Dougsbpc

Suppose you have a company with a 1/31/06 year end but a plan year beginning 10/1/2005 and ending 9/30/2006. The plan is a db and would have a beg of year valuation. My understanding is the deduction can be for the plan year beginning in the fiscal year. Question: could a 2006 deduction be had if the plan were adopted after 1/31/2006?

We are receiving copies of brokerage statements, and no he has not distributed the benefits to himself. The information we need involves privately held investments and their market values. He and the general partners are reluctant to get appraisals to provide market values. Why would we be neglegent? For continuousely asking for the information? For going out of our way to find missing participants when this is generally the plan sponsors job? All assets are still in the plan and non-owner benefits represent a small fraction of the total. We found the original termination amendment which included freezing benefit accruals. As long as plan assets have increased in value, there should not be a funding issue. Perhaps there is a schedule B filing issue even though there would have been no contribution requirement.

We have administered a 10 participant DB since 1996. The plan is covered by PBGC. The business was sold in 2001, so all employees terminated at that time. The owner retained the corp for another year before terminating the plan in 2002. After 2002 he had no more income so it made no sense to have the plan. The owner became very uncooperative after he signed the termination amendment. He has been cooperative in keeping the plan compliant (GUST, EGTRRA good faith etc.) and all filings are current. Since 2002 we have not received adequate plan asset information. In addition, we conducted a search for former employees and only turned up one. It is clear he does not want to pay benefits even though he has the vast majority of them. We did not file the termination with IRS or PBGC because we need more information. The worst is that we somehow lost the termination amendment and he did not keep a copy. I dont believe SCP or VCP would allow a retroactive amendment to terminate the plan. We think the value of plan assets has increased since 2002 so I dont think there will be any funding issues, but we probably would have to go back and file schedule B's for 2003 and 2004. Any thoughts on this? Thanks much.

It is a DB plan. The plan requires 1 hr for benefit accrual but has a six year vesting schedule requiring 1 hr for a year of vesting. This is an unusual design but they want it that way and dont mind employees immediately entering the plan. The kids might make $2,000 -$3,000 per year so the benefit will be minimal. Not that it matters in this case, but as long as they accrue benefits of at least .5% of salary, benefits are meaningful.

mjb Thanks for the reply. I dont think the discrimination issue is preference of hiring a family member over a non-family member. Instead, it would be the fact that the plan could not possibly cover a participant under age 14 other than a family member. You make a good point though. Why would the plan be discriminatory rather than the employer to begin with? And of course the exception apparently applies to the employer.

We administer a small pension plan sponsored by a medical group. The three physicians in the group want to allow their children to work part time. Currently, the pension plan has no age or period of service requirement. One of the doctors has his two children (ages 11 and 13) doing filing 3 hours a week. They have no problem with them being covered by the plan. Generally, we have told employers that they cannot consider employees under age 14. However, in reading the department of labor Federal Labor Standards Act on-line, they indicate there is an age exception for children working in a business for their parents. For plan purposes, we think there could be a potential discrimination in operation issue. That being a 13 year old son or daughter could work and be a participant in the pension plan, but an unrelated nonhighly compensated employee age 13 could not even be employed and therefore not be considered for participation in a qualified plan. We are inclined to amend the plan to have an age requirement. Has anyone experienced this before?

We administer a two participant DB covering husband and wife. Last year their insurance agent purchased a $500K policy for one of the paticipants in the plan. It is less than 100x projected benefit so we think that is ok. The premium is being paid from plan assets and not from the company. Question: Our understanding is that insurance usually must be purchased for each participant of the plan. However, they are both HCE's so perhaps only one is OK? With the few DB plans that we have that contain insurance, we usually use the envelope method that adds the premium to the normal cost and it just becomes part of the employer contribution. In this case, since premiums are being paid from plan assets, we are inclined to just treat it like any other investment of the plan (i.e. reflect CV on the balance sheet and a withdrawal for the premium on the income statement and run the valuation as usual). Does anyone see a problem with this? Also, this client is considering being a sole proprietor next year. Our understanding is that at least a portion of the premium is not deductible to sole proprietors. However, they are paying the premium from the plan and indirectly this affects the contribution. Has anyone experienced these issues? Thank much.

