Mike Preston

doc1962, It may be worth your while to see if the two businesses can be separated. There is a PLR (private letter ruling) out there that gives some details on how this is done. The only way for you to confirm whether it is indeed possible to get a new limit in the new business is to hire an attorney familiar with ERISA matters that also is willing to give you an opinion as to whether your businesses are entitled to separate treatment. The attorney may suggest that you go through the motions of adopting a plan and submitting it to the IRS for approval of the concept.

It might (just as cross-testing might), but there is nothing inherent in the component plan rules that would extend to this scenario in a favorable way. There are so many things we are not being told about the way the testing was done that just about any suggestion has some potential of helping.

Deep breath time. The PBGC is (should be?) concerned only that the terms of the plan as of its terminated date are followed and that each and every participant receives at least the amount promised by the plan document. In your case, I would just assert that each participant has received the amount promised by the plan document as of the plan's termination date and then some and trust that the reviewer's manager will understand that to be the case. Do not fear submitting the case for review. The reviewers, while quite strict to the dictum that the plan's terms as of the plan's termination date be followed, are quick to understand that excess assets can be allocated in just about any way that the plan sponsor wants them to be.

"All but one of the HCE's are in the .06% plan." Then component plans will work. No extra contribution required.

If the aggregated plans pass the ABT that may be all you need to show that each plan satisfies 410(b). If that doesn't work you might be able to use the component plan rules to move a few NHCE's around so that each component plan satisfies 410(b) and is also a safe harbor formula. From what you have described, I *think* you will need to move some folks from the .07 plan to the .06 plan. If doing that allows you to pass 410(b) then you are all set. The .07 folks remaining have a safe-harbor formula. The .06 folks (along with a few .07 folks) all get a safe-harbor .06 allocation. Then, finally, in addition you have a few NHCE's that get a little more (that is a safe-harbor also). This doesn't work if you have to move folks from the .06 to the .07.

There is no difference between the PW contributions and the PS contributions. Just aggregate them for all purposes. If you test the plan using statutory exclusions those who would be excluded are not entitled to a gateway.

People who invest DB funds in real estate are asking for trouble. Even the slightest bit of research would have told the OP that. This plan should probably not have been set up in the first place because the investments contemplated were probably better described as speculating. Every db plan should have an escape plan in the event of bad things happening. Nobody planned for an escape when this plan was set in motion and that is a shame. Is anybody else picking up on the fact that there was a Department of JUSTICE audit? Now, if he meant Department of LABOR audit, I can sympathize. But if it really was a DO*J* audit, my hairs are starting to stand on end. Something sounds rotten in Denmark and I don't think blaming the DB plan makes any sense at all based on what we have been told. It is very simple to design a DB plan these days to avoid cash flow problems and I'm sorry that the OP didn't have his plan design (including investment strategy) set up to do that.

Has to be a new plan, right? Yes, it is that simple.

Are any of the plans conversions from non-cash balance defined benefit plans? If so, and if the pre-conversion plan was on the 6 year cycle, you may still have until 4/30/2012 to submit the individually designed cash balance plan for the first time.

Right. So for plan years beginning 1994 we find the regulations in effect have a published preamble that doesn't include the same language as the earlier version, thereby leading some to believe the thought process had changed. It had not.

Thanks, Kevin. Part of the confusion is that the paragraph that so clearly lays out the lack of a need to correct anything was taken out of the preamble to the final regulations, wasn't it? That brings up additional information from the wayback machine. The first set of regs were about 600 pages long. People complained. So the IRS/Treasury stripped out many things that were "unnecessary". Silly little things like many of the examples intended to clarify how the regulations work. But they had a goal: reduce the length and that they did, by about 50%. So, instead of 600 pages of relatively clear regs we got 300 pages of difficult to slog through and interpret regs. A true victory for government regulators who were deemed to have "responded" to the public's plea for reduced volume. Again, I'm confident that if ASPPA were to search the tapes, they would find that the government representatives said at the time that the removal of the examples didn't invalidate them (unless there was a true modification of the regulation - which there were some of those, too). As the removal of the preamble information for a4-11(g) didn't institute a failure requirement. A prime example of this is the verbage in 1.401(a)(4)-5(b) dealing with how to measure the 110% liability. The original proposed regs laid out a number of options. The final regs didn't say much. For years the IRS just kept saying: follow one of the examples in the proposed regulations and you will be fine. Maybe somebody with access to later preambles can find the same language as you found regarding a(4)-11(g) anyway. It has been so long since this issue was "put to bed" as far as I'm concerned that I no longer keep a file on it.

