Blinky the 3-eyed Fish

Q1: My thought is that the UAL cannot be negative. I believe the cite is Rev. Rul. 81-213, but if that's wrong, pax has mentioned it before. That being said, I put the funding method change base at -136,200. Q2: Barring an RPA override, I agree the minimum contribution is $0. Q3: The FFL creates a FFC that eliminates any funding requirement. This is one of those "self-correcting" funding deficiecies.

I disagree with the last post. To be exempt from the TH rules you would too have to provide the SH match to ALL eligible for the plan. This plan does not meet that requirement and must provide the TH minimum. See Rev. Rul. 2004-13.

You absolutely can kick them out. Those that had an account balance will essentially move into entitled to future benefits group for purposes of the 5500 filing.

I had posted something else but after reading through the regs again I agree with Steve.

Carol, I doubt the $1,000/mo. benefit is near the 415 limit. Frank, yes, a lump sum payout can be based on the actuarially equivalent value of a SLA even when the normal form is J&100%S. However, for 417(e) purposes, the lump sum must be based on the higher form, or the J&100%S in this case. As for the fact that lump sums can be different based on marital status, that certainly can be the case when the normal form is the J&100%S annuity. Just look at the QJSA itself. A married person gets an annuity based on 2 lifetimes, while generally an unmarried person is relegated to the SLA. The lump sum disparity is no different conceptually. Now I have never seen an unmarried person's benefit be a 10yr C&L with a married the J&100%S, so I can't say for certain this is or is not acceptable. However, the fact that differing lump sum values occur based on marital status is not an argument against it.

That would be my number as well.

We have answers. http://benefitslink.com/IRS/notice2004-78.pdf

To clarify, I did not look up that cite, nor did I base my statement on it. I should too have clarified that this is not a clear cut issue.

Yes to both is my understanding.

And to illustrate that point of needing some competent advice is this comment. Bob, you can have a 1-year eligibility requirement for a 401(k) plan, which would mean those hired after 1/1/05 would be not be eligible until 2006. If you are trying to "maximize the benefit/cost ratio" in your favor why are you so quick to get rid of this plan? It can go another year and just benefit you, which is a 100% ratio according to my math. Also, you could have a 2-year wait for the PS portion.

You can always just amend the MP plan to be a PS plan instead of creating a new PS plan. As pax touched on, if there is an hours requirement or better yet, a last day requirement to accrue the contribution, well then people might not have earned the right to the contribution. If that's the case, then amending the plan now to a PS plan would alleviate the 2004 contribution requirement.

I agree with pax. EGTRRA didn't change the methodology with which 401(a)(17) increases apply to prior years except for the original $200,000 amount that could be applied retroactively.

While I don't know of anything that explicitly states this, IMHO, a person can only be counted once for this purpose.

GUST documents require that the top paid election be hard-coded into the document. You will need an amendment if it is not there currently. Be careful as to when you amend the plan as it might be considered a cutback. There have been discussions on the cutback issue on these boards.

Note you may want to try to avoid 404(a)(7) in future years. It is only triggered if there is a participant common to both plans or if the DC plan makes a nonelective contribution. So for 2005 the latter is an easy one to avoid. You could have everyone in the DB plan and provide deferrals only, no match or PS, in the DC plan. I realize that your ADP test may limit your HCE deferrals, but at least you get more in the DB.

Since you seem to be going this alone, I would ask if you have received proper advice to determine that a SIMPLE is best for your situation? But assuming that you know it to be the correct path, yes, you can contribute for 2004 and yes, you have the normal contribution deadlines. To actually terminate the plan you need to have a resolution/decree of some sort stating the plan is terminated as of X date. You also need to make sure the plan is compliant with all current legislation. You should be fine since you would have had to adopt a GUST II document, EGTRRA and 401(a)(9) amendment in 2002 or 2003. You don't have to file a 5310. Submission to the IRS is optional. There are other detailed issues. My advice is to pay someone a few hundred dollars to walk you through all the pitfalls.

Yes, the rule of parity, which can cause a permanent loss of prior years for vesting only applies if the participant was 0% vested. This is not the case here. While the answer to this question is apparently moot, a break-in-service is generally defined as a period in which an employees works less than 501 hours. When the participant was paid out has no bearing.

You say they are partners but only the husband is paid? Is it a true partnership setup or has he been filing as a sole proprietor?

Well then what's the problem? It would have been idiotic for the first partners that elected to not have accruals in the plan to have signed an irrevocable election, so I assume the document excluded them from the plan or included them but with no accruals. A DB plan design is not completely inflexible so that once a benefit decision is made it cannot be changed ever. Now that you stated more detail I am unsure of your concerns.

I have to admit I am confused as to the exact intent of all of this. It is extreme partner flexibility in the DB plan? When would the decisions be made to "opt in" or "opt out"? I sounds like it's a design where benefit accruals are frozen each year and then increased to the extent each partner wants them to be before the 3/15 after the year-end. Then the benefits are re-frozen and this process continues year to year. If so or if it's something along those lines, then that is something I would not do, especially without the IRS's blessing in full.

