Belgarath

Back to the PT issue - do you escape PT status just because no commission charged? By that I mean, is it automatic, or a facts and circumstances test? I find PT questions to be a very tricky subject, and I wasn't sure if merely receiving no commission would necessarily do the trick? (Maybe an overly obvious situation, but say his office had bonus points for numbers of sales - so even though no "commission" in the classic sense, still gets a trip to Florida, etc..) A trip to Florida sounds pretty good right now, for those of us in the frozen North! Thanks.

"Three years ago a participant takes a hardship distribution. A year later that same participant terminates employment from the company. So when doing the current year Top Heavy test, we no longer consider that participant's account balance due to the termination two year prior. What about that participant's inservice distribution that was taken three years ago, due to the five year Inservice distribution rule?" I agree with RButler. I interpret the plain language of 416(g)(4)(E), as amended by EGTRRA, to toss this employee out of the testing mix.

My favorite subject... Suppose you have corporation A, owned 100% by Mr. X. It has a profit sharing plan, on a calendar year basis. In early December, Mr. X and Mrs. X purchase corporation B. They are 50/50 owners, and with attribution it is a controlled group. Now, under 410(B)(6)©, it seems as though corporation A's plan is all set until 1/1/2006. If they WANTED to include corp B's folks, they could amend the plan to credit prior service with corp B. They don't want to do this. So far, so good, I think. What they appear to want to do is establish a plan for corp B, for 2004 and 2005, that ignores corp A. I don't see how they can do this. If they had an existing plan, they would receive the same treatment as corp A's plan under 410(B)(6)©, but since one of the requirements for the "free pass" is that the plan has to have been in existence at the time of the transaction, this requirement isn't met. Since there was no plan for corp B, then if they attempt to establish a plan, they will have to consider all of Corp A's people. I can't shake the feeling that I'm missing some obvious point or solution - if someone could point it out, I'd be be most grateful. Thanks, and Happy Holidays!

Oh, I don't know.... A PolySci degree should be good training for the Machiavellianism that is alive and well in the world of attorneys, accountants, Congress, insurance agents, business owners, and qualified plans in general. Notice that I exclude TPA's from this listing, as everyone knows we are fair, virtuous, objective, and pure in spirit.

I don't know that either is necessarily "better" than the other - particularly in the TPA field. As you know, so much of the job must be learned on the job that the specific prior training isn't all that important. I'd be more inclined to look at the degrees first in terms of which interests you more, and then as to which you might believe is more valuable to other possible careers, in case you move away from the TPA arena. If you've got a brain and a work ethic, which you obviously do, you can do anything! Except politics, where a brain is a liability. Good luck.

I'm impressed! Of course, I've had a dislike for writing haiku ever since college, when my haiku came back from the professor with a comment, "too imaginative." Funny thing, I'm still not to keen on professors, either...

I agree that there's no BRF issue, since all participants are issued the same policies. And if that was truly the thrust of Mr. Holland's opinion, I wouldn't find it troubling at all. But he says, "With regard to your particular questions regarding safe harbor plan designs, we note that you have presumed that it is possible for a section 412(i) plan that is funded through a combination of annuity contracts and life insurance contracts to satisfy the requirements of that section 1.401(a)(4)-3(b)(5)(vii) of the regulations. Such is not the case. Life insurance and annuity contracts are inherently not of the same series. Any difference in annuity purchase rates, or other features, would be considered a different benefit, right, or feature." Now, I don't have copies of the two letters TO the IRS, so it may well be that this paragraph, in response to a specific request or situation, could easily be taken out of context. Again, I would argue that if policies were specifically designed to have the same annuity purchase (settlement) rates, etc., and if the same policies are purchased for all participants, that the safe harbor is satisfied. But we'll see.

Thank you for pointing this out. Must be too much holiday eggnog - for some reason I started thinking about ASG, and never even considerd a CG. Time to recharge my batteries...