Warning: This is a rant. You know how the internet has the "way back" machine? If you don't, you should. "Way back" when (circa 1993) when the 401(a)(4) regs came out, the IRS and Treasury made it abundantly clear (and I'm sure that ASPPA and other organizations have copies of recordings that confirm what I'm saying) that A FAILURE IS NOT REQUIRED BEFORE YOU CAN UTILIZE 1.401(a)(4)-11(g). The provisions of 1.401(a)(4)-11(g) list the requirements that one must meet in order to satisfy the rules. You will not find that there be any proof of a failure. The reason was made abundantly clear by the IRS and Treasury representatives: they thought the cost of running multiple tests was too big of a burden to put on employers in order to take advantage of the rule. So, instead they insisted on the rules that have survived to this day: the amendment must be non-discriminatory, it must be non-discriminatory when considered in combination with the benefits already provided under the plan, etc. In case this argument doesn't make sense to those of us who have seen less than 20 years of how this is supposed to work, I make this pledge: you send me the raw data on ANY plan and I can run a general test under a set of assumptions and methods that will FAIL. It might take a while. It might cost a bundle. But I've yet to see one that can't be made to FAIL. Actually, it can be trivially easy using component plans, but that isn't really the point to be made here. If the 401(a)(4) regulations are to be interpreted such that a plan sponsor must provide a test that fails before being able to use a 1.401(a)(4)-11(g) amendment, my business would have been much better these last 20 years merely by offering the ability to demonstrate a failed test. What a waste of time and resources that would have been. If I never see the "but there wasn't a failure so I don't see how I can use 1.401(a)(4)-11(g) to fix my plan" again, it will be, in the words of that great felon Martha Stewart, a "good thing." We know that the IRS and Treasury sometimes changes their positions. Sometimes they are long standing positions. I've heard nothing from the IRS or Treasury to indicate that they think what they repeatedly said when the regs came out should be changed.

I'd state it a bit differently than Tom. My response to the question is: No.

IAW Austin.

I'm not aware of the IRS specifically authorizing any particular method. Until they do, we all have to "do something reasonable". David MacLennan wrote a scholarly paper on the issue which you should easily be able to find with the keywords BERF, WERF and MacLennan. One method that I've heard about where the ultimate retirement age is over 62, but not over 65, the first distribution is essentially accrued with interest to age 62 only when determining the $ limit. This would be consistent with the fact that the limitation adjustment between 62 and 65 is currently 1.0. If the ultimate retirement age exceeds 65, the first distribution is accrued for the number of years between initial distribution and ultimate retirement age reduced by 3. I know more than one actuary who says that they have used that method and survived an audit on the issue. I've never had a plan that I used that method on audited. In fact, as it is late and I don't want to go pawing through my records, I may never have used it, either. But it gives pretty good results.

You need to read SoCal's response again.

You should also have a Summary Plan Description that lays out how your benefits can change over time. It should include an explanation of how your variable piece can decline. Besides the Summary Plan Description and the statement of benefits that you receive, you should also receive an "Annual Funding Notice" if your plan is covered by the PBGC (which it appears it is). You also have a right to inspect a copy of the plan document at the administrative office of the plan, although most plans would rather just make a copy and send it to you rather than have you camp out in the office.

ERISAToolkit, what in heavens name are you talking about?

Q1.a It passes with 82% Q1.b No, it fails with 0%. Q2. No. Q3. No.

