Mike Preston

The short answer is "yes" the AP should share in the loss. Keep in mind that it is the loss on the monies as of 9/30/2002, because if there have been new monies deposited since thn, the loss or gain on that money belongs solely to the participant. Also, you might want to make sure that the loan can be properly split. I have run into cases before where the loan is intended to be split, but the loan policy for the plan requires that loans be repaid through payroll withholding. Since an AP can't do that, you are essentially providing an alternative to an AP not available to the participant (having a loan that isn't repaid through payroll). That is a problem.

It is definitely a very thin window opening that you must fit through. You need somebody to review the transaction from top to bottom.

Check out 1.408-8 Q&A 7. It basically says, if I'm reading it right, that if there wasn't any distribution from the qualified plan in 2003, then you "pretend" that the assets in the IRA as of 12/31/2002 were the amount rolled in, and you calculate the 2003 minimum distribution based on that amount being in the IRA on 12/31/2002.

I think you need to get to ERISA counsel. 414(k) elections, to the extent they are valid at all, must, IIRC, under the 414(l) regs be a complete transfer of benefits. How do you do that in an underfunded plan? Maybe their is a way, but I haven't discovered it to this day. I hope your counsel has better luck. If there is a transfer, it is a speciric dollar amount so the trust must be valued if 100% of the monies are being transferred. Why is this hard? Keep in mind that 414(k) elections are frowned upon by the IRS so dotting the i's and crossing the t's is especially important. Now, to the practical side of things. Why a 414(k) in this circumstance? They are most attractive when there is a good reason not to terminate a plan, but excess asset accumulations during the period before the plan actually terminates might create a problem. In this economic environment it hardly seems worth the effort. Just terminate and pay out to the extent funded, since the plan isn't covered by PBGC. What am I missing?

Where's Allan Sherman when you need him? How would Harvey and Sheila have reacted? How do we pronounce ERSA? Is it three syllables (er-es-eh)? If so, new lines can be added below the following: They bought a house one day, Financed by FHA. It had a swimming pool full of H2O. Funded their RSA, filled up their LSA IBM's CBP became an Er-S-A. Transferred their IRA's Switched their QSTP's Now they'll pay no tax until their dying day! ===================== I know, I know. I won't give up my day job.

I have no clue who the people responsible for it are. Your point is a good one. If we can use this as a springboard to make defined benefit plans more rational, with some flexibility in funding, I think the result would be marvelous. I'm not holding my breath, however.

Defined benefit plan installations?

Yup, concur. I was still stuck on the 29000 figure for 2002. Sorry. cud, huh? ;-)

There are a number of potential solutions to that problem. Before cross-testing we used to use them pretty effectively. Just because cross-testing is better doesn't mean that the old way has lost all of its effectiveness.

Hopefully a very long time. ;-) No, seriously, if you are serious you should check out the Society of Actuaries, the American Society of Pension Actuaries and the Joint Board for the Enrollment of Actuaries. At a minimum you are looking at 1 year of intensive study in order to pass the Enrollment Exams, along with a "responsible actuarial experience" requirement which I believe is 2 years. although some of what you have done to date might qualify for the experience requirement.

Resignation is not necessarily required. Instead, a Trustee can be removed. Look to the terms of the Trust agreement to tell you what needs to be accomplished and what the notification and waiting periods are.

You are. Your actions would disqualify the plan. There is no provision for disenfranchising this person from their benefits other than the normal provisions of a lost participant being able to be forfeited if the document so provides.

Earl, how do you arrive at your maximum number for 2003? If Sole Prop income is $152,435.22 in 2003, the 1/2 FICA deduction is $7,435.22, leaving exactly $145,000. Subtracting $29,000 leaves $116,000 as "compensation". $116,000 times 25% is $29,000. With sole prop income of $147,236, the 1/2 FICA deduction is $7,365.60, which when combined with a contribution to the PS of $27,974 would leave $111,896.40 as pensionable earnings. 25% of $111,896.40 is $27,974.

AndyH, no, it won't. It will force those who are in the business of providing retirement planning consulting to concentrate on, er, retirement concepts. Now, if only we could get rid of lump sums entirely we could return focus to where it belongs. Saving money for retirement.

I knew there was a reason I voted for Bush. I don't know where ASPA is on this (I suspect they will not be terribly supportive), but it sure does seem to me to be the Actuary's Really, Really Full Employment Act of 2003. Every single cross-tested plan will become a DB plan.

I'm glad for you guys, really I am, but as of this moment, I can't find the 2002 instructions. Anybody want to post a link that goes directly to the instructions?

