Blinky the 3-eyed Fish

MGB, the termination of a plan does not cause a short plan year. MProctor, your logic as it applies to the FSA is correct. For the FFL you too have a 412 and 404 caclulation. For the 412, the NC is prorated, for the 404 it is not. The liabilities are never prorated, just those described in Rev. Proc. 79-237.

Perhaps you could post a mathematical example as to why you think that if the assumptions were realized that there would be a gain. I am not seeing it intuitively.

My understanding is that the account balance method is allowed in 2005 as well.

I think you are trying to be a commercial, because each of your posts are soliciting business.

I read 2D to apply if the contributions in this plan were being offset. It sounds like you should know the answer to that (it would be extremely unlikely that the DC benefits would be offset by 412(i) benefits).

If you look up the code section, the answer is apparent.

I see that you have 2 issues here. First, a discrimination issue has arisen if the plan were to terminate and NHCE's get less than their full benefit. Second, the terms of the plan document were not followed as the restriction of paying the top 25 paid HCE's is in the document. I don't know the specific correction for this occurrence without research, but I would suggest you first read Rev. Proc. 2003-44 to read about how to correct the failure to follow the document. My guess is that the eventual correction will come one of two ways. First, either the participant will pay back the funds (fat chance) or second, the plan sponsor will have to satisfy one of the methods the participant would have had to to lift the restrictions. In other words, the plan sponsor would purchase a bond or provide the appropriate security. As for this going on the 5500, you don't need the DOL to answer that question. Just go through the form. I can't think of any place where the situation would be reported.

It doesn't (you misunderstood Lame Duck's reply, as he wasn't saying that at all). Is she an employee of the company that paid the consulting fee or not? Like I said before, you already said that the wife will have the $50K she earned flow into her sole proprietorship. That means that she is being paid as an independent contractor. Thus, in effect she works for the sole proprietorship. The sole proprietorship is the "store" and the company that paid the $50K is the customer. The business that is sponsoring the proposed retirement plan is the sole proprietorship. She is 100% owner of the sole proprietorship. Now SoCal's comments have much more relevance in that you need a good plan design. Adding a DB plan is going to have costs to the staff employees of the jointly owned business.

It's not a matter of order, so rather than answering your ordering question I will state it this way. How gateway interacts with otherwise exludables is a function of how the general testing is performed. So, in your case, in trying to minimize the NHCE's, you are obviously going to want to try to separate the otherwise excludables for general testing and coverage for the nonelective portion of the plan. Thus, your post indicates that no HCE's would be in the otherwise excludable category, so they would clearly need to get no nonelective contribution. Of course, check your document to make sure the gateway language allows for this. If done properly, like I would suspect from Corbel, it will.

Sure the $50K is paid from an unrelated company, but it is being recognized as income to her sole proprietorship. The sole proprietorship IS a related entity with the one owned by her and the husband. Now if she were an employee of the unrelated company and earned the $50K as an employee (which you already said she wasn't), then the unrelated company could have a pension plan that would not be considered with the husband and wife's plan.

Harry, you understand correctly. The NRA would come into plan in funding a plan, but not in the ultimate distribution to a participant. Mbozek, your first statement is correct. Of course the conversion to a CB plan is an amendment that brings in 411(d)(6), so the cutback issue is clear.

Good point on that amendment thingy.

If this were to happen, how can this satisfy 411(d)(6)?

I too have had no longer time getting a determination letter for a new cash balance plan that any other plan. But I think we are getting off the beaten path here, because in this case the higher costs aren't worth it because there are no other employees that I can see from the original post. If there were other employees, then there would be no cost for the determination letter as the plan would meet an exemption from the user fees. To further off the path, be careful to meet the gateway requirements SoCal. 5% in the DC and 2.5% in the DB will not meet the 7.5% minimum for all employees.

Why cash balance?

If you don't mind, could I get the names and phone numbers of your company's clients? Generally, and I don't mean to brag, we are able to beat a one-year turnaround.

Yes, but the 404(a)(7) deduction limits will come into play, as the company and the wife's sole proprietorship are part of a controlled group.

Why hasn't he completed 3 months of service on 5/17? Consider the service spanning rule which credits service during periods not employed when less than a 12-month gap occurs. Thus as of 5/17, the person actually is credited with continuous service from his original date of hire. Oops, looks like I am very tardy in my response. Go Kirk!

If this guy was a prior participant and he had a deferral election on hand, it would have to be reasonable that he couldn't alter this election until the next time period allowed. But this guy was never a participant until his re-hire date. He needs to be able to defer immediately upon entering the plan. If he wasn't given that option, then he is owed a QNEC in accordance with Rev. Proc. 2003-44.

Flosfur, I hear your concerns but I don't think they are valid in this situation. When the 2002 valuation was done, the plan termination was reflected. At that time it was legitimately intended for the plan to terminate, no? Ask yourself if the IRS were to audit this plan, would the facts and circumstances point to the validity of the termination. If so, then allay thy fears man! Pax, whether the benefits were frozen or not has no effect on Flosfur's concern here, as he/she is concerned with the proration of the NC that occurred.

Okay, now it's clearer. 2002 is done. Just because you rescind the termination does it mean that you have to redo it. I liken the situation to if you had froze the plan and then unfroze it. That too would be a situation where prior years are unaffected. Now on to 2003. You mentioned in your first post that the 2003 valuation and Sch B were reflecting the plan termination, but I assume that is a mistake and you meant 2002. The plan was either terminated in 2002 and there was no 2003 valuation required or the termination was rescinded and the plan termination not recognized. So, for 2003, again, the valuation is run with the plan termination forgotten. Pax beat me, but at least we are saying the same thing.

Your document should have some language that requires an employee to be employed on their entry date. Also, while I don't have your document in front of me, I believe the entry date should be upon rehire, 5/17/04. The service spanning rule effectively gives the participant credit during the period in which he/she did not work for the employer because there wasn't a 12-month gap. Thus, when reemployed, he had met the eligibility requirements at that point and entered on that date.

The plan termination doesn't void the plan document's provisions. Read the document. It is your friend.

Well said WDIK. Mariah , does the plan year not begin 4/1? If not, I am curious as to what are the eligbility requirements.

It must have been unclear to me what you were saying the first time because I agree with what you just said. Except that I think this blanket statement is debatable as I mentioned the 4972©(1) cite.