I found the 2010 change to the law that changed the multiplier to 59.6% for 2011 but I haven't been able to find the law that extended the lower tax rates for the first two months of 2012. Obviously, this whole thing becomes simpler if the lower rates are extended through the end of 2012. If so, then it will be very surprising if the 59.6% multiplier isn't continued for all of 2012. The way the 2010 law was written, though, once the tax rates go back up, we revert to the pre-2011 methodology for all tax years that have not yet begun. Hence, if for some strange reason the tax rates go back up on March 1, 2012 we will still have the 59.6% multiplier in effect for the entirety of 2012 unless Congress does something to change it. All we can do is wait and see.

It is sometimes unclear in the regulations whether the IRS is using classic definitions or making up new ones. As masteff has correctly indicated, the term "immediate annuity" has a technical meaning which the IRS may have been referring to. An "immediate annuity" is contrasted against an "annuity due" in this context. And the definitions of those two terms are difficult logically, because they actually mean the opposite of what a non-actuary usually thinks they mean. Here are a few definitions from the Pacific Life website: annuity due. A series of periodic payments for which the payment occurs at the beginning of each payment period. Also known as annuity in advance. Contrast with ordinary annuity. annuity immediate. See ordinary annuity. ordinary annuity. A series of periodic payments for which the payment occurs at the end of each payment period. Also known as annuity immediate and annuity in arrears. Contrast with annuity due. So, angelf, it is entirely possible that the IRS was attempting to say that the form of annuity must be paid with the first payment at the end of the period as opposed to the first payment being made at the beginning of the period. The period in question would always commence at the participant's earliest retirement age. This would essentially give plans a full month to commence a monthly annuity to a beneficiary whose spouse died at or after the earliest retirement age.

The law no longer has a simple 50% multiplier. In fact, the multiplier is 59.6% of 10.4% of Net Earnings from Self-Employment up to the wage base and 50% of 2.9% of all Net Earnings from Self-Employment. So, the equation to get the self-employment tax is: Min($174,156.52 * .9235,$110,100) * .104 * .596 + ($174,156.52 * .9235) * .029 * .5 = $9,156.52 Hence, the pension income is $174,156.52 - $9,156.52 = $165,000.00 Things get complicated if you have W-2 income, to boot.

Well, it doesn't mean what you think it means, that's what. I will go so far as to say that it is an unfortunate choice of words. But the explanation that follows the first sentence is clear. The spouse gets no less than what the participant would have gotten, but is certainly not entitled to more. If the benefit under the plan would not commence until the participant would have reached the earliest retirement age under the plan, then the same holds true for the spouse. There are many places in regulations that I have railed against in the past. There is a portion of that regulation that demands the QJSA be the most valuable benefit. Yet, many plans for many years did not increase the QJSA if the plan provided a lump sum that was essentially subsidized by 417(e). I said that wasn't allowed, many times, on this site and others. Finally, the IRS came out with a "clarification" that said when they said that QJSA must be the most valuable, they meant "most valuable except for 417(e)". You are dealing with the same kind of thing. "Immediate" in this sense means immediately when the participant would have reached the earliest retirement age, rather than deferred until normal retirement in all cases. And as I've already said, the choice of words was at the least, unfortunate. It isn't the first time nor the last that the regulations have or had words and phrases that are not precise enough to clearly communicate the actual intent.

If you use the 2010 method, you are correct (my spreadsheet actually calls for 1 penny more, but that is probably due to rounding). If you use the 2011 (and 2012) method, the amount would be $174,156.52.

Let me add a clarification to mbozek's comment. *IF* the plan allows for lump sums at termination of employment, *THEN* the plan must also allow for immediate commencement of a retirement annuity at termination of employment. (1.401(a)-20, off the top of my head) I have never seen a plan of any size allow for lump sums at termination of employment but *NOT* allow for a lump sum on death. I suppose it is possible that a plan could be approved by the IRS with that specific design, although I have my doubts. In any event, once a spouse is entitled to a lump sum, it is my understanding that the spouse must be given the option to commence an annuity immediately, in lieu of receiving the lump sum, just like the participant must be given the option in similar circumstances at termination of employment.