How about converting the dollar amount into a percentage? Since the entire amount, which was 5,000 as of the valuation date, must be reallocated, convert each participant's share into a percentage as of that date. Then when it is actually liquidated, the percentage approach will alleviate the problem with gain or loss. Would this work?

First, as always, I'd recommend consulting an attorney versed in these matters. If you don't want an attorney, you can apply for a determination letter using a form 5300. This doesn't jump out at me as being an ASG, but it does smell a bit. There could, of course, be separate issues as to whether the income from the rental company is actually earned income for purposes of a plan, but that's the accountant's problem.

Very short answer, which can be expanded upon tremendously: Yes, a pension plan can purchase land, subject ot all normal fiduciary prudence, diversification, liquidity, prohibited transaction rulews, etc., etc.. However, the employer may not CONTRIBUTE land to a PENSION plan - contributions must be made in cash. See DOL reg. 2509.94-3, Interpretive bulletin 94-3, ERISA, and various court cases, including Keystone.

Ayup - and even though the IRS apparently doesn't have a problem with it, I still can't get myself to feel comfortable about it. We don't do it in our plans.

Hi Merlin - Well, starting first with the argument that you can fund a 412(i) plan with only life insurance. As far as I can tell, this relies on a very strict and narrow reading of the first sentence of 1.412(i)-1(b)(2)(i), placing form over substance. I don't happen to agree. This sentence doesn't exist in a total vacuum, where 412(i) exists independently of the rest of the qualified plan world. The IRS has said essentially that incidental rules apply to all plans. There is nothing in the incidental limits rulings that exempts 412(i) plans. And while those promotors will give you their arguments as to why I'm wrong, I simply don't agree. And it appears that the IRS is on my side. P.S. - for some RR's, take a look at 61-121, 68-31, 68-453, 66-143, 70-611, and 74-307. As far as the (a)(4) issues - as I've previously stated in other postings, I don't agree with Mr. Holland's interpretation. Of course, that doesn't mean I'm right, but I think the logic is rather flawed. As long as all the settlement rates are the same, etc., and as long as the same policies are purchased for all participants, it should meet the safe harbor definition. There's obviously a clear intent for a 412(i) plan, which by regulation may include both insurance and annuities, to have a safe harbor under the (a)(4) regs. But we'll see...

Merlin - well, if it isn't spelled out a bit more clearly somewhere else, then I think you are left with interpreting the document to say what is necessary. "(a) they shall provide for level annual premium payments to be paid for the period commencing with the date that each individual becam a Participant in the Plan..." I'd interpret this to require a premium payment. Suppose it is a 12-31-03 end of year plan. Depending upon plan language and practice, etc., I'd assume this requires a level anual premium, commencing sometime within 2003 - perhaps 12-31-03. Even if the contribution hasn't been made yet, it is REQUIRED to be made, and the benefit is based upon that, I believe. In other words, if the participant terminates employment on 1-3-04, he can't receive a zero benefit just because the employer hasn't sent in the check yet. So I think for testing purposes, you have to assume a benefit on 12-31. The 412(i) docs I've seen spell this out rather more clearly. As far as the incidental limits, I'm not familiar with the outline you refer to. But in order to be "incidental" it isn't possible to have 100% of the benefit funded by life insurance. So there will be some annuity premium. The 100% to life insurance doesn't fly, (most of us NEVER thought it did) and the IRS made this clear in February. If you have a plan funded 100% with life insurance, I'd run like heck!

That's what Rev. Proc. 90-49 appears to say. However, it also appears to condition the ability to apply for a return as being contingent upon the contribution being made to satisfy the quarterly contribution requirements... REV-PROC, PEN-RUL 17,299L-82, Rev. Proc. 90-49, 1990-2 CB 620, September 24, 1990. [Modified by Rev. Proc. 93-23 at ¶17,299M-62 and by Rev. Proc. 94-8 at ¶17,299M-90.] ".02 This revenue procedure applies to employer contributions to a qualified defined benefit pension plan that are made to satisfy the quarterly contributions requirement of section 412(m) of the Code for the plan years beginning after December 31, 1989 (see section 5)." Now, you'd have to get some input from an actuary on this, because I'm not really sure just how that applies in real life administration. I think a lot of plans have sufficient assets so that a quarterly contribution isn't necessarily required? And if the contribution wasn't made for this purpose, then I'm frankly not sure what your alternatives are - whether you can still apply for return of the contribution, or if you are stuck just leaving it there. Yo, actuaries, what think ye?

