Blinky the 3-eyed Fish

Brian, the statement that you can't have an hours requirement if the eligibility period is less than a year is a common misconception. You can have an hours requirement, but must make sure that in any event that a person who works 1,000 hours will enter the plan. An example would be a 6 month requirement of working 83.33 hours per month with the 1,000 hours stipulation over a year. Also, the 500 hours requirement for a standardized prototype is for the right to receive the allocation and it is 500 hours or employed on the last day. The idea is so that the plan cannot possible fail 410(b). A standardized protype can have a 1,000 hours requirement for eligibility.

Dsyrett, I am curious how you were able to do a pro rata allocation of assets in an underfunded plan and that your document allows for it. That would seem to violate Rev. Rul. 80-229.

The 404(a)(7) limit is the greater of the DB funding or 25% of compensation. From what it sounds like, the $250,000 DB contribution is over the 25% limit, thus all nonelective contributions to the DC plan are nondeductible and will be subject to an excise tax. I am not sure what your actuary can do, but the fact that there are DC contributions that are not deductible is not an issue for his purposes. The contribution has already been made and distributed from the plan, so to change the numbers would be very involved and altogether not very kosher. Sounds like to you have a situation where the client will be hurt for there secretive actions and there isn't a whole lot to do about it.

I appears you are testing the DB plan on it's own for coverage and nondiscrimination. So, I agree with all you state. One note is that for the "special rule" to be used, you can't use cross-tested benefits to pass the ABT for the DC plan.

The plan year would become irrelevant for determining if a 415 limit was violated or not. Because the limitation year is the calendar year, you are looking at compensation and annual additions within each calendar year. By the way, why the plan was set up like this was probably to get the maximum limits for the 7/31/02 plan year. However, for that one year of bonus, you have many future years of potential headaches.

There is no alternative to making the contribution. The waiver of beneifts can't be considered for the valuation. You are limited in switching funding methods under Rev Proc. 2000-40 because your valuation is in the year of termination. That hampers you greatly and leaves you with perhaps changing assumptions as an alternative. Though, chances are that the effect is not great enough. Have you thought of recinding the termination and reestablishing it in 2003? It seems unlikely it will help, but then you could then possibly benefit from a asset methodology change or a funding method change to individual aggregate.

The rule for satisfying the TH minimum in a DC plan is the lesser of 3% or the highest key employee's percentage of annual additions. In this case, the 3% would be your limit.

Go for it.

Yes, but the assumptions must be reasonable. To deviate from what I posted is to invite the scrutiny that the assumptions are not reasonable. And I would certainly call into question using a different interest rate and/or mortality table that would cause the PVAB to differ from your cash balance, when it otherwise wouldn't differ.

Wouldn't the lien be on the property, not the plan?

Most cash balance plans that I have seen define the actuarial equivalents to be the 417(e) interest rate and mortality. If that is the case, then barring a greater TH minimum, the cash balance is the PVAB. Now if the AE are something different, then you are converting the cash balance to an annuity and then getting the PVAB from that.

No.

You took it correctly.

I can see how that answers calculating the first portion of the calculation, but how about the reduction for the FSA interest credit? If I still use the 7.5% rate, I could conceivably have a negative late quarterly amount, an obvious nonsensical result.

Okay, I am doing a 1/1/03 valuation. The 175% rate is 6.04%, the rate for funding is 7.50%, the RPA rate is 6.65% and the OBRA rate is 6.09%. Which rates will be used in calculating the late quarterly interest charges? This is my first situation where the 175% rates are so low, so I am going round and round a bit.

Gladly. 404(a)(1)(D)(ii).

I agree and it makes sense. First, use of the smoothing method might cause the AVA to be above the FMV in future years. Also, the increased contribution this year will only serve to reduce future contributions, all things being equal. Also, technically, you can't recognize only the increase liabilities to HCE's from amendments in the last 2 years.

If you do what you propose in your next to last paragraph, you risk running afoul of 1.401(a)(26)-5(a)(2)(iii)(2) in that the offset doesn't apply to the owners. While this is open to interpretation on how this is applied, why not just increase the DB amount and offset it by the DC to get to the net 32.5%? That way you are safe. Also, you are right that the 0.5% stipulated in the IRS memo was a benefit. I didn't make that clear.

There are distribution restrictions applicable to 401(k) dollars that are not applicable to match dollars. While this may not affect you with the current plan provisions, if you don't track the sources now, you will restrict the plan from certain future options in this area and many others.

Actually, I should have read your question closer. My last question has no relevance. Because you completed the restatements prior to 2/28/02, which is within the remedial amendment period, you do not need to submit the plan documents to the IRS. That requirement is reserved to those plans restated after the remedial amendment period that are not word-for-word restatements to enable them to be granted the extended remedial amendment period (9/30/03 in most cases). Whether you choose to submit the plans is optional. You can use the 5307 if the changes made to your document are not so severe that it brings it into the individually designed category. There is not a quanitative criteria for that as far as I know.

Keep in mind I am only talking about making the removal of the top heavy requirements for a frozen DB plan effective in 2003, not the other required TH changes.

See here. I doesn't answer all your questions, but it could be because some of the limits aren't published yet. http://www.datair.com/annuallimits.htm

Did you make modifications to the Corbel document when the GUST restatements were done?

Okay, we know that EGTRRA removed the requirement for a frozen DB plan to provide a TH minimum benefit. Also, in my experience the chances are that the language referred by the first post, "The 401(k) document indicates that the 2% top heavy minimum is provided for in the DB." is only effective if a participant is a participant in both a DC and DB plan of the employer. I also haven't seen that the EGTRRA amendments for DC plans mention at all the changed TH requirements regarding DB plans. So that being said, we have a case where the DC language in the plan document is outdated and requires participants in both a DC and DB plan to receive the TH minimum in the DB plan, but the DB plan, if EGTRRA is adopted, no longer had the mechanism to provide the TH minimum in that plan. Perhaps there is some overriding document language in this case, but there is the potential problem. Now, in this situation, the client wants to provide an additional year of top heavy in the DB plan. So, if EGTRRA has been adopted in the DB plan, simply do an amendment and make the frozen TH provision effective in 2003. If EGTRRA has not been adopted, then you already need to provide the 2002 TH minimum in the DB.

I took a quick look through 1.401(a)(26)-5 trying to find something I thought would preclude what you are trying to do, but couldn't find anything. Please report back to share what your source has to say. As for your last comment, why not just reduce the cash balance allocation to group 2? Isn't your goal that the ancillary employees not end up with a net benefit? There is an IRS memo out there that says 0.5% is sufficient for 401(a)(26) purposes.