Blinky the 3-eyed Fish

A common mistake is to apply the >50% rules for 415 limits to brother-sister controlled groups when they only apply to parent-subsidiary controlled groups. Although, now I see this fine point I was making is moot here. I see now what you are saying Mbozek.

I don't know that you could classify it as a "scam". It could be that the people involved didn't understand how the funding works. For IA, depending on the level of the benefit and the periods available to fund, by the mathematics of the funding method it can fund higher amounts in the first years. I have clients all the time ask me how much is being funded for participant X without telling me what they will use this information for. It's only when I pry that I find out that some are considering the plan as part of a participant's overall compensation package and they are reducing salary or bonuses by these contribution amounts. I have to explain to them that there isn't a dollar for dollar correlation to what they are doing and provide them with more accurate numbers. These are cases where the client wasn't trying to rip off the participant, but just didn't understand the innerworkings of a DB plan. Bob, the answer to your question depends on many variables. Suffice it to say it could be done both ways possibly.

Merlin qualified his question with "the regular formula accrual, or t/h min if greater", so there would be no need to treat the person receiving a TH minimum as not benefiting in this case to preserve the safe harbor status since the Merlin stated the greater of the two would be given. Tom, sometimes docs have less than statutory requirements for TH. It's not too often, but I have seen it especially when the regular formula has an accrual requirement of lower than 1,000 hours. Andy, good point, but since Merlin didn't mention a 401(k) plan it wouldn't pass ABT without a very strange formula benefiting the other NHCE at a greater level. Also, in these types of docs often is the case where there is ratio test fail-safe language that prevents ever getting to the ABT.

Why, you never stated if there was a last day requirement or not. If there is, then you should ask them why they think it's a cutback. BTW, nearly anyone who does cross-testing can implement what these guys call a OCPP. It's not unique. Be careful though from a business standpoint if you are using this design to completely minimize staff costs. That would entail possibly giving $0 to some employees (if the plan is not top heavy) or giving higher dollars to specific younger employees to pass nondiscrimination testing. With either scenario you have the potential for employee revolt if they talk to each other and figure out one person is getting more than another.

Why can't Mand, Marblestone or Danzinger answer this question? You would think that at least one of them could come to the phone. Onerously Congested Pension Professionals

I guess you could ask yourself how could it possibly no longer be a safe harbor based on the circumstances you describe. Then answer yourself that it couldn't and of course it's still a feel-good safe harbor happy plan.

There is no guidance on when the top-paid election can be changed. A reasonable interpretation (at least I think it's reasonable since I am saying it) is that you cannot change the election if it will cut back an allocation that is earned. In this case you want to remove the top-paid election which will make more people HCE's than before. It would seem very possible that the new HCE's could receive lower allocations than before when they were NHCE's. But if there was a last day requirement for example, then they haven't earned the right to the allocation and it would seem perfectly reasonable to make remove the top-paid election now. What does OCPP stand for? Alf, there is no such rule.

Yes.

I am saying that a non-PBGC covered plan can pay out less than full benefits to everyone, possibly. It's just that most non-PBGC covered plans have substantial owners in them and therefore under Rev. Rul. 80-229 they get the hose anyway, so it never gets to the point of actually reducing the benefits earned by the NHCE's.

Read Rev. Rul. 80-229 and also read your plan document as I suspect the language of this promulgation is in there. Basically, even though it is not covered by the PBGC, you still have a PBGC-like priority scale based on guaranteed benefits. As part of those guaranteed benefits, your substantial owners are going to be subject to a 30-year phase in, which in most cases means that their guaranteed benefits are reduced significantly. My experience has shown that in nearly every case the owner's guaranteed benefits were so low that his allocation was no more than if he just waived benefits in the first place. Your situation may be different of course.

The percentage needs to be above 40%, yet 5/13 = 38.5%. You could not argue that this meets the 40% criterion just because 6/13 is above 40% by a few percentage points. The same would apply to 410(b) and 401(a)(4) too.

DP, that is not correct. No distinction is made based on a participant's deferrals. GB, my experience with the IRS has been the opposite of yours regarding paying spouses as long as there is a legitimate employee/employer relationship.

