Blinky the 3-eyed Fish

A DB plan for a small non-profit has been around for nearly 30 years. Their financial statements have been issued with the caveat they are not intented to comply with FAS 87. They simply put the information in accordance with FAS 35 and the aforementioned caveat. They want to entertain complying with FAS 87 going forward. Any thoughts as to how to accomplish this? Obviously, they are not interested in going back and recreating 20 years of work to get to a starting point.

I just read this for the first time. Wow!!! I liken Erisanut to a 36 handicap golfer who is slicing, chunking and topping the ball all over the course. His playing partner is Mike Preston, who has just come off winning the Masters. After eagling the first hole, Erisanut tells Mike he needs to grip the club with his teeth to play better. Erisa has no reasoning for his advice, because no accomplished player does that, but Erisa is unfazed and insists on "learning" Mike how to play correctly. No amount of evidence, like Mike's pristine shotmaking, will deter Erisa. Lol funny this thread is. (Oops, I spelled Mike's name wrong.)

Correction is the desirable alternative, although there may not be a choice from the sound of it. We will see. I will have to request 7805-B relief. At this point I am gathering all information to inform the client of what to expect, although it will be a long while before anything is resolved.

I wasn't at the 2006 LABC, but it's nice to know there is consistent thinking amongst the IRS on this and other topics. My goodness, I just want to know what the rules are!

Ok, well this unfortunately applies to a specific situation of a takeover client. So, some more specifics are: 1) The participant accrued benefits through 2002 and the plan was frozen in before benefits accrued in 2003, so we are very near, if not already there, to having the 2002 year be closed. (I don't know if the corporate taxes were extended.) 2) Smaller contributions were made in 2003 and 2004, so those are obviously in jeopardy. But you are saying that it's the benefit accrual that determines the treatment of the dollars, not the contributions? Then to summarize what I think you are saying. The trust will not be taxable to the individual until distributed. However, the captial gains, interest, dividends, etc. earned in the trust will be taxable each year since it is a taxable trust, thus negating the tax free deferrment.

The lump sum payment is without the participant's consent surely. It's just that the money needs to go into an IRA, not to the last know address, if above $1,000.

Disagree.

Even though I have seen some documents that allow for only compensation while a participant even if a person has participation less than the averaging period, I recall a cite provided by Andy that questioned its validity. I don't have the time though to research anything myself. Let's say though you go ahead and make that modification. You definitely want to submit within the proper period to keep assure yourself a determination letter reliance. (I think you have to submit within 90 days after the plan year in order to get reliance for that year, but I could be slightly off.) If you wait to submit, you effectively are operating a plan without a determination letter and I wouldn't recommend that. Try any of the larger ASPPA Conferences for some broad topics. I bet the upcoming one in Las Vegas this summer will have a session on the restatement process.

I try and keep my plans qualified, so I am not sure of the answer to this. If a DB plan is disqualified, what happens to the assets in the plan. Let's say it's an owner who is the only one with a DB benefit. My guess is he would have taxable income either at the individual or corporate level depending on who takes possession of the money. Any idea how this is reported as income on a tax return, either individual or corporate? Any other tidbits to worry about?

That directly contradicts the speaker at the 2004 or 2005 LA Benefits Conference. I can't remember if it was Holland or Pippins.

Whether or not the plan assets are paid out is neither here nor there when deciding whether or not to file a 5310. If choosing to file, the decision is obviously based on wanted the IRS to bless the document and some operation points of the plan like partial term possibility or general testing methodology if not a SH. Even if the assets are paid out, you still have the same issues as if they weren't paid out. Does the client want some extra reliance or not is the question? Now there is always the question as to whether or not to pay out the plan assets before receiving the determination letter. Generally there is no problem in doing so unless there is a potential qualification issue that is looming. Unless the plan has been botched thoroughly or perhaps a DB plan in effect for a minimal time, there shouldn't be this problem.

Ah, the more things change, the more they stay the same. I just came across this discussion and quickly determined I agreed with Mike and didn't with mjb (mbozek). I didn't even know this was a questionable topic anymore despite the pub errors.

