Belgarath

Andy - I'd send it wherever a determination letter is normally filed. Don't have the address handy at the moment. The IRS has been pretty helpful on this, insofar as they are able to. The problem is, usually they don't have anything...

It's very hit or miss, in our limited experience. Whoever has the POA in this situation can send a letter to the IRS, with whatever data they can scrape together - EIN, TIN, etc., and ask if they have anything. Sometimes the IRS can confirm that they applied for a FDL and even give you a date that the FDL was issued, sometimes they can't find you anything, and once in a while they have something that may help. Odds are that it was never submitted. Where is the funding? Some mutual fund houses, for example, require a copy of the Plan before they will open an account. Just grasping at straws...

I did not hear back from the IRS yesterday, but as soon as (if) I do, I'll post whatever they tell me.

And for anyone who cares, I found the following: "In conventional documentation, exponents are denoted by superscripts, as in the examples above. But it is not always possible to write them this way. When sending an e-mail message, the body of text must be in plain ASCII, which does not support specialized character attributes such as superscripts. If x is the exponent to which some base quantity a is raised, then ax can be written in ASCII as a^x." I do not vouch for accuracy, as my mathematical ability is limited by the numbers of fingers and toes I have.

As an avid fisherman, I have the utmost respect for piscine intelligence and cunning. Your comment about researching questions for yourself is on the button. One of the things I find most useful about these boards is that they force me to look up questions I might not otherwise encounter, or might THINK I know the answer, and often don't. Alternatively, sometimes I come away convinced I'm right. So ignore the naysayers - I find your commentary intelligent and useful, even though on rare occasions I might not agree.

I apologize for not making my resoning (such as it is) clear. The reference to 411(a)(11) made by 401(a)(31)(B)(ii) is solely for determining the present value of the account under 411(a)(11). 1.411(a)-11(e) is not concerned with how the present value is determined - it merely allows a distribution, within certain parameters, for amounts over 5,000 in a terminating defined contribution plan. And this would appear to be consistent with the DOL's safe harbor regulation. But anyway, I'm going to call the IRS shortly, and will keep you posted as to what I find out - if I find out anything. Thanks.

KJohnson - I agree that the Q&A-2 has the precise wording you mention. It's just that I read it to mean something different - due to the reference to 411(a)(11), which provides that you can't have a mandatory distribution in excess of 5,000, except as provided in (D) which allows it for rollovers. I think this is what Q&A-2 is meant to reflect, although it is stated much more clearly in Q&A-14. Has anyone put in a call to Ms. Herrmann or Ms. Carrington on this specific issue? If not, and I get a few minutes tomorrow I'll make a call to see what, if any, response I receive.

Take a look at IRC 401(a)(31)(B)(ii). This seems to me to limit the applicability to 5,000, unless there is a rollover account, in which case, under 411(a)(11) the rollover amount can be ignored when determining the 5,000. The IRS Notice, under the first paragraph (Purpose) specifies that it provides guidance to the automatice rollover provisions under 401(a)(31)(B) (my emphasis). I don't believe a mandatory distribution in excess of 5,000 for a plan termination falls under this Code section. Reading Q&A-2 by itself, and not in conjunction with all other guidance, might bring you to the opposite conclusion, bit my my humble opinion, that isn't correct.

I don't (yet) have strong feelings one way or the other. There are good arguments for amending to remove the required cash out payments. But to play Devil's Advocate and look at it from the other side... Yes, there may be a one-time setup fee, and a charge per account. But the alternative may be to continue to carry a participant for years, with PBGC premiums if applicable, and "per participant" plan charges, which over time may add up to substantially more than the mandatory rollover fees. The plan can provide that distribution fees will be charged to the participant's account, for a terminated "non-responding" participant. So you can get rid of this account forever at little or no charge, depending upon the IRA provider. If you handle plan terminations, you will know that deferring the problem often compounds it. When you are terminating the plan 6 years down the road, and you now have 43 particpants to pay out minimal benefits when you COULD have done a mandatory rollover previously, you may wish you'd dealt with a little aggravation up front rather than a lot of aggravation later on. Because at that point, you now have the 4 mandatory search methods under FAB 2004-02 (for DC plans) and you'll ultimately end up, if they don't respond, by having to do largely the same thing - either set up an account, or have to mess with state escheat laws. The whole thing is completely stupid anyway. The best solution, IMHO, is for all such benefits to be sent to the PBGC. They can collect interest on all funds to help reduce their deficit, and ALL participants would then have a single source where they could inquire to see if they have unpaid benefits. Plan administrators are happy, employers are happy, and drug companies that sell headache remedies will lose sales. I just realized that someone reading the above paragraph might think that I'm saying this can be done. To clarify, of course it can't be done now - it's just what I'd like to see as a solution if the IRS, DOL, and PBGC could get together to solve this foolishness.

