Mike Preston

Uh, he answered it himself.

"Tax" is the kindest word I've heard.

You need to ask them what, specifically, has caused your plan to require submission. There is nothing anybody on the outside can do to answer that question, I fear.

1.401(a)(4)-5

I can't imagine it is a problem to impose such a cap and then eliminate it. Even if the elimination (or the partial elimination by way of an increase) is only beneficial for HCE's. As far as whether the limitation can be applied to the multiple places in the document that such a limitation would normall occur, I see no reason why most of them can't be bunched together and limited. Of course, this depends on the language of the plan and how those amounts are currently referenced. If there is a reference, for example, to the compensation limitation of Section 401(a)(17) you will need to find that reference and it won't be as simple as searching for "$200,000" in the document. However, to the extent that compensation is defined for testing purposes in the plan, I don't think the IRS will allow anything other than the statutory limitations unless you can guarantee they will only apply to NHCE's. Of course, you can't do that theoretically because it is possible to hire somebody and pay them $250,000 in the first year and they would not be an HCE.

Yes, if rolled. No, if transferred or merged.

My understanding is that reducing future interest credits is a 411d6 violation.

Technically, there is no specific deadline I'm aware of. To be deductible, I agree, though, that the contribution must be made by the due date of the tax return. However, if there are no deductibility issues you then have until 30 days after due date of tax return, at least. If you go beyond 30 days then you have a potential 415 issue. Best to avoid the 415 issue and the deductibility issues, though, and get the money in by the due date of the tax return.

Yes. In fact, they have to. Before a hardship is taken, the maximum loan must be.

I disagree. In my experience, most employers match catch-ups. Not matching catch-ups is a pain to administer.

I'm fairly certain that the only change would be an increase in the DB portion of things, all other things being equal. The age at which the maximum would be greater through a DB plan would reduce, perforce. Note that there is nothing in this reply that implies 412(i) plans are appropriate, as I believe them to be in the vast majority of cases wholly inappropriate. But there are some people who believe in them. They even tell me that they practice full disclosure. Strange, though, when we discuss what full disclosure means, we find we have different definitions. I feel a heated response, or two, being aimed at this thread. Yes, there are some circumstances where a 412(i) plan might make a lot of sense.

I think you are reading 83-10 F-1 wrong with respect to future years. Certainly, as I've already indicated, unless it is allocable is isn't deductible. That is backed up by F-1. So I agree with you on that point. However, the last sentence therein just means that the amount carried over isn't deductible in future years with respect to an allocation in a prior year. If the amount carried over is allocated in a future year (as if it is a current allocation in that future year) then it again becomes deductible in that future year. It is meant to avoid non-discrimination "skirting". Take the example of a plan with 2 participants, each of which is entitled to 25% of pay in year 1, limited to the 415 limit. Participant 1 has $200,000 of comp, participant 2 has $50,000 of comp. The plan sponsor contributes 25% of total pay = $62,500. However, only $52,500 can be allocated without violating 415. The additional $10,000 is put in suspense. Only $52,500 is deductible with respect to the first year. To the extent there is an excise tax payable on that $10,000 it is paid. The second year comes along and the compensations are the same, but the plan is amended to provide only for a contribution of 15% of pay. Now the allocations are $30,000 to participant 1 and $7,500 to participant 2. The total is $37,500 and is fully deductible. What happens to the 415 carryover? In the absence of the last paragraph of F-1, the plan could allocate $40,000 to participant 1, keep the allocation of $7,500 to participant 2 and deduct the full $47,500. That doesn't work pursuant to 83-10 as long as the carry-over is considered a contribution with respect to the prior year. The above assumes that if $40,000 were allocated to participant 1 and $7,500 to participant 2 in year 2 the plan would fail non-discrimination. Now change the facts a bit. Allocate the $10,000 carryover as a contribution in the second year. But now, for some reason, 401(a)(4) is not failed. In this case, you can allocate the combination of the carryover and the new monies in year 2 and take the full deduction in year 2, just as if you had contributed the right amount for year 1 and the right amount for year 2. Unless the IRS has put something out that specifically addresses this fact pattern since 83-10 was published, that is what my notes say is the way it is supposed to be handled.

Notwithstanding the entertaining responses, it is a perfectly reasonable expense to be reimbursed by the Plan.

