SRM

Also see rev. Proc. 2005-25 which defines fair market value of the policy for this purpose. It may be more than the cash surrender value.

Or Rollovers into a plan or all assets after age 59 and 1/2

I believe that you would need to have the same policy types (i.e. same policy series of Life Insurance for HCEs and NHCES) to satify the nondiscriminatory availability of benefits, rights and features (See Rev. Rul 2004-21). In other words, you would have two separate BRFs to test for current and effective availability if you have two different types of life insurance in the plan.

Do you file a 5310-A to report a transfer to a qualified replacement plan?

Please contact your congressman if they are a member of the ways and means committee. While I would hope that this does not go anywhere in congress, I think it is important to note that a member of the presidents cabinet (director of OMB) was one of the driving forces attacking cross testing last time around (see www.cbpp.org/3-2-00tax.htm) so there may be more support in Washington than a small number of House members.

The facts are: Plan has roughly 50 terminated vested participants, 30 retirees, and a handful of active participants. Plan is about 500K short of being funded at 100% of benefit liabilities (i.e. lump sum for term vested and actives and annuity purchase for retirees). Plan Sponsor will fund the shortfall at about the same time as potential annuity purchase so that plan is around 100% funded at time of purchase. Goal is to purchase annuity in late 2007 or early 2008 and then pay lump sums in 2008 to terminated vested participants (plan presently doesn't have lump sums or benefit payments before normal retirement age but will be amended to provide for such). Plan would then continue for a period of time until remaining active participants retire.

When a single premium group annuity is purchased to settle benefit liabilites for a PBGC covered terminating plan, there is a requirement to provide a Notice of Annuity Information and Notice of Annuity Contracts. Does this requirement apply to an ongoing PBGC covered plan that is settling liabilities for a group of retirees through a single premium group annuity but is not terminating?

ak2ary, Could you post the entire memorandum or send via private email? Thanks. SRM

In the 1990 gray book, IRS indicated that there is not a prescribed order for determining amortization bases when there are plan amendments, assumption changes and a funding method change in the same year. Has there been any update to this question since 1990? ----------------------- 1990 - QUESTION 15 General Funding When a valuation includes plan amendments, assumption changes and a funding method change, is there a specific order in which these should be recognized? For example, a plan is valued using the Aggregate funding method as of January 1, 1988 and the Projected Unit Credit method as of January 1, 1989. As of January 1, 1989 the plan is amended to comply with TRA and the mortality assumption is changed. One, two or three bases could be set up, depending on the order in which the changes are recognized and the minimum required contribution for 1989 would vary because the bases have different amortization periods, although the outstanding balances must add up to the same total. RESPONSE 15 At present there is no guidance regarding this question. It should be noted that when guidance is published on this type of matter, IRS generally issues rules on a prospective basis and tends to be lenient if new rules would be in conflict with past practices that were reasonable. ----------------------------------

You can run a Cash Balance valuation entirely in ASC's DB module. You do not need the DC module to handle Cash Balance Plans in ASC, although if you want to test CB plans together with DC plans within ASC then I believe that you would need both modules.

I use both relius and asc. I much prefer asc due to their flexibility and speed of updates for law changes.

Any problem with a plan sponsor deducting two years worth of minimum funding contributions in a single tax year based upon the following? Election to deduct contributions for plan year beginning during tax year Plan adopted 5/15/07 First Plan Year 5/31/06 - 5/30/07 Second Plan Year 5/31/07 - 5/31/08 Tax Year 6/1/06 - 5/31/07 Assume 100K minimum funding requirement for PYE 5/30/07 and 100K minimum funding requirement for PYE 5/30/08 (ignore interest for simplicity). Assume 100K contribution deposit on 6/1/07 for PYE 5/30/07 and 100K contribution deposit on 6/2/07 for PYE 5/30/08. Can the 200K be deducted for the Tax Year Ending 5/31/07 considering the first 100K as includible contributions (not deductible for Tax Year Ending 5/31/06 solely due to timing of contribution)?