rcline, Thanks for the reply. The SH 401(k) does provide SH contributions to HCE's. It is the top paid group rule in our plan that has permitted 8% of pay contributions to NHCE's rather than 20% in past years. Perhaps we could amend our plan by the initial filing deadline to remove the top 20% rule. That would be more beneficial to NHCE's and both plans would be using the same rule. The HCE's would just have to provide more this year and chalk it up to the bone-headed move of having the payroll company administer a second plan.

We have administered a cross-tested profit sharing plan for a small employer for several years. In 2005, they adopted a safe harbor 401(k) plan through their payroll provider without telling us. They still want the cross-tested allocation so we will need to test accross both plans. Question: The safe harbor 401(k) plan does not restrict HCE's to the top 20% but our plan does. Which definition should be used when testing accross both plans? Thanks much.

Have a 4 participant DB that terminated 12/31/2005. It is a PBGC covered plan and they would like to terminate as a standard termination. PVAB's are $2,700,000 and assets (after 2005 contribution) are $2,400,000. The company owner and his wife are entitled to 80% of the benefits. They wish to fund the difference (approx $300,000) now. We always thought that a contribution (in the year of termination) would be deductible. After all, it is a necessary business expense to make benefits whole in the pension plan. Why would it not be deductible? The 100% owner could waive benefits if necessary but would prefer not to. Thanks much.

We are currently on the pre-EGTRRA document approval list for our volume plans with our current document provider. Our understanding is that we need to be on the list by January 31, 2006. Do problems arise if we switch document providers after 1/31/2006 (i.e. is the approval list portable?). Thanks much.

It depends on what type of relationship your firm has with its clients. Three years ago we were approached by an actuary who was originally from India but is now living in the US. He had connections with administrators in India and claimed that outsourcing would lead to doubling my income. He also mentioned that the administrators were technically as good as our administrators. Perhaps he was correct about this, but after thinking about it we realized that our firm has close relationships with our clients, many of whom are local. When they call or stop by, they are dealing the same person who may have been in the same traffic jam or were just informed by that person that they will pass the ADP test by making a small qnec. In any case, we want to have our own administrators who can think on their feet and communicate well with clients, brokers and accountants. On the other hand, if you have a firm that has distant relationships whereby administrators are simply running the numbers and emailing results, outsourcing may work as long as you dont run into the problems Lori outlined.

Is it possible for a new company to adopt a DB with a beginning of year valuation? For example, suppose an S-corp is formed 1/1/2006. No compensation exists for the prior year, but suppose we wait until 12/31/06 and use 2006 compensation. I know an end of year could be done the first year and then switch to beg of year, but could you start with beg of year? If it is possible to use first year salary for a new company and beg of year DB, could the plan year be different from the company year? For example, suppose an s-corp is formed 10/1/2005 with a 12/31/05 year end. Could the employer adopt a db with a plan year 10/1/05-9/30/06? My understanding is if a beg of year valuation is done, the deduction could be taken on the 12/31/05 return. In this case the only participant will be the 100% owner and he will absoultely have more than $210K in salary every year. the contribution would have to be funded by 9/15/2006. Thanks much.

Does anyone know if there is a model amendment available for Roth Contributions yet? Thanks much.

An Employer has 6 employees and wishes to cover 3 employees in a defined benefit plan and 3 employees in a profit sharing plan. They will commit to making a 25% of pay contribution to the PSP, so both plans will easily pass 401(a)(4). Also, both plans would be aggregated for 410(b). The census should not change as all 6 are long term stable employees. My understanding is that the 25% deduction limit would not apply as long as no employee participates in both plans. Does anyone see problems with this arrangement? Thanks much.

Thanks for the replies. Ultimately, we will have this employer seek an opinion from an ERISA atty. if they wish to go ahead, but in the meanwhile it would be good for us to get it staight. R. Butler - could company B be an FSO? It would not be a professional corp, but my understanding is that you can have a service organization without being a professional organization. I read that the real test is whether services are performed for the public and whether capital is a material income producing factor.

