jane murray

Thank you very much Mike.

The sole proprietor's 2020 personal tax returns are on extension. The sole proprietor will currently adopt a new defined benefit plan for 2020 effective 1/1/2020. The plan's benefit formula will be 10% of average monthly compensation x years of participation. The participant's accrued benefit as of December 31, 2020 is equal to $1,916.67 (or 1/10 of the 2020 IRS dollar limit). Can the plan be designed with a $2,000.00 maximum monthly benefit and not run afoul of any IRS rules? The objective is to limit the 2021 accruals such that the required minimum contribution for 2021 is $0 or a very small amount. A year of benefit accrual service is based on 1,000 hours of service. The sole proprietor has already worked 1,000 hours during 2021. Does limiting the 2021 benefit accrual through the use of a $2,000 maximum monthly benefit violate the anti-cutback accrual rules or anything else?

Our volume submitter plan document allows for the exclusion of HCEs using the following language... Notwithstanding the foregoing, the term "Covered Employee" shall not include the following: any Employee who is a Highly Compensated Employee for the Plan Year Can the language be tweaked as follows to allow Jane Doe who is an owner HCE to participate? I would like to exclude all the other HCEs. Notwithstanding the foregoing, the term "Covered Employee" shall not include the following: any Employee who is a Highly Compensated Employee for the Plan Year with the exception of Jane Doe

thanks big tuna. does anyone else have an opinion on the matter? all opinions would be greatly appreciated.

so effectively, since her 415 dollar limit at age 70 is lets say $30,000/month and she is capped by the 415 salary limit of $22,500/month, then the benefits from the SAG-AFTRA pension plan will not reduce her benefits from her company sponsoring defined benefit plan in any way? no benefits have commenced from the SAG-AFTRA pension plan. lets assume the current age 70 benefit from the SAG-AFTRA pension plan is $5,000/month. the 415 dollar limit is reduce by $5,000/month as follows - $30,000/month less $5,000/month equals $25,000/month. since the 415 salary limit which is not reduce is less than the 415 dollar limit, she simply is entitled to $22,500?

lets assume that all of the worker's labor credited under the SAG-AFTRA pension plan is attributable to the loan-out corporation. if that is the case, would her maximum benefit under her company sponsored defined benefit plan be limited to $17,500/month ($22,500 less $5,000)? or does 415(b)(1)(B) not apply and only the dollar limit is reduced? if this is the case, would her maximum benefit under her company sponsored defined benefit plan be $22,500/month?

a client who owns a loan-out company sponsors a one person defined benefit plan and has also accrued benefits under the SAG-AFTRA pension plan. suppose the client is age 70 and her 415 dollar limit is $30,000/month and 415 salary limit is $22,500/month. she has accrued a benefit of $5,000/month under the SAG-AFTRA pension plan. do you simply reduce her 415 limit by $5,000/month so that her maximum benefit under her company sponsored defined benefit plan is $17,500/month ($22,500 less $5,000)? i've read some old threads and don't seem to understand exactly how the offset should be applied.

Suppose a Standing Election was signed by plan sponsor in 2016 that includes language that the plan will use the COB/PFB to apply towards the minimum required contribution in order to avoid an unpaid required contribution. The 2018 minimum required contribution is 100k and the plan has a 150k prefunding balance. The prior year use balance percentage is over 80%. Can the prefunding balance be used to satisfy the 2018 minimum contribution relying on the standing election that's in place? Or does a new election need to be signed that specifically states the amount of the prefunding balance that will be used to satisfy the minimum for the year?

Is this situation that uncommon and I would welcome and appreciate any practical solutions.

For a 12/31/2019 valuation, can an election by the plan sponsor be made before the end of the plan year (12/31/2019) that states the plan sponsor will burn enough of the prefunding balance so that the 12/31/2019 AFTAP and FTAP will both be at a minimum of 100%? Or does the election have to state a certain dollar amount that will be burned? In the case of an end of year valuation, you won't know the end of year liabilities until the following year and then it will be too late to burn a portion of the prefunding balance for the prior year. If the election must state a certain dollar amount that will be burned, how does everyone handle a situation like this where you want to maintain the AFTAP and FTAP at 100%? Thanks in advance for the insight.

Thanks cusefan! if plan is written to calculate lump sum as the present value of the immediate annuity, an age 50 unreduced subsidized benefit would be allowable. this assumes the 415 limits are not exceeded.

we have a defined benefit plan with a normal retirement age of 65 and no early retirement age. can the plan be amended currently to add a fully subsidized early retirement age of 50? does the IRS restrict the use of a fully subsidized early retirement age that is below a certain age or would age 50 be acceptable? for example, an employee age 45 participates for 5 years under the plan and terminates at age 50. after the amendment is made, can the lump sum benefit for this individual be calculated unreduced and fully subsidized at age 50 as opposed to deferred from age 65?

