Blinky the 3-eyed Fish

I think you are thinking of the discontinuance of contributions in a non-pension plan that causes the "continuing and substantial" criteria to be violated. This does not apply to pension plans, like money purchase plans. Thus, the mere freezing of a MP plan will not cause a partial termination.

No new wrinkle. Let me try again. We agree that under 1563 ownership is attributed to a child under 21, correct? We agree that a substantial owner for PBGC purposes is defined as someone owning more than 10% of the stock in the last 5 years, correct? Therefore, a child not yet 26 will be an owner in the last 5 years (assuming the business was there as you correctly point out) and be a substantial owner.

Zimbo said more than 10%, so I agree it is not covered. On a side note regarding the attribution, it's under 1563, which is free-flowing attribution if the child is under 21. Since a substantial owner is defined as ownership in the last 5 years, if the child is under age 26, he would be a substantial owner.

I think my point is being lost.

You can't meet the allocation requirements after the plan has terminated. If you have a last day requirement, 12/31 for example, but the plan terminated in September, well then you have no one that is entitled to the contribution. Does that help?

I am actually not too concerned with what transpires with the tech advice request. We are not disputing the facts that were written up by the IRS agent on that front. I will email it to Brian though to see if he has any concerns. Really though my only concern is the available correction should this come back that correction is needed. If we are able to retroactively correct via an amendment, the cost is minimal to the client.

The Schedule is not dictating a change in the coverage testing requirements, just how they are reported. If you are relying on the 3-year cycle and you passed the average benefits test in year 1, well then you passed the average benefits test in years 2 and 3. That is what you report on the Sch R for those years. In the past you just didn't have to report year 2 and 3 on the T.

The termination date does not in of itself change the plan year end.

There is no declaration date necessarily. You just need to make sure that the people in the plan have earned the right to the allocation. If there is a last day requirement, then the plan termination will preclude anyone from meeting the requirement and you would need to amend the plan. You should also make it clear what compensation is used for the allocation.

Yes. In fact my vague recollection says this is an example in the 410 regs. You can amend the prototype but if it's not one of the hard-coded options, you have turned it into an individually designed plan.

While I wasn't around for MPPAA, I can't fathom distributions not being grandfathered. To expect people to sit idle and wait for legislation that may never come has got to be the best defense ever should this ever be challenged.

Gary, I am confused. How could there be earned income in the prior year if you couldn't take the deduction in the first place because of the limited earned income? In other words, you were limited in the deduction to the NEI in year 1 in the first place. There isn't going to be a magical increase in the earned income in year 1 after the fact.

Mike, you are correct that an aggressive agent is planning on doing just that. I say planning because the issue is going for technical advice, so we will see what transpires. The issue could be corrected by an amendment to the plan giving people more benefits, but the agent doesn't see that as a simple solution. Though I am pretty sure that will be the eventual outcome should the technical advice come back adverse for the client. I am happy to see the technical advice be issued. It beats playing by ambiguous rules. This agent is a piece of work by the way. He initially was challenging the permanency of the plan that is 8 years old. He wondered how the cash balance account was determined in his initial response despite the fact IT ISN'T A CASH BALANCE PLAN! I have included Brian before and will again if needed. Thanks.

I don't see the issue has any ambiguity. With a corp you could deduct the $150,000, create the NOL and possibly affect a prior year's return. With the sole prop you never get to deduct the $150,000 in the first place because the earned income is not high enough. A carryover is an amount contributed but not deducted. It is completely different than a deduction that creates a NOL.

DB plan fails 401(a)(26), which is discovered upon submission of the plan to the IRS. The plan was adopted in 2000 and submitted to the IRS before 1/31/04 to be timely under the GUST RAP. (Yes, they are just getting to it now.) Let's say it fails 401(a)(26) because it's an offset plan and doesn't meet those requirements operationally. My understanding is that's a demographic failure and upon IRS discovery must be handled through Audit CAP. The IRS agent doesn't have authority to correct on their end. (Of course I am also assuming we are past the -11(g) period.) Agree? However, let's say it fails 401(a)(26) because the document benefit is below the "magical" 0.5% benefit for enough people. I have to think this is a plan document failure that can be corrected without going through Audit CAP. I say document failure because under the terms of the plan with the participants eligible, there is no way to satisfy (a)(26) if you consider under 0.5% not benefiting. Agree? Now what if it's a combination of the two. However, to correct the plan document failure the plan increases benefits to 0.5% and removes the offset altogether solving both problems. (a)(26) is saved! In other words, is the correction of the plan document failure limited to increasing that benefit and cannot change provisions that would solve other problems or is this allowable?

Combined. No. Have help?

Remember you can file on a cash basis. If the $120k was made after the plan year end, then you had $0 assets on a cash basis and wouldn't require a filing.

No, he owns 7% for HCE determination purposes.

You would have a hard time being faulted for using the proposed regs at this time. Work can't stand still necessarily. Keep in mind there hasn't been guidance to this point and the final regs will not be retroactively effective. You will certainly not HAVE to revisit the calculations. Ac, I offer the regs for your perusal, although the offer involves your finding them. Sorry, no time.

I am one to disagree. While I understand the proposed 415 regs are just that, I would be hesitant to deviate from them when calculating how to account for prior distributions. So in step 3, I would convert the LS to a SLA as described. I do think he will likely be entitled to more because of the increase in the 415 limits and because of PFEA's expiration.

That is what I am saying. My reasoning comes from many instances of personal experience with terminating plans. We stopped crossing off the year on the forms once EFAST came about, with the thought it was scanned and wouldn't matter. We have yet to receive any correspondence from the DOL asking any questions.

Don't worry about crossing off the 2005. Just put the proper plan year at the top and that will be fine. Remember it's scanned in and they aren't going to scan in a handwritten change.

He owns more than 5% of a related member. That makes him an HCE.

If you put 4/30, I am sure the client would like to know that he is signing a statement "under penalty of perjury" or whatever it says that the notice was distributed on the date on the form.

You are permissively aggregating the plans yet they have different plan years. This is a violation of 1.410(b)-7(d)(5).