Dougsbpc

We only administer 401(k), PSP, DB plans and are not familiar with 403(b) plans. We really dont want to get involved with 403(b)'s but have a small local non-profit that is concerned about a 403(b) they have had for many years. The plan had salary deferral and match but was discontinued in favor of a 401(k) plan about 4 years ago. No contributions have been made to it for 4 years. They have been filing a 5500 all along. Do they need a restated document for GUST and EGTRRA? They have two insurance companies that provide annuity investments for participants. The non-profit contacted the insurance company that provided the original document and asked about a restated document. The insurance company mentioned that they no longer provide documents. Is there a document provider that is not associated with investments? Are they a candidate for a voluntary compliance program? Thanks much.

Suppose you had a similar example except the plan was a 401(k), a key employee made S/R in excess of 3% of salary and therefore had a top heavy minimum requirement. What if the employer missed making the deposit by the extended tax filing deadline, but did make the deposit before the end of the next plan year end?

The final 415 regs posted by J4FKBC is timely for this question. Suppose a county employee retires with full pension benefits and then establishes a very profitable business at age 68. If his corporation adopts a DB plan, must the 415 limit be adjusted for the benefits he accrued under the county plan? I would think not because the two entities are not related in any way. Thanks much.

Thanks much for all the replies. In this case the 100% owner who died has about 85% of the benefits, so the plan has plenty in the way of assets to pay all non-owner / non-key employee benefits even if the remainder of the contribution cannot be funded. To clarify, the company will go out of business. We are in the preliminary stages here and just wanted to see if others had experience with this. We will likely recommend they hire an ERISA attorney to provide guidance in the matter. There are other complicating factors. Yes, spouse much younger (separated but divorce not final) vs. the children from a previous marriage. It seems though that terminating the plan through IRS and paying the 10% penalty makes sense. Again, the plan can easily pay all non-owner benefits. However, the spouse (as primary beneficiary) will likely contest this action, so the attorney must be hired by the estate.

Mike Thanks for the cite on this. Sorry I wasnt clear. The plan year end in this case is 9/30/2006 so we are already past the 2 1/2 month deadline for the amendment.

We administer a small non-pbgc DB plan for a company with 10 employees. The 100% owner of the corporation recently died and the company will no go out of business. It appears the company will only have the resources to fund half of the 2006 pension contribution. We know there is a 10% excise tax and if the deficiency is not corrected the IRS could potentially impose a tax of up to 100%. It appears we could ask for a waiver of the 100% if we can show it would cause a hardship. Has anyone had experience with this?

I believe there are special IRA custodians that do accept real estate as part of a roll over. Their fees may be a little higher than most IRA custodians, but it might make sense for your client rather than forcing a sale.

Suppose you have a pooled profit sharing plan with a 9/30 year end. When determining the 2007 minimum distribution for the age 72 owner-participant, must we adjust his 9/30/06 balance to 12/31/2006? If so, by what interest rate? The 10/1/05-9/30/06 rate of return for the plan?

Probably nothing. We have had a few plans over the years that did not get around to getting a trust Id number until the following year. You really must have a trust id # when a former participant gets paid benefits.

Thanks Andy

Suppose an employer sponsors a safe harbor unit benefit DB. If the same employer adopts a safe harbor 401(k) are we required to general test accross two plans?

Yes. That is correct. This is applicable beginning in 2008.

KJohnson Thanks for the reply. Reading the two threads gives me an uneasy feeling. Although quite extensive with excellent points, the 2002 discussion seems to conclude with an indication that a single DB spnsored by a loanout corp must be aggregated with the multi for the 415 dollar limit. The 2005 discussion concludes with IRS guidelines that refer to the treatment of loanout corporations as "beyond the scope of the guidlines". However, they then seem to indicate that a single employer plan sponsored by a loanout need not be aggregated "if a worker qualifies as an independent contractor with respect to the production company under these guidelines, the production company would not be required to treat the worker as an employee even if a loan-out corporation is involved. Nonetheless, the worker may be an employee of the loan-out corporation". I guess there is no real concrete answer on this other than the apparent guidlines right?

mjb Good point on checking with the accountant to make sure the loss does not exceed the basis. But why would there be any tax law violation or prohibited transaction for an S-corp shareholder to lend money to the corporation? The pension contribution would be considered an ordinary and necessary expense of the corporation. The shareholder would not be making a loan directly to the plan (prohibited transaction) but instead to the corporation.

Have an entertainer who is 100% owner of her corporation. She is also a member of the Screen Actors Guild. The Guild has a multiemployer defined benefit pension plan. Our understanding is that if her corporation sponsors a single employer DB: 1) The single is not aggregated with the multi for the 100% of pay limit. 2) The single is aggregated with the multi for the 415 dollar limit. If, for example, she had participated in the guild plan for 10 years and acrued a monthly benefit of $2,000, would the proposed single employer plan sponsored by her corporation be in violation the first year (max dollar limit = $14,583 / 10 = $1,458). Or, when aggregating plans, do we get to consider participation under BOTH plans for the 415 dollar limit in either plan? Thanks much.

