VeryOldMan

Sorry for the confusion here, I think it is an interesting topic.

R is an employee, and I don't see how it should matter. A 204(h) notice was given as part of the announcement of the plan restructuring, and it explained that current employees would receive the greater of their prior accrued benefit or the benefit under the 1/2 formula. Since R had not yet earned an accrual for the current year, he would get the greater of his prior year accrued benefit or the new formula current year accrual. The only question to me is the amendment reducing the hours required for an accrual at the end of the year.

General Rule: We have a plan where the sponsor wants change the pension formula from (Z x comp x service) to (1/2 Z x comp x service). Employee R did not have the 1,000 hours needed to accrue before the amendment and only accrued 500 hours during the year. Since Participant R has not yet met the 1,000 hours needed to accrue a benefit for the current year, it seems that anti-cutback does not apply and Employer can reduce his current year accrual. No problem there. However, the amendment will be adopted next week and will also reduce the hours required to accrue a current year benefit from 1,000 to 100. Since Employee R completed 500 hours, so he then get an accrual. The question is: which accrual is he entitled to receive? My interpretation is the reduced accrual under the 1/2 Z formula because he didn't gain the right to an accrual until the very day that the benefit formula had changed. Since both the formula and hour change occurs at the same time, it is confusing. Better to amend the formula first, then the hours requirement in the following day? Appreciate any comments here.

instructions say to include those who are currently accruing or who will accrue benefits in the future. Since he might not accrue benefits in the future, I wasn't sure to list as a participant on the SB. A an afterthought and your remark, unless I could prove he would never accrue, I think I should include him.

This question goes to the definition of "active participant" in the f5500 instructions for a pension plan. My client received a $2 mill age 70 415 lump sum in 2012 under the C-limit, but he continues to work and is still accruing service and comp credits, BUT it is unlikely that he will ever be able to accrue additional benefits. His comp is $350k per year. I ran a MASD analysis and he is still about 10% away from ability to accrue. My question is: should he be listed as a participant on the Form 5500CR. On the SB he would not be listed as a participant since he has no current benefits.

Luke, is your experience in this instance with large or small plans? And did a prompt correction reduce the audit risk?

Really? If the FD isn't corrected by depositing the additional amount, doesn't the tax jump to 100% of the deficiency under 4971(b)? But just to discuss the point, you are saying I think that whether I postpone the termination and final a SB for 2020 showing the deficiency paid, I would still have the same audit risk. I find that surprising.

I have a DB plan ( not Cash Balance) that was terminated this year and has a funding deficiency. Since this would be the final SB filed for the plan, I am unclear how to show the correction of the deficiency on the SB since instructions say to report only contributions made with 8 1/2 post yr end. The minimum contribution was due 9-15-19 but wasn't funded until 11-15-19. The contribution made was adjusted for interest using the effective interest rate for 2019 and the deficiency corrected. We are wondering whether to un-terminate for 2019 so a clean and final SB could be filed for 2020. Client is concerned about the audit risk.

I suppose I could use method B and define the function to be 100% of the accrued benefit. Then the FT would be based on the accrued benefit as the end of the prior year and the TNC would be based on the actual increase in the accrued benefit. If I'm interpreting this correctly then, this method uses the large increase in comp in year x=1 instead of spreading it over all years under C. Is this correct?

I have one other question relating to this topic. If a plan has a unit credit formula, e.g. 5% x service x ave comp, isn't the only appropriate funding method that under C in 1.430-1(d)(c)(ii)(C) where the accrued benefit for FT is based on 8yrs and TNC is based on 1 increase in service? That makes the TNC benefit small. How could B or D apply to such a plan fiormula? Just looking for clarity here. Also David's comment about comp limit would obviously apply here--I was just ignoring it for the example.

Thanks for your comments--makes sense to me.

Isn't that mathematically unsound?

Can someone comment on the attached shortfall summary. It seems that my outstanding balance in 2018 is less than the sum of the annual charges. Don't see where my calc went wrong! 2018-SHORTFALLBASE Sheet1.pdf

Thanks for the comments. I get it. If the benefit accrual method had followed the method using the accrued benefit model under B, the TNC would have been based on the full accrual and a very large normal cost.

I find I am having trouble with the benefit accrual rules in 430(d). A client started a pension year in year X. Unit benefit formula is High 3 x5% per year of service ( including prior service). High 3 is computed based over all years of service. In year X there are 7 years of prior service and high 3 is $8000/month. Accrued benefit follows method under 430(d)-1(C)(1))ii)(C); at beginning of year X accrued benefit is 5% x 7 x $8000=$2800 for the FT, and $400 for TNC. We are now in year x+2 and due to a huge bonus of $500000, High 3 is now $22,000. Accrued benefit for FT is then determined as 5% x 8* $22,000=$8800 and benefit for TNC is only $1100. Thus the big change in average comp is being spread over all years of service rather than applied in year X+1. Is this correct? And if the benefit accrual method were changed to where the increase in pay is fully applied in year X+1, is that a change in funding method? My old brain is having trouble understanding if this is correct. Also, is there a way to change the benefit accrual method that doesn't require a change in the funding method. Appreciate any help understanding this rule.

