Dougsbpc

An NHCE is beyond NRA of 62 but under age 70 1/2. He will continue to work indefinitely. He requests a lump sum distribution of his entire accrued benefit now. Plan document allows for distribution after attaining NRA. Is his PVAB based on the greater benefit resulting from application of 417(e) and plan AE assumptions, or is he limited to PVAB based on AE assumptions now?

You might try asking the PBGC for an extension. They may grant an extension for a brief period of time. We submitted a request for an extension based on the fact that the plan had substantial losses and most of the remaining assets will be difficult to liquidate. They provided an extension of 3 1/2 months. Check the PBGC web site under the Plan Termination section. They outline the procedure for requesting an extension.

If the DB benefits to EE's are small to begin with, self-directed investments in the DC plan are not much of a problem. However, there can be a fluctuation problem for those with higher benefits. Before the plan is adopted recommend pooled investments for the DC plan. If they insist on self-direction then mention the potential for benefits to fluctuate. With all the 401(a)(26) and other ambiguity, we decided a few years ago to instead just recommend combo plans without offsets. 1/2% of pay per year to EE's in the DB and at least 7.5% to EE's in the DC. One of the biggest problems with $0 net benefits to EEs in an offset plan is internal. Many employers hate to distribute benefit statements and other reports to employees. In fact, I am sure some employers dont even distribute them.

We have looked for an answer on this but have not found it. A plan clearly has more than 5% of its assets invested in non-qualifying assets. Therefore, to be exempt from the small plan audit, they will purchase a bond "equal to 100% of the value of non-qualifying assets". Is the value of non-qualifying assets equal to the net value of non-qualifying assets? For example, suppose you have a plan with just a real estate investment with a market value of $900,000 but a mortgage payable of $500,000. Must the bond be for $900,000 of coverage or $400,000 of coverage? Thanks a million.

A calendar year DB (beginning of year) plan terminates 1/31/2009. There will be no Target Normal Cost because no participant would have worked 1,000 hrs one month into the year. There will be a shortfall amortization payment of $40,000. My understanding is that the contribution would be $40,000 x 1/12 = $3,333 (adjusted for interest at effective rate). In other words the full TNC (provided participants will accrue a benefit) plus the pro-rated shortfall amortization payment. Agree? Thanks.

Suppose the owner of a small corp that sponsors a DB plan is also a participant in the plan. He also happens to be the trustee. He owns 7% of the stock of a privately held company (not the company that sponsors the DB). Can the plan invest in that stock? Something tells me that it may be a prohibited transaction. Use of plan assets for the benefit of a disqualified person. The disqualified person being him as a plan fiduciary. Suppose instead this was a publicly traded company. Then would it be a prohibited transaction?

We will probably get a coverage determination from the PBGC, but has anyone had experience with something like this? Architect with 5 EE's has had a DB plan for 5 years. Plan has not been covered because of professional service employer exemption. Now acquires 80% of a storage facility business and has a controlled group. They have no problem covering all 15 employees from the storage business so the storage business becomes a participating employer in the plan. Now most income is derived from the storage business. ERISA 4021©(2) says a professional service employer is any entity owned or controlled by professional individuals where BOTH THE ENTITY AND THE PROFESSIONAL INDIVIDUAL OWNING AND CONTROLLING IT ARE ENGAGED IN THE SAME PROFESSIONAL SERVICE. Here we have a professional controlling a business that happens to be a participating employer in the plan, but he and the storage business are not engaged in the same professional service. We are thinking the plan must now be covered. Any agreement/disagreement? Thanks much.

Yes...If no AFTAP was issued then I dont think you could have a material change as the presumed AFTAP would be less than 60% and would stay that way until 2010. If you now change the 2009 val by using the full yield curve, you havent changed the less than 60%. Also, I think the final regs allow us to switch between beg and end of year valuations without obtaining approval for 2008, 2009, and 2010. Since many plans have recovered losses, this might also be a solution. What if you had a plan certified at 98% for 2009 but changed to the yield curve now and that brought the AFTAP up to 107%? At 98% there were no restrictions so I would think this would not be considered a material change.

Are there any restrictions to using the full yield curve for a 1/1/2009 DB valuation? For the 2009 year, I believe we can go back 3 months before the start of the plan year. October 2008 would provide the most relief. This plan had enormous losses in 2008 but have gained back all that was lost. A reduced minimum for 2009 would sure help. Thanks.

First 401(k) with Roth contributions. Must Roth contributions be held in a separate account? For example, suppose a participant has a brokerage account that contains pre-tax deferrals and employer contributions. Does he need to have a separate brokerage account to contain the Roth contributions or can they be deposited to the same brokerage account. We would, of course track each source of money separately within that one brokerage account.

