Blinky the 3-eyed Fish

It escapes me how something less quantitative leads to clearer results. By definition exactly the opposite is true. Isn’t it just that the promulgations are not quantitative enough? If every last detail was spelled out, then it would be crystal clear exactly what is permissible. The fact that is not the case only means more detail is needed, not less. And I am sure mbozek will agree, who needs more lawyers to provide opinions?

100% life insurance would definitely violate RR 74-307. While I doubt it, I suppose it would be possible to stay within the 100x rule if the person was very young and you found the right insurance product. Again, I doubt it. I think the details on this are clear. RR 2004-20 describes the listed transactions, but the incidental rules are in other promulgations. You still can't violate them.

Smhjr, no offense, but your explanations, while semi-correct still lack many important details. In fact, your statement that "theoretically a plan could be made up of 100% insurance" could incite a listed transaction if that advice was followed. I mean theoretically you could shoot someone and steal their car, but you wouldn't because of the consequences. The devil is in the details, especially with 412(i) and 419.

I completely agree. It is not possible to answer the questions you are asking because of the many details of underlying concepts that must be considered.

Jane, the answer to your question is that the person did indeed roll over her RMD. She needs to contact the IRA and have it distributed. Here are more details from a prior discussion. http://benefitslink.com/boards/index.php?s...stribution&st=0

SoCal, there the rule that the YOP for the 415 limit is not less than 1, but not a rule that it is 1 for the first year of a new plan. In your first example the current unused benefit available would be $1,875. I agree with your projected calculation. Now there is also a rule that limits unit credit funding to 10% of the 415 limit (a derivative of the small plan audits I believe), which puts your normal cost accrual under that funding method to be a maximum of $1,375. Is that what you mean?

George, I hope you aren't classfifying these arrangements as "illegal and abusive" tax shelters. The net effect of giving 0.5% in the DB or not is minimal as you can reduce the DC benefit by a nearly equivalent amount. The only result of mandating that a net 0.5% be given is the adminstrative problems with more people being in the DB (and eventually being paid out of the DB) with small accrued benefits. Penman, the only update I can give is that it does appear to be a wide net the IRS is casting in looking at these plans. We have stopped designing them for the time-being until further information is learned. I can tell you that ASPPA is aware of the IRS' actions and they are interested in cases. I specifically emailed the facts of my case to Brian Graff after I went to a talk of his and after he asked if anyone had such cases. It was his opinion that the IRS cannot abruptly change policies without issuing guidance. That is certainly the case here as we and many others have multiple determination letters approving such designs.

No offense by my reference intended. The use of "old-timers" was used to reference the fact that they were most likely around before the RR. As for confusion, there shouldn't be any. This question has been asked over and over again through the years at many conferences and the answer is a clear and consistent one from the IRS. The professional fees should be $0 to resolve this question. As for evidence of the document's establishment, I always get back signed copies of everything. ALWAYS. The client's records could burn to a cinder and the evidence would be preserved. I believe every TPA also gets signed copies back, and if they don't, they should. Now, if the IRS was to question the legitimacy of the signing date, well then yes, an established trust account is further evidence the plan was established. But the reality is that they would never question a date something was signed unless there was evidence to the contrary.

