Dougsbpc

Thanks for the replies David. I guess my question is would a 1 participant DB plan be considered non-compliant (and disqualified) if it terminated December 31, 2008 without formally adopting any language to comply with WRERA? I think WRERA was signed into law in late December.

What it really comes down to is that we administer a 1 participant DB that terminated 12/31/2008. We usually get a DL on termination but in this case the plan sponsor does not want to get a DL. Usually we would insist on it but this has been a very straight forward plan that has been properly amended all along. It seems that WRERA only provides relief. Would a plan be considered non-compliant by not adopting a WRERA amendment when in operation it never employed any of that relief? What about a plan that terminated earlier in 2008?

Does anyone know if a small DB plan that terminated December 31, 2008 needs to be amended for WRERA?

Does a small calendar year DB plan need to adopt a WRERA amendment if it terminated 12/31/2008? I think WRERA only provided relief.

Thanks Sieve I would think the 415 compensation matter is a not an issue in a safe harbor only 401(k) plan. Even if you had a short year of 4 months it would be $245,000 x 4/12 = $81,666. maximum salary deferrals and 3% of annual compensation would be far less than $81,666.

A calendar year company wants to adopt a new Safe Harbor 401(k) plan for the 2009 year. The notice will be considered timely if provided when participants become eligible. The plan document will be signed shortly, Safe Harbor Notices will be given and salary deferral elections will be made all effective March 1, 2009. Does this preclude the plan from being effective 1/1/2009? In other words does a retroactive effective date automatically mean that the safe harbor notice was not timely? If we do need to make salary deferrals effective 3/1/2009, are we required to pro-rate the 402(g) limit? Thanks.

Have a small DB plan with a minimum contribution of $41K and a prior year carry-over balance of $61k. I think the employer can elect to reduce the minimum required contribution by the carryover balance. I think the plan must be more than 80% funded for the prior year after subtracting any pre-funded balance. However, just the pre-funded balance and not the carry-over balance must be subtracted. Correct?

Thanks David What if the excess were large? As a simple, extreme, fictitious example, suppose you had a 1 participant DB that had existed for 10 years. Assume the participant is not close to his 415 limit. The plan is terminated and benefits frozen 3/1/2008. Assets = $800,000, benefits = $780,000. With PPA funding, the maximum contribution for 2008 could be $350,000 (I don't believe this is pro-rated like before). Could they contribute $350,000 and potentially allocate excess of $370,000 assuming he is not close to his 415 limit?

When terminating a DB plan we have been terminating the plan and freezing benefits. The idea being that if the plan termination somehow did not happen, benefits would not continue to accrue. Although we have not found anything on this, we heard that excess assets cannot be allocated to participants once benefits have been frozen. Is this the case?

I don't believe the recent technical corrections bill allows for a one participant DB to forgo accrued benefits on termination to avoid lump sum restrictions. Suppose the 2009 AFTAP is 77% as of 1/1/2009. Could they subsequently fund an extra amount to get them over 80% and have the restrictions lifted for the 2009 year?

I agree with Andy. Where is the relief on the restriction for paying lump sum distributions for a plan that happens to fall below 80%? In a small non-covered plan, why couldn't a majority owner forgo a portion of his/her accrued benefits on plan termination to allow non-restricted benefit payments?

Thanks for your insight.

Suppose an employer with 40 employees leases 3 employees from an agency who are considered temporary. All 3 work for four months and then the employer hires them on as full time employees of its own company. The employer has a 401(k) plan that requires one year of service to be eligible. Must they count all hours from when they were leased employees? I would think that hours as a leased employee are not counted until the employee works on a substantially full-time basis (1,500 hours). Then all hours would count. Anyone know the answer to this?

I dont believe we have done any plan terminations for PBGC covered plans yet. We are familiar with the process (notices, timing etc), but don't completely understand ERISA 4044. ERISA 4044 deals with the allocation of assets upon plan termination. "Allocation priorities" seems to mean you do not have sufficient assets to pay all liabilities and therefore you allocate scarce assets based on certain priorities. We understand this for a non-covered plan, but a covered plan only has two options: 1 Standard termination - in this case assets must be sufficient to pay benefits and then why would you need allocation priorities? 2 Distress termination - in this case the PBGC takes over the plan and pays benefits up to the guaranteed level. Any enlightenment would be greatly appreciated.