Hoo Yah! May the wind under your wings bear you to where the sun sails and the moon walks. Thank you both.

Blinky, thank you for the response. I sincerely hope the IRS (if SoCal has info on this?) agrees with your interpretation! I just get a different result from the same cites that you do. I read the reg merely to say that you don't count a YOS toward the % increase (so in my original example, you remain at 6% rather than moving to 8%) but that the averaging period only excludes years that do not count as a year under 411. I like your interpretation better, and I look forward to hearing what the IRS had to say on this last week, and hopefully being all wet in my thought process on this garbage. Thanks again.

Hi Blinky - I understand your feeling - in fact, I started out with the same interpretation. But after reviewing it for a while, it seemed to me that 416©(i) is saying that except as provided in clause (ii) or (iii) of that paragraph ©, YOS are determined in accordance with (4), (5), and (6) of 411(a). And the purpose of (ii) and (iii) is to ignore those years when no HC benefits - which includes a frozen plan. But paragraph (D) of 416 seems to stand alone - that is, the modifications to "years" that are made in © do not modify 411 for purposes of paragraph (D). If (D) had specifically excluded years excluded under ©(iii) then I'd feel a lot happier. But since it doesn't, I reluctantly arrived at my current position. Does anyone know if the IRS has addressed this from the podium at an ASPPA conference, or some other such venue? The consequences of interpreting this "incorrectly" (from the viewpoint of the IRS - I'm not sure that either interpretation is either completely correct or incorrect) - could be fairly significant with average comp rising over time.

Thanks!

I'm not a DB person, so pardon my terminology if it isn't quite accurate. With the EGTRRA change, you no longer count service after 2001 for additional TH accruals if the plan is frozen. However, it seems to me that there's no mention of freezing the benefit - if your average comp goes up, then you have the same TH percentage, but of a higher salary. For example - prior to a plan freeze effective 1-1-2002, participant has accrued a TH benefit of 6% of a high-5 average salary of 20,000, or 1,200. Three years later, with the high-5 average being 30,000, is his TH benefit: A. still 1,200, or B. 1,800? I'd vote for B, as I see nothing in the statute or regs which indicates otherwise. Additional twist - suppose as of 1-1-02 the client adopted a PS plan that specified that the PS plan would provide TH benefits of 5% if required, but for 2004 there is no contribution to the PS plan. If the answer to the DB question is (B), then does this reqire a contribution to the PS plan? I guess that depends on whether the increase to 1,800 is considered "accruing" an additional TH benefit? Anybody wrestled with this question yet? My inclination is no contribution to the PS plan, as no HC is accruing a benefit in the DB plan.

See 1.401(a)(4)-4 for a discussion of "benefits, rights, and features" and the nondiscrimination issues involved.

Not planning to. The maturity date is still 15 years away, and if they are still kicking at that point, and haven't spent it all on trips to Scotland, then they will decide at that point. I expect they will have spent it by then - its purpose (for them, anyway) was not to accumulate lots of money for a future date, but to act as a high-yield savings account, from which they would withdraw money for any purpose desired. Has worked admirably for that purpose.

Still in accumulation. But they make withdrawals once in a while - I don't kow how much, because I only get involved in their finances to the extent that they ask me to. And they are, fortunately, young enough and in complete control of their faculties (to the extent that any parents are - after all, you have to be insane to become a parent in the first place) so that I don't have to get unduly involved. Come to think of it, I read somewhere that insanity is inherited - you inherit it from your children. Worked that way with me, anyway.