Let me try again. Georgie, look back, I did reference Belgarath's post and said I didn't understand it. Here is the LRM's from the IRS website related to this matter. I bolded the important part. Statement of Requirement: Incidental insurance provisions and definitely determinable retirement benefits, Rev. Rul. 60-83, Rev. Rul, 74-307, Rev. Rul. 83-53, and Rev. Rul. 85-15. (Note to reviewer: The following sample language is an example of an incidental pre-retirement death benefit which is definitely determinable. A pre-retirement death benefit paid in the form of a qualified preretirement survivor annuity is deemed incidental and is, therefore, always permitted; however, if death benefits are paid in a form other than or in addition to the qualified preretirement survivor annuity, such benefits must be incidental to the retirement purpose of the plan, See Rev. Rul. 85-15.) Sample Plan Language: The death benefit payable under this plan will be a qualified preretirement survivor annuity and, if applicable, any other additional incidental death benefit as selected by the employer in the adoption agreement. - LRM 52, Incidental Insurance Provisions - 107 Sample Adoption Agreement Language: The pre-retirement death benefit payable under this plan is (select one of the following options): ( ) A. None, other than the qualified preretirement survivor annuity. ( ) B. The qualified preretirement survivor annuity plus the proceeds of insurance policies purchased on the participant's life; provided that any death benefit in addition to the qualified preretirement survivor annuity shall be reduced to the extent necessary so that the sum of such additional benefit and the present value of the qualified preretirement survivor annuity does not exceed 100 times the participant's anticipated monthly benefit. For purpose of this requirement, the total face amount of policies purchased will be ____ (fill in the amount but not in excess of 100) times the participant's anticipated monthly benefit. ( ) C. The qualified preretirement survivor annuity plus the excess, if any, of the present value of the participant's accrued benefit minus the present value of the qualified preretirement survivor annuity. ( ) D. The qualified preretirement survivor annuity plus, if a positive amount, the incidental reserve. The incidental reserve equals the proceeds of insurance policies purchased on a participant's life plus the theoretical ILP reserve minus the sum of the present value of the qualified preretirement survivor annuity and the cash value of the policies purchased. For purpose of this requirement, the face amount of the insurance policies will be that purchasable by _____ (fill in the amount but not greater than 66 if whole life and not greater than 33 if term and/or universal life) percent of the theoretical contribution. For purposes of D above, the following definitions apply: Theoretical ILP reserve is the reserve that would be available at the time of death if for each year of plan participation a contribution had been made on behalf of the participant in an amount equal to the theoretical contribution. Theoretical contribution is the contribution that would be made on behalf of the participant, using the individual level premium funding method from the age at which participation commenced to normal retirement age, to fund the participant's entire retirement benefit without regard to pre-retirement ancillary benefits. The entire retirement benefit for this purpose is based upon a straight life - LRM 52, Incidental Insurance Provisions - 108 annuity and assumes continuation of current salary (no salary scale) and the current defined benefit fraction under section 415(e) of the Internal Revenue Code. For purposes of B, C, and D above, the calculations for resent value of any benefit hall be determined in accordance with section _____ of the plan. (Note to reviewer: The blank should be filled in with the plan section number corresponding to LRM #42.) I am saying that the $200 is the annual theoretical contribution to fund the life annuity of the one and only participant in my example using the ILP funding method. My interpretation is that this theoretical contribution is purely for the retirement benefit, not the death benefit. I am then saying that the $133 is the allowable premium to fund the maximum life insurance. In other words the maximum whole life insurance is whatever $133 will buy annually. I am then saying that the total contribution is not $333 annually, but rather a number less than that because the whole life has some CSV that reduces the $200 portion. I hope that makes more sense because I am not saying: "2/3rds of the benefit is purchasing life insurance" or the items in Burns' last post. At least I think I am not.

The devil's in the details then, not vague statements. Care to elaborate?

The obvious solution is for them to marry by the end of the year. Book a red-eye to Vegas. Either that or get a coverage determination and if they come back that it's covered, then get married. I wouldn't want them to rush into it for the wrong reasons. I am curious as to the result if you want to report back later. I know the PBGC will want this information: Detailed description of the type of profession; List the educational background needed and; Licensing requirements, if needed. While the services are professional, the lack of education requirements needed or licensing will hurt the cause.

Are both people owners? A plan that covers only substantial owners, those owning more than 10% of the employer, is not covered. Effen, I don't think your marriage analysis is quite correct, but if they are married and one of the persons is a substantial owner, then 1563 attribution applies to exempt it from coverage. As for it being a professional service organization, I doubt it. Read PBGC Opinion Letter 76-106. Although, you can always request a coverage determination from the PBGC, but be sure to file in the meantime.

