Blinky the 3-eyed Fish

See 6.02(5). It describes the restrictions on changing for a frozen plan and of course doesn't dispute anything pax mentions.

I wasn't saying (A) was too big. Can you provide the math behind your determination of $144,932.73? Your purchase rate of 157.02776 matches my interpolated number. Can you provide the source of 13.54398? I can't tie out to that. Nevermind on the 13.54398, I got it I am sure I will have a question after your response. P.S. Are you on vacation yet? So, you are calculating the dollar limit using monthly rates and multiplying the equivalent annual benefit by an annual purchase rate. I have never seen this done before. You say it's a program you are using? I feel the need to ponder this.

He is referring to the latter.

The numbers speak for themselves: Lump sum using a monthly annuity (assuming the Applicable Interest Rate is below the plan rate and not a factor for this calc and AE are 94 GAR 5%) 160,000 * 12.679776/13.085646 * 1/(1.05^1 5/12) = 144,683.24 144,683.24 * 13.085646 = 1,893,274 (Yes, I see the shortcut, but dragged out the calc for illustration purposes) Lump sum using an annual annuity 160,000 * 13.138109/13.709153 * 1/(1.05^2) = 139,179.66 139,179.66 * 13.709153 = 1,906,664 Mike, see how the annual annuity will often produce the higher amount. It may not as the person gets closer to age 61 in this case.

Maybe the CB plan passes on a benefits basis?

Yes, assuming the LLC is taxed as a partnership, which nearly all are.

How about this? Dear Participant, We need to take money from your retirement account and make it taxable to you now. This will cause you to have less money than you otherwise would. Also, studies show that you will only blow this money on frivilous items and not save it for your retirement. Your chances of retiring in a trailer home just increased. Sincerely, TPA

Just curious, but what do you think about the validity of calculating the maximum lump sum limit based on an annual annuity using age last? For example, a participant is 60 7/12. The dollar limit is reduced to age 60 using APR's for annual payments, not monthly. The lump sum value is also determined using an APR for annual payments as well.

Agreed that it sounds like a CB plan for sure. That whole thing about determining benefit levels by a group's average age is hooey.

Do you have details as to the contribution credit formula in the CB plan and the allocation formula in the DC plan? If so, would the amounts given in each plan pass nondiscrimination requirements on their own, without regard to the average benefits test? If you don't know the answer to the second question, but do to the first, post the formulas for both plans.

1) No, you wouldn't have to determine the benefit levels by age if this were a CB plan. 2) Nowhere. 3) Sorry, see your closest actuary. 4) See the next answer. 5) Be wary of ADEA issues.

Does your document only trigger the safe harbor nonelective if the a notice is given? If no, then yes, you must follow the document. If yes, see the next question. Did you give the notice? If yes, then the safe harbor nonelective must be given.

I'm sorry. I don't speak jive.

Well then, I hope it rains.

You mean you aren't going to take your laptop and reference materials with you?

Here's the comment from the DB Answer Book for what it's worth. "Rules for limit 2. This amount is the level amount or level percentage of compensation needed to fund the benefits under the aggregate, individual aggregate, or individual level-premium funding method. [Examination Guidelines for IRC § 404, IRM 1.2.1.2(1)(a)] If 50 percent of the unfunded cost is attributable to any three employees, the unfunded cost for those employees must be distributed over at least five years. This limit does not otherwise reduce the amount deductible under limit 1, that is, fewer than five future years can be used in determining the cost for purposes of Code Section 412 and it will still be deductible under limit 1."

Actually, I have a determination letter on a cash balance plan that is offset by each year's DC contribution, including a ruling on the demo 6. However, I only have one and am not convinced that it is okay to have this formula (IRS error?) but want to use it again. Anyone else? (Mike Preston, this is your official call to chime in.) P.S. I agree with the analysis provide above for a non-cash balance plan.

I would ask then when you would use 404(a)(1)(A)(ii)? You certainly aren't going to amortize the unfunded costs over 10 years using IA as described in 404(a)(1)(A)(iii).

Tom, I know you are correct, but do you have a cite? I need to convince someone that the 401(a)(17) and 415 limits are not prorated in a DC plan because of the plan termination date and that you can only have a short plan year for the reasons you cite. One note to add. Yes I have read 1.401(a)(17)-1(b)(3)(iii) and would factor that in.

No. Your use of the compensation period would have to be consistent. By doing what you propose, you would artificially increase the NHCE's versus the HCE's. Just curious, but what gave you the idea that this would even be a possibility?

While the idea of an HCE waiving compensation is not allowed for DB funding, I am not sure of the permissibility for DC plans, so I will reserve comment on its allowability. But, why rely on that if you don't have to? It only serves to hurt your testing versus amending the doctor in another rate group. As the plan currently reads, either the doctor will waive all compensation for plan purposes and will not be in the test or he will take some compensation and get a 20% accrual. If he is a young HCE, I would hate to see a 20 cent allocation on his $1 compensation cause the testing to fail. Being in his own rate group and considering full compensation will allow him to be in the test with a zero or a very low EBAR. So, if there is a last day requirement in the plan to receive a PS allocation, consider amending it to put the doc in his own rate group. If no last day, then consider it for next year before the folks work 1,000 hours.

Frank, that is my understanding of the rule, but some additional questions exist. One, I would presume this rule would apply to a 1-person plan and that there wouldn't have to be at least 3 people in the plan for it to work. Two, for an individual aggregate valuation, would the following would take place? Participant A - 15 yrs to retirement Participant B - 10 yrs to retirement Participant C - 3 yrs to retirement Participants D-?? So, say A-C have unfunded cost that exceed 50% of the total. In this case, the rule would require that Participant C be effectively "deemed" to spread funding for 404 NC to 5 years. In other words, it's not the average in any way of the timespan for A-C (9.33 yrs), but for each individual. My software program, albeit designed mostly for large plans, does not take this rule into account.

404(a)(1)(A)(ii) (ii) the amount necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Secretary, but if such remaining unfunded cost with respect to any 3 individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least 5 taxable years, This wonderful paragraph has puzzled me for a bit and I wanted the madness to stop. Can anyone give me an example of a situation where this comes into play? I have an idea, but I am not at all sure.

Yes, we all know that retroactive document effective dates are permissible. But it flies in the face of the logic your source attorneys are using to discount the availability of a plan in effect before an entity. BTW, no need to get snippy now.

Yes.