It will be nice to have some guidance in this area. It is funny that IRS has indicated that amendment = new plan when most definitions of "amendment" imply a change to something already in existence which is not the case for a new plan.

Thank you for your comments. I appreciate them. Any thoughts on the mechanics of determining the allocated assets to split between the plans? Must this amount be determined by using the pbgc priority class method (it is non pbgc covered plan) or could a simpler method be employed (for example if the plan is 80% funded on a lump sum basis, then split the assets by applying 80% to each participants lump sum pvab). The plan document language refers to each participant being able to receive benefits after the spinoff no less than the available accrued benefits if the original plan would have terminated before spinoff (and it is owner only plan).

Thank you for your comments. I haven't thought about the 415 issue for a while, so I could be wrong. Assuming that minimum participation issue can be addressed by a timely termination of the original plan or providing minimum benefits if needed, any other concerns with the design? The retiring owner is terminal so the goal is to address the situation and pay out sooner rather than freezing and funding over time.

Consider the following facts: Single employer, Non-PBGC covered Plan 3 owners are only participants. Plan is underfunded and cannot pay unrestricted lump sum. 1 owner is retirement age and wants lump sum distribution. He would be willing to take lump sum equal to non discriminatory, fair share of allocated assets if plan could pay unrestricted lump sum. Clearly the plan could terminate and each could receive a lump sum distribution equal to non discriminatory and fair allocation of assets. A new plan could be adopted for the remaining 2 owners. However, the 2 remaining owners do not want to terminate plan and potentially lose future contributions based upon prior accrued benefits (i.e. IRS position that benefit for 415 purposes attributable to prior plan distribution is not based upon actual lump sum but accrued benefit in prior plan). Any problem with spinning off the 2 remaining participants into a new plan, allocating assets between the two plans, terminating the original plan and paying the lump sum equal to allocated assets? Must the allocation of assets follow the priority class allocation or is another reasonable allocation available (document just indicates that benefits after spinoff are equal to amount payable before spinoff if plan terminated)? Assume other restricted benefit payment options (restricted IRA, escrow, bond) are off the table. Assume administrative cost of spinoff, termination, and new plan are not relevant. Any thoughts are appreciated.

I think the interest credits in the self directed cash balance plan idea are not a fixed rate, but instead something tied to the investment return on each self directed account. The new law may apparantly open the door to this design (although I think there are more than a few issues still to be addressed before the design is anything less than very aggressive). The interest credit could be something along the lines of: 1. annual interest credit equivalent to yield on model portfolio selected by participant from plan's approved model portfolio list. The model portfolio list would consist of the asset allocations corresponding to each participants self directed investment account. 2. the cumulative interest credits could not be less than 0. The regulatory issues that I see as needing to be addressed before this is a feasible design are: 1. 401(a)(26) - does this create a separate benefit structure for each participant. Are funds from all accounts available to pay all benefits? 2. Benefits, Rights and Features - Are all investment advisers and portfolios available to NHCE? 3. Non Discrimination Testing - What are the mechanics of general testing this design if the interest credits are all over the board (i.e. what interest rate is used to increase CB to retirement age and convert to accrued benefit to test on benefits basis)? 4. 415 Limits - How are 415 lump sum limits calculated based upon the new law (the plan rate portion) when the interest credits are so variable? These are just some regulatory issues that could arise, not to mention some practical issues related to keeping a relatively predictable minimum required and maximum deductible contribution range in an environment with individually directed investment accounts.

I agree that the proper treatment is either an employee on a W-2 or partners with K-1s and an 1065 return. However, what if there were two sponsoring employers - one for each schedule c business? If we assume that the spouses have truly separate businesses, then couldn't a single Plan be adopted and sponsored by each of the schedule c businesses (i.e. 1 plan with a sponsor and a supplemental participation agreement for the other sponsor)?

