Belgarath

After reading the debate, I throw this out to add fuel to the fire. Let me first add that I have no choice but to take the word of my betters when it comes to mathematics, as I can't count my toes twice and get the same number. Fortunately, our daughter is a math whiz, so she can usually explain things to her mathematically challenged parents. (I'm fine with numbers, it's just abstract concepts where the rot sets in...) Why can't you divide by 0? Why is 0/0 "indeterminate" and 1/0 "undefined"? Why is dividing by zero "illegal"? Here, in their own words, are some explanations by our 'math doctors'. Follow the links to read the full answers in the Dr. Math archives. -------------------------------------------------------------------------------- Division by zero Division by zero is an operation for which you cannot find an answer, so it is disallowed. You can understand why if you think about how division and multiplication are related. 12 divided by 6 is 2 because 6 times 2 is 12 12 divided by 0 is x would mean that 0 times x = 12 But no value would work for x because 0 times any number is 0. So division by zero doesn't work. - Doctor Robert -------------------------------------------------------------------------------- My teacher says you can't divide a number by zero. Why? Let's look at some examples of dividing other numbers. 10/2 = 5 This means that if you had ten blocks, you could separate them into five groups of two. 9/3 = 3 This means that if you had nine blocks, you could separate them into three groups of three. 5/1 = 5 Five blocks could be separated into five groups of one. 5/0 = ? Into how many groups of zero could you separate five blocks? It doesn't matter how many groups of zero you have, because they would never add up to five since 0+0+0+0+0+0 = 0. You could even have one million groups of zero blocks, and they would still add up to zero. So, it doesn't make sense to divide by zero since there is not a good answer. If you know a little bit about multiplication, you could look at it this way: 10/2 = 5 This means that 5 x 2 = 10 9/3 = 3 This means that 3 x 3 = 9 5/1 = 5 This means that 5 x 1 = 5 5/0 = ? This would mean that the answer x 0 = 5, but anything times 0 is always zero. So there isn't an answer. - Dr. Margaret -------------------------------------------------------------------------------- Why can't you divide a number by 0? For one thing, when you divide one number by another, you expect the result to be another number. Look at the sequence of numbers 1/(1/2), 1/(1/3), 1/(1/4), ... . Notice that the bottoms of the fractions are 1/2, 1/3, 1/4, ..., and that they're going to zero. If there's a limit to this sequence, we would take that number and call it 1/0, so let's see if there is. Well, the sequence turns out to be 2, 3, 4, ..., and that goes to infinity. Since infinity isn't a real number, we don't assign any value to 1/0. We just say it's undefined. But let's say we did assign a value. Let's say that infinity is a real number, and 1/0 is infinity. Then look at the sequence 1/(-1/2), 1/(-1/3), 1/(-1/4), ..., and notice again that the denominators -1/2, -1/3, -1/4, ..., are going to zero. So again, we would want the limit of this sequence to be 1/0. But looking at the sequence, it simplifies to -2, -3, -4, ..., and it goes to negative infinity. So which would we assign to 1/0? Negative infinity or positive infinity? Instead of just assigning one willy nilly, we say that infinity isn't a number, and that 1/0 is undefined. - Dr. Ken -------------------------------------------------------------------------------- When something is divided by 0, why is the answer undefined? The reason is related to the associated multiplication question. If you divide 6 by 3 the answer is 2 because 2 times 3 IS 6. If you divide 6 by zero, then you are asking the question, "What number times zero gives 6?" The answer to that one, of course, is no number, for we know that zero times any real number is zero not 6. So we say that division by zero is undefined, for it is not consistent with division by other numbers. - Dr. Robert Because there's just no sensible way to define it. For example, we could say that 1/0 = 5. But there's a rule in arithmetic that a(b/a) = b, and if 1/0 = 5, 0(1/0) = 0*5 = 0 doesn't work, so you could never use the rule. If you changed every rule to specifically say that it doesn't work for zero in the denominator, what's the point of making 1/0 = 5 in the first place? You can't use any rules on it. But maybe you're thinking of saying that 1/0 = infinity. Well then, what's "infinity"? How does it work in all the other equations? Does infinity - infinity = 0? Does 1 + infinity = infinity? If so, the associative rule doesn't work, since (a+b)+c = a+(b+c) will not always work: 1 + (infinity - infinity) = 1 + 0 = 1, but (1 + infinity) - infinity = infinity - infinity = 0. You can try to make up a good set of rules, but it always leads to nonsense, so to avoid all the trouble we just say that it doesn't make sense to divide by zero. What happens if you add apples to oranges? It just doesn't make sense, so the easiest thing is just to say that it doesn't make sense, or, as a mathematician would say, "it is undefined." Maybe that's the best way to look at it. When, in mathematics, you see a statement like "operation XYZ is undefined", you should translate it in your head to "operation XYZ doesn't make sense." - Dr. Tom -------------------------------------------------------------------------------- What is the value of 0/0? (Is it really undefined or are there an infinite number of values?) There's a special word for stuff like this, where you could conceivably give it any number of values. That word is "indeterminate." It's not the same as undefined. It essentially means that if it pops up somewhere, you don't know what its value will be in your case. For instance, if you have the limit as x->0 of x/x and of 7x/x, the expression will have a value of 1 in the first case and 7 in the second case. Indeterminate. - Dr. Robert

Wmyer - yes, you assume correctly! 100% limit, not 25%.

