Dougsbpc

In reading the 2006 schedule B instructions, it indicates " The Schedule B does not have to be filed with the Form 5500-EZ. However, the funding standard account for the plan must continue to be maintained, even if the schedule B is not filed" Under What to file (5500-EZ instructions) Note. Effective beginning with calendar plan year 2005, filers of Form 5500-EZ are no longer required to file any schedules or attachments (including the schedule B) with the Form 5500-EZ. Filers, however, must collect and retain completed and signed Schedule B, if applicable. Does this mean the "retained" schedule B must be signed by the due date of the filing? It would be great if it did not matter when the B was signed.

Thanks for the replies. A controlled group exists between the two employers. Therefore, we had the self storage business adopt the plan as a participating employer.

An architectural firm with 5 employees has sponsored a DB plan for 5 years. The 100% owner (an Architect) bought a non professional service employer business (self storage business) with 10 employees. Since the owner has a controlling interest in both businesses, employees of both entities are covered by the plan. Would they still qualify for exemption from coverage? Perhaps we should get a determination from PBGC. I just wonder if "the principal function" of the business is performance of professional services at this point. The storage business now brings in more income than the architectural business.

A small DB plan participant terminates employment October 31, 2005. He requests a lump sum distribution to be paid on April 30, 2006 (a Sunday). The employer agrees to this in writing. The participant completes all benefit elections and provides them to the administrator by April 10, 2006. The administrator provides a letter of instruction for the trustee to make the distribution. However, the trustee does not make the distribution until May 8, 2006. This is only a delay of a week and does not seem like a problem. However, the lump sum benefit (per the document) is based on the 417(e) rate for the month prior to the distribution. If the distribution would have been made by April 30, 2006 it would have been based on 4.73% not 5.06%. The administrator recalculated the benefit based on 5.06% before the distribution was made. Is the trustee in trouble for this slight delay in making the distribution? Thanks much.

Indeed, how can you have a problem if you meet all the applicable criteria based on current law. I cant imagine they would make any 415 rate changes retroactive. Chances are those changes will be effective for plan years beginning in 2007.

In this case the employer would just like to pay benefits after year end. The two month restriction makes changing the plan unattractive. They will most likely just stick with what they have.

Thanks for the replies Here is the only thing I am worried about. Suppose the plan were amended in July to require all distributions be paid after the close of the plan year. The only thing being affected is the timing. Currently, PVAB's would be based on the 417e rate as of last December (4.65%). Suppose an employee terminates in August, has to wait until January 2007 and has PVAB's based on 5.5% (if the rate climbs to that level by this December). That could make a big difference in benefits, although there is no guarantee the rates will not drop to below 4.65% by December 2006.

So, for example, lets say the employer amended the plan to pay benefits after year end. A participant's current accrued benefit is $500 and two years from now he terminates with accrued benefits of $700. Would this mean his benefit would be determined in two parts? $500 upon termination of employment and $200 after the plan year end?

A defined benefit plan has never made benefit distributions to any participant yet. The plan has only existed for four years. The document currently indicates that the present value of accrued benefits shall be paid as soon as administratively feasible after a participant terminates employment. The plan sponsor wishes to amend the plan to pay benefits as soon as administratively feasible after the end of the plan year during which employment termination occurs. Can this be done or would this be considered the elimination of an optional form of benefit due to the change in timing? If it can be done, would a 204(h) notice be required? Thanks much.

Thanks Socal. The employment contract does not specify anything about a promised pension benefit. Would there be anything else about an employment contract that would override the plans ability to be amended prospectively?

This is somewhat related to what Sueczer posted. We administer a 5 participant DB with 3 HCE's and 2 NHCE's. The plan has provided a benefit of 8.25% of average salary for all participants. The employer now wishes to create two groups of participants. Group A will receive 5% and group B 8.25%. The one participant in group A is a 45 year old highly compensated participant. It turns out the group A participant will be terminating employment this year. So the reduction in benefit will mean she will not accrue a benefit this year. Is there anything wrong with doing this given: 1) A 204(h) notice was given in time (prior to 1,000 hours). 2) The plan will pass 401(a)(4). 3) The amendment was properly executed in time. Thanks very much.

We administer a small takeover PSP where the company owner / participant took out a $50,000 loan three years ago. He paid off the loan in full with interest within a year of taking it, however he should have made quarterly payments. As soon as we took over the plan, they received an audit notice. the plan was audited and the loan was determined to be a taxable distribution. I dont believe audit CAP is available because it is not a disqualification issue. Also, it appears no other correction program is available because the plan has been audited. Has anyone had this experience?

Can a DB plan have different definitions of service for benefit accrual and 415 limit? For example, suppose a plan requires 1,000 hours for benefit accrual. A participant will have 9 1/4 years of participation at NRA. The dollar limit would be multiplied by 9/10ths. Could a plan be designed to credit a year of participation for 415 purposes on 1 hour of service? In this case there would be no dollar limitation reduction.

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.