Mike Preston

I'm confused about the numbers, can you give an example?

1. I only wish that 410(b)(6) extended to takeovers. I think it is limited to changes in ownership, etc. I didn't see one mentioned in the original post. 2. If there are no HCE's, then there is no reason to post the question. 3. Don't do any kicking until you have confirmed you have a problem. Are there any other plans sponsored by the same plan sponsor or a member of its controlled group? Are they the same plan design as this one? Can the plans be aggregated for testing? If, as I suspect, there is a core company with lots and lots of employees and participants, and they sponsor a plan that has the same provisions as the plan sponsored by this 6 employee company, then you can aggregate the plans. If it is a safe harbor, then the only testing you need concern yourself with is 410(b) coverage and if the core company is large enough, the makeup of these 6 employees (HCE vs NHCE) is probably irrelevant.

Actually, this problem is not likely to go away, no matter what. As indicated earlier, the IRS has precious little out there we can point to. This means that every time somebody new to this issue starts down the path, they will get very little guidance from the IRS. The more schooled and/or competent they are, the more likely they are to attempt to then answer the question themselves, based on the language in the official documents that purport to have an impact on this. They will end that fruitless endeavor the same way that many of us have at one point in time: concluding that a reasonable argument can be made either way. And they will then no doubt post another message like the OP did. I wish there was a way to force the IRS to clarify things that we think need clarification. And to do so in a way that isn't difficult to find.

What does the document say?

Thanks, Andy. It looks like the facts of this case render the 2007 AFTAP almost irrelevant. It is easy to establish a burn of the COB on 1/1/2008 such that the 2007 AFTAP will be 70% and hence the presumed AFTAP on 4/1 will drop to 60%. You will then need to pump up the 2007 contribution (which you can use in receivable form this one year) until the 2008 AFTAP is 80% if you want to avoid all restrictions.

I thought the presumption rules included the burning of existing balances if, and only if, doing so results in a change of the range from I to II, from II to III, or from I to III (assuming that is possible), where I=<60%; II=60% and less than 80% and III=80% or more. So, in your case, you burn 90% of your COB on 1/1/08, thereby resulting in a presumed AFTAP of 80%. Caveat: I'm way too busy to do a chapter and verse on this at the moment, but that is what my gut feel is. Does anybody disagree?

Not that he was incorrect, but he wasn't the first.

Maybe I'm not understanding the facts, but it sounds like you are saying that your ex-wife's proper share of your pension is ~$5,000 and that if she has been told she needs to give back the entire $14,000 that she previously received then that in effect restores her right to the $5,000. I think you should run this by an attorney in your state, but I doubt that to be the case. The plan has already distributed $14,000 to her and unless it gets it back, it remains forever on its books as a payment to her. Because it was obtained fraudulently, you have an order for her to repay the money to you (not to the plan). Is that correct? If so, then as stated above, from the plan's perspective, she has been paid $14,000 and doesn't have any further interest. Or, are you saying that she is entitled to $~5,000 more than what she previously received? Notwithstanding the fact that the $14,000 was obtained fraudulently, if she really is entitled to $5,000 more than what she previously obtained, then she is correct that you can do precious little to stop her from going after it if she decides to go through the motions. Obviously, for her to do so would require her to be "found" so it is highly unlikely that she would. But there is another alternative you can consider. And while this may not be something you look forward to doing, it may be in your best interest. YOU might be able to go into court and get a combination order: first, a QDRO which is payable from the plan to your ex-spouse for the amount that she is theoretically still due ($~5,000); second, an order from the court indicating that you should be awarded that money in partial recompense for the existing order that you have. Or, another alternative to the $~5,000 is to have the QDRO drafted as payment for child support. Your goal in this is to eliminate the pension as a potential source of money for your ex-spouse. You do that by having a QDRO issued that awards you her remaining share of your pension. If you do nothing, and leave it there, then at some point, probably the most inconvenient point you can imagine, your ex-spouse shows up with a QDRO and you have to go through all of this again. (Of course, even if you do this, there is nothing stopping her from presenting another fraudulent QDRO at any point in time.) I'm not familiar with enough of the facts to say whether any of these approaches will definitively work for you, but I think you might want to consider investigating them with counsel to see if they will.

I do, but my disagreement (or agreement for that matter) shouldn't matter. When you are dealing with questions like this, the simple solution is to call or email the PBGC and ask them the question. They are remarkably responsive. The most responsive governmental agency I have ever worked with. You may not like their answer and they may not be terribly flexible in providing you with an alternative if you don't like their answer, but answer they will and in short order, if history is any guide.

I understand that is a bit simpler than restarting the segment rates at each point when a distribution is contemplated. But it is also a significant reduction to the liability, at least in today's interest rate environment.

Jay21, no, you are not stuck. You have a BOY valuation as of 1/1/2007 and that makes life easy for you.

