Mike Preston

In this day and age, I'm having a lot more discussions about annuitization than I've ever had in the past. I don't think the IRS could object to a valuation that considered the likelihood of annuitization being greater than zero percent, even for the smallest plans. I agree with you that a presumption of lump sum leaves you with a valuation of the greater of two values: a) lump sum under the plan at actuarial equivalence rates; b) lump sum value at 417(e) rates where the value is this very strange combination of current segment rates and 417(e) mortality. There is still disagreement amongst actuaries about what to do with the maturity value determined above, but most agree that it (either one) is discounted to the valuation date from date of assumed payment based on the single segment rate. So, I still say your question was a trick question because it doesn't contemplate 417(e) rates or segment rates of any kind. Perhaps if you threw a couple of examples together with numbers the above would be clearer.

The precise question was whether it would help *ANY*.

As a qualified replacement plan when the plan is terminated with excess assets? Why, yes, it would!

1. Seems like a trick question. Isn't the answer neither (ignoring the at risk portion of the calculation for 404 purposes)? Last I heard, there were these things called segment rates that we had to use for most purposes. However, if you do get to a point in your calculations where the AE under the terms of the plan is factored in, your facts argue for 5%. It is all about the accrued benefits. BOY accrued benefit and EOY accrued benefit are nowhere close to the 415 limit, so the 5.5% factor is irrelevant. 2. Another trick question. I haven't seen a plan that artificially limits the projected benefit to the 415 limit when determining the accrued benefit in a long time. However, assuming you have one of them (they aren't illegal, just not something I've chosen to use as a design for a long time), it still depends. In most cases, you would ignore prior year benefit limits completely and just use the new year's limit. However, if you are dealing with an HCE and determining the amount that is subject to the 150% multiplier for 404 purposes, there have been conflicting statements from the IRS as to whether you ignore the amount attributable to the 2008, 2007 and 2006 COLA increases when determining the portion of the FT you can multiply by 150%. Anybody think this issue has guidance?

Well, it is certainly one of the items (amongst many) that the ACOPA committees are keeping in focus. I haven't heard anything formal from the IRS on this issue. There are a gazillion other things that fall into the same category. Great fun, huh?

Maybe I'm confusing two sections of the regulations, but isn't a literal leading of the regulation that a contribution made BEFORE the valuation date is not adjusted? Then there is a little reference to an EOY section, which if you look up you find the word "Reserved". So, until the IRS comes out with something more definitive, you are free to craft anything you think reasonable?

It really isn't very complicated. In essence it boils down to considering the "account balance" as the at-risk TNC. Isn't that what you want? I mean, taken literally, how much would the lump sum be if paid at the end of the year? If that doesn't satisfy the definition of the at-risk rules then I didn't read it very well (anything is possible).

About the only area where I've seen disagreement on the way to determine the at-risk amount is vesting. Some take the position that since the plan allows for lump sums and we have to assume that every participant will take a distribution at the end of the valuation year, that we should then attribute 100% vesting to the decrement. Attributing, if you will, some logic to the "at risk" descriptor. Some others believe, having a copy of Sarasen scanned on a microchip embedded behind their left ear, that vesting should be according to the plan's terms on an individual basis without considering the effect such a mass exodus would have. Other than that, Oh Mighty Fish, have you seen other areas of disagreement as to how to determine the at risk TNC?

Sometimes it doesn't revolve around additional compensation. Instead, it is merely a method of gaining client/plan sponsor confidence. I wonder if this issue is dealt with by the proposed regs from the DOL on fee disclosures? I read them once, but that was a while ago and, as we all know, they aren't final (nor likely to become final in the waning days of this administration). I'm not sure that a fiduciary could wriggle out of responsiblity by claiming that no plan sponsor in their right mind would have approved their compensation without a writing. That seems to be something which directly opposes the "is as does" proverb.

Do tell!

Search for the following in the proposed reg: (ii) Election to reduce balances. Any election under paragraph (e) of this section to reduce the prefunding balance or funding standard carryover balance for a plan year (for example, in order to avoid a benefit restriction under section 436) must be made by the end of the plan year to which the election relates. Ntoe that this is a rule that applies to reducing balances, not increasing balances. It is a specific rule for reducing balances that over-rides the general rule that says elections must be made by the due date of the 5500. Poorly worded, but it is what it is.

Yes and Yes, if you wish to follow the proposed regulations in their current form. You are entitled to do so, if you wish. What we don't know is whether the final regulations will adopt a position which is more flexible.

Doesn't technical corrections solve this problem?

No if testing on annual basis. Prior year amounts (with earnings) ARE included if testing on accrued to date.

Close. The 30-day rule applies to the limitation year under 415, not the allocation year. Hence, assuming the document allowed for a contribution of the sort being mentioned (unlikely, but possible) then a contribution made more than 30 days after the tax return due date would count as a contribution under 415 for the current year (2008) but you would still be able to allocate it to the accounts of participants for 2007. Of course, this whole thing falls over flat if there is anybody who would receive a contribution for 2007 that doesn't have any compensation for 2008 because then $1 of allocation which is attributable to 2008 for 415 purposes results in a 415 violation.

Matthew, you might want to consider replying with a new post rather than editing a previous post. The reason is that if you edit a previous post, the time that you entered your new information is ignored on the "View New Posts" page. Hence, if J Simmons is watching this thread to see if there are any new posts, he won't see your new information. Edits seem to be very rare on BenefitsLink and this may be the reason.

I agree that the IRS hasn't said anything, yet, but I think that most have adopted the position, certainly reasonable in the absence of the IRS weighing in, that the $5,000 threshold applies, whether the individual plan has lowered the force out threshold or not.

I think I've created a monster.

Yes, you can use a MP plan. If it is 10% then it will satisfy gateway. Other questions?

I thought earlier in the thread it was said that the 402(g) excess is not ignored. I thought there was an example in the regs that allows the correction to take place before the return. Wouldn't that solve the problem?

401(a)(30) is the 402(g) limit of the participant for the taxable year of the participant, as it applies to the plan. Hence, if you violate 401(a)(30) you have a problem that is not correctable by merely refunding the excess, you have to go through EPCRS (I think - can somebody confirm that?). The 401(a)(30) limit is applied across the employer so an employer is responsible for ensuring that somebody doesn't defer $10k in Plan 1 of the employer, transfer to a different division, and then defer another $15k in Plan 2. All within the same calendar year.

I thought the PFEA stuff was thrown on to the EGTRRA deadline, but the article indicates that the deadline for calendar year plans is 12/31/2008. Is my memory hazy?

Wow! You might want to try a few sample calculations with Excel. I'm guessing you'll be a bit surprised at the result.

Well, I won't deny that the document should control, but what I think I'm saying is that the document will require 417(e) if the benefit to be paid is the top-heavy benefit.

In addition to its primary message regarding temporary funding relief, I'm fairly certain that technical corrections is also mentioned. The most important elements of technical corrections were therefore included. It is my understanding, although I could be stating the case in too simplistic a manner, that the items included were limited to those which were considered to be serious drains on the ability to establish and maintain plans. Whether you think the 415 issue is one of those or not depends, I suppose, on how important that issue is to your clients. Certainly the issue regarding end of year valuations has caused a drain on productivity for far too long.