Very possibly. That was the approach that Jim Holland was espousing in the summer of 2002. I think he has re-thought his position and the answer is much less clear today. It certainly is a reasonable way of doing it, though. In the absence of guidance, which there really isn't any at the moment, there are two reasonable ways of doing it. Accumulate the prior distribution at the current "controlling" interest rate and offset that amount from the current lump sum limitation; or determine the accrued benefit paid out and offset the actuarial equivalent of that accrued benefit from the current lump sum limitation. I have previously stated that the old law/new law conversions in 98-1 and 99-44 can be used for this purpose and I still feel that is a reasonable approach. However, the IRS believes that the prior guidance was specific to GATT/415(e) elimination and may not be applicable in all other cases. In the context of determining the lump sum maximum when a prior distribution has taken place I am in Andy's camp: there is no one way to do things.

There is?

This is too open ended a question to get a productive answer. Many software programs are available that will provide this calculation.

What you do is controlled by the document, not a year by year choice. The only amounts that are deductible are those that are allocated. Amounts in excess of deductible limits are subject to excise tax.

I think that Example 2 under 1.411(b)-1(b)(3)(iii) makes it clear that Andy's interpretation is the one expected. However, the net effect of using a projection is typically to provide a larger funding amount for those whose use of the rate will increase their targeted benefit the most. That would typically be NHCEs, although I'm sure I could concoct an example where the reverse would be true. In most cases I suppose the use of projecting the rate rather than the average gives away more to the favored group (i.e., NHCE's) and therefore is non-discriminatory. Hence, the IRS is likely to approve it.

Well, you are precluded from deducting what you didn't contribute as of the date of the tax return due date, so if it isn't on extension it works quite well (or if the fiscal year and the plan year do not coincide).

The SOA website has a link to Moody's which purports to show a December rate of 6.01%. That is 38 basis points higher than the Aaa rate you quoted. I think the SOA rates are Aa.

What is the year that you are dealing with? PYE 12/31/2003? If so, file tax return on time with contribution of $56,790, then contribute balance after due date of tax return and apply to next year.

You are confusing the two terms "402(g) limits" and "415 limits". They are not the same. Your young participant has a personal 402(g) limit of $13,000 in 2004. If personal contributions exceed $13,000 between the two plans it will likely do him no good and maybe even some serious (tax) harm. Tell him to keep his personal deferrals to $13,000 or less between the two companies. There are times when exceptions make sense: like if the companies will match and, once told that they are to refund a portion of the contributions, will not base the match on the reduced amount (most don't). Maybe others can conjure up additional reasons to intentially violate the 402(g) limit in a given year.

Yes. ;-) In each respective plan, the limit is $13,000. There is no statutory requirement that one plan be aware of the existence of another plan. So, a participant is free to defer $13,000 into two plans, thereby having $26,000 put into the two plans. This would not be a smart thing for the participant to do, however. If a participant is in two plans and defers more than the $13,000 limit in any one calendar year, then only $13,000 will be excluded from income. Further, the participant will be taxed on all of the monies when they come out of the respective plans because the IRS doesn't allow a taxpayer to keep track of what portion of a 401(k) deferral was not excluded from income versus what portion was excluded from income in any year. Hence, if a participant defers more than the maximum in a given calendar year, most plans allow the participant to send them a letter (or otherwise notify them) by March 1 of the year following that they wish to withdraw a portion of their deferrals because they exceeded the 402(g) limit. Note that plans DO NOT have to honor such a request. Most plans are written to allow these sorts of requests. But there is no statutory requirement to do so. So a participant can find that they have no recourse other than pay tax on the amount deferred in excess of $13,000 and then again pay tax on the monies when received. Not good. Better to not go over the 402(g) limit in the first place!

Marketers have an assumed, ongoing, continuous and recurring, "Wow!".

I would presume that if an intrepid soul the fiduciary would make their own decision. Based on the facts as presented, the second "wife" is out of luck. Does the fiduciary feel strongly that the facts are as presented? If not, then maybe the fiduciary can qualify, in part, as that wimp. An interpleader sure does seem like the right ticket in that case. If somewhere in between, maybe getting plan counsel involved to determine whether the facts are as presented would make sense; or, if they can't, then follow through on the interpleader as an alternative. By the way, has the plan made payments to the second wife which would be invalidated by a determination that the second marriage was illegal? That would be a much more involved situation and in that case I would think an attorney needs to be involved as soon as possible.