This has to be one of the most complicated areas of qualified plans. Have an employer who may want to sponsor a defined benefit plan. Here are the facts: Company A is a construction company with 30 employees. It is owned by Mike 47%, Bill 47% and two non-related others for a total of 6%. Company B is in the business of estimating project costs. It is owned by Mike 25% and Bill 25% and an unrelated person 50%. It has 10 emloyees. The unrelated person has no ownership in company A. Company B wishes to sponsor a DB plan but does not want to cover employees of company A. It appears no controlled group exists. The question is whether an affiliated service group exists. Niether company will act as a management company for the other. It is true that Company B will do some estimating for company A but the majority of work will be done for other unrelated companies. Capital is a material income producing factor for company A so it cannot be an FSO. Capital is not a material income producing factor for company B so it would be the FSO. In this case, company B would be the FSO and company A would be the B-org. Our understanding is that a significant portion of the B-org must be the performance of services for the FSO for an affiliated service group to exist. No services would be performed for the FSO. However, a significant portion of the FSO's business is the performance of services for the B-org. Do we need to consider this in both directions or is an affiliated service group only present when the B-org performs significant services for the FSO? Thanks much.

No controlled group exists as Jim has no ownership in corporation A and John has no ownership in corporation B. Therefore, neither Jim or the employee should have to be covered in Corporation A's plan.

Only a notice has been provided. After the 30 days were up, the employer was going to adopt a new 401(k) document. However, now they dont want to.

We have a takeover that was originally a profit sharing plan. The prior plan administrator was in the process of converting to a Safe Harbor 401(k). Safe Harbor notices were provided to employees just 2 weeks ago. All eligible employees signed Safe Harbor notices. The employer now has cold feet and wishes to not go forward with the Safe Harbor 401(k). Can they withdraw the safe harbor aspect of the plan and just remain as a PSP? Thanks much.

What about the ever popular cross-tested DC plan? Most really have no basis for providing 20% of comp to one group and the minimum gateway to another. Yet many operate this way. As long as a sufficient number of young NHCE's benefit, the plan will pass the general test. Will these plans some day be targets for age discrimination?

Is there potential age discrimination in a DB plan that reduces the NRB for years of service less than X? For example, suppose the benefit is 50% of FAC multiplied by years of service divided by 25 years. Clearly an employee who is hired at age 55 will have a smaller NRB than an employee hired at age 35 (assuming same salary history etc.). However, if the employer does not force retirement at a specific age, the 55 year old participant could (but not likely) work another 25 years and earn a full benefit. Also, the 55 year old would accrue benefits at a rate at least as great as the 35 year old. Suppose a plan passes 401(a)(4) but provides 50% of FAC to Group A participants and 50% of FAC reduced for years of service less than 25 for all other participants. Could a non-group A participant claim age discrimination? Thanks much.

Suppose you have a 2 participant DB plan with individual aggreagate funding. The participants are 50% partners in a partnership. One partner is somewhat older than the other. Both partners have the maximum plan salary for all years. The normal cost for partner A is $100,000 and the normal cost is $50,000 for partner B. Total Contribution $150,000. The accountant wants to know the contribution breakdown for each partner. We generally provide the normal cost as above. However, it would probably be more equitable if the $150,000 were allocated based on accrued benefits. Is it acceptable to determine the deduction split this way? Thanks much.

In this case, the employer does not care about the deduction. The plan has a June Year end, they are on extension until March 15 and will probably be able to fund the contribution by March 30. I have tried to find a cite that identifies a deadline but havent found one. There have been prior discussions on this that indicate there may not actually be a deadline. For example, suppose the 415 issue is not a concern in the next plan year and the employer makes the June 30, 2004 top heavy minimum contribution on July 31, 2005 (one month beyond one year). Is there any consequence? I dont want to beat this to death, just curious if anyone is aware of any recent clarification on this issue.

The plan in question is a 401(k) plan not a pension plan.