And here is where the confusion starts. I thought 2 & 3 were the same and the mathematics just work out like this to develop the simple 2/3 rule: $200 to fund the theoretical contribution using ILP. Since we are talking about whole life, only 1/2 of that premium is being deemed to be for insurance, while the other 1/2 is for retirement. Thus the formula would be to find the 50% figure is this: whole life premium = ($200 + 1/2 of whole life premium) * 50% whole life premium = $100 + 1/4 of whole life premium whole life premium = $133.33 Thus the simple 2/3 rule is generated because $133.33 is 2/3 of $200.

Andy, what promulgation describes your #3? Belgarth, I am afraid I don't understand the remark as it related to my question. I don't think my question was clear to this person. I was saying that the $200 was the theoretical contribution to fund the retirement benefit at normal retirement age, and by retirement benefit I mean a beneifit not considering the life insurance.

The annuity is the value of the benefit as of the assumed retirement age in the new plan's valuation. SoCal, I agreed with what you said, but wasn't sure about what you meant by this.

I have a related question regarding Rev. Rul. 74-307. When determining the maximum whole life insurance, I think it works like this, but more importantly, what do you think? (Ignore the 100x rule here.) Amount needed to fund projected benefit annually (no insurance whatsoever): $200/yr. Thus the maximum amount of contributions related to the life insurance is 2/3 or $133.33/yr. Of course the whole life has a CSV, so the full $200 is not needing to be contributed, thus the contribution ends up being $200 + $133.33 - some value attributable to the CSV that reduces the $200. Anyone differ? P.S. No Andy, I have not turned to the dark side. I am just curious.

Pax, I have to disagree with you as well if the right to the allocation is already earned UNLESS the profit sharing document says something like "a discretionary contribution up to 2% of compensation". Otherwise, while the employer is seeing it as an additional 3% for some, the IRS is seeing it as a cutback for others who aren't receiving their proper share of the total contribution.

I don't know how many years you have been a participant, how old you are, or your salary history, but in light of the new facts, I seriously doubt that you are at a lump sum limit. Thus if that is the case, ignore the maximum lump sum discussion and the PFEA changes. The date of the distribution controlls, so if your distribution is in 2005, then the 417(e) rates in effect then would apply. The 11/04 rate was 4.89%, so chances are that the 12/04 rate (if that indeed is what is being used for 2005) will be lower than 5.07% and you will receive a higher distribution than you would have in 2004. Lucky you.

By the wayside, down the river and into the sea by now, but you'd be surprised at the number of old-timers who insist on $100 being deposited before year-end. GBurns demands $150! (Just kidding Georgie.)

You can still aggregate the plans even though there are different waiting periods. However, when determining nonexcludables for the group only those that meet the LESSER of the two eligibility requirements will be nonexcludable for nondiscrimination.

Who owned the other 30% of A and are they an ASG?

Bob, there isn't a disagreement, but rather different rules apply for different purposes. 417(e), which is based on the 30-yr Treasury rate, affects minimum lump sums, while the PFEA passed provisions to apply 5.5% to maximum lump sums. I was merely pointing out that if the person is at a maximum benefit limitation, then he most probably is at a maximum lump sum limit and that 5.5% needs to be considered. I hope there is an actuary somewhere in the picture. If not, I beg of you to find one.

If he's at a maximum $limit benefit, well then he is going to get a lower distribution, most likely, due to the requirement that 5.5% be used for maximum lump sum distributions in 2005. But since he is the last man standing, his distribution will zero out the assets. Is the plan underfunded so that he is waiving benefits? Is it overfunded so that the other participants will share in the excess assets? Or is it just right like baby's porridge? Regarding ©, since your plan terminated in 2004, you can't have future year COLA increases apply. The limit remains at $165,000.

Mbozek, do you know the creditor protection status of IRA's in Arizona and California or a resource to research it?

Without looking at all the links pax has there is more information on majority owner waivers on page 21 of the Form 500 instructions here: http://www.pbgc.gov/forms/500_instructions...c9000c5&cmd=xml The waiver, like election forms, do not get mailed to anyone, but the PBGC will ask for it upon audit. The IRS does not explicitly approve of the waivers, but accedes nonetheless. If you are worried the actuary has any liability by having the client sign a waiver, don't be.