4044(a)(4) (4) Fourth— (A) to all other benefits (if any) of individuals under the plan guaranteed under this subchapter (determined without regard to section 1322b(a) of this title), and (B) to the additional benefits (if any) which would be determined under subparagraph (A) if section 1322(b)(5) of this title did not apply. For purposes of this paragraph, section 1321 of this title shall be applied without regard to subsection © thereof. Rev. Rul 80-229 Sec. 4. Assets Less Than Present Value of Accrued Benefits .01 Applicability--This section applies to the termination of a defined benefit plan in which the value of plan assets as of the date of termination is less than the present value of all accrued benefits (whether or not nonforfeitable) as of such date whether or not the restrictions of section 1.401-4© of the regulations apply. .02 General Rules--The following guidelines apply in testing for discrimination in the case of a plan described in subsection .01 with respect to which the benefit structure, if the plan were not terminated, would not be discriminatory under section 401(a)(4) of the Code. (1) Except as provided in paragraph (4), the assets of a plan are allocated in accordance with sections 4044(a)(1), (2), (3), and (4)(A) of ERISA. (2) Subject to the requirements of paragraph (1), the assets shall be allocated, to the extent possible, so that the rank and file employees receive from the plan at least the same proportion of the present value of their accrued benefits (whether or not nonforfeitable) as employees who are officers, shareholders, or highly compensated. (3) Notwithstanding any other paragraph, in the case of assets restricted by section 1.401-4© of the regulations, assets may be reallocated to the extent necessary to help satisfy paragraph (2). (4) In the case of a plan establishing subclasses within the meaning of section 4044(b)(6) of ERISA, the assets within any paragraph of section 4044(a) of ERISA may be reallocated within such paragraph to the extent that such reallocation helps to satisfy paragraph (2). (5) Subject to paragraphs (1), (2), (3), and (4), the assets shall be allocated in accordance with section 4044(a)(4)(B), (5), and (6) of ERISA. Let me see if I can attempt to clarify your questions from your next to last post. I have access to the same DB Answer Book but they are being simplistic (i.e. incorrect in some regards) as to how they are presenting this issue. Note that Rev. Rul. 80-229 Section 4.01 first prioritizes the benefits through 4044(a)(4)(A). Then read that section and note that this section DOES NOT disregard the substantial owner reduction (they must have changed the sections, because I knew the substantial owner reduction as 4022(b)(5), but they have it as 1322(b)(5) but I digress). The next priority group in Rev. Rul. 80-229 is section 4044(a)(4)(B) and onward through 4044(a)(6). It's 4044(a)(4)(B) that disregards the substantial owner reduction, but by that time you have already at least provided the guaranteed level of benefits to the non-substantial owners. Of course Rev. Rul. 80-229 sections 4.02-4.04 detail that the NHCE's must get at least a share of the assets in proportion to their PVAB at a minimum. As for your document language you seem unsure of what it means. I can't help you there, nor can I help you on Russ Snow's past experience. Although, no matter the answers to either, I am not sure how you would disregard Rev. Rul. 80-229.

Let's forget about the DB plan for a moment, because the same concept applies to a cross-tested plan. There are many designs where individual partners are in their own rate groups, in fact there are many designs where each individual is in his own rate group. Each year for the partners their contribution is generally treated as a directed expense, thereby reducing their earned income. Who is really controlling how much is contributed for the partner? Of course, it's the partner. In other words, they are deferring income rather than taking immediate cash, a CODA. Does the IRS know this is occurring? Of course. However, to play the little game it is important that any changes to the document or decisions on what amounts go to each allocation group be made on an employer level. That is what keeps it from going over the final hurdle of being a CODA. A DB plan in this situation is the similar. To fluctuate the profit sharing contributions for a partner no amendment is needed to the plan, so it's a bit cleaner to do this year to year. A DB plan would require an amendment for each partners' level of benefits to change things. Do multiple amendments for multiple partners and you have yourself a nice paper trail of changes. It just looks worse, even though it's really the same idea as the PS plan. That paper trail may pique the interest of an IRS reviewer or it may not. So that brings the DB plan into a gray area. How many changes are allowed? Will the IRS care if every partners' benefit is changed every year? Will they care if it happens every few years? I don't know the answer.

Yes, that is true, but like you said, 1/10th of $165,000 is $16,500 and that is a substantial benefit for one year of participation. The funding for this type of benefit could be $200,000 or more depending on his age.

Are you worried that the partners need this irrevocable election in order to receive monies in the DC and/or DB plans or otherwise it will be deemed a CODA? If so, don't be. As long as benefit decisions are made on the employer level (yes, even though the partners may be controlling their personal plan savings behind the scenes), then this will not currently be raised as an issue by the IRS.

The permanancy issue is always a gray area. DB plans that last at least 3 years usually avoid this scrutiny, thus that wouldn't be that much longer than the person is expected to live. I just had a plan that was adopted late in 2002, terminated 12/31/03 and just recently paid benefits. It received a PT determination letter without question from the IRS. Mbozek, I don't understand your last point. Are you saying 16,500 is not enough of a benefit to shelter income? Anyway, if there is a past salary history, that can be used in lieu of current compensation.