C.B. --thanks a lot, very helpful.

No the doc doesn't cover it. Is it really that simple? Is there a reg or a direct code reference on this? Sorry I don't usually have these types of issues. My problem is the plan doc doesn't have the failsafe language that C.B. Zeller referenced, so would have to draft language to do it. We use FIS and I tried checking with them but got nowhere.

We set up a traditional DB plan--not cash balance-- for a restaurant with 50 employees. We excluded bartenders and service people while covering the chefs, kitchen and dish washers and the vice-presiident of the business. Though the plan satisfies 70% coverage RPT and initially met the 40% participation rule, this year the minimum participant count is too low--39.2%. I am unclear how to fix this at minimum cost to client. Can I just cover 1-2 members of one of the excluded groups. Has anyone had this sort of problem and how was it fixed. Appreciate any thoughts on the subject.

A pension plan covers Bill and Jill. Bill owns the business, Jill is a secretary. The plan was set up in 2010 using a unit benefit accrual of 10% x High3 x Service ( including all past service). The plan is amended as follows in 2017: the new formula is 20% x High3 x Service ( including all past service). We can't explain why this change was made ( takeover case this year), but question whether the 133% rule was violated. In fact the amendment has no practical affect since the benefits are already at the 415 lints based on original formula! But my question is whether a retroactive change in the accrual rate for all current employees for all years could affect the safe harbor. I don't see any violation since the change applies to all years of service. Checking the available vals there are no terminated employees since plan started. Any thoughts anyone?

No, we took the $125,000 deduction in 2018 and the balance of $175,000 in 2019. There is no issue with the $125,000 since it was paid in time to deduct on the 2018 corp return. My issue was with the $175,000 that was paid after 2018 tax return was due (4/15) and is being deducted in 2019, and reported with the 2018 Sch SB. This is answer (c) from above, and I believe that interpretation supports the 2019 tax treatment. Just looking for confirmation. There will be a large potential deduction for 2019, so as Mike says that will cover the $175,000 plus additional contribution from 2019 valuation.

I have a pension plan with a $300,000 minimum funding requirement for 2018. Plan and fiscal year are the calendar year. The client funded $125,000 in Jan 2019 and filed his corporate return without extension. The balance of $175,000 was funded in May. The issue is whether the $175,000 is deductible for 2019 fiscal year. Rev Ruling 77-82 says... " the rules of this section relating to the time a contribution is made for sec 412 are independent from the rules contained in sec 404(a)(6)". 2011 Gray Book Q&A 7 raised the issue of which combinations are acceptable for a contribution made during the 2010 404 grace period ( 1/1/11 to 9/15/11) as follows: a) Deduct in 2010 reflect on 2010 Sch SB b) Deduct in 2010 reflect on 2011 sch SB c) Deduct in 2011 reflect on 2010 sch SB d) Deduct in 2011 reflect on 2011 sch SB. The acceptable answers were a, c and d. Based on this, I've concluded that I will report on $175,000 on the 2018 such SB and take the deduction in 2019. Any comments? Many thanks...

Corbel Docs uses the following table in their DC plans for excess asset transfers: Yrs since transfer Percentage of suspense account 0 14.28% 1 16.67% 2 20.00% 3 25.00% Etc. I can't duplicate these percentage using the reg requirement of ratably over 7 years. I contacted tech support at Corbel and no-one could explain it. Any thoughts you young guys?

S4980 is very generous to pension plans, and I'm certainly happy about that, it just surprises me. You make a good point about the 415(e) repeal and perhaps that's how I should look at it. 4980 treats the surplus as a sum of up to 7 years of annual additions, which goes to your point.

I will explain with a simple real life example. I have an attorney client with a terminating pension plan covering only himself. His 415 maximum lump sum is $1,050,000 and the assets are $1,200,000. So surplus assets above the 415 maximum lump sum of $150,000 and we just paid out his lump sum this year to satisfy 401(a)(9). 4980 says that I can transfer 100% of this surplus to the QRP plan ( a profit sharing plan) and allocate it out to his account at the rate of $55,000 per year (very high salary) for 3 years to use up the surplus. Isn't this paying a lump sum that exceeds 415?

I continue to struggle with the excess assets issue in a terminating pension plan. The rules under 4980 seem to permit the maximum 415 lump sum to be exceeded.