Mike Preston

Isn't there a one year delay? Barring re-hires you therefore know, don't you?

It seems obvious to me that the best positioned would be those a rational employer would look to for confirmation that the program holds water. In some areas that might be accountants and in others it might be attorneys. Insurance agents are out because they have a conflict of interest. I can't imagine a rational employer looking to a TPA of any kind for confirmation of a program like this. In the interest of full disclosure I should point out that the baton hasn't been passed to me so if one of my clients came looking for validation that the program works I would have three comments: 1) The more jargon that is used the less likely the program will stand up to scrutiny 2) Have your attorney confirm that the company is not bearing an unintended risk by offering access to this product 3) Provide your potential plan participants with access to financial planning software that can compare the results of ILI to other vehicles and can simulate results based on varying interest rates in the future (which is based in part on the general belief that inflation will, at some point, rear its head in this country again).

I have submitted plans more than one year beyond their termination date and received letters of determination. I have not submitted plans more than one year beyond the date where substantially all of the assets have been distributed from the plan. Chop chop, it looks like you have until July of 2012 to submit. Hippity hop.

I totally agree with your second paragraph, MoJo, but we are going to just have to agree to disagree with respect to your first paragraph. I can't imagine proper disclosures (as stated earlier, "whatever that means") not informing the participant of the need to safeguard passwords and, if necessary, computers, from falling into the wrong hands. Here's a thought: since we know that a general description of "fiduciary" includes those who have the right, under the terms of the plan, to move monies around, doesn't the participant who authorizes paperless transactions become a fiduciary with respect to his/her own account? Just musing.

But isn't there an exception for those that are considered financially sophisticated? Certainly a doctor who wants to make his or her own investments and wants to do so without his partners being aware of the investments has to meet that criteria.

If you are going to throw 417(e) out of the equation, I think it is perfectly fair to reference the lump sum increase from one year to the next as being "earned through the passage of time". Technically, it is "earned" by the fact that at the later measurement date there is one less year available between said later measurement date and the benchmark date (typically the normal retirement age). It is hard to go to a 45 year old who has a lump sum due at age 45 of $1,000 and, if the plan allows the option of waiting until 46 to take his lump sum, has a $1,070 lump sum available at age 46 and deny that his lump sum benefit is increasing at 7% per year. As has already been pointed out, some plans increase for both interest and mortality and in such a case the lump sum might increase to $1,090. I think it is perfectly reasonable for the participant to interpret the above as if his "account" is earning either 7% or approximately 9% per year.

Maybe you could give an example of what "plan / parity restoration alternatives" are so that you get more responses.

It depends on how the plan is being terminated. If the plan document is changed so as to create a short plan year, you may not combine. If, however, the plan year remains the same and the only thing that is happening is that the plan is being terminated mid-year then there is no prohibition on combining the plans for testing.

And with 5 entities to consider, HCE determinations in A, B and N, along with Joe making 401(k) deferrals into X anybody who would agree to write an opinion as to an appropriate design has a LOT of time on their hands. And if I've said it once I'll say it a thousand times: a plan can not be designed without having a census. I also suspect that when clients say "controlled group issues" what we find out they mean is "controlled group, affiliated service group, divorce and family employee issues". Looking at the messages from Wesmon we clearly see that there are no Affiliated Service Group issues with A (retail medical distributor), B (bar/tavern) and N (retail). Not so sure about S - it may very well be a management service organization that wraps N into 414(m) [probably not at the moment, but we don't know what the plans for the future are]. Maybe this could all be clarified on a 5 minute phone call with the "technical" person from each of the competing proposals. Maybe not. Since the qualified status of the eventual plan hangs in the balance, Wesmon needs somebody he can trust to do it right, that's for sure.

Depending on age, benefit formula, assets the answer is clearly yes.

I thought the position of the PBGC was that once a plan is covered, it can only become not covered if the plan sponsor makes a request to be not covered and the PBGC grants it. This is similar to the over-25 rule, but not exactly the same. Whether the IRS would be happy with this position given the change to 404a7 remains to be seen.

This is far too bold a statement. I can easily see census and benefits such that each entity can have their own plan. You need an analysis from somebody who knows what they are doing. Pushing the "Really???" button Obviously, had any professional on this board (or anyone of our caliber) been involved, the question would've never made it to this forum. Apparently, Wesmon is being told different things by two different advisors while neither one is taking the time to explain "how" they arrived at their conclusions. When you have two companies (each with 20 employees) being owned by one person, and the plan is established covering the owner and only one of those companies, my quick calculation was a 50% coverage ratio. We all know what is possible as you perform more elaborate levels of testing, but this quick analysis was the basis for my statement. Good Luck! And quick analysis is just what Wes does not need. My lord, there are a number of separate businesses here. We don't know the HCE % of either entity you are talking about so we can't tell a damn thing about whether separate plans are viable. So that means to me, who are we to say they aren't? There is just too much information needed to say one way or the other. Unless I've seen the proposal or letter to the client saying what the basis is for the separate plan capability I think it is more than rash to rule it out. I *can* tell the OP one thing, though, and that is the analysis he is looking to find should be something he's willing to pay for. Otherwise, the analysis is worth exactly what he pays for it.

