Mike Preston

Hilarion, you are trying to blame 401(a)(4) for the inherrent determination that compensation is deemed on the last day of the year to sole props and partners. That is the nature of the tax beast and I don't think that relying on that can possibly lead to a BR&F issue.

I think it has to do with double comparisons. Let's assume you have a lump sum of $100,000. Let's assume that the QJSA is payable in 5 years (but not today) in the amount that is actuarially equivalent to $150,000 today. You know that your QJSA has a significant subsidy. The participant doesn't. Let's assume the QJSA payable in five years is $2000/month (random number, I'm not doing any calculations). You could state that the annuity associated with the lump sum optional form of benefit is an annuity payable 5 years from now in the amount of $1333.33. Hence, $1,333.33 is the amount of the annuity that is the actuarial equivalent of the optional form of benefit (lump sum) payable at the same time and under the same conditions as the QJSA (5 years from now).

I don't see your logic at all. If you are trying to claim that they aren't beneficiaries of the funds in that plan then I defy you to tell me what will happen with those funds if their PS account balances are all invested in whatever the next Enron happens to be. I think they will be directed at, pointed to, and/or otherwise utilized for those specific individuals. If you want to argue that they aren't beneficiaries because, should the plan terminate right now, they would be entitled to not one dime, go ahead. About as good as any other religious argument I've heard lately. ;-)

That cite doesn't help much, because the argument being put forth is that an individual that is fully offset should not be treated as a beneficiary of the trust for purposes of 404a7. There is no guidance as to what constitutes a beneficiary of the trust for purposes of 404a7. I don't think that the fact that the PBGC allows for a fully offset individual to be ignored in the determination of the PBGC premium means much in the context of 404a7. Since there is no guidance, you just might win, if it comes down to a dog-eat-dog fight. Do you really want to be in one of those?

Correct. Correct. Correct. (g)

No, a profit sharing plan can NOT be amended at ANY time during the year to become a SH 401(k) plan. You must have at least 90 days left in the plan year to become a safe harbor. Once a plan is already set up as a k plan then if it isn't safe harbor from the beginning of the year (or, if later, but not later than 90 days before the end of the year, from when it was initially a 401(k) plan) then SH provisions can not be added. Well, that is not a true statement. You can add SH provisions, but it won't be a SH plan!

Isn't the thread title an impossibility; that is, an oxymoron?

Keep in mind that a contribution of $1 to your SEP in early 2004 may effectively preclude you from establishing a Defined Benefit Plan to your maximum advantage later in the year. Should you discover after making a contribution to a SEP in early 2004 that you can provide a larger retirement benefit for yourself through a defined benefit plan (or through a defined benefit plan matched with a 401(k) plan) you will most likely have lost a significant opportunity. While you can combine a SEP with a defined benefit plan, if you do that you will be limited to a total deductible contribution between the two of 25% of $205,000, which is $51,250. If you instead go with solely a defined benefit plan (or a defined benefit plan with a 401(k) layered on top) you can generally exceed $51,250. Here is how the numbers might work out for a 30 year old: A) SEP alone - as mentioned by Appleby - $41,000 can be deducted B) SEP w/DB - maximum contribution to the SEP - $41,000 (SEP) + $10,250 (DB) = $51,250 C) Defined Benefit alone - $44,909 D) Defined Benefit w/ 401(k) - maximum contribution to the 401(k) - $41,000 (401(k)) + $23,250 (DB) = $64,250 E) Defined Benefit w/401(k) - maximum contribution to the DB - $44,909 (DB) + $13,000 (401(k)) = $57,909 Check out how the numbers might work out for a 49 year old: A) SEP alone - $41,000 can be deducted B) SEP w/DB - maximum contribution to the SEP - $41,000 (SEP) + $10,250 (DB) = $51,250 C) Defined Benefit alone - over $110,000 D) Defined Benefit w/ 401(k) - maximum contribution to the 401(k) - $41,000 (401(k)) + $23,250 (DB) = $64,250 E) Defined Benefit w/401(k) - maximum contribution to the DB - Over $110,000 (DB) + $13,000 (401(k)) = Over $123,000 As you can see, if you are 49, you give up on at least $70,000 of deductible contributions to a retirement program if you put that $1 early in 2004 before you have your options analyzed by somebody who can advise you properly. The numbers are even bigger if you are older than 49. There are some people out there that thinkyou can undo a SEP contribution made early in the year and instead create the "E" option mentioned above (Defined Benefit w/401(k) - maximum contribution to the DB) by removing any contributions you have made to a SEP early in the year. There are some, however, that believe once you have put $1 into a SEP, the "E" option mentioned above is forever lost. Why take the chance? There are some people that could generate higher deductible contributions than what I generated above for the DB plan (at the ages specified). My numbers were based on 5% interest, Unit Credit funding and the most recent IRS Mortality table (94GAR). DB plans aren't for everybody. You may have circumstances that make establishing a DB plan impractical. The point isn't that my numbers are precise (they aren't) or that a DB plan is definitively the best solution for you. The point is that you should have somebody advise you on the best course of action FOR YOU before you rush to contribute to a SEP early in 2004. Good luck.