Assume a private company with a leveraged ESOP that is valued by an independent third party once each year (as of the end of the year). Assume that all shares acquired by the ESOP were acquired after 1992. How is the value of shares released in a year determined for company Financial Statement purposes? I believe that AICPA SOP 93-6 indicates that the actual fair market value of the shares at the time of the release should be used for this purpose. How is the fair market value determined if the Financial Statements are prepared prior to the completion of the valuation by the independent third party? Is the share value from the prior year used?

Sorry, I wasn't clear. I agree with you. I am extremely grateful that the law allows for funding to 100% of RPA CL. I meant that it is bad law that provides for a calculation of the unfunded current liability that can possibly be less than the amount needed to bring the plan up to full funding for plan termination purposes. I have gotten stuck a few times with valuations (for sponsors that want fully funded plans each year) that produce a maximum deductible contribution (based upon unfunded current liability) that is less than the amount needed to make the plan fully funded on a 417e basis because the majority of the benefits are attributable to male participants.

There would be unfunded current liability assuming that there is a significant portion of the plan benefits attributable to female participants. The present value of benefits at 4.59% 1983 GAM (male) for current liability purposes may be less than the present value of benefits at 4.86% 1994 GAR proj. 2002 for 417(e) purposes. Bad law. I vote for changing assumptions.

ADP and ACP Testing is not the concern. My question relates to the plan failing current availability under benefits, rights and features for two separate match formulas that apply to two separate groups of participants. I believe that the separate match formulas are other rights and features that must be tested for non discrimination under 1.401(a)(4)-4(e)(3)(iii)(G). Match formula A (50% up to 6%) is a richer match than match formula B (50% up to 3%). The plans coverage ratio for the participants eligible for Match formula A does not pass current availability and must be expanded by a certain number of participants in order to pass current availability (benefits, rights and features non discrimination testing). When I mention "replace formula from the prior year", I am referring to the participants that were eligible for match formula B that must be made eligible for match formula A so that the plan passes non discrimination (benefits, rights, and features) testing with regard to the separate match formulas. The correction will occur after the end of the plan year, but before the end of the corrective amendment period available under 1.401(a)(4)-11(g).

Any thoughts on this?

Assume Plan covers 2 groups of employees. The Plan provisions are the same for both groups of employees with the exception of the match formulas: Group A - 50% match on the first 6% of compensation deferred (maximum match is 3% of compensation) Group B - 50% match on the first 3% of compensation deferred (maximum match is 1.5% of compensation) Questions: 1. Do you agree that these are separate rates of match that must be tested as rights and features for current availability and effective availability? 2. If yes, and assuming the coverage ratio for the rate of match for Group A is 10 NHCE short of passing current availability for the prior year, which of the following do you think would be acceptable correction measures (assume a corrective amendment will be prepared on a timely basis and filed with IRS for their approval): A. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 3% of compensation so that the net increased match is $0. I don't think this one has substance to qualify as an -11(g) amendment. or B. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 4% of compensation so that the net increased match is 0.5% of compensation (total match for this group is 2% of compensation). I am not sure about this one since they are receiving the same match formula as Group A, but since they are not maximizing the deferrals at 6% of compensation, the increased match is less than 3% of compensation in total. or C. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume that the 10 NHCE selected are deferring 3% of compensation. Increase the match for the year to 100% up to 3% of compensation. The argument here is that these employees would have contributed 6% of compensation if they had known that the match formula cap would have been 6% instead of 3%.

NoName, I matched to your age 65 6% life annuity purchase rates with the 1994 GAM Static distinct tables. Effen, Can you expand on your position with regard to actuaries selling investment products? I agree with you concerning the practice of law, but I think that an actuary that is also investment-licensed and investment experienced is in a unique position to determine the appropriate asset allocation for a DB Plan. Not too many brokers understand why a plan with benefits near the 415 limit and participants at retirement age shouldn't be invested to hit a home run, but an actuary would understand and can prevent asset accumulation above 415 limits and huge undesirable contributions on the flip side with appropriate asset liability modeling.