Dougsbpc

I know this has been discussed before and I have read some past discussions on this. Assuming the employer already has losses and does not want the deduction, when must the top heavy minimum contribution be funded? Apparently there is no deadline other than 30 days following the extented corporate tax filing deadline if the contribution is to be allocated for the prior plan year. Is anyone aware of any recent clarification on this issue? Thanks much.

Thanks for the replies mwyatt, jay and blinky. The 110% of CL of 1.401(a)(4)-6(b)(3) will indeed prevent him from the distribution now. This plan is now frozen and would have no problem paying all benefits if it were not for the low 417(e) rates. As it is, we changed to unit credit (as required for a frozen plan) which results in annual contributions of approx. $75,000. So the idea is that they will chip away at the shortfall over the next four years or so. We actually wish they could fund more than $75,000 per year but are held to this amount by the 10 year amortization on the change in methods. Suppose for example he was not currently at the comp limit or dollar limit. How would that prevent his lump sum benefit from decreasing in the future? Assume he established his high three several years ago and can no longer afford to be paid higher salary than his average for the next three years.

Have a 20 participant frozen DB that is covered by PBGC. A 50% owner participant has reached NRA and the document allows for an in-service distribution after reaching NRA. This participants benefit represents 60% of all plan benefits. Is there a problem distributing his entire benefit now? PVAB's based on 417(e) rate is approx $1,800,000 and assets are approx $1,500,000. The problem is that his PVAB will decrease with each future year.

Why not pay the spouse a small salary? I dont believe minimum wage laws apply to the owner of a business or his/her spouse. Many spouses work for small business owners, work long hours and draw low salary, particularly in the first few years of a company. The plan should be able to count this service as long as the spouse works the required hours per the plan.

What is an AVA? Socal, if the assets were adjusted by $10,000 this would only effect the maximum contribution but would not effect the minimum, right? They could always choose the minimum, but in any case we do need to properly adjust for the valuation as you mentioned.

A 20 participant DB is sponsored by a professional corporation. The company and plan have a December year end. Suppose the pension contribution is $100,000 for 2003, the corporation goes on extension and the full $100,000 is funded by September 15, 2004. However, the accountant files the tax return prior to the final $10,000 deposit and only deducts $90,000 for 2003. Question: can the $10,000 plus the 2004 contribution be deducted on the 2004 return? Or, could $10,000 of the 2004 contribution be pushed to 2005? Assume there is no 404(a) limit problem. I seem to think they cannot because the last $10,000 deposit was contributed timely for the 2003 return and the only way to remedy the problem is for the accountant to file an amended return for 2003. Anyone disagree? Thanks much.

We administer a 5 participant calender year DB. The company owner, his wife and three unrelated employees participate in the plan. The plan is covered by PBGC. As of December 31, 2004 the plan was frozen and the plan will terminate 2/25/2005. All notifications (204(h) notices etc.) have been prepared and signed although nothing has been sent yet to PBGC or IRS. Question: would it be possible to unfreeze the plan and withdraw the termination? They wish to instead terminate the plan next year. Thanks.

I agree with Mbozek. There must be objective standards applied across the board. This explosion of questionable plan designs was, for the most part, neutralized by the minimum gateway requirements for non-safe harbor plans. Today, there is a very small percentage of all qualified plan participants who are affected by truly abusive designs thought up by smart tax lawyers. This in exchange for, well, an explosion of qualified plans adopted by small employers. This is a good thing. I remember those years prior to 1994 when very few small employers were interested in qualified plans. Detailed, quantitative rules such as 401(a)(4) including the minimum gateway requirements result in more employers adopting plans and more employees having meaningful retirement savings.

So are you saying that because the death benefit is not a 411(d)(6) protected benefit we may be able to reduce the death benefit which thereby reduces the premium and future cash value? If that were the case then (in my previus example) the death benefit for the participant could be changed to $20,000 ($200 X 100)?