Because the prior year funding deficiency becomes part of the equation for determining the next year's contribution, the amount of the funding deficiency is not what will necessarily have to be contributed to avoid the 100% excise tax. There are many components to determining the funding amount, so for example, if the assets in the DB plan were to invest in the next Microsoft and shoot up in value, it is possible that there could be no funding requirement for the year after the funding deficiency even after taking into account the prior year funding deficiency. That would be a situation where the funding deficiency would self-correct itself without any contribution required. Consider a few examples: Funding deficiency 2003: 50,000 Required contribution 2004: 40,000 Here 40,000 will alleviate the 100% excise tax. Funding deficiency 2003: 50,000 Required contribution 2004: 75,000 Here you need to contribute the full 50,000 to alleviate the 100% excise tax

He is correct. By the way, your post was difficult to read since everything is in uppercase.

Ah, the meddling financial advisor rears his ugly head. He has good intentions but I am sure hasn't considered all the details that you need to. Correct. It means that those who haven't met the 21/1 YOS requirement do not get the SHNEC. Not if you use otherwise exludables for the general testing. Also, you will have to make sure in future years that the wives never work enough hours to get out of the otherwise excludable category. Otherwise, if your general test goes to average benefits (like all good general tests should) it will fail miserably if they defer all their compensation. Sure. It sounds like you want to make this a one-time eligibility provision though.

Also, watch out for top heavy. Based on the DB alone it sounds as if you will be okay by the sheer volume of staff covered.

He can.

Gordy, no that would not be correct because the rollover to the IRA would constitute a distribution from the plan. See the first sentence of the cite. The fact that a plan is terminating is immaterial for the rule. I think you might be hung up as to what calendar year the MRD is due. The answer is that the MRD is due in the year one turns 70.5. There just happens to be the special rule allowing delays until the 4/1 following for the first payment. Try re-reading the cite knowing that the MRD is for 2004 and I think it's clear that the first distributions for 2004 are considered MRD's and cannot be rolled over.

Bob, since you are a self-proclaimed non-pension professional, I won't go into detailed explanation. The short of it is that you can't do either A or B, but you very well may be able to get there based on the 404 code changes made by EGTRRA. You should really be asking this of the actuary who works on the plan. I answer to your Employee Z situation, with a DB plan the amount the participant receives from the plan and the amount funded for his benefit are not the same. So, A or B doesn't matter to the particpant. His benefit is worth what it is worth. This too should be a discussion with the actuary who works on the plan.

I was off on my cite. Here it is 1.402©-2 Q&A 7. Q-7. When is a distribution from a plan a required minimum distribution under section 401(a)(9)? A-7. (a) General rule. Except as provided in paragraphs (b) and © of this Q & A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a) (9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70 1/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution. Mbozek, one typical answer would be that if an small business owner is rolling over his balance into an IRA, that can typically mean the plan is terminating as well. To save adminstrative costs for another plan year they often try to get the money out before the end of this plan year.

The (a)(9) regs are clear that the first payments made for a person subject to RMD's are to satisfy the RMD. So, even though there is the delay to 4/1 for the first year, the participant is still required to take the RMD first if any distribution is made during the year in which they turn 70.5. They are not eligible for rollover or delay until 4/1. I'd give you the exact cite, but I am out the door. It's one of the Q&A's though.

Nice. Although in the fish world that is even more of an insult. Those dirty bottomfeeders! :angry:

I would have love to have heard that conversation since I am the one full of crap. I was thinking of changing my avatar to a big pile of it.

As someone who was already swayed I offer that the reg doesn't need to say "plan year" as that is a function of the period being tested. The reg says, ".. those employees who fail to satisfy all of the different sets of age and service conditions are excludable employees with respect to the plan.". If you are testing a plan year, you are applying the eligibility requirements in effect for that plan year. For situations where there is immediate entry for some and not for all, there are 2 sets of eligibility requirements. I am not sure how you would justify not applying the rule.

I don't see this as the criterion. What if business just is in the crapper? Andy, to me it seems as if certain duties, like signing a 5500 or serving as a director of the corp does not constitute an employer/employee relationship. I have seen more than a few clients that have directors that are definitely not employees, so I personally wouldn't consider that function as the sole determination of continued employment. But it appears in this case that he very well may be "employed". Although, is there also a 1,000 hours requirement? Maybe he didn't work that much. In this case, only the client would truly know this, so ask him to get you his hours in writing. I agree completely.