Mike Preston

No.

Thanks for letting us know. Please review the circumstances I mentioned in my first response to you. Keep in mind that if your new loan is not treated as defined therein (for example, having it mature before 5 years from the date your previous loan was established) the TPA is likely to decide at a later date, even though they approved the loan as requested, that they must nonetheless treat the loan as violating 72(p). If they do that, you will end up with taxable income to the tune of the new loan - $49,000! Since I know that is NOT what you want, please ensure that your TPA absolutely confirms that they will not issue you a 1099 with respect to the loan you are getting (or have gotten). Glad thngs are working out for you!

I am referencing the ability to provide a positive contribution to certain participants (otherwise excludables) who nonetheless do not need to receive the gateway percentage. The regs are crystal clear that one may avoid the gateway for those individuals even though they are provided benefits through the same plan that non-excludables participate in. Similarly, the regs are crystal clear that if a participant is not otherwise excludable they must receive the gateway if they receive anything in excess of zero.

It only applies to those that could have been set up in a separate plan due to relaxed eligibility criteria. It does not apply to all non-keys.

No.

I undersstand. But if there was no language in the plan that supported the suspension of benefit, then it is hard to argue that it was possible to give a notice. Seems ripe for an LOD filing to ferret out the maximum.

I don't see how one can have both 404(a)(1) and 404(a)(3) applicable to the same plan.

True. But once it becomes the accountant's headache, I'm out of it.

Geez, I don't see why a simple amendment to replace the plan sponsor doesn't accomplish what you want. Why do a complete amendment and restatement? At the most, one makes the plan sponsor the corp and has the sole proprieor maintain a form of sponsorship by designation as an adopting employer. However, mayber there are other reasons why this advisor has suggested the old plan be replaced rather than amended? Are there some skeletons in the closet?

Not after 1/1/2002, unless the IRS sees fit to re-create them via proper guidance, per EGTRRA.. Whether they will or not remains to be seen. Until they do, the old rules with respect to profit sharing plans are now effective with respect to money purchase/target benefit plans.

I don't really think it matters whether the entity has filed the tax return. If it has, it was wrong. An amended return is the best way to go.

Don't know of a website, but attached is a spreadsheet where it is easily demonstrated. But you needto have an interest rate of about 7.75% or higher to make it actually work.

Due to EGTRRA change, deduction is limited to 25% of compensation paid during the relevant periods. In example 1, it is 25% of compensation paid during the tax year 1/1/2003 through 12/31/2003. Anything that wasn't deducted from the 7/1/02-6/30/03 plan year in the 12/31/2002 fiscal year would be deductible in the 12/31/2003 year as would 100% of the contribution for the short plan year ending 12/31/2003. Note, however, that the 25% applies. Hence, it is questionable plan design to allow the design of the plan to provide for a contribution for the 12/31/2003 year, which, when added to the contribution for the 6/30/2003 plan year that was not deducted on the 12/31/2002 tax return, exceeds 25% of 12/31/2003 compensation. However, there may be legitimate reasons for designing a plan that calls for more of a contribution than the deductible limit. In that case, with careful planning, one could contibute the balance in 2004 and deduct that on the 12/31/2004 tax return. In example 2, the deductible limit for the 9/30/03 tax year i 25% of the compensation paid during that 12 month period to those that participate in the plan. The deductible limit for the 12/31/2003 tax year is 25% of the compensation paid during that 3 month period to those that participate in the plan. Again, the specifics of the plan years don't matter all that much except for the fact that if they call for a contribution that is not deductible, then one has to question the plan design.

The benefit formula can be adjusted at any time. However, in order to take advantage of the authority you sought regarding the distributions of past benefits in a manner that helps reduce excess assets, the formula needed to already be at a level which would ave paid the 415 limit (or very close thereto) to the participant. So, as was asked earlier, what is the nature of the excess? Is it merely dollars in excess of benefits promised under the terms of the plan? Or is it dollars in excess of the current 415 limit? If the latter, and the individual was entitled to a distribution in the past (whether retired or not), then there may be argument for paying the "missed" payments, with an interest adjustment, too. The client needs to have somebody review this who has more familiarity with the concepts.

Doesn't Notice 89-25 kill the springing cash value angle?

The regular deadline, for an individually designed plan, was 2/28 (not 3/1). However, if the plan that it is currently on submitted its application for a GUST prototype approval before 12/31/2000, then the deadline is no earlier than 12/31/2002. You should check with the prototype plan sponsor to determine whether or not they qualify. If they do, they will tell you whether they hae a deadline of 12/31/2002, or whether their deadline is later.

I think the theoretical answer is that it can be dne. It hink the practical answer is that it makes no sense to do it that way in most instances. I can remember many years ago that there were certain MP/PS combination plans that operated under the auspices of a single plan. But with word processing the way it is today, it has to be easier to establish spearate plans where you change on ly the relevant information that it is to try and interweave the various provisions necessary to have them apply to multiple plans established under a single document. But, hey, if that is what is wanted, and the plan sponsor is aware of the significant extra effort required (at least the first time around on a project like this) then I guess it is theoreticaly possible.