Mwyatt you are correct. I hadnt thought about the grandfathering requirement. However, suppose a participant currently has a projected benefit of $2,000 and an accrued benefit of $200. If we amend the plan to add the offset, the participants accrued and projected benefit (after the offset) may be $200. The face value of the policy is $200,000 (100x proj benefit currently). Suppose the participant terminates employment 5 years from now and the CSV of the policy exceeds his PVAB. Furthermore, suppose he wishes to take the policy as part of his distribution. Can he then purchase the policy from the plan by writing a check to the plan for the difference between the Cash value and his PVAB?

Have a 25 participant DB and PSP that was originally set up by an insurance agent. So of course the DB contains life insurance. The policies have been in force only a few years so CSV is low. This employer would really be better off with a non-safe harbor floor offset plan. Their younger employees understand and appreciate a 10% of pay PS contribution, while 5 senior owner employees would be happy with the additional benefits in the DB. Both plans would easily pass 401(a)(4). Our dilemma is how to deal with the life insurance as the new proposed design may result in no DB benefits (after the offset) for several participants. Yet these same participants currently have policies of 100 times benefits. They could terminate the plan and start a new DB but that would result in 100% vesting. Since the same employees participate in the PSP, is there any way to somehow transfer the policies to the PSP? Thanks much.

Unlike all of our other clients, we do not have a direct relationship with the plan sponsor and trustee in the case of these two small profit sharing plans. The financial planner is the contract administrator in this case. The financial planner simply hired us to assist them in preparing reports and the 5500. Our services and fee agreement are between the financial planner and us. In the agreement, we indicate the responsibilities of the financial planner to us. One of those responsibilities is to provide timely, accurate data including all investment statements and valuations that reflect all assets and financial activity of the plan. They have not honored this nor have they paid us one dime. Clearly one party might have recourse on another that is paid for services, but what about when no payment is made?

I'm sure many have run into this in one way or another. A few years ago a local financial planner contacted us about administering two small profit sharing plans. They wanted us to go through them (essentially work for them). We agreed and had them sign our services and fee agreement. After receiving the plan information (documents, prior 5500's etc.) it became clear that both plans were a mess. We should have resigned right then and there but we did not. Since it was close to the filing deadline on both plans we spent about twenty hours cleaning up the plans and preparing 5500's. The financial planner has refused to pay us and has generally not been cooperative in providing us information. The IRS now wants to audit one of the plans. We would like to resign as administrator on both plans as we have never been paid and dont think we should have to go through the audit for free. Our services and fee agreement states that either party can resign with 30 days written notice. Does anyone have a take on what our exposure would be by resigning? Thanks much.

I appologize for posting these fees. I had no intention of doing anything other than answering the question. Perhaps I should have tried to get an email address and follwed it up with "here is what some administrators charge". We do the vast majority of our work locally and have no desire for any new business that does not come to us through local CPA's etc.

I'm not sure there is a standard, and fees may vary in defferent regions of the country. Here is what we charge: Base Fee...........................................$1,300 Per Participant.......................................$45 Per hr. Trust Accounting........................$100 Per hr. Non discrim testing.....................$100 Per Partic distribution............................$110 Per Plan amendment..............................$100 Per Participant Loan...............................$100 Plan Document (one time fee)..............$1,050 The above generally includes everything other than QDRO's and plan termination fees. We do not sell investments. We find most other firms in our area have comparable fees with some higher and some lower.

Merlin. We administer a plan like this. As Blinky mentioned, we went the extra mile to make sure they understood how the plan worked. In this case the employer had two 50% owners, one age 55 and the other age 45. When they asked what would happen if one of the two left, we suggested they either have some type of agreement to have the company make up the difference via payment(s) to the owner that left or to terminate the plan at that time. Although potentially an expensive alternative (100% vesting for EE's etc), they chose this option. The PVAB vs. asset problem is then often solved as excess assets are more heavily allocated to the owner that left provided he/she does not have a 415 problem and provided they pass 401(a)(4) with that allocation. The company could then establish another DB (if desired) in the future with the remaining owner participating.