You do not aggregate cafeteria plan elections with salary deferrals for any purpose. Nor do you have to be concerned about 415 limits. You do have to watch how the cafeteria plan elections are handled for purposes of reporting compensation to the Plan Administrator of any qualified plans you may have, though, as plans can treat cafeteria plan elections differently. QDROphile is right that the decision as to limits is something that impacts the amount of risk that an employer is forced to bear. But if $10,000 is desirable and the employer is willing to accept the risk, and the plan allows it, and the employee elects it.......

There is no such thing as a stupid question if asked in sincerity. Although, you may end up feeling like this one is by the time you finish reading this. ;-) The Schedule F was eliminated from the Form 5500 series until further notice by the IRS. It is good to bring this up every once in a while so that others can see this issue that might not be aware of it.

There is nothing requiromg it to be mailed. "For example, in-hand delivery to an employee at his or her worksite is acceptable." People unavailable at the worksite, such as terminated participants entitled to a copy, must receive their copy by mail (unless you meet the electronic exception). What you may have heard somebody else say is that the SAR can be included in a union or company publication. That is true, but only if the regs are adhered to. In this respect the front page of the publication must have a prominent notice indicating that the SAR is included. The reg is somewhat vague about how the SAR is to be included. It references an "insert" implying that it must be on a page that is separable from the publication itself. I'm not sure that is a requirement that is enforced, though, as i've seen SAR's included as part of the publication itself, rather than as an insert. Anyway, see 2520.104b-1(B)(1).

One final thought. OBRA'89 changed the plan interest rate for determining the quarterly charge to include an adjustment to bring the rate into compliance with the OBRA Current Liability Rate. If I'm understanding the OP's situation, this means the 8% rate is modified to something like 6.28% (if we are talking about 2002). Hence, the 175% rate of 7.92% will be the resulting rate to use, not 8%. See the notes regarding changes to 412(m)(1)(B).

My understanding, which could be wrong, so I'd like somebody else to confirm, is that the law, coupled with a judicious plan amendment authorizing loans, will cure the disqualifying defect and the PT. However, the PT for the period before the amendment is effective is subject to excise taxes. The question is whether the period before the amendment is effective is still subject to disqualification. I seem to recall somebody from the IRS saying that they wouldn't go after a plan in this position, even if they felt they could. That doesn't give me much comfort. The way to be sure is to submit an application under EPCRS and see if they turn you down because you are not in need, as far as they are concerned. A John Doe application on this basis should be a good bet.

I'm on the other side of the fence on this one. An individual in Plan A or Plan B with an account balance certainly must see that account balance retained. But just like Plan A could be amended to provide for 21/1 and eliminate deferrals for those already in the plan until those people met the new eligibility requirements, so can Plan C as the continuation of Plan A.

Depends on your definition of full reliance. If you are talking about "form of document" reliance, the answer is yes. If you are talking about "operational reliance", then you have identified the fact that if your plan doesn't satisfy the coverage rules, the plan can have a problem. But it won't be because the document is faulty. It will be because the person administering the plan didn't understand what tests need to be performed on an operational basis. This would apply to any provision that requires operational testing. The most common besides the coverage rule of 410(B) is ADP testing under a 401(k) Plan. You can have complete compliance with a 401(k) plan only by electing to incorporate the Safe Harbor provisions. Same for ACP testing. In the end, even if you elect options within a qualified plan that are intended to guarantee compliance, you still have to follow the terms of the document in order to have operational compliance. What is the effective difference between following the terms of the document and following not only the terms of the document, but understanding what tests (410(B), 401(a)(4), ADP, ACP) need to be run? Frequently, but not always, you will find that the provisions of the plan that "guarantee" compliance are so much more expensive for the plan sponsor that a non-guaranteed design, even after adding lots of administrative fees for compliance, will be much less expensive to operate. For example, the safe harbor provisions of 410(B) supposedly "guarantee" compliance by forcing the plan sponsor to allocate monies to the accounts of terminated participants. There are very few plan sponsors who would go along with such a scheme if it is explained to them in advance.

Well, I'm not sure that you heard them correctly. In the case of language which is clear and unambigous, there is nothing to interpret, so the Plan Administrator must follow the terms as written. If, however, there is something which has some ambiguity in it, then the Plan Administrator's responsibility is indeed to interpret the document. People try very hard, however, not to draft plan documents with ambiguities. But there is always the possibility that one exists.

It is a general rule that all policies maintained by a trust should have as their beneficiary the Trust, no? To do otherwise risks disqualification, although I guess I can envision cases where it is the apprpriate thing to do. But certainly not if the policies have the potential of exceeding the incidental limits, as in this case.