Belgarath

Effen - I think he was referring to our (BoSox) automatic outs, not Cleveland.

We need another miracle here! Rally caps on, y'all. It sure doesn't look good, but we'll hope for the best. If we can win tonight and get it back to Fenway, and make sure that Gagne NEVER throws a pitch, at least we have a small chance. The Indians have impressed me, however - you've got to give them credit.

Andy, I think every Red Sox fan in the country agrees with you. And while I try not to make a practice of second guessing managers, I'd pitch Beckett tonight.

Hmmm - I don't know anything about the consistency doctrine, so I'll have to bypass that one. I agree that the IRS is likely to find a failure to report. And I would expect this to be treated like underreporting any other taxable income - taxes and penalties on the underreported amount are owed. But I still can't find anything that says the specific penalty for failure to report results in taxation of the entire death benefit. I wonder - pure speculation here - IF the IRS were to assert this, which I think is by no means certain - and the taxpayer went to tax court, what the result would be? That seems like a penalty not comparable to most insignificant underreporting incidents. For example - $300,000 death benefit, 1st year so no cash value, and the TTC is - pick a number - say $2,000. By underreporting $2,000, you subject $298,000 to an otherwise inapplicable income tax - easily could be $70,000+. That sure is an awfully hefty penalty! Oh well. I've never seen this, and I'm sure I never will, but I enjoy running through the arguments each way. Thaks for the discourse.

Do you have any citation to support that opinion? I'm not necessarily disagreeing (because I don't know the answer with any certainty) but I lean toward a different interpretation. I believe that the fact an employee does not properly declare and pay the income tax on the taxable term cost does not override the otherwise applicable income tax treatment of the life insurance proceeds. 1.72-16©(1)(i) says "...and the employee either paid the cost of the insurance or was taxable on the cost of the insurance under paragraph (b) of this section..." I don't read ©(4) of that regulation as contradicting the above interpretation. I couldn't find any Revenue Rulings (but I certainly could have missed one) that state the entire proceeds are income taxable due to a failure to declare taxable term cost. If you have such a situation, I'd certainly run this by a good ERISA/tax attorney, as the tax consequences of an incorrect answer could be rather large depending upon the amounts of insurance involved.

The amended forms would be signed by the current Plan Administrtor, not the previous PA.

Mike - we are completely agreeing with each other, (or at the very least, I'm agreeing with you) - just stating it a little differently. I just wanted to make sure that they weren't thinking that you could pass 410(b) by testing each plan in a CG as a stand alone plan (hence my "on its own" in the quotation marks) without aggregating them, 'cause as we all agree, you can't. While I thought I was making that clear, I evidently didn't, so my apologies to all if it caused any confusion.

Hold on a second here - maybe I'm misunderstanding the question/answer in regards to 410(b) testing. When you say if each plan can pass coverage on its own, do you really mean if each plan can pass coverage on its own when aggregated with the other CG members? What I'm trying to get at is that if you have 2 different businesses that are part of a CG, you couldn't, for example, have business 1, with 10 HC and no NHC, and cover all 10, while in business 2 with 2 HC and 100 NHC, you cover 1 HC and only 35 NHC. While both of these would pass coverage "on their own" they must be aggregated for 410(b) testing.

I do agree that it was fun. We had a small group of non-EA's reading it and laughing out loud. But if you actually understand it,well, then, I'd say you need to get out more... All kidding aside, is this something where the actual numbers or range will be calculated and released by the IRS so that the EA doesn't actually have to calculate all this stuff, or do all these knots, splines, cubes, derivatives, data sets, deviations, parameters, etc., actually have to be calculated and built into something solid (like a Leggo structure) by the EA? Or something in between?

Details, details. Don't confuse me with facts. In spite of the fact that some of "you EA's" have gone over to the dark side - it is still the actuarial mind that produced this stunning creation. I prefer the mathematics involved in government accounting - that is to say, complete fiction. That way, I can remain ignorant, yet quote any statistic that I feel like inventing to support my specious arguments.

