Mike Preston

Do you want your plan to be qualified? I thought so.

I agree with both the OP and Blinky. Certainly there is no issue with respect to the change in HCE definition, since the net impact is to classify a few previously excluded people as no longer excludable. And at that point in time they are NHCE so it can't be considered discriminatory to add them. That much I agree with Blinky. I also agree that it is a discretionary amendment and therefore needs to be adopted by the end of the year. And, finally, I agree with the concern that such an amendment still might be discriminatory. Not because of what has been mentioned here, but because of other things that might exist in the document. But I don't think it terribly likely. Just something to ensure isn't hiding under the covers. In fact, I can't even think of anything off the top of my head that a "regular" plan might have which would give rise to this. That doesn't mean that there isn't something weird out there that wouldn't trigger it, somehow. Just gotta check, that's all.

Trick question, huh? Need more info. There are certain exclusions that apply to the determination of the multiplier. Some of them are optional. You need to go through the list (17.5 hours/week, 6 month employment, etc.) before you can cull your 230 down to a smaller number. However, I suspect your real question is: are the HCE's determinable at the beginning of the year, or is it possible that somebody becomes an HCE during a year? Is that what you are really driving at?

Vision not so good, Eric?

As does Mike. Let me rephrase that a bit. 417(e) applies to any stream of benefits expected to last for 10 years or less (that may be "less than 10 years", I rarely have to look that specific item up, but do if it is needed - and then I promptly ignore it again until I need it again). There is an exception for a benefit payable from an applicable plan. My gut reaction is that if the amount paid is pursuant to the portion of the document which satisfies the definition of an applicable plan, then 417(e) doesn't apply. However, if the benefit is determined based on the TH minimum, my gut tells me that the entire benefit is then subject to 417(e). There is history on this point (How'm I doin', Tom?). The IRS is on record as saying that 417(e) applies to the entire benefit if even a small portion of it is paid out in a form which is subject to 417(e). Hard to see how this is different.

It works the other way around. You need to find an exception to the 417(e) rates. You can do that for a Cash Balance plan (providing it satisfies the definition of an applicable plan).

Clearly it applies. It is your choice as to whether you ask for it or not. If you don't and the amount ends up being over, then you need to ask for it then.

After re-reading the OP's post, a question comes to mind. WHY does the participant want shared payment? The payment to the participant should be the same, or MORE, using separate interest, not shared payment. About the only thing I can think of would be a DC plan where there was a significant drop in assets invested and where the plan segregated the AP's share into a money market as per QDRO procedures. If eventually determined as shared payment, both share in the loss. However, in a DB plan it can't work that way. The only thing that is possible is that the participant earns into a substantially higher benefit. With a shared payment, the non-participant spouse receives a share of that higher benefit. With a separate interest, they don't. But that is the opposite of what these people supposedly want. Care to share?

And I don't think you will.

Trying to actually respond to the question as posed, I'm not aware of any specific rule, one way or the other. I know that those who practice in California have frequently told me that California law requires the ability for a spouse to elect shared payment. That is a far cry from a mandate, though. I expect it is therefore a decision that should be put to the alternate payee and, unless objected to by the participant, write the DRO in that manner, whatever that happens to be.

There can not be discrimination in the situation described. Once the money is paid, it is deferable. The decision to pay is not subject to a4.

Frank, can you give us some background on your assertion that the IRS isn't "caving" on this issue? As Tom points out, I thought it was understood that the maximum is based on the at-risk assumptions.

Apparently, we are not coming together. I say "left ON the table", you say "left SIDE OF the table". The meanings are not the same. Are they? No matter. I completely disagree with your new assertion about only being able to use $3,750. Again, however, in this particular case it doesn't seem to matter. The good news is that the result is pretty simple. The bad news is that you have stumbled across a dirty little secret of catch-up deferrals: despite the somewhat exhaustive regulations, the IRS has not given definitive guidance on how to treat the circumstance that you describe. More on that later. Your HCE deferred $700 more than the 2007 Calendar year limit as of 12/31/2007 and therefore uses $700 as catchup from the available 2007 limit of $5,000. It is generally understood that a calendar year catchup comes out of the last amounts deferred so, for all practical purposes, you just modify the amount deferred between 10/1/2007 and 12/31/2007 from $3,750 to $3,050. This assumes, of course, that you had no issues at all with respect to the plan year ending 9/30/2007. He or she was well below the limits at that point, right? If not (that is, if a limitation was exceeded at that point), then all of this analysis means very little and would have to be redone, after considering how much of the 2007 catch up limit was used at 9/30/2007. Maybe that overstates it a bit. Basically, as long as he had at least $700 left from his 2007 catch up limitation, then nothing would actually change. It also assumes that the limitation year is the plan year. If not, then all of this does change. Going forward, considering only the non-catchup deferrals of $3,050 during the last quarter of 2007 and the $12,500 deferred during the first 9 months of 2008 we find that the maximum annual additions from employer contributions is $46,000 less $15,550, which is $30,450. You say that the actual annual additions from employer contributions totaled $40,229.54. This exceeds the 415 limit by $9,779.54. Therefore $5,000 of his deferrals should LOGICALLY be treated as catchups and the remaining $4,779.54 must be returned as excess allocations under IRC section 415. As with all plan corrections, you need to review EPCRS to determine what your course of action should be. I believe there is a required filing. That is, I don't think you can self correct a 415 violation. Back to the dirty little secret. There are some people that work at the IRS who have a problem with the circumstance you describe: an employer contribution being made to a plan which causes a deferral to become a catchup. I won't get into the gory details, but suffice it to say that unless the $16,250 in non-catch up deferrals made during the 2007-2008 plan year violated some other provision of the plan, there are some at the IRS who would consider this individual potentially ineligible for any catch up of any kind. Hence, your correction would not be $4,779.54, but instead $9,779.54. You need to check with somebody (ERISA counsel for the plan, etc.) to see how the plan wants to go forward.

