Dougsbpc

Thanks for the replies Andy and Sieve Andy, I think we are stuck with #1 as our document does not specifically address how the PV of the ERB is calculated. What are the relative value regs? Any chance they can help if our document is silent on PV of ERB?

Suppose you have a small DB plan with an NRA of 62 and an Early Retirement Age of 60. The plan also provides that a participant's early retirement benefit shall be unreduced for early commencement. If a participant retires early at age 60 and elects a lump sum distribution, his lump sum benefit would be the present value of his accrued benefit payable at age 62 correct? Or would it be the present value of his age 60 accrued benefit?

Thanks Blinky and Socal The government should be getting mighty fat with all that extra cake they are getting from DB RMDs since 2006. In this case we were just not sure about an in-service withdrawal as the 401(a)(9) regs indicate that the annuity must be non-decreasing. This guy is not at his 415 limit but is accruing additional benefits so his RMD is going up. What happens if the participant dies while taking RMDs from a DB. Could his primary beneficiary (spouse) elect a lump sum distribution or is she stuck with the 50% J & S which the RMDs are based on?

Suppose you have a 1 participant DB where the owner/participant reached the NRA a few years ago (5 yrs of partic). He began taking RMD's in 2007. If the plan allows for in-service distributions at NRA could he take an in-service distribution even though he is taking RMDs? If this is possible, can his RMD go down based on the in-service withdrawal? We think not.

Suppose a participant is at the 415 dollar limit, terminates employment and wants a lump sum. In determining the lump sum benefit, the greater of 5.5%, the plan rate or a rate that produces a benefit of 105% of the benefit using minimum value lump sum interest must be used. Must this same methodology be applied if a participant is not at the dollar limit but is at 100% of final average comp?

Our understanding of the uniformity requirement is that it matters for 401(a)(26) purposes. For example, suppose a DB plan has 5 participants, 1 of which is an hce and 4 of which are nhces. Suppose AFTER the DC offset all nhce benefits are $0. As long as DB benefits BEFORE the offset are at least .5% of pay they count for 401(a)(26) purposes. However, unless the DC plan provides uniform allocations to all participants who benefit in the DB plan, the participants with a $0 benefit AFTER the offset cannot be counted for 401(a)(26) purposes.

Forgive me here, we have not had any non-pbgc DB plans terminate with insufficient assets. Suppose this non-pbgc covered DB plan terminates with insufficient assets. One of the options is to provide for an ERISA 4044 allocation of assets. This plan had no participant contributions and no annuities in pay status. Does this mean that HCE AND NHCE benefits are reduced on a pro-rata basis? Somehow it does not seem right that NHCE benefits are reduced.

Suppose you have a 401(k) plan with salary deferrals and profit sharing. Each year the employer makes a 15% P/S contribution and it is allocated comp / comp. This year they fail the ADP Test. The document allows them to carve the amount necessary to pass the ADP test by classifying that amount as a QNEC. Suppose 4% of the 15% becomes a QNEC for the two NHCE's. Does that then require us to cross-test? Does the fact that the 4% QNEC is used for ADP testing then mean only 11% is considered a "Nonelective Contribution" and then subject them to cross-testing?

ak2ary, Thanks for the reply. Most of the plans we have with < 62 NRA can be changed to 62 without too many problems. However, there are a few that may be able to really benefit from the unreduced early retirement benefit. Question: Suppose (in this case) that the company owner / participant reached the early retirement age of 57 but still continued to work for a few more years. Would there be anything wrong with terminating the plan and paying the lump sum benefit when he reaches age 57? If this is possible it would likely solve the potential problem of excess assets. We of course are not recommending plans with NRA < 62 anymore, but it sure would be nice to be able to allow the few who do have earlier NRA's to ride it out without having severe changes in funding.

Really? Would that fly? I have heard a few people mention this. So in the example of a $5,000 monthly benefit payable at 57, you would just change the NRA to 62 and continue funding for a $5,000 per month benefit payable at 57? I would think that if the participant took a lump sum at the early retirement age of 57, it would be the PV of his accrued benefit payable at age 62. The plan could then have excess assets if it were a small plan.

What about a plan with a NRA of 57 and a normal retirement benefit of 100% of average comp? Suppose a participant has average comp of $5,000 so his projected benefit is $5,000 at 57. It will not be possible to provide an age 62 equivalent of what would be payable at age 57 as it would exceed 100% of average comp.

All the actuary needs to do is send the cert via email to the TPA. An electronic record of it being sent on a specific date will be recorded. How will the actuary then be liable? Perhaps an additional attachment may contain something indicating that the certification must be delivered to the employer by 10/1 etc.