Jquazza - just one quick observation here - for VS plans, a current favorable advisory letter for the VS plan itself is considered a favorable letter for Voluntary Correction purposes. See Section 5(.01)(4) of Rev. Proc. 2003-44. I'm assuming, of course, tht there's no deviation from the approved VS doc, otherwise I agree that a FDL is required.

Merlin - I'm just speculating here, but does the accrued benefit perhaps have a definition that says something to the effect that the accrued benefit is the cash value of the contracts, assuming all required premium payments have been made? That would make more sense to me, and is in line with 412(i) docs that I have seen - and it would be impossible to end up with a zero value on an annuity policy in that circumstance. (And I'm not going to discuss a plan that has only life insurance, 'cause that would be verboten anyway) If the document doesn't say something to that effect, somewhere in the document, then I would say it is a faulty document.

Thanks for the followup posting!

See 1.401(a)(9)-2, Q&A-5. This is for a situation where the participant dies ON OR AFTER the RBD. Minimum distributions from the plan, even to a spouse in this situation, must be distributed "at least as rapidly" as under the distribution method being used as of the date of his death. However, as you mention, a surviving spouse has a rollover option under 402©(9). Any minimum distribution required for the year of death is not an eligible rollover distribution, and needs to be distributed. The balance, if distributed as an eligible rollover distribution, can be rolled to an IRA (or other eligible retirement plan) and further minimum distributions (when required) will then be calculated based upon the life expectancy of that surviving spouse.

See, this is precisely why I refer them to an attorney! Thanks for the information - this helps to clear it up for me.

mbozek - the original question was whether you can contribute to a SEP AND another qualified plan in the same year. I don't disagree with you at all that the two plans can be "maintained" in the same year - and that for a non-model SEP it is fine to contribute to both in the same year - but I do question whether the answer given to DGM that it is ok using a model SEP, without some official guidance. It's an open secret that many IRS telephone answers are incorrect.

FWIW Tom - The DOL release just refers to the code - it doesn't impose any new "immediate" requirement. Code 401(a)(31)(B)(ii) as amended by EGTRRA 657, refers to an "eligible plan" as one where the benefit not exceeding 5,000 shall be "immediately distributed." I interpret this merely to distinguish a plan that provides for mandatory distributions of cash out benefits from a plan that does NOT provide for them. So I don't see that any change is required from whatever you do now, other than the mandatory rollover of the cash out benefit, when paid.

Sorry - hit wrong button. Reply coming.

Mbozek - I'm truly not trying to be difficult on this, but I'm finding this rather confusing. (I should preface this by saying any such question, we would tell the Plan Administrator to seel legal counsel.) Having said that, how do the heirs of a deceased child enter into this? If the plain language of the bene designation says the plan is to distribute it to SURVIVING children, isn't the plan legally obligated to pay only to surviving children? In other words, say I have children A, B, and C. My bene designation (perhaps unwisely) says to pay all plan benefits equally to my surviving children. If, at the time of my death, C has predeceased me, isn't the plan payout a simple 50/50 split between A & B? Just because C had children, shouldn't mean they are entitled to anything, should it? Wouldn't ERISA preempt state law? I would think these other considerations would come into place if, for example, the beneficiary was the estate. Then once paid out of the plan to the estate, then state law would govern? Thanks in advance!

Tom - I'd have to go back and read the release to be sure, but offhand, I don't recall any change in the requirements for the timing of the distribution. The plan document still governs, etc... so the only change is that once you are ready to make the payout, under the same timeframes you would otherwise have used, you now have the mandatory rollover requirement.