Yes, you know the answer. If they are participating in a plan that is aggregated, they are subject to the gateway.

No, you can give them a benefit in the DB plan instead that equates to a 7.5% allocation rate. Or, if more than 50% of your NHCE's receive an overall benefit from the db plan that is greater than the benefit under the dc plan you satisfy the primarily db in character gateway.

How old are you?

(burp)

Just that keeping track of where to send the monies, when different employees have accounts at different locations, seems overly burdensome to me.

You may be right, but I've never dealt with a SEP at an institution that would consider anything other than opening an account for everybody listed on the forms that they provide to the SEP adopter. I suppose if the forms weren't filled out right (only listed 2 employees, but they had 4) but as long as the correct amounts were deposited into the respective IRA's it might be ok. Talk about an administrative nightmare from the employer's perspective, though.

Depends on what the document says. What does it say? Also, what forms were signed by the participant when the distributions were made? There is no blanket exception available that allows one to retroactively re-cast distributions.

You will get conflicting answers on this. And those conflicting answers come from within the IRS. It appears that many of the folks that attend conferences say no. I have had discussions with technical people in Cincinnati who are adamant that TAM 9735001 does not apply to amendments made before the end of the year and that say it is ok to amend the allocation methodology up until the end of the year in a profit sharing plan with no fixed contribution even though there is no EOY employment requirement and/or no hours requirement. However, if a contribution has already been made for the year, a participant would be entitled to a share of that contribution based on the language in the plan on the date the contribution was made. Safest approach? Do the amendment, submit to IRS, identify the issue and don't make any contribution to the plan until the IRS has provided guidance. At that point, the decision can be made as to what to contribute based on an approved IRS methodology.

Section 1119(a) of P.L. 99-514 (TRA'86) amended Code Section 401(a)(8) to strike "pension plan" and insert "defined benefit plan". Effective for plan years after 12/31/1985.

You are right, EPCRS doesn't cover cafeteria plans.

This is covered in the EPCRS Revenue Procedure. Essentially, you determine what the average deferral was for those who are NHCE's and the employer puts that amount in, to the extent it was missed, and makes up for lost earnings, too.

I don't think that the Broker can assume the liability. I think the Broker can assume the risk. The company retains the liability in all cases. If the company seeks reimbursement from an outside source (think reinsurance - happens all the time) one can assume that the cost the company is bearing (whatever is being paid to the broker) includes some sort of charge for the "reinsurance". I have no idea whether the insurance rules where you are located would render such an arrangement illegal. Could be. Might not be. If some well-funded broker has properly underwritten the risk (again, think reinsurance) it seems like it would work. I don't know any organizations that would be willing to do this, though.

I don't give a fig as to what the payroll vendor says. You know the plan is not being operated according to its terms, so tell the vendor to get it right, even if it has to manually override the system. Call them. Now.

mbozek's example was comparing a Roth IRA to a 401(k), not to a regular IRA. I agree with you that if there are ceilings as to contribution amounts, they can distort the economic impact. In the case of a Roth IRA versus a Regular IRA, for example, is it appropriate to first compare the amount that would not be affected by a ceiling and then do an analysis on the balance? Probably, but you would lose most people in the general population by doing so.

The cite you are referring to is 410(b)(6)©. It states that you get a free pass on 410(b) in certain circumstances. There is no corresponding provision under 401(a)(4). It most certainly does not say that the company in question can consider itself as a continuing part of the controlled group. At the point in time that the ownership changed, if the company maintains its participation in a plan with other companies that it is not related to, the plan is a multiple-employer plan.

I don't have Paul Shultz' memo handy, but IIRC it dealt with the provision of benefits, not the measure of benefits against a theoretical threshold for purposes of, say, non-discrimination. Hence, I would go with GATT unless I was shown something that indicated the more lenient calculations would be acceptable.

I'm with g8r on this. More importantly, so is my wife who spent years in cafeteria plan administration.