Blinky the 3-eyed Fish

You can't administer the plans without the docs and you don't know if the plans have been amended for GUST. I would say trying to merge them is the least of your problems. I seems this is like a mechanic working on your car, but you don't know where your car is. My advice is to back away from these plans slowly.

Mike I assume you are talking to Andy. Anyway, I would be interested in your opinion how my design as it pertains to 401(a)(26).

Jim Holland at the LA Benefits Conference said that the adoption of a plan was not an amendment for this purpose. I take that to cover all situations, including granting past service. Of course if your benefit formula has much substance you will run against a 415 dollar limit quickly, so you aren't going to get some huge deduction because of the rule. Pax, I am unclear on your opinion. Do you think the rule for terminating plans applies to both PBGC covered and non-PBGC covered or just the former?

By original documents, what do you mean? Do you have the current plan documents?

Andy, I agree that this language is designed to allow for a person with a net benefit of $0 to be considered benefiting for 401(a)(26) purposes. You say my arrangement fails (2), but why? Here is how I read (2) to mean. (2) The employees who benefit under the formula being tested (the formula being tested is the DB formula here; is it not?) also benefit under the other plan on a reasonable and uniform basis (the other plan is the DC plan, which the participants in the DB plan do benefit on a reasonable and uniform basis) ; and Where have I gone wrong in your opinion Andy? I don't see how my arrangement violates this cite.

It's (2). They are in both plans, but the benefit for them in the DB is not offset by the DC, but is for everyone else. Is your first post why you don't agree that (2) is okay? If so, perhaps you could rebut my comments as to the meaning of the cite. BTW, this is purely a hypothetical situation. I have no plans designed such as this nor have I seen any ever designed this way, but it sure would help if it was possible.

BTW, my understanding is that the unfunded liabilities replace the UCL in the year of termination, not that both are available.

Andy, I have read and re-read this reg many times. 1.401(a)(26)-5(a)(iii)(A)(2) is the specific passage you reference and it states: "The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis; and" I read that the other plan in this case is the DC plan and the people being tested are those DB participants subject to the offset. It seems to me that the owners are not subject to the offset and do not fit into this criteria. They can benefit 401(a)(26) on the DB alone. I know it's debatable whether the DC plan has to be a safe harbor or not, but I am not trying to address that question. Yes Andy, that is what I am saying.

That's not the same though.

No, it's not the same for corporations. Read back to the reasoning I mentioned in my first post. A corporation pays a salary, so the compensation is known. In answer to your second question, yes.

A sole proprietor or partner in a partnership has until their tax return due date to contribute his or her deferrals into the plan. What needs to be in place by the end of the plan year is an election by the individual stating what amount is to be deferred. The logic is that these individuals' compensation is undeterminable until the tax return is done, so the deferrals cannot be made without blindly knowing whether they will pass the ADP test or exceed compensation, etc. So, in this case, if your client's election was in place timely, then your client is right. Of course the reality of it is that the election is always in place in these situations.

This might have been asked before, but I can't find it so... In attempting to pass 401(a)(26), what would preclude a DB offset plan being set up where the owners' benefits are not subject to being offset, but the ancillary employees' benefits are? Note that all of the ancillaries' DB amounts would be completely offset by their DC nonelective balances.

He doesn't think it was snide at all.

It's Sch C to Form 1040. DB, the calculation of net earned income for plan purposes is the same for DB plans and DC plans. The formula is as follows: Line 31 amount prior to any entries for the ancillary contributions is what you should get from the accountant. From there subtract the ancillary contribution you determined. Line 31 - ancillary = X Subtract of 1/2 medicare, SS and the contribution for the sole proprietor 1/2 med = (X * .9235 * .0145) 1/2 ss = min(X * .9235, taxable wage base) * .062 X - 1/2 med - 1/2 ss - contribution for the sole proprietor = net earned income Net earned income is the compensation figure you use to determine the plan benefit.

Here is the logic flow: Plans that cover substantial owners are exempt from PBGC coverage. A substantial owner is a person that owns 10% or more (or more than 10% - I can't remember) of the sponsor, including attribution, within the last 5 years. 1563 attribution governs PBGC ownership determinations. Under 1563 in this situation, the child is not be attributed ownership at all if she is over 21. So the plan becomes covered by the PBGC (assuming no other exemptions) when the daughter turns 26.

I doubt it, but are the assets under $100,000? If not, then you are in a bind. You should have been filing for 2 plans all along, so there is no good solution for you. If you begin to file EZ's, it very well may trigger questions from the IRS. Even if you merge the plans as WDIK suggests, you will have to file a final 5500-EZ for the MP plan and that may trigger questions. This is just a lesson is how plans like this, set up through a brokerage, are rife with problems. I would too bet that in years you made contributions to the plan your net earned income was not calculated correctly either.

You are correct about the predecessor plan. I don't think your next comment is an issue.

Ah, I see your point, although I have never seen a document written that way (eligibility determinations are hard enough for clients without adding complexity).

MGB, your last post confused me. The first eligibility computation period must begin from date of hire. There was no mention of a re-hire situation here. Now the plan though could credit the year of service once the participant meets the hours requirement (1,000 or whatever's in the doc), rather than when the hours requirement is met and the eligibility computation period has expired. Flosfur, not to sound like a know-it-all, but you mean consensus. Consus is not a word. I was just making a joke to a perceived typing error.

What do you mean by this? As for your question, the entity type is a minor consideration, but rather you should figure out what they are trying to achieve.

Nothing is required from the participants.

I am not sure what the T in TUC stands for. Let's say you have an EOY valuation date and a final average pay formula with projected unit credit. The person's benefit for the first year of the plan is: $50,000 * .02 * 1 = $1,000 Next year his compensation increases to $60,000 which makes his BOY benefit under the funding method: $60,000 * .02 * 1 = $1,200 See how his benefit changed from the end of the prior year to the beginning of the current year? I chalk your situation up to that result rather than just deciding not to prorate.

Be careful on the 415 issue. If the limitation year is short, then the 415 DC $ limit must be prorated. Often times DC plan documents will define the limitation year as the plan year.

Effectively yes, but the reality is that the participant earned also a gross .5% in prior DB years. But his years of participation in the DB are less than in the DC.

A DB plan's benefit is offset by the equivalent benefit from DC nonelective contributions. The top heavy minimums are provided in the DC plan rather than the DB. However, when someone works 1,000 hours but terminates before the last day, then they meet the DB but don't meet the DC requirement. In that case the TH is provided in the DB plan, but the same offset provisions apply. Often the case is that when a person has the 1,000 hours and terminates during the year is that they get the 2% DB accrual, but the value of their DC balance is enough to completely offset this accrual and those earned in prior years in the DB, leaving their net benefit at $0 in the DB. So what ends up happening is that they get no true benefit in the year they terminate (no DC and no increase in net DB). I see the logic in it because of how the TH rules work in DB plans but I just want to see if anyone disagrees with this result. One other note - this person would be considered benefiting for gateway purposes and need to receive that minimum amount, agreed?