Mike, thank you very much for your expertise and guidance.

can an employer who has a solo 401(k) adopt a regular 401(k) plan and defined benefit plan for 2018 and then merge the solo 401(k) into the regular 401(k) plan sometime in 2019? the question is, can an employer have two separate 401(k) plans covering the same employee? the only employee of the company is the owner. the regular 401(k) plan and defined benefit plan were adopted earlier this year and it was recently discovered that the employer also has a solo 401(k) plan thats been in existence for the last 10 years.

one participant defined benefit plan was effective 1/1/2017. the valuation date is EOY so valuation date was 12/31/2017 for first year. can the valuation date be changed to 1/1/2018 for the second year of the plan?

sole proprietor sponsors a one person defined benefit plan. the plan is overfunded on a lump sum basis but the participant is interested in purchasing an annuity upon plan termination. i'm aware that an owner can forego receipt of a portion of their benefit in the case when he/she elects a single lump sum. can the owner elect to forego receipt a portion of his/her monthly benefit to make plan assets sufficient? for example, the participant who is age 75 (and currently receiving RMDs) is entitled to a $15,000 monthly benefit. the plan only has sufficient assets to purchase a $14,000 annuity for the participant. can the participant forego receipt of the shortfall? the sole proprietor is not interesting in making any additional contributions to the plan.

i would rather not "un-terminate" the plan and "re-terminate" in 2018 since a valuation report and schedule SB will be required for 2018. can the plan's actuarial equivalence factors be amended after the termination date but obviously prior to the cashout date?

a one person defined benefit plan terminated 10/31/2017. the plan assets will be distributed during the 2018 plan year. the participant who has more than 10 years of participation and average compensation in excess of 265,000 is at the 415 dollar limit (215,000/12 or 17,916.67). the plans actuarial equivalence factors are 5% pre-retirement interest and 5% post-retirement interest and the 1994 GAR mortality table. the maximum lump sum for the participant at the current date (age 65) is limited to the lessor of the pvab calculated using the plan's actuarial equivalence factors or the 2018 applicable mortality table at 5.5%. the pvab using the plan rates is 2,535,730 (17,916.67*141.5291). the pvab using the 2018 applicable mortality at 5.5% is 2,601,698 (17,916.67*145.2110). therefore the maximum lump sum is limited to 2,535,730. although the plan terminated 10/31/2017, can an amendment be adopted in 2018 before the cashout date in order to change the plan's actuarial equivalence factors to a more current mortality table? the goal is to increase the maximum lump sum to 2,601,698 and not have the plan's actuarial equivalence be the limiting factors.

my question or concern is that the first year accrual is zero since the beginning of year and end of year accrued benefit are the same. if the first year accrual is zero, then obviously the second year accrual is greater than 133.33%. the question remains, what is the first year accrual in the case where the plan uses past service and the participant's beginning of year and end of year accrued benefit is the same?

i think fractional rule can be used even though the benefit is not accrued over a period of at least 25 years. but im not sure if you can use years of service when using the fractional rule. any guidance would be appreciated.

sole proprietor (age 55) considering to adopt a new defined benefit plan effective 1/1/2017. the sole proprietor does not have any employees. the plan uses a unit benefit formula equal to 10% of average compensation times years of service. the sole proprietor has 10 plus years of past service and his average compensation is at the annual compensation limit. the plan's normal retirement age is 65. therefore, the accrued benefit as of 1/1/2017 is $1,791.67 (1/10 of the 2017 dollar limit) and the accrued benefit as of 12/31/2017 is the same $1,791.67. there is no target normal cost for 2017 and a funding target as of 1/1/2017. the accrued benefit as of 12/31/2018 will be 3,666.67 (2/10 of the 2018 dollar limit). does the plan violate the 133-1/3 accrual rule for 2018 since the increase in the accrued benefit for 2018 (3,666.67 less 1,791.67) is 133-1/3 more than the increase in the accrued benefit for 2017 (1,791.67 less 1,791.67)? if the plan violates the 133-1/3 accrual rule, how can the plan be designed and still grant past service?

yes mike, i ran it through the spreadsheet and the maximum new loan is 20k under the scenario if the plan allowed two loans and a new loan was taken. i was confused by your no response but i appreciate the clarification. does everyone agrees that in the situation when only one loan is allowed and there is no refinancing option available, the participant could repay the loan balance of 20k and take out a new loan of 20k, therefore netting zero?

i thought i understood but now im more confused. i appreciate the guidance

mr preston, can you please provide further clarification. what would be the max new loan under the scenario the plan allowed a second loan and the original loan was not repaid.

if plan allowed two outstanding loans, then the 72(p) limit would be 50,000 - (30,000-20,000) or 40,000. the max new loan would be 40,000 - 20,000 or 20,000. therefore in the case the plan allowed for 2 loans, the participant could receive a second loan in the amount of 20,000. correct?