Thanks again for all the replies. In this case two of the three doctors could really benefit from a DB as they are in their 50's and the other doctor is 33 and really wants to direct his own investments. This is a perfect situation for a DB that covers the two elders and excludes the youngster. Meanwhile the 401(k) would exclude the two elders. Should work fine as they have no employees and are all HCE and Key (33 1/3% ownership each). The problem is they currently have a 20% MPP that covers all of them. They will soon terminate the MPP (by 12/31/06) but will not distribute benefits until about March 2007. So in 2007 no contribution would be made to the MPP. Meanwhile, they want to adopt a DB for the two docs and a 401(k) for the younger doc. So in 2007 no participant will benefit in a DB and a DC. That is unless just having an account balance in the MPP during the same year means the two older docs are deemed to benefit in a DB and DC. If that were the case then maybe there would be a 31% limit between the new DB and new 401(k). However, if Jim Holland indicated that inactive DC participants are not considered participants for 404(a)(7), then we should not have a problem.

Thanks for all the replies. Isnt that the truth, round and round we go. In this case the younger doctor will have the 401(k) and employer contributions will be made.

Actually, that was a bad example. Suppose the same group terminated their MPP distributed benefits in mid 2007, adopted a DB for two of the doctors and adopted a 401(k) plan for the other doctor.

That is the question. It sure seems logical that if there were no MPP contribution in 2007 there should be no combined limit. However, 404(a)(7)© indicates there is no combined limit if no participant is a beneficiary in both plans. I would think beneficiary means any participant with an accrued benefit or account balance. If they dont distribute benefits until 2007, all would have account balances in the MPP in 2007 and be considered beneficiaries in both plans.

I know this has been discussed before but not sure if it has been completely resolved. Suppose you have a partnership of three doctors who sponsor a money purchase plan through 2006. They terminate the plan on December 31, 2006 but do not distribute benefits until mid 2007. Furthermore suppose they adopt a DB plan effective 1/1/2007 for calander year 2007. Does the 31% limit apply in 2007? In reading 404(a)(7)© it seems that if any one participant is a beneficiary in a DB and DC the 31% combined limit applies. Even though none of them will receive contributions in the MPP in 2007, it appears that just because they have an account balance in 2007, they are considered beneficiaries and therefore the combined 31% limit applies. does anyone disagree with this?

Suppose you have a one participant DB with a NRA of 62. The plan has a benefit formula of 100% of FAC. The participant will reach age 62 this year, so this will be the final contribution. Suppose the contribution is $100,000. Could he fund $50,000 by March 15, 2007 (initial tax filing deadline) NOT GO ON EXTENSION and file the remainder before September 15, 2007? Our understanding is that $50,000 would be deductible in 2006 but we are not sure the remaining $50,000 is deductible for 2007.

Andy This participant: a. worked more than 1,000 hours each year the plan was frozen. b. had met the eligibility requirements two years prior to the plan being frozen. The document defines benefit accrual service as an accrual computation period during which an employee completes 1,000 or more hours of service. An accrual computation period is defined as the 12 consecutive month period commencing with the plan year in which occurs the employee's entry date and each plan year thereafter. We could really take this: Thus, where the terms of a plan provide that a participant with 50 hours of service earns a year of service for benefit accrual purposes, a participant with 50 hours of service could be credited with a year of participation for purposes of IRC 415(b)(5). And replace it with this: Thus, where the terms of a plan provide that a participant with 1,000 hours of service earns a year of service for benefit accrual purposes, a participant with 1,000 hours of service could be credited with a year of participation for purposes of IRC 415(b)(5). In this case the document indicates the participant earned a year of service for benefit accrual purposes because he worked more than 1,000 hours during an accrual computation period.

I really appreciate all the great comments here. What if this were five years ago when we had to provide top heavy minimum benefits even if a plan was frozen? Certainly back then years of participation for the 415 dollar limit would have included years when the plan was frozen. How could it not? Did the definition of years of participation for 415 purposes change between then and now? Or did the definition always only include years in which a participant was eligible for an increase in accrued benefits?

So then in the example if an amendment were adopted in year 5 to unfreeze the plan and provide benefits of 8% of pay per year of participation, the participant would have a projected benefit of 80% of pay at NRA. He would then be considered to have 10 years of participation at NRA and no reduction in the 415 dollar limit?

If we have an 8 year fence, the lesson then is to never freeze a small DB. Instead, consider amending to reduce the benefit formula. Then, if by chance the employer is fortunate enough to ramp up the plan in future years, the 415 issue will not apply. I guess the question is whether a participant is considered to have participated in a frozen plan. Does "participating" mean only an increase in accrued benefits? What about an increase in vesting?