The code section is incorrect but Frank's point is valid. There are rules involving "includible contributions" (do a search to find prior discussions and cites on this topic) which describe which contributions made for 412 are able to be deducted. Mas, to read 404(a)(1)(A)(i) in that manner would be to negate the need for the includible contributions rule. Therefore, I disagree with your conclusion that the bolded language entitles you to deduct any and all required contributions in a future plan year by rule. I agree it is confusing though. To the practical side, with the nondeductible contributions reducing 404 assets, have you looked at the unfunded current liability deduction? Unless there has been an amendment to the plan raising benefits for HCE's in the last 2 years, you should easily have some room there.

I preface this by saying a FASB expert I am not. Now that we are clear on that, the plan has the following: Unrecognized net loss: 1,000,000 Transition asset: 50,000 Reduction in PBO due to curtailment: 200,000 My focus is specifically on the transition asset as it affects the net periodic pension cost. I understand when determining if there is a curtailment gain that the transition asset is first netted against the unrecognized loss. Then the reduction in PBO is compared to the net to see if there is a gain. (1,000,000 - 50,000 = 950,000 > 200,000 - therefore no gain) But for the NPPC is the net unrecognized net loss (i.e. 950,000) used to determine the amortization of the loss or does the transition obligation remain separate? Thanks.

You will run 410(b) using the lesser of the eligibility requirements for the group. If you pass, fine. For vesting, that is a BRF issue you must test under those rules.

As long as you are passing the ratio test for coverage, excluding by name is fine. Being you are removing him from participation, I am of the opposite opinion that you do not need to continue providing compensation increases. Frank, why do you think this is necessary? I would too follow the 204(h) guidelines just to be sure.

The broker has it right. (I never thought I would say those words.)

See 4972© for situations to avoid the excise tax.

This was discussed at length here: http://benefitslink.com/boards/index.php?s...opic=26823&st=0 You seem to have it correct IMHO. I am now more of the opinion that just having a balance in the DC does not necessarily trigger 404(a)(7), although some formal guidance would be nice.

Well my measurement period is the current year, so the testing service has to be 1. As for the short service issue, this person was hired in 2003 and full-time until her termination date. Plan entry requires a year of service. I am comfortable this falls far outside of the scope of those concerns. I suppose my justification for this is that the DB plan is more generous in granting benefits on years of service and this just happens to be a beneficial result in the testing by doing so. It's not something I have had happen before, but from now on I am going to make all my DB plans within DB/DC combos based on service and tell clients to fire people in January. (Just kidding.)

A DB and DC plan are aggregated for testing and coverage. The DB benefit is based on years of service and a high 3-year average. A person earns a year of service in 2004, enters the plan 1/1/2005 and then terminates 1/31/2005. To determine her DB equivalent normal allocation rate for the gateway I am valuing the difference in the benefit earned during the year, so she had a $0 benefit at 1/1/2005 and a positive benefit at 12/31/2005. Of course I am valuing this benefit using the testing assumptions. For gateway, plan year compensation is used, so the result is that this person has an extremely high DB equivalent accrual rate, since she only had one month of compensation in the plan year. So, I can certainly choose to average the DB equivalent normal benefits of the NHCE's who are benefiting and so this one little person is increasing the average by a lot. I have to believe I can count this person as benefiting even though they didn't meet the accrual requirements for the year because they did have an increase in the accrued benefit for the year. This goes to the position you can't have an accrued benefit prior to entering the plan. Anyone see any flaws in this?

It's safe to say that any of the options to comply with 401(a)(31)(B), one of which is to lower the cash out limit to $1,000, meets the requirements of Notice 2005-5 (I think that's the right cite) and is not a discretionary amendment.

The yellow guy has been way too busy. I resorted to going Preston with an odd hour response.

Yes.

You determine if he would be a plan participant had the plan had the maximum allowable eligiblity. You don't provide enough information to make that determination. But let's say he was full time and terminated 9/1/2004. Well then he met the eligiblity requirements and would not be in the otherwise excludable group.