4.03 Approval for Takeover Plans is: "(2) There has been both a change in the enrolled actuary for the plan and a change in the business organization providing actuarial services to the plan."

There were participants in 2003, so I know of no exception to giving that year's SAR as well.

1. Agree 2. See a prior discussion on this topic http://www.benefitslink.com/boards/index.p...=valuation+date 3. Regarding your comment about the valuation date, no clients certainly don't care about that, they just care about the results. A BOY val delays the effects of actual events by one year versus an EOY val. Clients that have ebbs and flows to their business performance certainly do not like the results BOY vals produce. Granted, there are techniques to use to affect the contribution, especially if within the 412©(8) period. But invariably, to alter the contribution means extra work for my firm and extra charges to the client. Clients certainly care about that.

I don't think I agree. In the example I began with, the person was in pay status receiving annuity payments. In this example, the person received a prior lump sum distribution. Yes, both are prior distributions, but while I think you would not subtract out the prior annuity payments, I do think you need to subtract out the value of the prior lump sum payments. If you didn't subtract out prior lump sums then it would be conceivable for, say a sole proprietor with a low compensation history, to set up a DB plan and continually withdraw money without counting against his 415 limit. That certainly wouldn't be kosher.

If the participant was eligibile for the match portion of the plan, but had just not chosen to defer until 8/1/02, then the match begins at that point.