Thanks for the links. I had seen these earlier, but forgot about them. I don't think the IRS is attempting to outlaw cross tested plans. Rather, they are attempting to get rid of undue manipulation where hiring practices facilitate "abuse" of the nondiscrimination requirements. Of course, the guidance to perceived abuses often uses a rather broad brush and calls into question situations that are not abusive in the sense that the guidance is meant to correct. "Twould seem to me that if you have, for example, a 1,000 hour/last day requirement with one year eligibility in a cross tested PS plan, as do most that I have seen, that it would be rather difficult to manipulate short service employees in the manner the IRS is concerned about. But maybe you can and I'm just not creative enough to see how!

Yeah, this sounds odd. The IRS is even planning to allow cross-testing in prototypes.

There has been a good deal of good advice given to you - particularly to BE CAREFUL! Of course, this goes for any investment. And I agree that a 7% "guarantee" in today's interest environment is likely to be baloney. I'm not quite prepared to say the broker is a liar without full information, but I would tend to lean in that direction. However, I'm not quite as ready to demonize all annuities as some other folks might be. At the risk of starting World War III, (and I won't respond to diatribes, if there are any - hopefully not) I do think some annuities are a reasonable investment, depending of course on your specific needs and circumstances, and the provisions of the specific annuity and company involved. I'm neither an investment advisor nor in sales, so I have no axe to grind. But I am able to read and understand some annuity contracts. As I posted in another post several months ago, my own parents purchased a deferred annuity a few years back. They have no risk tolerance whatsoever. The annuity was sold by a reputable and highly rated insurance company, by an agent who I have known personally long enough to know he is an honest man. It had no front end load, and no (repeat NO) surrender or withdrawal charges, because they were age 62 when they purchased it. Unlimited withdrawals at any time, and a guaranteed interest rate of 4.5%. (Was paying, I believe, 5% when they bought it, but guarantee is 4.5%). They still have it, and it is still paying 4.5%, tax deferred. They are EXTREMELY happy with it, as it does exactly what they want with no stress. They are well aware that they could have made more in another investment, and also well aware that they could have received less. Does this situation describe most annuities or people? Probably not. I don't even know if such an annuity is available in today's market. I'd just say not to automatically exclude them from consideration just because many people believe annuities are "bad." Some are, certainly - how many I'm not qualified to judge. And although I tend to be rather cynical, I do believe that there are at least SOME honest salespeople in the world, who will adequately and fairly disclose the provisions of a contract (although I wouldn't trust them and would read it myself!) On a personal level, I don't get so worked up over commissions. I'd be more concerned about interest rates, loads, surrender charges. Every investment out there has expenses associated with it, and I personally wouldn't care if someone gets a commission, I'd be concerned with the bottom line for me. But if the commission is outrageous, then naturally the return you receive will be reduced. Having said that, and based upon obviously limited information, I seriously doubt that the broker trying to sell you this annuity, and the annuity itself, fall on the favorable side of the ledger! And take my comments with a grain of salt, because I claim no expertise in the investment world. Good luck.

Joey - when SoCal was referring to "highly compensated" he wasn't necessarily referring to your level of net salary. By statutory definition for purposes of a qualified plan, as the sole owner of a business, you are "highly compensated" - even if you end up with no income. When/if you decide to meet with a local advisor to discuss specifics, they will explain all this to you as it relates to your specific situation. We're all discussing generalities here, as real answers are very fact-specific. Rule of thumb - you can't have your cake and eat it too - if you want anything substantial for yourself in a qualified plan, you are likely to have to do something for your employees. Your local advisor will be able to show you a design with specific numbers so you can determine whether or not it is worth it to you. Ok, I see SoCal already replied while I was typing this!

It's a not an ERISA plan, so protections would be governed by state law applicable to IRA's.

This is an impossible question to answer without detailed information on your age, ages of employees, salaries of you and your employees, stability of your earnings and future outlook, etc., and most importantly, what YOU really want/need. I'd suggest, just as a basic source to see a general description of various plan types, IRS publication 560. This will give you enough background to then do a few web searches for more detailed information. Once you have a general idea, then I'd recommend contacting a local Third Party Administrator if you want detailed proposals.

No.

My undying gratitude! That and a dollar will get you a cup of coffee. Of course, this doesn't explain why it appeared after a couple of law firms. Unless they are ambulance chasers...