Blinky, As of 1/1/2008, the plan's actuarial value of assets = $1,444,000. The target liability on that date is $1,655,000, which gives us an AFTAP of 87.2%. However, it was not certified by 4/1/2008, so it drops by 10% as long as it is certified by 10/1/2008, which it was. So the AFTAP would be 77.2% for the 2008 year. Since this is less than 80%, we would be restricted on lump sum payments. The single participant owner would like to terminate the plan 12/31/2008. They had a good year, so they funded more than the minimum for 2008. So as of now, the plan is very well funded. My question is, are we stuck with the lump sum restriction if the plan terminated 12/31/2008? In other words are we forced to terminate say January 2009 so we can get an AFTAP cert that will be > 80% thereby lifting the lump sum restriction?

Suppose you have a calendar year 1 participant DB. They were not able to provide investment information until after 4/1/08. The AFTAP was certified 9/15/08 at 87%, so actually 77%. Since then, they have made a contribution that will put them over 100%. Can they terminate the plan 12/31/2008 without benefit restrictions or must we wait until 2009 to terminate and have a new AFTAP done? Thanks much.

Is anyone doing end of year valuations anymore?

Sheila, Thanks for the info. I may not have provided enough information in my post. When the plan was restated for GUST it was not submitted for a Determination Letter. The document provider received approval for the Volume Submitter document used in the restatement process. Perhaps I should have referred to the letter as the approval letter rather than the opinion letter. So we are looking at submitting the plan for a determination letter upon plan termination. We have a volume document approval letter for the GUST restated document, but not the prior volume document initially adopted.

A small DB plan was adopted 1/1/2001 and was restated for GUST 1/1/2002. However, the prior opinion letter from 1/1/2001 cannot be located. Prior administrator went out of business. The plan will now be terminated and will be submitted for a DL. Does anyone think the IRS will require the opinion letter for the prior document (1/1/2001)? If it cannot be produced will they consider the initial plan as individually designed? We do have an opinion letter for the GUST restatement as of 1/1/2002. Both documents are volume plans.

A small non-pbgc db plan terminated December 31, 2007 The plan sponsor initially did not want to get a D letter but we finally convinced them to. If the submission is done now, we may not get the letter for up to eight months and they would prefer not to pay benefits until they receive the favorable letter. 1) If benefits are not paid until after 12/31/2008, are they in danger of the plan not being considered terminated because more than a year has gone by? 2) Since the plan terminated in 2007, PPA segment rates are not used for 417(e) purposes. Instead, the old stability period, look back month and 30 year treasury rate is used. What would happen if we drifted well into 2009 before benefits were paid? I guess the 30 year treasury rates will still be published.

What about allocating total costs on accrued benefits? Then consistently apply that method for all future years. Would this produce approximately the same result as before?

Suppose a small non-PBGC DB plan terminates 12/31/2007. No participant is close to the 415 limit. The plan document allows for lump sum distributions based on the greater of the plan rate or 417(e) rate. The 417(e) rate per the document would be from November 2007. Suppose benefits are being distributed in two weeks based on an ERISA 4044 allocation. Our understanding is that since the termination took place prior to the effective date of PPA'06 segment rates, we would not use them and instead follow our plan document. Does anyone disagree with this?

Suppose a safe harbor 401(k) plan with a 3% Employer SH exists. Also, HCE's do not receive the SH contribution. Now the employer is interested in making an additional profit sharing contribution. The profit sharing contribution will be 10% of compensation for the company owner and 2% to all others. 1) The 3% SH and 2% PS allocation together satisfy the gateway. 2) The 3% SH and 2% PS allocation together satisfy the rate group test when compared to the one HCE. Question: Must SH, PS, and salary deferrals be considered for the average benefits percentage test?

We recently took over a small DB plan (10 participants) that happens to have life insurance. The plan is not exclusively funded with life insurance. In fact total cash value represents about 15% of plan assets. We noticed that the prior administrator (who sells a lot of insurance) did not include cash value of the policies on the schedule I for all past years. Is there an exception to reporting the cash value of life insurance on the schedule I? I would think it must be part of plan assets like any other investment.

Agree with you that the intent of the increase is a value preserving measure and therefore should not be considered an amendment for cushion amount purposes.