Mike Preston

You need to define not just the way the bands are determined, but also the formula. Certainly, if the formula is somehow related to the ratios created by the numeric values of the bands (points), then you would have bands running from a low of 25 to a high of, say, 161 or so (48 years of service at age 65). If the formula then provided the first band (25) with a base benefit multiplied by the ratio of all potential band values (summing 25 through 161 gives us 12,741 and 25/12,741 is 0.1962%) it would work just fine. Your challenge would then be to defined the base benefit in a way that would work for the client. For example, if the base benefit were something like 10, then a person in the band you've described as being associated with the number 25 would get a contribution of 10 * 0.1962% which is 1.962% of pay, while someone age 65 with 48 years of service would get a contribution of 10 * (161/12741) which is 12.6364% of pay. Is that what you had in mind? Let's presume you have a plan that has specifically two participants, one who falls in band 25 and the other falls in band 161. If the formula were as above, the contribution would be 1.962% of pay of the band 25 participant plus 12.6364% of pay of the band 161 participant. What it would NOT be would be to divide a random profit sharing contribution up so that the band 25 participant received 1.962% / (1.962% + 12.6364%) which is 13.4398% of the contribution with the band 161 participant receiving the balance (86.5602% of the contribution). Strange, isn't it, that given the assumption that the participant in band 161 makes more than the participant in band 25, the allocation that works provides a smaller benefit to the band 25 participant than the allocation that doesn't work? I have left out top-heavy considerations, but suffice it to say that is a separate calculation that must be satisfied.

More detail, please.

Well, the regulation is reversed. It specifies that if there are no NHCE's, then the plan is deemed to satisfy the ADP/ACP tests. Evidently, the regulation drafters felt that it was clear in the event of a plan that covers solely NHCE's. Sorry it isn't what you are looking for. I suppose "trust us" doesn't cut it for you, huh?

Davis Bacon plans typically have no age/service/entry/vesting barriers because the plan sponsor saves significant $$ by converting compensation dollars into benefit dollars (no workman's comp, no FICA). Why your plan put up a barrier is anybody's guess. Maybe there are too many folks with very small hours and the administration costs exceed the savings? The DavisBacon Act requires that the plan sponsor spend a certain amount on benefits or provide it as compensation. If the plan provides a barrier, then compensation is what results. Might be very bad plan design. Might be very good plan design. Not enough facts.

Agree with everything. I presume you mean in the case where the deposit is not made until the 30 day grace period. Yes, there is a 2007 415 violation. I'd pay him extra $$$$$ compensation before the end of 2007 if it were me. It doesn't matter whether it is HCE or NHCE. Correction would be via EPCRS. Like a bad penny, this question keeps coming up. The answer is: nobody knows. The IRS refuses to give us any hard guidance (probably they don't know). It needs to be made one day before the day that when the IRS audits you they say that your plan is disqualified for making the deposit one day too late.

No. See the reg under 1.411(d)-4 (if memory serves).

Either the plan language is unambiguous or it is ambiguous. If it is unambiguous, you need to read it and follow it. If the language is flawed, get it fixed. If it didn't have a letter of determination, have fun in EPCRS. If the language is ambiguous, I would think that the Plan Administrator would interpret it in a way that is consistent with the requirements.

Paranoid, huh? You'll do fine in the pension world. A very good trait to have. You should be able to find something on point. The place that is most likely to bear fruit, although it may not do everything you are looking for (and what would, my paranoid friend?) is in the area of 401(k) ADP/ACP testing. There are those who were worried that a plan with no HCE's would have an HCE ADP of zero divided by zero. The more mathematically inclined believe that number to be undefined. The less mathematically inclined believe that number to 1 (or, 100%). With an HCE ADP of 100%, very few plans would pass the non-discrimination test! Hence, there is a specific provision in the regulation that says a plan that covers only NHCE's automatically passes the ACP and ADP tests. Does that wet your whistle or whet your appetite?

Yes.

If you search hard enough, you will find a citation that says you can include it or exclude it (that is, count it in 2007), as long as you are consistent from year to year. The vast majority of plans count it in the year it shows up on the W-2.

No, it doesn't rise to the level of a contribution. It is a BOO BOO. I don't know which line I use for that (Other Income?), but is surely isn't a contribution of any sort.

Post-effective date of reg, with respect to benefit accrued AFTER effective date of reg, no can do. Grandfathered benefit as of the end of the plan year beginning in 2007, based on provisions in the plan as of April (5th I think), 2007 can use annual rates if the plan so said.

I think Andy was referencing best practice for a plan determining benefits with respect to a period that is not covered by the new regulations.

This dog won't hunt.

No.