Yes, I did. And after further skimming this release, it was even worse than I thought!! I don't just mean garden variety insane, but seriously demented, probably evil, and definitely a threat to our national security. I mean, really, what kind of a diseased mind could produce the following: Adjustment Factors for Credit Quality In the pricing model, the adjustment factors for credit quality are added to the present value of the bond's cash flows as given by the forward rate and the discount function. Specifically, the adjustment factors are made up of two linear regression variables added to the present value with two respective regression coefficients that need to be estimated. These variables adjust the bond prices so that the discount function and the spot rates represent market-weighted average credit quality of the top three quality levels (AAA, AA, and A). Specifically, some of the deviation between the predicted price for the bond (based on the cash flows and the discount function) and the actual price for the bond can be attributed to differences in credit quality and some of the deviation is an error factor. The model determines the portion of the deviation that is attributable to credit quality by determining the two adjustment factors that reflect the relative proportion of A-rated bonds within the data set and the relative proportion of AA-rated bonds within the subset of AA- and AAA-rated bonds. A high proportion of A-rated bonds results in a larger deviation in price for the higher quality bonds, which means that the discount function used to develop the yield curve is more closely aligned with a discount function for A-rated bonds than for the higher rated bonds. Similarly, a higher proportion of AA-rated bonds within the subset of AA- and AAA-rated bonds means that the discount function is more representative of the AA-rated universe than the AAA-rated bonds. These adjustment factors allow the yield curve to be based on the proportion of bonds at the three quality levels in the market determined over the entire maturity spectrum (rather than on the proportion at each specific maturity point). This avoids potential distortions which could arise because of different proportions of bonds at the three quality levels at various maturity points. Estimates for the parameters These seven parameters, comprising five parameters in the cubic spline and the two adjustment coefficients on the bond-quality adjustment variables, are estimated from the bond price data. The estimation is done by nonlinear least squares, that is, the seven parameter estimates are chosen to minimize the sum of the squared differences between the actual bond prices and the prices given by the bond price model. Before the estimation is carried out, the bond data are weighted. The weighting consists of two stages. In the first stage, equal weights are assigned to the commercial paper rates at the short end of the curve, and the par amounts outstanding of all the bonds are rescaled so that their sum equals the sum of the weights for commercial paper. Then, the squared price difference for each bond is multiplied by the bond's rescaled par amount outstanding, and the squared difference for each commercial paper rate is multiplied by the commercial paper weight. In the second stage, for bonds with duration greater than 1, the weighted squared price difference for each bond from the first stage is divided by duration. I used to think all of us Red Sox fans were nuts (well, we are, but that's another story) but you EA's have elevated it to a whole different level. I'm rather glad to be an ordinary simpleton just now.

Re IRS Notice 2007-81. This deals with minimum funding and yield curves. If you have questions, contact an Enrolled Actuary. No one who is sane would ever bother to read this, and if they did, wouldn't understand it. That's my tongue-in-cheek summary. However, the truth is probably substantially similar...

Yes.

I was astonished at the amount of cheering for the BoSox at a game in the Anaheim home stadium. We are everywhere! Even now, my brethren have infiltrated strategic government posts in Washington, and our coup is well underway. Hereafter, all Yankee fans will be subject to tongue-lashing and being severely thrashed with wet noodles.

I do not question that proper documentation in the file would perhaps make it possible for this problem go away. Family businesses often have wonderfully correct documentation in such circumstances! I just still wouldn't want my name on the stamp of approval, but I'm pretty cowardly on such things.

Without taking the time to do a detailed reading, isn't this an allowable VCP correction under RP 2006-27, for a nonamender? There's an appendix for a sample submission guideline as well, Appendix E or F, I believe. But I'm going just from memory on this, so you don't want to take my word for it.

I'm not clear from your post who didn't file what on time. Is this a case where a practitioner/sponsor did not file by the end of the cycle A deadline? If so, take a look at Revenue Procedure 2007-49, which I think should assist you.

Difficult to say. I wouldn't necessarily automatically file under DFVC if it were my own personal plan. I'd argue that there was in fact a filing, so the penalty doesn't apply since it is an amended form. If the DOL DOES attempt to assert full penalties, which I doubt, then I'd negotiate and argue for penalties no higher than what would be required under DFVC. That having been said, there is a risk involved, and some clients would rather pay the DFVC and put it behind them. I'd give the client the option, since it was their fault, and ask them how they want you to proceed. Dumb question, but was the employee eligible? If not, then the EZ was still ok.

