Dougsbpc

I know this has been beaten to death, but my understanding is the following: An employer may deduct up to 150% of UCL in its defined benefit plan for the plan year beginning 1/1/2006 even though it also maintains a 401(k) Profit Sharing plan. However, only salary deferrals were made to the 401(k) plan in 2006. Also, the DB has been in existence with all HCE's participating for over two years. Also, there has been no HCE benefit increase in the DB plan in the past two years. Does the fact that the 401(k) plan contains profit sharing money from 5 years ago disqualify the DB from the 150% of UCL deduction?

The intent here is to simply provide better benefits to employees. The only HCE is the 100% stockholder of the corporation that sponsors the plan. They are now a very profitable company and the owner wants to reward past employees as well as future employees by having more rapid vesting.

We have a client that sponsors a small DB plan with 15 participants. They have a 2-20 vesting schedule and would like to provide a more generous schedule (1 year 25%, 2years 50%, 3 years 75%, etc). In addition, they wish to make this schedule effective back to 2002. Is it possible to amend a plan to provide more generous vesting retroactively? They have only ever had 4 terminess who were all partially vested and dont mind paying additional benefits.

An employer (company A) sponsors a 401(k) plan that has always been top heavy. They have always made the 3% top heavy minimum. Their last plan year end was 6/30/2006. 100% of the company was purchased on 8/31/2006 by another larger company (company B) that also sponsors a 401(k) plan. The company B 401(k) plan is not close to being top heavy. Company B now sponsors two 401(k) plans, the former company A plan and the company B plan. Both plans are required to be aggregated for 416 purposes since both plans are now sponsored by one company. If they are aggregated they are not close to being top heavy. Question: is a top heavy minimum contribution required in the (former company A plan)? We think yes because the top heavy determination date would be 6/30/2006 and the company was not purchased until 8/31/2006. Does anyone disagree with this? Thanks much.

Thanks everyone for all the replies. In reading the final regulations (specifically 1.415(f)-1(f)(2)), it appears that a participant considered to be "in control" of the contract is aggregated for 415 purposes. The 403(b) is considered a defined contribution plan. I can see where this would impact an employer who sponsors a DC plan. Since 415(e) was repealed several years ago, how would this have any impact on a DB? For example, suppose a University prof retired 5 years ago and now started a profitable business. He had a 403(b) at the University and now wants to adopt a DB plan through his new corporation.

Are benefits accrued under a govermental pension required to be aggreated with pension benefits under a private sponsored DB? It would be great if anyone had a site on this.

Can attorney fees be paid from qualified plan assets? This employer really needs direction / opinions from an ERISA attorney. The company may not have the resources to pay those fees but the pension plan will have excess assets.

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.