It seems that we are all saying the same kind of thing. Both of your comments are addressed in the cite I posted earlier. It indicates that there is at least one source out there that thinks the proposed regs are written in such a way as to require what mwyatt accurately described as something he "wouldn't think .... is an accurate guess". And that same methodology is described by Effen as what his software uses and what he thought was "correct" (not, necessarily, in the theoretical sense, but in the sense as to what the rules require us to do). It wouldn't be the first time that a regulation requires us to do something which is theoretically less than sound. I'm still holding on, though, to the possibility that mwyatt's description is found effective enough to thwart the interpretation that is used by Effen's software. I think the rules are written in a manner that it is intended to be either: 1) intentionally unclear and thus give the IRS time to consider what they will think is acceptable and to communicate same through informal influences such as sessions at professional conferences or 2) intended to be clear as to the intention to give the actuary leeway in determining the future values to be used in the valuation. I'd rather it were the second, but the cynic in me thinks it is, in effect, the first.

Yes, it includes earnings. The same site that allows all cross testing. The -8 portion of the 401(a)(4) regulations.

Good thing to check with CPA. I think there is a court case out there somewhere which states that if you file your return before the due date, then an extension request filed later has no impact. Not good news I'm afraid. So, the question is: did they take a deduction on that tax return for a contribution that they didn't make?

Yes, accrued to date for a PS is allowed. You use the account balance.

Assuming that Frank is valuing a plan that has a pre-retirement decrement for employment, it most likely also uses a pre-retirement decrement for mortality. It is still unclear to me. I can parse that final subsentence to mean that the annuity subject to 417(e) is valued using the funding segment rates; not that the lump sum is determined using the funding segment rates. Remember that 417(e) applies to any distribution which is expected to be less than 10 years (it might be 10 years or less, but that distinction doesn't matter to this line of reasoning). So, a lump sum is a period certain annuity of one payment. A 5 year certain annuity is a period certain annuity of 60 payments. Is that language allowing us to determine the period certain annuity using our own estimate of what 417(e) rates will be and then, once we have the period certain annuity amounts we must then determine their present value for funding purposes using regular funding rules, substituting 417(e) mortality for the period between annuity starting date and assumed distribution date of the specific payment in the 417(e) stream? Or is that something that nobody else sees in the language?

Forever, but only with respect to benefits accrued through date of change. Right?

Well, *I* think your steps are correct as described, but there is some doubt out there. Also, I think it depends on what year (pre-2009 effective date of proposed regulations or after the effective date) and whether you think the proposed regulations establish a requirement to do it the way you have described as your modified step 1 or whether there is even a different (third) way to go about it. There was an article published on the web which I've cited before, that can be found here: http://www.jpmorgan.com/cm/Satellite?c=JPM...l_Page_Template In it, there is a section that has the language: "Proposed regulations issued in December require an approach consistent with the first interpretation above." and note that the "first interpretation above" is the utilization of a single yield curve such that the lump sum payable 20 or more years from now would be valued as an annuity commencing at retirement age using the 3rd segment rate for all presumed annuity payments. Note that this description just assumes that the 417(e) rates are entirely irrelevant and presumes that you are choosing whether to value the lump sum at, effectively, the third segment rate of the funding assumptions or "anew" with all three segment rates (again, of the funding assumptions) applying again from retirement date (or, in your case, at each duration between now and retirement age). This is entirely at odds with what Jim Holland said to me, on tape, at a session in October 2007 at ASPPA. He indicated that the methodology you cite is the one to use and that the determination as to what the 417(e) rates would be at each duration is an assumption that must be made by the actuary.

Just flying from the seat of my pants, here, but if the plan isn't subject to ERISA, then it is subject to state law, right? It seems like the plan and the participant/beneficiary had a "deal" (contract?) and the deal, as it were, was to provide a 100% J&S. The church imposed some documentation requirements in order to cement the deal and imposed some time constraints on the perfection of those requirements. It appears that none of the contractual provisions (plan document, summary plan description, other?) include reference to these documentation requirements or, if they do, they certainly don't include reference to the time constraints. Hence, you would look to state law to see whether those requirements can be made a part of the contract between the participant/beneficiary and the plan by the plan in the absense of contractual provisions specifying them in advance, and you look to state law to see whether there are any restrictions on the ability of the church to impose non-documentated time constraints on perfecting those requirements. Since I'm not a lawyer, I can't begin to say, one way or the other, whether the plan has the right to do what it is attempting to do. But a lawyer familiar with state law on contracts is where I'd begin my search.

Jim Holland has stated over and over that if you terminate before the effective date of a law, the law doesn't have any impact.

And if Technical Corrections passes, you'll have it FOR 2008, as well.

Hopefully, that isn't the case. If it is, the OP posted a very misleading description. But, hey, SOMETHING is up, here, so it just might be that!

No. But there must be something more to this story. The facts are too easy. If the employers are unrelated, the 415 limits are, too. Maybe they are unrelated in the ownership sense, but related in the affiliated service group sense? Probably should have stopped at "no."

Thanks, Jay, appreciate the input.

To the extent the change in interest rates is not something that escapes 411(d)(6) on its face, the best course of action is to ensure the amendment (or restatement) implementing the changed interest rates is submitted on a timely basis to the IRS for approval. With respect to the issue you discuss, I have always counseled others that there is no 411(d)(6) protection available. If you provide the "greater of" beyond the one year period you are safe, aren't you?