A small defined benefit plan (husband and wife only) terminated effective 12/31/2007. They signed the termination amendment November 1, 2007 and immediately rolled over all assets ($810,000) to one IRA (i.e he forgot his wife who is due $150,000). The owner and trustee never bothered to contact us. As long as everyone involved is agreeable, this should be relatively easy to fix. We would have them transfer back the original amount from the IRA back to the plan, prepare proper benefit elections and have them make the distributions. Does anyone see a problem with this? Does this require VCP? Perhaps it would as the IRA custodian would prepare a 1099-R for any amount transferred back to the plan.

Suppose you have a top heavy DB and 401(k) plan that are general tested (15 participants in each plan). Also, suppose one participant was full time but dropped to part time (under 1,000 hrs). The Top heavy minimum is provided in the 401(k) plan. Since he is employed on the last day of the year he gets the 5% top heavy minimum. Does he then get bumped up to the 7.5% gateway because of the DB/DC plans? Assume HCEs have high enough allocation rates such that 7.5% is required. He would not otherwise be entitled to a benefit accrual or top heavy minimum in the DB (if the TH minimum were provided there) because he works less than 1,000 hrs. Now suppose he only ever became eligible for the salary deferral part of the 401(k) plan but was never eligible for non-elective, match or entry to the DB plan. Would he receive a 5% TH minimum in the 401(k) plan or a 3% TH minimum.

Thanks a million masteff and J Simmons!

Does anyone know why the spouse of a married participant is automatically the primary beneficiary of 100% of the participants benefit under a plan not subject to QJSA? I assume this is because the normal form of benefit is a lump sum.

Mike, Thanks for your insight. Do you recall if Jim gave a reason? 1.401(a)(4)-5(a)(2) talks about the factors the IRS considers in determining whether the amendment / allocation discriminates in favor of HCE's. They look at "the relative accrued benefits of current and former HCE's and NHCE's before and after the plan amendment and any additional benefits provided to CURRENT and former HCE's and NHCE's under OTHER plans".

Thanks Andy There will not be any former employee receiving an allocation, but I would think that if the allocation is not based on salary it should not matter. A participants compensation base for a4 purposes would be his/her average salary. In this case, the employer would want to include the DC plan in the test if possible. The employer always makes a generous DC contribution and the employees appreciate and understand the DC plan more.

Suppose a small defined benefit plan terminates with excess assets. Also, the same employer maintains a defined contribution plan. Each year the plans are general tested and have had no problems passing 401(a)(4). Our understanding is that excess assets in the DB plan could be allocated in any manner the document allows as long as that allocation is non-discriminatory and passes 401(a)(4). If the DB plan terminates now (prior to any benefit accruals for the year) and ends up allocating excess assets during the year, are those allocations general tested along with DC plan allocations made for the year? Thanks much.

Thanks JSimmons. In this case an amendment was done that was word for word with the prototype language. The benefit formula was simply amended from 3.75% of pay to 4.00% of pay.

Does a plan with a prototype document automatically become an individual design when administerd by anyone other than the prototype sponsor? Can amendments be done to prototypes? Thanks.

A one employee corporation has a 2/1/07-1/31/08 fiscal year. The corporation sponsors a DB with a 10/1/07-9/30/08 plan year. The deduction is taken for the plan year that begins in the corporation fiscal year. Is there anything wrong with using salary from the 2/1/06-1/31/07 fiscal year for the plan year 10/1/07-9/30/08? This way, the valuation could be done in October for the upcomming year rather than having to wait until the end of January for the salary.

Thanks Tom. The employer funded about 3% of comp in December 2007. Since this is past 30 days after the taxable deadline for 2006, this amount would be an annual addition for 2007. However, that is not a 415 problem for the NHCE. The real question has to do with whether the QNEC could be used. Our understanding is that the QNEC must be allocated for the prior plan year, even though it can be contributed up to one year later. So the 2% QNEC would have to be allocated as of 12/31/2006 even though it is contributed in December 2007. That is fine for an on-going plan, but this plan did not exist as 12/31/06.

A 401(k) plan is first effective in 2007 (calendar year plan) and uses the prior year testing method. This is a sole proprietor so the proprietor has not yet made his salary deferrals for 2007. There is one HCE and one NHCE eligible in 2007. The HCE makes maximum salary deferrals and the NHCE makes no salary deferrals. We are allowed to use 5% as the maximum HCE deferral rate for 2007 under the prior year testing method for the first year. It appears QNECs can be made using the prior year method as long as they are contributed within one year of the applicable year. The applicable year would be 2006 even though the plan did not exist in 2006. The employer did make an employer contribution more than 2% prior to 12/31/2007. Question: can a 2% QNEC be allocated to the NHCE for 2007 therby allowing the HCE to defer 7%? Thanks much

Interesting. It sure makes sense that you should be able to resume the plan as long as no benefits have been distributed and participants are made 100% vested.