Mike Preston

Depends on plan document provisions, but typically you can borrow up to 50% of your vested interest in the plan, but not more than $50,000. There is also usually a minimum of $1,000. Do you have an existing loan? If so, the calculation is a bit more complicated. To determine the limit accurately you need to know: 1) your vested interest in the plan (including your loan balance, if any, to the extent your loan is taken directly from your own account) 2) the highest outstanding loan balance you have had in the last 12 months.

Individual statements will certainly satisfy the requirements, but they aren't, per se, required. See the following portion of Q&A 11: (D) Individual statements. This paragraph (a)(4)(ii) may be satisfied by providing a statement to each applicable individual projecting what that individual's future benefits are reasonably expected to be at various future dates and what that individual's future benefits would have been under the terms of the plan as in effect before the section 204(h) amendment, provided that the statement includes the same information required for examples under paragraphs (a)(4)(ii)(A) through © of this Q&A-11, including showing the approximate range of the reductions for the individual if the reductions vary over time and identification of the assumptions used in the projections.

Part I, Q1 and Q2 are indeed both yes. Part II, pre-Q is effectively yes, because 90% of $55,000 / (1.05) is still greater than 100% of $50,000. Had the new year's required contribution as of 1/1/2001 been less than 100% of the 2000 required contribution, the net result is that the quarterly contribution for 2001 would have been calculated on a lower number. In that case, the amount used to determine 2001 funding would have included the deficiency, because it would have been part of what establishes the required contribution for the 2001 year (as of 1/1/2001). Part II, Q1 and Q2 are both no. Further, the $20,000 contribution on 9/28/2001 counts towards the 2001 quarterly contribution requirements since it wasn't used for the 2000 Schedule B.

Whatever. This is a benefits discussion board, so I tend to limit the discussion to issues that are directly related to benefits and the impact that changes in the benefits system have on other things such as employee relations and the economy. I'm sorry, but it still sounds like your comments are nothing more than sour grapes. You feel that since there are a great number of people who are receiving more than they are entitled to in your opinion, then it is perfectly justified for your constituents (current reitrees eligible for a lump sum) to also feed at the trough. I don't agree. Especiallly when there is a huge disconnect. The first group is feeding at the government's expense, the second group is being forced on private employers. Big difference.

The logic is wrong. The amount deductible under 404 is not the amount of the 412 charges for the year. It is the amount necessary to reduce the FSA balance to zero. In this case, your last year needs only 55k of new money, since the first 20k (which was deducted in a prior year) counts towards this year's FSA "requirement".

Ah, yes. Another vote for choas theory. I'm sorry, but two (or more) wrongs do not make a right. The fact that CEO's may be overpaid, even if true in some circumstances (which I don't doubt), does not justify the pillaging of defined benefit plans. Like it or not, the typical liability with respect to the current lump sum subsidy of a medium sized corporation's pension plan will make a CEO's "windfall" look like chump change in all but the most egregious cases. It still sounds like pure and complete rationalization to justify accepting "yours" without recognizing that getting "yours" will do far more damage than good. Congress does have the right to mitigate against the carnage, and should do so. But those who like to arm wave about other factors justifying their entitlement, as you have done, are likely to carry the day because this is more a policital decision than a logical one. Pity, that. I hope the country's economy can survive the hit.

Could you format it a bit differently? The columns dont' seem to line up in my browser.

Happy, I don't think there is any specific pattern. And there certainly is no direct tie between the GATT rate and the funding assumption.

Harry, I'm not sure the issues are related. How would the rate used for funding invite whipsaw issues?

Like employees have actually "planned" for the precipitous drop in interest rates which have inflated their lump sum entitlement. Yeah, right. That is so much hooey it isn't even funny. They might have anticipated the significant increase in the lump sum, but having "planned" for it can only be accurate if "planning" is limited to the time period since interest rates have fallen. Please keep in mind that they are always entitled to **NOT** take the lump sum distribution and take the annuity instead. Let's remember the reason for these "inflated" lump sum interest rates. Some employers in the 80's were applying interest rates that were greatly inflated for lump sum payments (some amended their plans to provide for interest rates of 12% to 15%, IIRC), so Congress got mad and made employers use interest rates which were "more reasonable". Can't blame Congress for that, it was the right thing to do. They just did it badly, in the sense that they didn't contemplate what the impact would be on employers if the situation reversed itself. Well, just like I wouldn't have gone along with a client that wanted to use a 15% interest rate to value lump sums back then because it was grossly unfair to the participants, I think using 4.96% to value lump sums today is grossly unfair to the plan sponsors, if the plan sponsors don't wish to provide that level of (subsidized)lump sum. The lump sum rate should reflect the "average" rate that the participant could expect to earn over his or her lifetime on monies invested when the lump sum is provided. It should not be based on current economic conditions. To do so when interest rates are obnoxiously high, as took place in the 80's, is unfair. To do so when interest rates are seriously depressed, as today, is also unfair. To answer your question: YES, Congress *CAN*, if they want, increase the interest rate that plan sponsors may use to value lump sums with a quick vote and then a quick stroke of the President's pen. And they should. But they probably won't. Remember, Congress did so on 12/7/1994 when GATT was passed, which eliminated the even more ridiculous PBGC rates. Those rates are 3.5% today. Would you have said the same thing in 1994 as you are saying today? At that time, the immediate rate was 6.25%, but it provided for a phased-in rate as low as 4.00% for some years (years more than 15 before retirement age). At that time, the GATT interest rate was hovering around 8%, so with a quick stroke of the pen a plan sponsor could lower lump sum rates by about 15% for those at retirement age and much more for those more than 15 years from retirement age. I don't remember there being a large hue and cry back then, and that was during a time period when employers were, by and large, better off than they are today. I'll climb off of my soapbox now.

