Blinky the 3-eyed Fish

Uni-K is a name of Pioneer Investments 401(k) plan. The idea is that the one-man business sets up the 401(k) plan with Pioneer and the assets are invested there as well. Thus, the costs for setting up the document and for administration are very low. However, I received the information from Pioneer and as the old saying goes, "You get what you pay for". I see some of these plans as problems waiting to happen. For example, if the once one-man business hires a non-highly compensated employee, no one from Pioneer is going to provide any sort of administrative advice or discrimination testing. Also, for a sole-proprietor, they have a worksheet to calculate your net earned income yourself. That won't cause any miscalculations I am sure!

Of course I am suggesting option 1 and do not have the faintest idea what option 2 could be.

I think if the client looks really hard, way back in the corner, maybe, or under some papers on his desk he will find that signed plan document.

I think it's a reasonable classification and would certainly say you can use the average benefits test.

Our document provider defines normal retirement age as of the 5th anniversary of the date of participation, without an automatic way to get it to say 5th anniversary of the first day of the plan year. However, we modify the wording to read as we believe it should.

I am not saying that at all. You must include contributions receivable for the prior year (accrued contributions).

The values put in 1(B)(1) or 1(B)(2) are not 412 or 404 assets. They are market value and actuarial value, the adjustments required for 412 or 404 are done from these values.

You subtracted the credit balance when you should have added it. The balance equation, after only considering the experience loss and not the assumption or amendment bases, should be: 3,413,417 (UAL) = 3,463,417 (experience loss base) - 50,000 (cb) By the way, your expected UAL is 0 for two reasons: 1- your expected UAL does not go below 0 and 2- you were at the full funding limit in the prior year.

Your numbers don't jive. I assume when you say "actuarial loss" you are referring to an experience loss. So, that being said, if your experience loss is 2,500,000, this would also be your unfunded liability at that point. (You hit a full funding limit in the prior year, so your expected UAL would be zero.) Thus, here is where you force the equation to balance by increasing the experience loss by the amount of the credit balance. Your balance equation at that point is then: 2,500,000 = 2,550,000 - 50,000 As far as your other bases you mention, they do not make sense. Why do you have such a large assumption change credit base? Perhaps it would be helpful to provide the accrued liability at each point, along with the actuarial value of the assets.

Mike, I would assume you have no amortization bases, but have a credit balance in the prior year and that is why you are out of balance. The solution in a situation like this where you have an unfunded liability again is to make the experience loss an amount that forces the plan to balance.

Have you tried a minimum flat dolar allocation? It is usually helpful because the younger employees make less, so the minimum goes a long way. Also, going back to Andy's comment regarding component plan testing, this is the type of plan that's ripe for it. So, I would certainly consider looking at that as well.

MGB, I have taken over plans where the unfunded had not been limited to zero and new bases were created each year when the plans were vastly overfunded. Our software system allows this method as well. I have always thought this to be unreasonable and limited the unfunded to zero. But, I also have always jumped through the change in funding method hoops because I believe it to be one. According to the IRS, if you blink your eyes three times instead of two before signing the Schedule B, that is a change in funding method. Are you saying you would just limit the unfunded to zero in a situation like this and not declare anything?

Yes, to get the pass only the deferrals and safe-harbor contribution, whether it be non-elective or match, can be contributed. I know it was unclear whether that meant for the current year or ever, and I as far as I know that has not been resolved. Although, the leaning was that it applied to the current year.

Limiting the unfunded liability to zero is a component of the funding method. Whether you can do this or not depends if: this situation has not occurred before and whether a description of the funding method clearly indicates that the unfunded can go below zero. If not, I would say that there is no problem in limiting the funding method to zero. If the above does not apply you could automatically change the funding method pursuant to Rev Proc. 2000-40 to the EAN described. Provide, of course, that you meet the criteria described. Your statement that the plan must switch to aggregate funding method is if it was FIL and the unfunded went below zero, not in this situation.

I told you I was bewildered.

I went to a seminar by Sal Tripodi recently and Mike is right on target.

A design like this makes me wonder what someone was thinking when it was designed. As pax would write, "What does the document say?". I don't think your argument holds water because it is contrary to the document. I recommend fixing it ASAP because there is that one-year period where the plan must give the greater benefit when changing 417(e) provisions. Additionally, I assume it is not a calendar year plan, and that is why April is an acceptable lookback month.

This whole issue has bewildered me for years. As MGB points out the most valuable accrued benefit by definintion is the qualified J&S. So how did it come about that we need to test the lump sum option for the MVAB? However, our firm does test the lump sum as well, and we do factor in the 417(e) rates. Though we are reconsidering whether or not we need to.

I think the main fault of the plan Christine describes is it doesn't pass nondiscrimination and is not a viable plan design whatsoever. Hence my prior, "Huh?".

Christine, huh?

The amendment have had to have been adopted before any of the keys accrued the right to the contribution. There is no retroactive ability to remove the requirement to not give keys the top heavy minimum.

The returned dollars to the HCE's do not reduce their annual additions for the year, thus your top heavy amount is based on gross deferrals. The QNEC can count towards the top heavy contribution requirement.

Mike, I understand what you are saying about the late retirement issue for someone at a High-3 415 limit. But in a one-man plan where the sponsor could terminate the plan at any time, do you think the IRS would be concerned with him not receiving a suspension of benefits notice? I would think they would be greatly concerned with him receiving payments in excess of the 415 limitation and would certainly recommend against that course of action.

The 9/30 values.

I Agree. Let the accountants eat cake.