DB plan receives a DRO in good order and the administrator determines it is qualified. The court orders the plan to distribute benefits to the alternate payee per the terms of the QDRO. A mistake was made by the atty who drafted the DRO and the administrator did not catch the error. Specifically, the order indicated that the alternate payee is awarded 50% of the participant's accrued benefit. It should have been 50% of the participant's accrued benefit earned from the time of marriage to the time of separation. The alternate payee was paid 50% of the participant's benefit through the date of separation and now wants more (i.e. 50% of the participant's benefit forever). Is there any such thing as an amended QDRO? The participant and alternate payee have not finalized their divorce and have not fully divided joint assets yet. Perhaps I am wrong, but if joint assets are being split 50/50 couldnt the participant reduce other assets being given up by the same amount of excess plan benefits resulting from the mistaken language? This occurred in California which is a community property state. Thanks much for any responses.

Suppose you have a calendar year small db plan that terminates June 30. Does that automatically change the plan year end to be June 30? Is there ever a case where you determine the cost for the short year (Jan 1 through June 30) but file the 5500 for the plan year Jan 1 through December 31?

I think the comments by GSHAC are excellent as well. He/she touched on this but it was very important in our success. We looked at where we were geographically, what our competitors were offering and then determined our specialty. For example, we knew most of our competitors were administering simple safe harbor plans (afraid to venture out). We determined our market area was comprised of several small very profitable businesses (they had to be to live here). We let our competitors bang their heads trying to compete with fund companies and large administrators, while we concentrated on cross-tested DC and DB plans and floor-offset plans. So as GSHAC pointed out, making a name for yourself like the " " guy is very important.

Mwyatt This is exactly right. Where is the PBGC's liability? In fact, they have almost no liability for the vast majority of small plans. They should allow all plans to reduce the value of benefits (on the schedule A) by the benefit of any greater than 50% owner participant. It would be so simple and so fair.

This is actually a hypothetical. The fact is that this plan is an active PBGC plan with several issues. There is a single 100% shareholder participant and six other participants. The employee benefits are relatively small. This may be a takeover case for us and I'm not sure what happened in the past. They probably invested too heavily in the market in the late 1990's and got clobbered. One thing is for sure, they will have high PBGC premiums. This leads us to think they may just want to terminate the plan and then adopt a new one starting 1/1/05. The premium savings could be $20,000 over four years. A DB plan is right for them as the business has consistent profits. With a small reduction in benefits for the owner, it makes sense.

A Single employee corporation wants to adopt a new DB. The sole shareholder and participant previousely sponsored a DB under which he accrued a benefit of $5,000. Under the new plan his salary will be $10,000/mo and his projected benefit will be $10,000. Under the new plan we must adjust for his accrued benefit under the prior plan for the 415 100% of pay limit. Question: suppose they terminated the prior plan in 2003 with insufficient assets (i.e. the shareholder participant accepted a major reduction in benefits). For purposes of adjusting his benefit under the new plan, must we use $5,000 or the reduced equivalent of his benefit. Thanks much.

You have probably addressed this but does your client have W-2 salary in past years? If so and if average salary is high enough to support the benefits/contribution you want, then you may not have a problem.

Yes, we will be excluding by class in this case. Suppose we fast forward three years, they have 30 employees and the plan excludes all salespersons. Furthermore, suppose they happen to have 5 otherwise eligible sales employees who are all over age 40. Perhaps we still would not have a problem because we would be excluding by class. If we excluded by name, we may have a problem.

We administer a small DB plan with 10 participants. The emloyer has 13 employees. The employer just hired a very highly compensated employee and wanted to exclude him from the plan. The employee is age 49. There will be no problem passing 401(a)(4) or 410(b). I believe ADEA only applies to employers with more than 20 employees. Anyone see a problem with this?