So, Blinky's answer may have been incomplete, but it was correct nonetheless. In a community property state I believe the conclusion would be that Mr. C is an HCE because the spouse is deemed to directly own her community property interest. Hence, the attribution to Mr. C would be "single" attribution, as opposed to double attribution.

Is there doubt to that conclusion in a community property state?

Indeed it is a document issue: http://www.corbel.com/news/technicalupdates.asp?ID=199&T=P

Do I risk over-exciting you by saying that such a person would also satisfy 401(a)(26)? I think the likelihood of decreasing fractions being used to a client's advantage is so low that the IRS would not think there is significant potential for abuse. But, does it work to potentially help a 410(b) test to have a Plan Sponsor fail to terminate the employment relationship in certain cases? Yes, it very well could.

I don't think it is a concern. The formula is the same. The fact that somebody doesn't work in a given time period shouldn't cause the formula to be considered "tiered", IMO. People have to get a "Wow" first, before they can be "way off base". You aren't even close!

I don't think that going from 3/35 to 3/34 is meaningless. It is nearly a 3% increase in accrual. Subtance is indeed necessary for an -11g amendment. It is specifically not needed in the case of an increase in accrual under 410(b) without an -11g amendment.

It looks like RR 81-11 explicitly authorizes the method whereby the denominator decreases. It certainly allows for a lesser benefit (Method 1). However, I wonder what current plan documents say about the issue? I just checked my volume submitter. Deafening silence. Hence, if the Plan Administrator decides to interpret it such that Medhod 2 of RR 81-11 applies, and hence the denominator decreases, I stand by my assertion that such a participant *IS* considered benefitting under 410(b). I think the RR 81-11 introduces another issue that has a major impact on the determination of accrued benefits in this circumstance. The way I read the RR, it seems to be saying that unless or until a participant works enough to generate some increase in credited service (or participation) the accrued benefit does not need to change. Does anybody else see that in the RR? Hence, a Plan Administrator might interpret a plan that is silent on the issue as not providing a reduction to the denominator unless or until a participant works enough hours to be credited with at least a partial year of service or participation under the fractional accrual rule in effect. This would solve the seemingly silly situation where somebody terminated July 15 and was treated differently from somebody who terminated July 16, each of which terminated with 10 hours (total) in the year. Good to revisit these things every once in a while.

Let's see if this helps (see the last post) http://www.benefitslink.com/boards/index.p...wtopic=5211&hl=

But your team already beat my team, 3 games to 2! Around here, I'm beginning to think this is the Windy City. Everybody is saying: "Wait 'till next year!". :-(

Benefitting when someone gets an allocation in a DC plan of $1 is a given. Benefitting when someone has an increase in their accrued benefit in a DB plan is a given. The question is whether the denominator decreases. This has come up over the years in various forums, IIRC. Some believe that it decreases, some don't. I happen to believe that in most cases it does. Certainly there are some gray areas here. That isn't anything new to what we do. Take the case of a participant with an accrual fraction of 10/25, so they are 40% accrued in their projected normal retirement benefit at the end of the year. In the next year they work 10 hours through December 31 and then quit on January 1 thereafter. Let's assume that such a person has a fractional accrual of 10/24 at that time. Now, start backing up the termination date. At some point, maybe around July 15th, projecting hours for this person on the basis of full time employment will start to credit that person with more than 1000 hours during the year. Does anybody really do this sort of calculation? That is, take actual hours + projected hours for the year of termination into account when determining whether a year should be counted in the denominator? No, I don't think it is done typically. This is perhaps the strongest argument for the denominator not decreasing. But how does one satisfy the rule of 411 that the Normal Retirement Benefit must be fully accrued at Normal Retirement without decreasing the denominator? Take a formula where the projected benefit is not reduced for service less than a specific number. Say, 30% of pay at age 65, accrued fractionally. Note that this is not 30% of pay reduced for years of participation less than, say, 15. How does one satisfy 411 if the denominator does not reduce? I'm not saying this is a common design, I'm saying it is an allowable design. Luckily, this issue does not come up very often, so it is not critical to day-to-day plan operation in most cases. But it is an interesting discussion. I agree that if the denominator does not decrease, the individual is not benefitting, as the accrued benefit would not be increasing.

404(a)(6) says it is deductible on the 12/31/2002 tax return if it is contributed by the extended due date (which would be 9/15/03 if a corporation and on extension, or 10/15/2003 if a sole proprietor or partnership on extension) as long as it is treated by the plan as having been contributed on 12/31/2002. Hence, there is no question that a contribution made up through the due date of the tax return can be deducted on that tax return just as if the funds had been contributed on 12/31/2002.

Blinky, the fractional rule and the safe-harbor rule are from different areas of the Code and don't impact one another.

Andy, we gotta talk at ASPA. ;-) "arguable"? "excessively aggressive"? "intended consequence"? 410(b) is a simple section of the Code. (g) The regulations in this area are quite clear. If a participant would have received a lesser benefit had they terminated in a prior year then they are considered benefitting. The fact that the way the fractional rule works causes this participant to get a bigger benefit means the person is benefitting under 410(b).

Have the new entity adopt the plan. That should do it. There is usually a provision in the plan for "adopting employers". You want the new entity to be an "adopting employer", so follow what the plan says to do. If the old entity is going away, you probably want to adopt something that acknowledges the replacement of the old entity with the new entity as the Plan Sponsor (as opposed to merely having the new entity be an "adopting employer").

Congrats to the Red Sox fans. I'm pulling for a Cubs-Red Sox WS.