In general, you may not use the "left on the table" catch up from 2007 to increase the 2008 catch up above $5,000. There are a number of items you need to provide if someone is to answer the inquiry completely, though. Is this an HCE or NHCE? Can you break the deferrals down between the following periods: 1/1/2007 - 9/30/2007 10/1/2007 - 12/31/2007 1/1/2008 - 9/30/2008 10/1/2008 - today You mention that the 2008 "year to date" deferral is $12,500. Is that 1/1/2008 through 9/30/2008? Or is it really from 1/1/2008 through today? Sorry about the confusion.

Me, too.

You'd be right except for one thing: the regs require mwyatt's method.

OK, I'll bite. What does the above mean?

Which one of 1 through 3 is your best estimate? Use it.

Not sure what you are getting at, Andy. Clearly, the IRS has stated that plans which provide for a pre-retirement mortality decrement in the determination of the 417(e) minimum are within their rights to do so. I don't think anybody is suggesting that one would be able to apply a pre-retirement mortality decrement to any benefit, whether referencing the 417(e) minimum benefit or the "regular" plan benefit without the document being in lock step. In the case that was posited, I think I might have missed something. In the "y%" cases, the OP indicated that both pre- and post- mortality would be at 417e mortality. I don't think that is correct. I think post needs to be at 417e mortality, but pre- follows the terms of the valuation.

Correct on both counts. I did not discuss plan rates or the interaction of 415 limits. Both still apply. So, the real value at age 65 in my example is: 1) Take the greater of the 417(e)/6.09% value (where you would use a combination of the second segment rate and 6.09% as the third segment rate if using your 10 year example) and the plan rates actuarial equivalence value 2) Limit that to the 415 lump sum (5.5%/correct mortality table) And then discount that for the 20 years (or 10 in your example).

I guess we'll find out in the NEXT CYCLE. For now, I've got a DC volume submitter plan that is being amended and restated by clients by some time in 2010 and the new version won't be adopted until, what, 2016? Talk to me then.

I agree with the bad deal comment. This is one of the reasons that I've generally considered it inappropriate to apply a pre-retirement mortality charge to the 417(e) lump sum determination. I recognize that the IRS considers the normal course of action to be the exact opposite: pre-retirement mortality is considered the norm. In general, if there is a death benefit I just find it a bit weird to assume in a calculation that a death results in a forfeiture. There are some who might say that the "bad deal" you are referring to is a misapplication of how the calculation should be done under the terms of the document.

Lori, I repeat my request for you to demonstrate how it is less beneficial. In other words, I'd like to see the details of how you are doing the two calculations. The documents are intended to be identical if the contribution is enough to ensure that the maximum permitted disparity factor is used. Are you allocating an amount which is less than the maximum? If so, the two formulas will most certainly differ due to the way the math works out.

After a lot of energy expended on this issue (remember that before the IRS came out with the last notice, we had resigned ourselves to the fact that it was physically impossible to provide an AFTAP before the valuation date - which meant that for any EOY valuations they would, perforce, be subject to the non-issuance of an AFTAP for 2008), I decided that the best course of action in many cases was to issue the AFTAP's on 10/1/2008 and to plan on issuing the required employee notice stating that accelerated payments [lump sums] were restricted for the balance of the year, along with some language indicating that the plan has already been provided with a certification which in the absence of negative feedback from the IRS or Congress before the end of the year provides the restriction on lump sums will be lifed on 1/1/2009. In light of the late notice from the IRS that AFTAP's for EOY vals would even be allowable this year, and in light of the market melt down which pretty much guarantees that we will not be able to satisfy the IRS' requirements that a final AFTAP be done which doesn't involve a material modification, I just decided that the safest course of action for all plans was to bite the bullet and issue the Notice. Note that it is not too late for others to do so, even if they have a purported AFTAP certification dated 9/30/2008 or earlier. In light of all that is uncertain about these things, even for those where the AFTAP was issued before 10/1 (for an EOY val, of course, since if it is a BOY val there is no question as to its validity) I can see a Plan Administrator determining that it is not prudent to rely upon such a certification and instead insist upon a Notice with a corresponding freeze on amendments and accruals (if the plan was in existence before 2004) and a restriction on accelerated payments in all cases. I expect this position to be impractical for those who have a gazillion plans. My shop is considerably more boutique than many so I am enjoying the opportunity to discuss this with my clients (to the extent they want to delve into it).

The website says it the other way around. That email sounds like it is seriously misguided. I asked the reporter to send me a copy of the article via email after it was published but he did not comply. I tried to register for the free trial so I could read the entire web article but it wouldn't let me register. But the tease on the website now says it the other way around from your email so I presume they now have it right. There has been nothing hostile in the entire process.