Mike Preston

Hadn't until I clicked. LOL!

I agree with Kirk! LOL!

Somebody should have alerted me to this thread! Sorry for the disappearing act, but things have just been really, really busy lately. Mary Kay, my residence is now 160 miles north of San Ramon, but the business is still located in San Ramon (it is a long story, and not particularly appropriate for this Forum). So, while definitely in Baja, Oregon, it is safe to say that I'm physically located in (very) Northern California. OK, you can get back to discussing the Red Sox now.

Unfortunately, for all intents and purposes I probably am dead. In a perfect world I would have enough time to visit frequently. Not likely to be a perfect world for the balance of this year, anyway. I guess being busy is better than the alternative, though. Appreciate the sentiment. Anybody who sees a post that they want to forward to me through the message board, feel free to do so (or directly at mike.preston@prestonactuarial.com). No promises on timing of response, if any, though. While I appreciate mbozek's propensity to look at issues from the more legalistic viewpoint, it is dangerous to reject IRS statements without a rather thorough vetting. Most of the time (although certainly not 100% of the time) the IRS gets it right.

414(p)(3)(A) states that a plan can't pay something to an alternate payee in a form not otherwise payable under the terms of the plan. In the case of a restricted HCE, the only form allowed is a single life annuity. Any other form isn't allowed. What's to argue?

Yes. Unless the plan document somehow precludes it. In other words, the plan document defines the TH minimum and it should indicate that a QNEC counts towards it.

I would be very surprised if the IRS didn't qualify a plan that provided for QPSA that is greater in value to the regulatory QPSA. If you've got an LOD I wouldn't worry. If you don't have one, I would consider getting one.

As I understand it, the primary purpose of the Schedule P, from the Plan's perspective, is to start the statute of limitations. I would think that this would be limited to transactions that took place under the auspices (direct or indirect) of the given trustee. Hence, in the case of a plan with three separate individual trustees, a single trustee can sign as long as they all have the ability to make decisions with respect to the entire plan. If they each have their own portion of the plan over which they have control and have no say as to the other portions, I would think you need 3 Schedules P. In your case, it appears that you should have 2 Schedules P, signed by one of the trustees for the period from the beginning of the year through the end of the period during which they held assets. And another signed by the Corporate trustee, which covers the period of time from when they began through the end of the year. Even if the above is not technically required, it certainly can't hurt.

Of course they wouldn't be adjusted upwards. Adjusting an HCE's benefit upwards will never help a test. Downwards on the other hand, is helpful. The "spirit" of the law? Appropriate word. If the spirit comes forth, ask him or her to call me. I would like to arrange a discussion with that spirit and another spirit, Judge Learned Hand. The IRS has said that separate groups do not constitute a problem from the definitely determinable perspective. The only issue that naysayers can come up with is the deemed CODA issue. And if the decision is vested not with the individual, but with the plan sponsor, that issue is not sustainable. Can a lazy practitioner that doesn't communicate clearly so that each participant understands that the plan sponsor is the one making the decision as to level of benefit create a situation where the IRS may sieze upon the case and make "bad law"? Sure. But not if done properly, IMO.

Go ahead and kabosh.

It is an amendment. Always has been.

The new owners bought stock or assets?

Oops. Right. The redetermination of the quarterly contribution requirement?

When you look back to determine your CL funding percentage for 2002, you can use the new interest rates. This has the effect of putting more plans above the thresholds necessary to avoid DRC's than otherwise would be the case.

Your nomenclature leaves things a bit muddled. You are talking about the first and second safe-harbors in 1.401(a)(4)-3(b)(4)(i)©. You labeled them "#2 and #3" which could be part of the confusion. The answer to your inquiry is "yes". If you limit your denominator to 26 and provide that benefits accrue over no less than 20 your formula satisfies 1.401(a)(4)-3(b)(4)(i)©(1).

I think I am now clear on the design you are describing. It seems to me that if the design "works" as far as 401(a)(26) is concerned, that it should also work if the sole difference is that the HCE/Owner receives **LESS** than he otherwise would. Maybe this is why we haven't heard of the IRS attacking any offset plans for failure under 401(a)(26)?

In this thread, I'm just trying to gather information. I am not aware of any case where the IRS has stomped on somebody for a 401(a)(26) failure in the situation you describe. To go even further, I'm not aware of any case where the IRS has stomped on somebody for a 401(a)(26) failure when the situation is similar to what you have described, where the only difference being that, while the DC plan is a safe-harbor as far as 401(a)(4) is concerend should it be viewed by itself, it provides a lower benefit (or none at all) to selected HCE's. I've heard that there are some that take the position that a safe-harbor DC plan is all that is necessary to satisfy the 401(a)(26) rules. I think it would be good if the IRS would clarify this at some point. Further, if they take the position that a safe-harbor DC plan is not, by definition, a plan that satisfies the rules under 401(a)(26) as an offset plan such that the determination under 401(a)(26) can be made before application of the offset, I would hope that they would provide some sort of rule that says: "those that have done this up till now are ok, but they can't do this for plan years beginning after xx/xx/xx". Where xx/xx/xx is some date after the guidance is issued.

And I presume your theory is that if the owner does not receive a contribution in the DC plan then you must consider those as benefitting only those that have a positive accrual after consideration of the offset so that you would only have the the owner benefitting (which of course would therefore fail a26). In either event I find it strangely discomfiting that by giving the owner less in the DC plan the result would be that the DB plan fails 401(a)(26).

Even if they put it in the document?

Actually, I'm trying to figure out what the design *IS*! Not sure I will comment (sometimes my hands are tied because of current engagements), but I would really like to know what the design is that I thought you and Andy had settled on.

The outline only has one reference to a26 that I could find: "There could be a concern that the results after the offset do not satisfy 401(a)(26) which require that the benefits are offset by contributions which are reasonable and uniform. One could avoid this problem by a variation to the design to have all participants covered in both plans, with limits to the benefits and contributions." With that said, can you recap the plan design that you have come to the conclusion satisfies a26?

There is no exemption in the situation you are describing.

Can you share snippets of the outline that are pertinent to the determination? Also, can you recap the plan design that you have come to the conclusion satisfies a26?

Yes.

I don't have time to look this up, but if a loan fails to operate under the terms of the plan and therefore is a prohibited transaction, doesn't it also lose deferral under 72(p)? Hence, wouldn't it be the same tax consequences for the individual as if a non-problematic in the prohibited transaction sense was defaulted?