Mike Preston

Well, you might consider going to the ASPA Summer Conference. Workshop 19 is entitled: "LLCs, LLP, Sub S Corps - How Different Business Entities Effect Compensation for Qualified Plans." That session is on Monday, July 28th. www.aspa.org has the brochure, I think.

Advanced contributions are not contributions receivable.

One other thing, in answer to your original question, the plan sponsor probably would have had to have made a larger contribution in the year that the plan terminated had this individual been treated as 100% vested. Hence, it could be argued that the 80% went to the plan sponsor. That is not necessarily the case, but there is a good likelihood that it is.

The individual had terminated employment prior to the date that the plan terminated. Hence, there are some that argue this individual's vesting would appropriately be 20%. There are some in the IRS that disagree. I think there is a GCM out there that addresses this issue. I also think that it is dated after 1992, but I might be wrong on that. In any event, the IRS has not been terribly consistent on who is required to be vested upon plan termination over the years. Hence, if the plan was submitted to the IRS for approval, and disclosed this individual's status, it is not clear whether the iRS would have mandated 100% vesting. However, you bring up an interesting point. The only way that benefits can be transferred from a DB plan to a PS plan is to provide the participant with an option for a lump sum and an election as to how to take the distribution. If the plan didn't do that then this individual still has their defined benefit options, technically. Not that this is necessarily valuable, because most benefits rolled or transferred in 1992 would be worth far more today as DC monies from 1992 than as the originally promised DB benefit. Good luck.

What kind of plan? Was this person actively employed or terminated? If terminated, how many years before plan termination did termination of employment take place?

Sal Tripodi, the author of the ERISA Outline Book, also publishes other materials. One of them is ERISA Views. If you subscribe to them, one of the recent issues covered compensation in some detail.

Count me as a vote for #1. Note that mathematically speaking, a vote that both are allowable is a vote for #1, as #2 will always be encompassed within #1 (unless the contribution receivable can be negative, which I doubt).

Yes, it would probably be a good idea to limit the discussion to the circumstance defined by the OP. Sorry. So, yes, I agree that the deadline is no earlier than the end of the plan year.

In general, I agree and I appreciate the follow-up because I think I left the impression that an amendment is not required for many plans. That isn't the case at all. I was trying to identify the exception. I should also have stated the non-exception case. Two issues: is an EGTRRA amendment _required_ before 12/31/2005? Not in all cases, but probably in most. See Notice 2001-42, which states, in relevant part: "A plan is required to have a “good faith” EGTRRA plan amendment in effect for a year **if**:" (emphasis added, of course). Now, most plans will have one of those "if's" that are listed come into play. But not all. But, I agree, to be safe, might as well adopt the EGTRRA amendment. As far as timing for the EGTRRA amendment, again, I'm not in precise agreement. The deadline for adopting such an amendment might have already passed for an individually designed plan. If it is a plan that is eligible for the GUST extended RAP, then the deadline has not passed and is no earlier than 9/30/2003 (but may be later). However, adoption by the "end of this year" will not work for a lot of plans.

Not even file 1099's? Not likely.

The amendment itself is not required, even for top-heavy, until the "deadline". At that point, it will be retroactive and apply to all years after the EGTRRA effective date. In the interim, one needs to administer the plan in accordance with the new requirements. Given that the plan still would have the old top-heavy language, you would essentially have to do the test both ways and give the minimum benefit if either called for it. In a DB plan, one would be precluded from using the new testing in the determination of funding, though, until the amendment was adopted. That isn't likely to be a big deal, but in an unusual circumstance it might make a measurable difference.

Yes, been there, done that. What kind of comments would you like? It worked. The participants didn't particularly care. Client saves a bundle.

The "one extra payment" method was recommended only in conjunction with a letter of determination application. Yes, I've done several like this and they have all been approved. That doesn't mean that they should have been, but those clients are happy. Sole props don't go out of business, as far as the IRS is concerned. So you can still operate the plan as if it sponsored by an ongoing concern. No cite, just the way it has always worked. Is there an old DC or IRA sitting around somewhere? If so, consider amending the DB plan to accept rollovers of DC (and/or IRA) monies to "purchase" DB benefits. I know the DC stuff works if sponsored by the same empoloyer, I'm not sure about the IRA rollover. A plan can promise to pay an annuity based on assumptions that are more generous than the assumptions used to calculate the promise, hence creating a more valuable benefit for the participant. I don't have the cite handy, but it is in the 415 regs.

