Blinky the 3-eyed Fish

To "undo" the contributions to the SEP you are going to need the IRA custodian to play along. I believe many are unwilling to do so. Tough luck is the route I take.

Unlikely, but is the HCE receiving 6.35% a non-key?

Your inclination is incorrect. The IRS has approved VS documents with such language. Thus an individual submission should receive the same acceptance.

I agree with your Part I methodology but didn't match your purchase rate of 10.45. As for Part II, the EAR is the present value the benefit at the testing rate used. Your benefit is the value determined in Part I, so your calculation is as follows (assuming testing rate is 7.5% and 83GAM mortality) APR age 65 7.5% 83 GAM = 8.9353 EAR = $4,252 * 8.9353 / [(1.075) ^ (65-48)] = 11,110 11,110 / 220,000 = 5.05%

The minimum funding is not the issue if the 401(k) is the surviving plan, much like it wasn't an issue when MP plans were merged. The main issue though is how you preserve benefits in a defined benefit plan when they are now in a DC account balance environment. What happens if the value of the assets goes down? I doubt your CB plan incorporated the new PPA rules with regard to allowable rates of return. It is much easier to just terminate the CB instead of trying a merge.

I agree if there's no need to recapture, then no need to get creative. If someone has a cite or even an conference opinion that says this is wrong/aggressive, I would love to see it. I am just going by the rules as they are laid out by 415 as my guideline for what is possible.

I agree that you need a YOP for plan purposes to get a YOP for 415 purposes. So, are we differing on what is considered a YOP for plan purposes? Back to the original post, the formula was 8% per YOP and frozen in year 3 and then unfrozen in year 5. Well if the unfreeze amendment credits those YOP for the first 5 years, you have met the requirement and have effectively "recaptured" the lost years. If they didn't want the increases to happen for the "lost years", the amendment could be worded differently. For example, if participants just earned YOP for the first 2 years, the unfreeze amendment could be worded , with a proper fresh-start date with wear-away, so that benefits are now 3.2000001% per YOP (3.2000001% x 5 years > 8% x 2 years). Now they have recaptured the lost years IMHO. Agree or disagree?

If the man had a goat but you needed a horse, would a donkey serve your purpose? If 2 schillings bought you a candy and a dollar a soda, would the rooster crow at midnight? If I gave you 50% of nothing or nothing would you care either way? Answer these questions and inner peace will be with the rooster riding on a donkey.

Andy, I have never heard of such a position. Does he have any reasons for his thoughts? Is he just concerned with 411(b) or does he have other concerns. If 411(b), why does he not think a fresh-start date will suffice? Doug, that amendment would certainly recapture the lost years of participation.

Andy, I am not sure I understand your concerns about a prospective unfreeze. With any change in the benefit formula there should be a fresh-start date, so there is no need to be concerned with a situation without one. Now of course I have seen amendments that have fluctuating benefit formula percentages with no reference to a fresh-start date. Those are terribly crafted and are clear 411 violations. As for the 415 issue, you can easily craft the amendment to make it so all years of participation are counted in the benefit formula. Then we can all be on one side of the proverbial fence.

Without reading your cite I can tell you that withdrawing the money and buying whatever is not a violation of any the 3 things you mention. The restriction on buying personal property is a reference to buying the item WITHIN the IRA. Withdrawing the money and buying the item outside the IRA is completely different.

Tom, in your opinion don't you think there's more to it than just using the DOL calculator if not going under VFCP?

I would delay payments to active participants only if you felt there was an potential qualification issue with the plan. Having a general tested plan or a plan around for under five years would be good times to wait for the FDL. Of course if nobody is in a rush to receive the plan termination distribution, then why not wait?

I am talking about the period after the break in service. The original post's example participant would have had a BIS by now.

PIP, you could really lose the condescending attitude. Here is 411(a)(6)(a) referenced in my cite: (6) Breaks In Service (A) Definition Of 1-year Break In Service For purposes of this paragraph, the term "1-year break in service" means a calendar year, plan year, or other 12-consecutive-month period designated by the plan (and not prohibited under regulations prescribed by the Secretary of Labor) during which the participant has not completed more than 500 hours of service. (B) 1 Year Of Service After 1-year Break In Service For purposes of paragraph (4), in the case of any employee who has any 1-year break in service, years of service before such break shall not be required to be taken into account until he has completed a year of service after his return. That cite uses the phrase you hold onto, yet we KNOW it applies to active people with a BIS. Therefore, you are quite clearly misconstruing its meaning. Next thing you know because it says "his", you will say it doesn't apply to women.

It gets a lot more complex when you factor in taxes paid along the way, whether that be capital gains or whatnot, versus the tax-deferred growth of the income. That is an important factor to show the true benefit of a retirement plan.

Andy, I see your business is advertising for actuaries around the country to set up "virtual offices". Well I want to be a "virtual actuary". I will send you a picture for you to ask questions. When the answers appear to you after being inspired by my thoughtful gaze, you folks can send me my monthly stipend. Oops, sorry I edited the wrong post, but I can't clear my tracks. Amazing power.

No, naming names for eligibility is fine as long as you pass 410(b) on the ratio percentage test. If you have to pass average benefits for coverage, then you have to meet part 1 of that test - the reasonable classification test. Naming names does not meet the requirement of a reasonable classification. Note thought that the ratio test has no such requirement and that's why it's ok if you pass ratio %.

PIP, Here is 410(a)(5)©: In computing an employee's period of service for purposes of paragraph (1) in the case of any participant who has any 1-year break in service (as defined in section 411( a )(6)( A )), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in paragraph (3)) after his return. Note that YOS for eligibility are not taken into account if someone has a BIS. Thus it is considered as if the person with the BIS has not met the eligibility requirements of the plan. 410(b) of course allows employees who haven't met the eligibility requirements to be excluded from testing. 401(a)(4) and 410(b) have the same excludables. There you go. The hole in your argument is that the person is not an active participant any longer and therefore it doesn't matter if they are employed on the last day of the year, much like it doesn't matter if the person who hasn't met the eligibility requirements is employed on the last day of the year.

A BIS for an active employee excludes them from being an active participant in the plan for all purposes, INCLUDING nondiscrimination testing. Of course, if they satisfy the requirements to be reinstated and therefore enter the plan retroactively, they can too retroactively affect the nondiscrimination testing that occurred. This is one of the inherent problems with having BIS rules in a plan. That "once a participant, always a participant" line is not true.

Being eligibility is not a protected benefit, you can certainly kick them out prospectively and give them nothing other than what they have earned to date. Where does your opposite understanding stem from?

1.410(a)-3(e)(1) example 6 would require the plan to first have proper eligibility requirements and then freeze participation to be acceptable. So starting a plan with eligibility that just includes those hired before a certain date isn't acceptable. I didn't consider that in my first answer. BUT the point you are not considering lerieleech is that you are testing the two plans together for coverage. Thus your eligibility is fine because of the DC eligibility. Anyway if you are so worried, get creative. You could just name the people who are eligibile for the DB plan rather than stating just those hired before 1/1/95.

You can set the eligibility in the manner you suggest. You could set it to be people taller than 6 feet are in the DB plan or some other such nonsense. The issue is with a random eligibility rule is that it doesn't satisfy an objective business criteria. However, this is only an issue if you are needing to pass coverage passing the average benefits test. That apparently is not the case here since you are aggregating the plans for coverage and everyone is included in one of the plans.

Just a crazy hunch, but me thinks the client has document problems already.

Actually, I have been putting the next day as my birthday for a few days now. I want every day to be my birthday! The year was to signify my immaturity, not actual age.