Agreed. I should have made that clearer, but didn't think about it. Was just focusing on applying current limits to pre-2002 years - and apparently you agree with #1, subject to your modification?

We're having a bit of discussion on this subject, and there are two opposing viewpoints (at least). Assuming you have a 2005 plan year, and you are determining the benefit accrual, and that accrual is based in part on pre-2002 compensation: 1. You can use 200,000 for all years prior to 2002, and the limit as adjusted for COLA's for years after 2002, but you cannot apply the current increased limit to years prior to 2002. (This happens to be the side I fall into) 2. You can take the current limit as adjusted, and apply it to all years, including years prior to 2002. Opinions? Thanks in advance.

Depends upon your plan document. Such an opt out could be generally permissible in a volume submitter plan if the plan was drafted to allow it, but not generally in a prototype. The IRS "prototype group" in the last round of the GUST docs wouldn't let us have an opt out in a prototype after eligibility had been satisfied. But they said it was fine in a VS. Assuming of course that it doesn't cause coverage testing to fail... But, there are some folks who got their prototypes approved with such a provision! So it apparently made a difference who you got for a reviewer.

First answer - if there is no controlled group or affiliated service group, then yes, she can receive up to the maximum employer contribution in each plan. (Note that this does not extend to elective deferral limits, which are an individual limit). Second answer - based upon the information given I don't see this as a controlled group. But it certainly could be an affiliated service group. And depending upon who owns the other 52%, and what ownership could be attributed through things like stock options, minor children as Janet mentions, etc.,could even still be a controlled group. I always recommend a client seek legal counsel to make the CG/ASG determination.

For the authority as to why you can't convert a DB to a PS, see ERISA 4041(e). As to your other question - I don't have time to look it up at the moment, but I believe you have up to 7 years to amortize it. So if you transfer over 300,000, and your 25% limit only allows, say, 50,000 each year, you would be ok, assuming the business remains open and people are still employed with sufficient payroll, etc... I'd caution you to read the applicable IRC code section (4980(d)) yourself, as my "7 year" answer is purely from memory. As I grow older, this source becomes less and less reliable.

You can't convert a DB plan to a PS. However, you may want to investigate the possibility of terminating the DB plan and setting up a "qualified replacement plan." See Revenue Ruling 2003-85, and IRC 4980(d). Depending upon the situation and the amount of excess assets, this might do the trick.

Sorry - I didn't realize this was already on today's benefits link newsletter links. For taxable wage base: http://www.socialsecurity.gov/pressoffice/pr/2006cola-pr.htm For IRS limits: IR-2005-120 October 14, 2005 IRS Announces Pension Plan Limitations for 2006 WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust these limits for cost‑of‑living increases. Many of the pension plan limitations will change for 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2006. For example, under EGTRRA, the limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $14,000 to $15,000. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans. Cost-of-Living limits for 2006 Effective Jan. 1, 2006, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $170,000 to $175,000. For participants who separated from service before Jan. 1, 2006, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2005, by 1.0383. The limitation for defined contribution plans under section 415©(1)(A) is increased from $42,000 to $44,000. The Internal Revenue Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows: The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)©, and 408(k)(6)(D)(ii) is increased from $210,000 to $220,000. The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $135,000 to $140,000. The dollar amount under Section 409(o)(1)©(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $850,000 to $885,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $170,000 to $175,000. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $95,000 to $100,000. The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $315,000 to $325,000. The compensation amount under Section 408(k)(2)© regarding simplified employee pensions (SEPs) remains unchanged at $450. The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $85,000. The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $170,000 to $175,000. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $10,000. Limitations specified by statute The Code, as amended by the Economic Growth and Tax Relief Act of 2001 (EGTRRA), specifies the applicable dollar amount for a particular year for certain limitations. These applicable dollar amounts are as follows: The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $14,000 to $15,000. The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $14,000 to $15,000. The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $4,000 to $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $2,000 to $2,500. Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

Sole prop makes a deferral election prior to the end of 2004 to defer 14,000 for 2004. Now as he is finalizing his taxes, he decides he only wants to put in $12,000. Now I know that being a sole prop he may search his files and find the corrected election that he did last year. But assuming he doesn't, is there any legal way for him to avoid making this deferral, assuming he has at least 14,000 in income? I can't find one, but I'm probably missing something obvious. Thanks.

Only 5% owners, under the top heavy definition in IRC 416, (which actually means more than 5% owners, taking into account attribution under 318.)