I meant it solely with respect to the fact pattern being discussed. Sorry if I was too general.

Amend Plan Y so that enough workers in Company B participate in the match. Slap the person who designed Plan Y on the back of the head (if that is a favorite move of ex-UCLA quarterbacks, I wonder what SoCalActuary has to say?).

Really? Why do you say that Mike? I actually think it is pretty common to increase w/ mort post NRD using Nx(12). Wouldn’t a J&50 death benefit be deemed forfeiture upon death? It is a small plan. Therefore the plan was written so that there is no forfeiture beyond NRA for any reason. Therefore it is inappropriate to use mortality increases. Anything else is malpractice. I don't have time to look but I have a gut feeling that there is an ASOP that says as much.

Could this whole thing be a misunderstanding? Nobody increases with interest and mortality after normal retirement age. However, to those who don't speak fluid "generally accepted actuarial principles" it may be possible that the PBGC auditor is looking at the monthly benefit and saying that the monthly benefit must go up more than just the interest rate adjustment would have it go up. To that I would think we would all agree. So, if the interest rate is 5% and the initial benefit is $1,000/mo, make it clear that the monthly benefit one year later is something greater than $1,050 at age 66 ($1,077.47 using 94GAR/5%). Maybe that will make the issue go away.

This is far too bold a statement. I can easily see census and benefits such that each entity can have their own plan. You need an analysis from somebody who knows what they are doing.

A plan document that forces benefits testing is outside of standard of care in this industry in 2012. I won't speak to whether it was when it was drafted, as there were years where the IRS took the position that the 401(a)(4) test needed to be described in full in order to avoid a charge that the plan didn't provide definitely determinable benefits. The the IRS backed off of that position and any document drafter after that point in time which forced benefits testing is pretty close to, if not over, the malpractice line.

Because of the design of the plan, you need to "run" the general test. But as poster after poster has told you, the test will pass on a contributions basis if the people getting the bigger percentage of pay satisfy 410(b). Hence, "running" the test can be either you going through all the motions to get something from your system that says: "See, we pass 401(a)(4)" or you can just demonstrate mathematically that you have passed the test with a few sentences that describe the population and the benefit rates. The gateway is keyed to whether you use benefits testing. Since you will pass using contributions testing, there is no gateway.

Storm was way too kind. The above is closer to gibberish than it is to an understandable post. But one correction (if I, like Storm, have waded through the gibberish correctly): The 91% certified for 2011 becomes the presumptive AFTAP for 2012 until 2012 is actually certified. The rules specifically state that you do not reduce by 10% if the number, before reduction, is 90% or more.

I disagree that the plan, as written, satisfies the design-based safe harbor. However, I agree that in this instance the plan can be proven to pass the contributions based general test with a sentence or two and doesn't require full-blown "test". Keep in mind that if the plan passes on the basis of contributions, there is no cross-testing and therefore no gateway.

Unless the client has received a letter from the DOL, the answer to your question is: yes. A letter from the IRS does not count as a letter from the DOL.

Rene, I think you are missing a key point. The PBGC guarantees benefits to participants who have no direct control over how the plan invests its assets, nor any control over the level of benefits being promised (except through collective bargaining). The business owner is 100% in charge of how the funds are invested and 100% in charge of what the benefit levels should be. It would be actuarially unsound to provide insurance to one person plans. The moral hazard is just too great. What would stop the owner from investing wildly if the government provided such a guarantee? It would be a "Heads I win, tails you lose" game that the government tries to avoid. I'm not saying that the PBGC has always been operated on an actuarially sound basis. We both know that it hasn't (just look at any of the big bankruptcies in the telecommunications industry where corporate raiders pumped up benefits via huge deals with unions and then, as part of the business plan, laid those liabilities at the feet of the PBGC by declaring bankruptcy). But there is no need to pile on the actuarially unwise concepts. Especially when the PBGC is so wildly underfunded, as it is now. mike

I'm not aware of any requirement that both plans treat 415 compensation the same. If both plans have LOD's why not just follow the terms of the plans? If you feel that they must be the same for some reason, then amend one of them retroactively and submit the plans under EPCRS to clean up the fallout.

I have a different take. In the first example, the 1/1/2012 valuation will reflect the deemed burn. You ask whether the valuation should be "re-run". I think the valuation should be done initially with the deemed burn. Why are you doing it twice? In the second example, you report the 1/1/2012 deemed burn on the 2012 Schedule B. You should know the deemed burn on 1/1/2012 before you run either your 1/1/2012 valuation or your 12/31/2012 valuation.