The authority would be the latest IRS rules on 415 calculations. They indicated that 415 is not subserviant to the rules on actuarial increases required after NRD. Hence, in the absence of appropriate notice to a participant dealing with the suspension of benefit rules, the plan ends up being disqualified if it limits the participant's benefit to the 415 limit. Of course, it ends up being disqualified if it doesn't limit the participant's benefit to the 415 limit, too. There are only two rational responses to the way the IRS has interpreted the rules. One is that one is free to pay the benefit as it was required to be paid under the terms of the plan. The other is that you have an operational failure that can only be corrected through the EPCRS program. The IRS hasn't indicated that the first approach will not work. It is clear that the second approach will work, IMO.

Are you sure this isn't just a timing issue? Let's define the dollars of forfeiture as $F. Let's define the dollars with respect to the match for the 12/31 plan year that were contributed after the end of the plan year as $M. If F Problems only arise if $M is less than $F. In that case, I'm not sure I agree with Blinky on the ability to use an amendment in the absence of a CAP submission. Especially if the match is in any way discretionary. In that case, the amounts contributed before the end of the year would have to be allocated, wouldn't they? As would the forfeitures? Of course, discretionary matches with language that says forfeitures "reduce" is confusing at best.

There is no requirement that alternate forms be actuarially equivalnet to the normal form on any particular basis. Yes, RR 79-90 requires that each benefit be definitely determinable by specifying the assumptions to use for each potential benefit, but I'm not aware of the requirement you mention. Keep in mind that subsidies require special treatment, so it is common practice to ensure that there is a small "cost" associated with some alternate forms. If the participant doesn't want the "option" they can decide not to pay the price.

If they have a 50% j&s as the normal form, that qualifies as the "qualified" joint and survivor. They are therefore free to use any reasonable actuarial equivalence for other benefits. If that ends up subsidizing those other benefits, then the qualified joint and survivor must be improved to ensure compliance with 1.401(a)-20. However, in this case, they "penalize" the participant a bit (at least with these ages) so it is merely the "cost of conversion" that the participant bears in order to sign up for that benefit. Recognize that they can't go the other way. If the pop-up were based on actuarial factors more valuable and the pop-up was not the qualified j&s, then they would need to adjusst the qualified j&s. I think your plan is fine, at least at these ages. I wonder whether there aren't ages that would require an adjustment. I'll leave that to somebody who wants to play with the formula as given. If you got 1147, then show your formula. I've shown mine.

The benefit that the document calculates is faithful to the theory that the actuarial equivalence under the terms of the plan is UP84(0,-3) at 7%.Given a life annuity benefit of 1248, the calculation of the benefit (B) is: B = [ 2 * 1248 * a(x:y) ] / [a(y) + a(x:y)] where: a(x:y) = 112.41 a(y) = 137.55 where x=57 and y = 54 yields: B= 1122.48 which is almost exactly equal to your 1248 * 0.8994 factor (1122.45). I can also show the formula from first principles using N's and D's, so I'm pretty sure it is correct. My thanks to Rick Block from Manhattan Beach for checking my first principles formula and helping me distill it down to the above simple expression. Hence, the calculation completely ignores the up84(-1,-1) mortality in this determination. If one were to calculate a benefit (B) which is not less than the actuarial equivalent of the single life annuity of 1248 valued at up84(-1) at age 57, the resulting pop-up annuity would need to be increased by: 1248 * (a(x)' - a(x)) / (a(y) + a(x:y)) where a(x)' = 127.19202 and a(x) = 124.92844 which yields an increase to the benefit of $11.30, for a total of $1133.75. But, getting back to your question, is this a government plan or a plan not subject to 411? If so, I'd say there is absolutely no problem. However, if it is a plan subject to the rules of 1.401(a)-20, which has somewhere in there the rule that the J&S benefit must always be the most valuable benefit offered, and *if* this benefit (the pop up) is *the* qualified j&s benefit under the plan, then you *might* have an issue. OTOH, if the plan has an LOD then I think you have 7805(B) relief even if the IRS decides to pick on this issue. So, tell us: is it a governmental plan? If not, is there another j&s benefit offered (maybe one without the pop-up) that is the *qualified* j&s benefit under the plan? If not, does the plan have an LOD on this language and the equivalence factors? If no to all three, I think you should let the plan sponsor know that there is a potential problem. Any knowledge as to why the actuarial equivalence for j&s (up84(0,-3)) is different from the actuarial equivalence under the plan for determination of lump sums (up84(-1,-1))?

Instead of clarifying a little, how about clarifying a lot? What, precisely, was the life annuity? What, precisely, was the J&S that the plan offered to pay?

Why would the j&s annuity be anything other than 1091.55, rather than the single life benefit of 1395.40? Both are valued at $150,000 lump sum under their respective actuariial equivalency provisions.

I don't believe that death benefits are protected under 411(d)(6). So you can eliminate them at will. Recognize, however, that they are subject to the general benefits, rights and features rules of the non-discrimination regulations.