Actually, there's a curious sense of relief in a way. We're sad that the BoSox lost, but as long as the Yankees are out of it, then it isn't so bad. And at least I can get some sleep this October - after last year, where I don't think I caught up until after Christmas, that's a relief too!

Thanks Andy. The "x" was just a feeble attempt to allow for units, dollars, whatever anyone wanted to plug in. And I agree on the COLA - the situation I was envisioning wasn't a COLA.

And here in the Northeast we also have four seasons: Fall, Winter, Mud Season, and Damned Poor Sledding.

Ok, now I've got a question. Suppose you have a DB plan where for a given plan year, let's say 2005, the participant would accrue an additional benefit of 50x, but due to 415(b) limitations, the participant hits the limit at 30x. The plan provides that 415(b) benefits will increase automatically for the 415(d) cost of living increases. What does this person accrue for 2005? If the plan is frozen for future years, is the benefit frozen at the 30x limitation, or did the participant "accrue" the full amount up to the 50x, and will thus receive increases even though plan has frozen all accruals? I lean toward the former, but would appreciate opinions. Thanks!

I'm getting out of my league here, not being of actuarial background or training, but I think I agree. Reading proposed reg. 1.415(b)-2(a), I come away with the same opinion, that you have to reduce for prior distributions. And I don't see any special carve out for minimum distributions.

$100.00. I'm assuming that the entire $1,000.00 is compensation that fits the plan definition of compensation.

I'm with Blinky. I read EGTRRA 652(a), (which had an incorrect heading for this section (iv),) and then the Conference Committee report. The Conference Committee report on the Senate amendment specifically says,"The special rule does not apply to plans not covered by the PBGC termination insurance program." The Conference Agreement "...follows the Senate amendment, with modifications" but removing this provision does not appear as one of the modifications. Then the JCWAA 411(s) changed the heading on (iv) but did not change the language. I come out of it with the same opinion - I'd be hesitant to apply it to a non-PBGC plan. If forced to opine, then I'd say you can't use it for a non-PBGC plan.

Janet - I'm a great believer in O'Toole's corollary to Murphy's law, which states: "Murphy was an optimist."

Has the individual already reached normal retirement date? Are the withdrawals from rollover money, and permitted by the plan document language, under Revenue Ruling 2004-12?

I thought the same as Mbozek. I would hope that the IRS doesn't adopt this "rationale" - and I use the term loosely in this context! If they want to specify a new method or methods for placing a value on an annuity contract, fine. But to not allow aggregation of IRA's in this situation for purposes of a RMD is just foolish, IMHO. I can't see any possible useful purpose to it. Was there any indication given of when this guidance might be forthcoming?

I fear you are correct. I'm assuming that he had already satisfied initial eligibility requirements.

I have nothing whatsoever to do with this stuff, so fortunately don't even have to read them. But I know some of you have been eagerly awaiting this... http://www.treas.gov/press/releases/reports/reg15808004.pdf P.S. - here's the "cover page." http://www.treas.gov/press/releases/js2956.htm

Here's the only specific reference to a scriveners error that I was able to find quickly. A less than definitive response from the IRS. I realize yours is a different situation entirely... but the "one way or another" is less than inspiring. IRS QUESTIONS AND ANSWERS PRESENTED AT ASPA's 2002 ANNUAL PENSION ACTUARIES AND CONSULTANTS CONFERENCE 40. Assume a profit sharing plan with a one-year of service eligibility and 2/20 graded vesting. The TDR restatement of the plan in 1986 (for which there is a favorable determination letter) reflects 2/20 vesting in the adoption agreement, the SPD, and plan administration. Everything was fine until it is discovered in 2001 that the TRA '86 restatement (signed in 1992, and has a favorable determination letter on top of the 1986 letter) erroneously has the 100% vesting box checked on the adoption agreement instead of the 2/20 box. The SPD and the plan administration continue to show and apply the 2/20 vesting schedule. Will the Service approve a scrivener's error amendment to correct the vesting schedule election on the TRA '86 adoption agreement to the one that has been used for the last 18 years of plan operation or must we retroactively fully vest everyone in the plan during the TRA '86 restatement? IRS response: Fact and circumstances will determine the results, but the employer's only legitimate choice is to come in to the Service through VCP in order to resolve this one way or the other.

Blinky - no, actually I wasn't thinking about the fact that there's only one formula. So now I'm going to have to consider this at greater length. My answer doesn't make much sense when the contribution isn't a specific % of pay. I guess my answer would then be: tough luck for those who didn't receive an allocation. Maybe the employer can make it up to them with a bonus, and just amend the plan so they participate in year 2. I may well be overly paranoid. But I wonder what would happen if your approach was used, and a participant whose benefit was reduced complained to the DOL? I haven't generally found the DOL to be overly reasonable or tolerant, and they have a nasty habit of elevating "form over function" to an art form. What thinkest thou? Your approach may well be such a low risk that it isn't worth worrying about.