Mike Preston

Patient: Doctor, it hurts when I hit my head against the wall. Doctor: Stop hitting your head against the wall. Or, change the plan year end?

I think you would have no trouble having the IRS approve such an amendment via EPCRS. Unless, by fluke, you have been adding new participants that were predominantly HCE's.

You can have a discretionary match that does not require testing and hence is immune from failure or you can have a discretionary match that does require testing and therefore must satisfy the ACP test. I assumed that the discretionary match being discussed was one of the latter. I suppose it doesn't hurt to ask, though. Let's see what elirpa says.

Probably. It depends on the effective date of the amendment. If the effective date of the amendment was the first day of the plan year I don't see how you could avoid it. If the amendment was specifically worded to provide the match only to those who were employed on or after the adoption date, though, I think that would work, subject to the rules on non-discriminatory amendments. But you need to check and see what the amendment actually said.

You want consistency?

Your associate is wrong, unless the plan defines it that way. What part of "you do what the plan says" leads you to believe that further general questions will eliminate any confusion you have? As Katherine says, though, notwithstanding whether the plan instructs you to include or exclude deferrals from the definition of plan compensation, the maximum deductible rules of IRC Section 404 mandate that deferrals do not reduce compensation solely for the purpose of the 25% multiplier. Post the plan's provisions with respect to the determination of plan compensation if they are not clear.

If by extremely high you mean about twice as much as you would expect if you used full year compensation, I agree with your calculations.

I'm being lazy today. Does the unit credit formula of 3.35% per year max 10 accrued over 14 years match the flat formula reduced for years less than X? Mathematically speaking, that is.

If the plan allows for inservice distributions and if those inservice distributions are eligible rollovers, the course you describe sounds perfectly fine to me.

You do what the plan says. Most likely, though, it says that deferrals do not reduce plan comp.

Indeed.

Don't have time to look it up, but don't the SH rules require that EACH of the formulas satsify the rules of being a SH if they stood on their own (which they do); and that the participant gets the SUM of the two (which they don't). You don't have a "SUM" set of formulas, but a "greater of the two" set of formulas, which are not eligible for SH treatment. The only exception to the "greater of the two" formulas that satisfies SH is TH. I think.

5 minutes to prepare? LOLOLOLOL. Well, I guess it depends on whether you want to answer the questions properly or not. Maybe 5 minutes is too long.

OK, I think I thought of it. Maybe. ;-) Does your formula satisfy the rules for a design based safe harbor? There seems to be a disconnect between the number of years of accrual and the number of years over which it can be accrued. Didn't the IRS come out with something about 10 years ago that put that issue on the table? I used to refer to it as the "Norman Levinrad" issue, because he was the one most familiar with it (and had pointed it out to those who were interested). What we are left with, if that formula doesn't satisfy the rules, is the 133% rule and there is where I think your formula fails.

It is a trade off between perfection and complexity. Remember that a safe-harbor is, well, safe. While a design based safe-harbor is only safe in those years where the 70% test is met. I don't disagree with your math, so it looks like your method would always be a bit more efficient. But maybe I'm missing something, so if I come up with a better answer later, I'll post it.

That's Mr. Radioactive Fish, actually.

Neilcap, who helped you set up the plan? Whoever you set up the plan with should be able to help you through this. Hopefully, they have some qualified plan expertise. If not, then you really should find somebody with some qualified plan expertise to help you. Whoever told you that you should contribute the $25,000 in December is really the problem. But I suspect you already know that. The reason you need somebody with qualified plan experience is that the "solution" (if there is one) depends on reading the document to see what the precise provisions call for in this circumstance. Does the plan allow for after-tax contributions? Are there other employees (I suspect not, but your description isn't precise as to this)? What does it say about how to handle allocations in excess of the deductible limits? Does it have "mistake-in-fact" language? Many of these issues are unfamiliar territory for anybody other than somebody who understands qualified plans quite well. You may very well be looking at not only not being able to deduct the full amount of your contribution, but also an excise tax for making a non-deductible contribution. Good luck.

I think putting in the compensation earned while a participant in the second formula is exactly what you want, isn't it?