"412(i)???? withOUT life insurance??? what if he underfunds the DB plan? What excise tax penalty is he looking at?" I'm not sure what the above is asking, since it doesn't seem to be related to the initial post or to my response. Is it in response to a message that has subsequently been deleted?

Set up a cash balance plan (or any other defined benefit plan that has an accumulation formula) with a formula a function (multiplier) of compensation. No compensation? No, or very little anyway, funding. Life is so simple sometimes.

With him being only 44, you are looking at the extra 10% tax for any distributions you take. I am going to again make the comment that you need to sit down with somebody who can help you plan on a long term basis. For example, you may want to consider rolling the entire $115,000 over to an IRA and then taking money out of the IRA only if you absolutely need it. In this way, if your husband ends up finding and keeping a good job in a year or two, you will only have incurred the penalty on a small portion of the funds and the remaining funds can grow on a tax deferred basis. Nobody can tell you what the best course of action is unless they know many more personal details about you than *I* would feel comfortable asking about on a public forum! Good luck.

It depends on the plan itself. That is, there is no provision of ERISA or the Internal Revenue Code which would require that the plan allow your husband to take a partial distribution this year and the balance next year. Conversely, there is nothing that requires the plan to require a one-time distribution only. You are therefore "stuck" with whatever the plan says. I think you may have your numbers a bit skewed. If all you need to pay off the house is $71,000 and you are paying upwards of $30,000 interest over two years, your interest rate is approaching, if not higher than, 20% per annum. Are you sure your interest rate is that high? How old is your husband? If over a certain age (maybe somebody else can look it up for you), the 10% penalty doesn't apply. This is kind of critical, because one suggestion I'm sure you will hear will be to take a complete distribution and roll it to an IRA. Then, your husband can withdraw the monies you want in year one and the balance in year two, thereby thwarting the plan if its provisions do require a single distribution. However, if you go down this path there is no exemption from the 10% penalty available (even it if would have been available had he taken a distribution directly from the plan). As you can see, these things can get complicated. Your best bet is to sit down with somebody who can help you navigate this decision; somebody who is familiar with the tax rules and who you can feel comfortable giving them the personal information they request of you. Good luck.

Ambiguous. "such a payment" means which one?

Whether it makes sense or not is not the issue. The question is what is the minimum funding requirement that the actuary will be certifying to. Andy had it right. What is the valuation date? If it is EOY, it doesn't look like you have much choice. If it is BOY, what do you want it to be?

...and some plans provide SHNEC's only to NHCE's and some (admittedly most) plans provide QNEC's only to NHCE's, so if you have a non-key HCE your plan goes toes up. Remember, the plan as a whole is exempt from TH only if there aren't other contributions, which there are, because if you are doing new comp, your whole purpose is to allow those other contributions. On a more practical note, top heavy just isn't a concern. If your intent is to provide a new comp allocation you will frequently have a required gateway contribution that satisfies TH.

From your keyboard to their reactionaries' ears.

There are indeed issues here that your client should be aware of. I certainly don't think you are missing anything as far as liability for Co. B. If it is an asset sale, barring controlled group or affiliated service group issues, Co. B is pretty much insulated from any liability associated with the plan of Co. A. However, if Co. A (post asset sale) really and honestly does absolutely nothing, I have concerns about the ability of the entity to continue sponsorship of Co. A's plan. Perhaps we shouldn't be speculating about IRS positions not yet taken, but it wouldn't surprise me to have the IRS come out with rules that obliterate Co. A's ability to continue sponsorship at some point. Have they, to date? Not really. But, then again, maybe. This is why I think Co. A needs to engage ERISA counsel for advice that can only be given after understanding all of the facts. Getting back to what the IRS might pick on, there is a requirement in a k plan (since it is a PS plan) that there be substantial and recurring contributions. That won't happen under what you describe. The conventional response to this issue has been to terminate the k plan and roll (or voluntary transfer) the benefits to a 0% money purchase plan, which does not have the substantial and recurring contribution requirement, but has issues of its own - such as the long term likelihood that the MP provisions will even survive in the IRC. Of course, there are some who might argue that the substantial and recurring requirement is not applicable when the entire entity has no employees with any compensation which would justify a $0.01 contribution. But would an IRS auditor agree? Back to my ERISA counsel suggestion. An alternative approach would be to have Co. A establish an ongoing business concern of some sort. Doesn't have to be something that is intended to set the world on fire, I've never met a group of doctors that didn't have a number of projects going. Perhaps one of them might fit the bill? Keep in mind that if the ongoing entity is charged with maintaining the plan, there are fiduciary concerns that go along with that which might lead to tension at some point. Cost of compliance has been mentioned, but not in the context of fiduciary liability. All in all, I've seen it done, but it is not for the faint of heart.

Which the IRS could bounce to 5300 if it felt like it.