Mike - I always get nervous when revisionist history is proposed. I agree that in common sense terms, this foolishness shouldn't be an issue. I just don't know how it stands up upon audit, or what the "real life" risk is even if it were picked up. First, depending upon the amounts involved, the excess they already received over the RMD (assuming the RMD had originally been calculated using separate accounts) is a "regular" distribution, not an RMD. Did the participants request a distribution over the RMD? I can't imagine that the plan permits the Administrator to distribute these funds absent a specific request from the beneficiaries, so now there's an operational error involved as well as Masteff suggested. Why is the Administrator willing to potentially violate, or take any risk whatsoever? That seems odd to me, unless these are family members. On the other hand, I can't really see the IRS disqualifying a plan for this "mistaken" interpretation, and certainly the beneficiaries aren't going to complain. Also, seems like a foolish risk for the beneficiaries, since the penalty for not receiving the higher RMD is draconian, and if it goes sour, you can bet they will come back on the Administrator. So I guess that while I agree with you that this SHOULDN'T be a problem since it really is sort of a no harm no foul, I don't think the IRS would agree, and I sure wouldn't sign off that it is ok using MY name.

I couldn't find any regulatory support for changing it. I think they are stuck. This sounds like one of those situations where you read a tax court decision that says something like, "While we sympathize with the defendant, we are bound to follow the clear requirements of the regulation..." For anyone who is interested, here's the citation in 2007-7 Mike was referring to: Q-19. After a direct rollover by a nonspouse designated beneficiary, how is the required minimum distribution determined with respect to the IRA to which the rollover contribution is made? A-19. Under §402©(11), an IRA established to receive a direct rollover on behalf of a nonspouse designated beneficiary is treated as an inherited IRA within the meaning of §408(d)(3)©. The required minimum distribution requirements set forth in §401(a)(9)(B) and the regulations thereunder apply to the inherited IRA. The rules for determining the required minimum distributions under the plan with respect to the nonspouse beneficiary also apply under the IRA. Thus, if the employee dies before his or her required beginning date and the 5-year rule in §401(a)(9)(B)(ii) applied to the nonspouse designated beneficiary under the plan making the direct rollover, the 5-year rule applies for purposes of determining required minimum distributions under the IRA. If the life expectancy rule applied to the nonspouse designated beneficiary under the plan, the required minimum distribution under the IRA must be determined using the same applicable distribution period as would have been used under the plan if the direct rollover had not occurred. Similarly, if the employee dies on or after his or her required beginning date, the required minimum distribution under the IRA for any year after the year of death must be determined using the same applicable distribution period as would have been used under the plan if the direct rollover had not occurred.

Ha! If I remember my sports trivia history, there was an Englishman - a boxer - Phil Scott, who was nicknamed "Phainting Phil, the Swooning Swan of Soho." Also "The Horizontal Champion." So in spite of their amazing late season comeback (which was impressive, but also facilitated by Mets ineptitude) we'll still call them the Phainting Phils. I just don't see how they can win with that pitching staff, but stranger things have happened.

If you aren't a baseball fan, read no further! Hopefully this post will be active until the end of the month. Nice game by Beckett last night. And we'll hope for a Cleveland win in the series against the Yankees. Part of me wants the excitement of a Sox/Yankee matchup, but another part of me can't bear the agony if the Sox lose to the Yankees. We also have two employees in our unit with the unmitigated gall to be Yankee fans, so they will be insufferable if the Yankees were to defeat the Sox. So go Tribe!

Yes, I was actually referring to the ASPPA conference. Our EA is the only one here who attends, so we tend to call it the EA conference.

Well, that's nice, but I sure don't have 39,000 fans screaming for ME. Actually, I was the only member of my fan club, and even I had to resign. But last night was fun. I hope Dice-K can revert to mid season form. For all you non-BoSox fans, my apologies for wasting your time, but it IS the playoffs after all. I'll try to keep future playoff observations to the Humor message board... Andy - wonder what a Monster seat goes for during playoffs, particularly if they meet up with the Yankees?

Assuming it can't be considered an in-service distribution, you might be able to correct this under VCP. Revenue Procedure 2006-27 allows, within certain parameters, a retroactive amendment to permit loans. There are also "fixes" for loans in excess of the statutory limits, and loans in default. However, I'm not all that hopeful that the IRS would necessarily accept this, even under VCP. Given that it was to a HC, and there is no compliance whatsoever on any level, you may want to just look at the DOL's VFCP correction (and I don't currently have time to see if this specific situation is eligible for a VFCP correction.) Good luck!