Yes, it has been a long time. I think to get the 401(b) period, one must plan on submitting. If you don't want the 401(b) period, you don't have to submit. At least that was the rule many years ago. Remember that EGTRRA provisions are mostly not mandatory. If you want to adopt a plan that has a compensation limitation of $170k, you can do so by not having an EGTRRA amendment. Of course, you also get the lower 415 limit and other such things, but there is no requirement to have an EGTRRA amendment if you don't want one. At least until 12/31/2005, which is, I believe the end of the extended RAP with respect to EGTRRA (for now!).

This case, of course, is not a case where the drop in market value is the cause of the reduction. However, I think the general rule should probably be applied anyway. The thing I'd be concerned with in this case is the match. Is the match mandatory? Is the match not only mandatory, but accrued without issue as to employment status or hours worked? If not yes and yes, then it might be argued that including the match in the account balance was inappropriate. And, if inappropriate, the loan was not in compliance from day 1, resulting in the loan being includible in income at that point in time. But, if it was ok when it was issued, it probably is ok. I can see the IRS arguing some sort of violation if the inclusion of the deferral and/or match was predicated on assumptions known to be false. That is, if the entity was definitively going to lose money for the year, allowing the deferral and making the match on such a deferral probably carries qualifiecation issues. But that may be a separate matter from the loan.

I've always taken the position that it is ok to have them come out of the IRA. Write a letter to each affected participant and let them know that they will be getting 2 1099's. One that reflects the amount of the rollover, the other that reflects the return of monies to cure the failed ADP. Let them know that the latter amount is not rollable, and, if they rolled their entire account balance that they need to withdraw the amount that wasn't rollable before next April 15 in order to definitively avoid having made an excess contribution. If they don't remove it, it will be treated as a personal contribution to the IRA, subject to all the rules associated with personal contributions, including excise taxes for contributions in excess of the limits.

Did you pro-rate the maximum? If so, the problem is solved as the maximum is not subject to being pro-rated.

The only time I have been called was for a divorce issue. It was a participant that was an HCE of a small company that wanted free actuarial services,when need was clearly not an issue. I declined.

To the extent the client pre-funds, there is a requirement to identify, when contributed, who the money is targeted for. That is, what group it is for. If this ends up being less then optimal after the end of the year, that's tough beans for the client. If they want maximum flexibility they should not fund more than the safe harbor minimum. But, there is no prohibition against pre-funding. It just limits the available options.

If the plan was terminated as of February, 2002, then there was no need to do a minimum funding valuation for the period 10/1/2002 through 9/30/2003. Minimum funding standards don't apply to a plan year that begins after the end of the plan year that contains the plan termination date There is no pro-ration for maximum deductible purposes, is there? See if 404(a(1)(D) doesn't create a situation where the entire $75,000 is deductible.

As stated in the earlier thread, you have so much information that bears on this determination that is primarily legal in nature that you really need to hire an attorney. Any actuary can do theoretical calculations for you. In fact, if you provide all of the details here, someobdy is likely to do them here. But you don't want theoretical calculations. Or at least you shouldn't. What you need are calculations that are specific to your plan's benefits. As stated in the other thread, you will need to review the plan materials provided when you stopped your initial pension and, more specifically, what you signed around that time - theoretically, no doubt, acknowledging that you understood what the company was offering. I'm not saying that you aren't right. I'm saying that there is no legal theory that will be exposed here that definitively states that you are right or wrong. Good luck.

jdubya, is there anything new to this question that you didn't ask the first time around?

Actually, Katherine, I think you can use a two tier system. Something like the earlier of 1000 hours in a 12 month period or 500 hours in a 6 month period would work. At least, I've seen a whole lot of approved documents with that type of dual eligibility provision.

Agreed. It is time to have a serious discussion with the client and determine whether the client wants to terminate the plan and therefore avoid ongoing deficiences, or whether the actuary can reevaluate the retirement assumption to reduce 412.

Thanks