Well, count me amongst those who think that "evidence" of a domestic relations proceeding is fairly simple to prove. But a letter or phone call from the AP or AP's attorney doesn't meet the threshold. I know it is difficult for a lay-person to navigate these waters and I'm truly sympathetic to such an AP's plight. I am still not convinced that the Plan Administrator can bypass state domestic relations laws. One way to deal with this, if the participant is truly being non-cooperative, is for the AP's attorney to merely include reference in the marital settlement agreement to the fact that a QDRO will be provided later which will divide the community interest equally. Once the MSA is approved by the court, a copy of same to the Plan Administrator should meet the threshold you are setting. I've seen this done many a time. Once a copy of such an MSA is delivered, if I were the Plan Administrator, I'd respond to such a request for information with a letter to the Participant indicating that a request for information had been presented by X (the AP) and that as Plan Administrator the information requested is going to be forwarded to the requesting party unless the Participant refuses to give permission to do so. I would also indicate that a failure to respond to this letter would be taken as approval to release the information. The problem comes about if the Participant then responds in the negative. I don't know what I'd do at that point. Probably engage an attorney to see what the appropriate next step is. But I wouldn't fault a Plan Administrator for sending a letter back to the AP (or AP's attorney) indicating that the information is unavailable in the absence of permission from the participant unless served with a subpoena of some sort. But in my experience it never gets this far. A simple letter from the AP's attorney to the participant's attorney asking for the participant to sign a request to the Plan Administrator for information is almost always signed and forwarded immediately. Something tells me that domestic relations laws subject a participant that does not voluntarily sign such a statement to a whole hose of negative consequences and that the AP's attorney would be able to enumerate them. Much as I'd like to help such an AP, a letter from the AP or the AP's attorney is just not enough even with the informal opinion of the DOL previously cited.

Kevin, I only stated that it was easy in the vast majority of cases. Not that it was easy in all of them. And I have no good response to the hypothetical you laid out. The "system" isn't perfect, that's for sure. But I think it is what it is. And if the AP needs to go through all of that to merely get a subpoena sent to the Plan Administrator, then that is the fault of the divorce system, not the fault of the Plan Administrator. There's always legal aid for somebody who merely wants to get info from a plan, I guess.

Well, I might agree that there aren't rules on what assumptions to use, but I won't agree that the absence of rules means that you can use any conversion factors you want. I think there has to be some relationship between the monies and the annuities and $100,000 buying $60,000/annum commencing immediately certainly won't cut it. I don't know where you should draw the line, but when that line is drawn, that which it was reasonable to purchase with the DC monies will be exempt from 415. Anything else will essentially constitute a DB benefit subject to the DB limits.

The one thing you have left out is the defined benefit "purchased" with the transfer. That is, the amount that the participant would be entitled to receive from the plan in the absence of future service, salary or contributions. Assuming this individual's compensation rate did not increase in his final year, the benefit that was purchased with the transfer appears to be $60,000. As you can see, if the final benefit amount is only $63,000, the amount attributable to the one year of defined benefit participation is only $3,000, well below the $16,000 phase in. I would think it reasonable to determine the amount subject to the 415(b) dollar limit as to final benefit offset by the amount of defined benefit "purchased" with the transfer. I would feel comfortable with that as initial advice and caveat it by saying that the 415 limit should be laid out in the document and identify that the amount purchased is not considered as part of the limit. Then submit and let the IRS bless the whole thing.

Random comments: 1) No charity needed. 2) I usually get 6.0000001 3) What match? If there weren't deferrals, there weren't matches. What they were, I don't know. But they weren't matches! Best case? They were also MIF, and the earnings were negative so nothing to do other then pay out from the plan those amounts contributed reduced by losses. What? Gains not losses? Bummer. I'd try real hard to leave them in the plan and re-allocate them.

Interesting issue. I assume it was a stock sale. If so, Y is really a continuation of X, right? Under what theory could the service with the same corporation be excluded? If it wasn't a stock sale, then it is a much closer call. Having everything happen on the same day is a bit unfortunate. But as long as Y didn't sponsor X's plan, I would think excluding service would be the normal thing and including it would require special language in the plan.

I'm not sure I understand what your last paragraph is driving at. As an actuary, I deal better with numeric examples. Care to give one? Maybe that would clarify the issue. If not for me, then for somebody else.