A small plan sponsor had employees for the first 10 years of his business. He no longer has employees and will not again. However, he does want to keep the plan another 5 years or so. Must they continue to file the full 5500 or could they switch to a 5500-EZ. Also, the plan has non-publicly traded investments of about $300,000 and they would rather not maintain a fidelity bond since there is now only one participant (the company owner). Thanks

Suppose you have a traditional DB sponsored by medical corporation A. Corporation A is owned equally by 3 separate corporations. Each of these corporations employ one physician. They are a related employer group so each of the physician corporations will adopt the plan as a participating employer. I believe that each participating employer is only responsible for funding contributions for its employees. Could the contribution be allocated on PVAB's? Or would this be treated like a partnership where the contribution must be allocated on ownership interest only? Or would any reasonable method consistently applied be acceptable? Thanks much.

Suppose you have a client who wishes to adopt a DB plan in 2009. The client is a corporation with a December year end. Suppose they adopt a plan with a year beginning November 1, 2008 and ending October 31, 2009. The deductible limit can be determined from the plan year that begins in the taxable year per reg. 1.404(a)-14©. So as of 11/1/2008 the minimum required contribution is $100,000. The corporation files its 2008 tax return by March 15, 2009 with a $0 deduction but makes the $100,000 contribution May 15, 2009. As such, the $100,000 is deductible in 2009. Then, suppose the 11/1/2009 minimum required contribution is $105,000 and is contributed by March 15, 2010. I would think the $205,000 would be deductible on the corporation's 2009 tax return. Does anyone/everyone disagree with this?

Are there any disadvantages to electing to add to the prefunding balance?

The ordinary and necessary expense requirement under 162 makes sense. It is interesting that the participating employer agreement refers to "any contributions made by a Participating Employer will be allocated to all Participants employed by the Employer and Participating Employers". I have seen this very common language many times.

No. It would be less than 25%.

Suppose you have a small DB that is less than 80% funded. Can the 100% owner's spouse be paid a lump sum as ordered by a QDRO?

Could the $50K be deducted on Company B's return even though company A contributed $0?

Suppose you have a 401(k) plan sponsored by Employer A. Employer B is 100% owned by the 100% shareholder of Employer A so we have a controlled group. Employer B is more profitable than Employer A. Employer A has 20 employees. Employer B only has 3 employees including the 100% owner. Employer B adopts Employer A's plan as a participating employer. The participating employer agreement indicates that "any contributions made by a Participating Employer will be allocated to all Participants employed by the Employer and Participating Employers". Question: Does this mean that Employer B can fund any portion of the match and profit sharing contribution (perhaps even all) for all participants of the plan? Certainly they would not want to exceed their 404 deduction limit but this could be quite advantageous.

Good points. If the plan already had excess allocation language and you had former participants who terminated employment long before the current year, I cant see how that would be discrimination in practice.

One good thing PPA funding has brought us is the ability to fund a large maximum contribution (when appropriate) to most plans that have existed for a while. Speaking of appropriate, could an employer purposely fund far more than accrued benefits just before terminating a plan, knowing that excess assets will be allocated? For example, suppose you have a 1 participant plan and the 2008 PVAB and assets were $700,000. Suppose the participant has many years of service and participation and is nowhere near his 415 limit. Also, the participant will not work the required 1,000 hours to accrue a benefit in 2009. There would be no TNC in 2009 but the maximum contribution could be $300,000. Could such a contribution be made? I would think so. Thanks.

Thanks SoCal That does make sense. So if the participant is partially vested and receiving monthly RMD payments, you may need to increase those payments during the second half of the current year if the participant earns vesting credit by mid year.

Reg 1.401(a)(9) - 6 indicates that if any portion of a participant's benefit is not vested as of December 31 of a DISTRIBUTION CALENDAR YEAR, the portion that is not vested will be treated as not having accrued for that distribution calendar year. This seems to indicate that when determining periodic RMD payments for an upcoming year, we have to assume the participant (if not already fully vested) will have an increased vested benefit by year end and increase the payments accordingly. What happens if the participant falls just short of 1,000 hours and does not get vesting credit? he would have been paid too much. Am I interpreting this wrong? If not, it sure would have been better to be able to base your current year RMD payments on the vested accrued benefit as of the immediate preceding 12/31.

A small defined benefit plan has been making required minimum distributions to the 100% owner for the past three years. The RMD was based on a 100% J & S annuity. In November 2008, after receiving the 2008 RMD, the participant made his living trust the primary beneficiary rather than his wife who had been, although she is a beneficiary of the trust and is just two years younger than him. He then died 10 days later. The 401(a)(9) final regulations indicate that RMD's after death continue to be distributed in the same manner they commenced. Assuming the participant did not accrued a benefit in 2008, the RMD payable to the living trust would be the same RMD he received in 2008 just prior to his death. Does anyone disagree with this?

In 2008 a participant in a 401(k) plan made salary deferrals of $24,000 instead of $20,500. We informed the plan sponsor / trustee to remove the excess in early March 2009 but they failed to do so. I believe VCP/SCP is the only way to correct this now. If they distribute the excess plus earnings now, the amount is double taxed. How is this done? Does the participant receive two 1099's in January 2010 (one showing $3,500 taxable for 2008 and one showing the excess + earnings taxable for 2009)? If this is the case and the participant has still not filed his 2008 tax return, could the additional $3,500 be reported now on the tax return even though he will not have a 2008 1099 reporting this yet? Thanks a million.