truphao

I am going to use a simplified example. One-person Cash Balance Plan, end of the year valuation. Pay Credit in 2023 is $100,000. Let's assume the interest crediting rate and all segment rates are 0.00% to avoid the actuarial noise. In December 2024 the Pay Credit is amended to $125,000 effective 1/1/2024. The question is about what amount to exclude from the 50%-of-FT cushion calculation. There is no impact for the 2024 valuation, I think this is clear. For the 2025 valuation we have to exclude the $25,000 increase in FT on account of the Plan Amendment adopted within the 2-year window. I think this is pretty clear as well. But what about the 2026 valuation? Do we get to exclude $50,000 from the FT (2 years' worht of the increase in Pay Credit) or do we calculate the 50% of FT cushion without any exclusions? Agressive me is thinking the full FT can be used since the 12/31/2026 valuation date is more than 2 years after the effective date of the amendment. The conservative me is thinking that since the FT for the 12/312026 valuation is based on the benefit accrued as of 1/1/2026 I still have to carve out the Amendment from the FT for the 50% of FT cushion piece. Thoughts?

if they make a larger contribution in 2026, they can split the deduction between 2025 and 2026 tax years. This will create an issue to watch out for in 2026 but there is nothing wrong with kicking the can down the road :).

this is correct. Keep in mind that 6% limit is the deduction issue and not the complianceconcept. So, the different sections of the code are here in play.

just sent you a PM.

Surrendered = loss of money Distributed = taxable event or expensive custom IRA (or 401k/PS) able to hold it Purchased = the Owner has to come up with cash

It is very easy to do something, but “undoing” is where the problems begin. So I am adding the following to the list: How easy will it be to obtain the annual market value of the insurance policy for actuarial valuation purposes? When the Cash Balance Plan is terminated, what will happen to this life insurance policy? (No — a typical “free” IRA will not be able to hold it.) Will the current actuary be willing to perform services for a plan that includes life insurance, or will you be required to find another actuary?

it depends (as usual). If the client keeps good records of hours and the owners did not cross the 1,000 hours I think it is possible (assuming this is how the plan is drafted). Had exaclty same situation last year and we froze the benefit accruals for Owners in late August. I did spent a great amount of time educating the client about the keeping the proper records and the due diligence. I was comfortable implementing at the end of the day given the quality of records and the corresponding decrease in W-2s.

110% issue is within the 401(a)(4) regs, so one would think it would not be applicable to H&W situation. But, I think the IRS insisted that the language be included in the pre-approved plan documents, so I believe all "known" PD vendors have that language in their PD. So, it becomes an operational issue. Proceed at your own risk.

it is not just 415, it is a deductibiltiy too. If your Plan Document says "do whatever you want" (aka each participant in their own group) then you can do whatever makes sense. If yoour document is not flexible, you follow the Plan Documnt terms.

David, we are getting a lot of situations where the client/prospect already has an existing 401(k) Plan through ADP, Paychex, and the likes. This is usually a total crap from the perspective of accomodating a CB Plan. So, more often than not a workable solution is to add a CB Plan and a stand-alone PS plan just to get going to accomodate the proper eligibiltiy, entry, TH minimums, etc. The actual benefit level design is limited by imagination and creativity only.

50?! i.e 3 hours and 20 minutes per plan? assuming no data issues, all provisions are standardized, everything is passed on the first try and zero time spent on documentation and notes? double that. Here is another tip - in old good times we would put on a wall a large map with multipe colors highlighting the permissive aggregations. Might still be an efficient and relevant tool inspite of all the AI advancement.

usually plan's formula for oner-only plan is 10% of AAC (415 limit formula). Thus, there is no need to complicate things.

that applies for sole-props as well and many (if not majority) of CPAs think it is OK to deposits VATs by September-ish.

What is the basis for that? I do not see in §1.411(a)-5(b)(3) any reference to distinction by plan type. If it is a "replacement" plan, then sure, but is it? And if it is, what makes a DB plan not to be a "replacement plan"? The old plan exists, and a new plan is being added to accomodate whatever, with a different structure of benefits and vesting.

dependent on the actual plan design you potentially need to calculate various factors for each person at attained age at termination, normal retirement age, age 62. That is using 5.50%. 5.0% and 417(e) rates. Btw, you need to watch out not to exceed 415 limites along the way for 2024 (if applicable) and 2026. Varous proration rules applied to dollar-based limit and compensation-based limit. The precise guidance in the IRC Section 415(b) and the final 415 regulations. GL.