still learning

I fully agree that we can adopt a plan now for 2020 (under the right circumstances). But what if we adopted a plan in 2020 with a 1/1/20 effective date, and we just now decided we wanted to have a more liberal eligibility (age 18 instead of age 21). Logically, we should be able to do this, or else the employer who procrastinated has an advantage over the one who didn't. I don't know of anything that gives us this ability. Does anyone else? Even if we CAN amend eligibility, am I correct that a participant would not have been able to have a 401(k) deferral for 2020 because the plan has to be adopted before that deferral takes place?

Thanks for the replies. Quite helpful.

Thank you, Luke. I don't have all the facts yet myself. Right now it's just a potential client.

Husband & wife own 100% of business that sponsors a DB plan. They are the only employees, the only participants, and the plan's trustees. Husband wants to buy an investment property (a building housing a fast food restaurant, but I don't think that's relevant) 50/50 with the plan as tenants in common. I believe this is a PT. Does anyone disagree?

Company A, a C-Corp, was formed as a shell, started a 401(k), and the one employee of A rolled over his 401(k) account balance from a former employer. The 401(k) then bought all of the stock of A, and A bought a fast-food franchise with the proceeds. Some years went by, business grew, and A (still wholly owned by the 401(k)) wants to adopt a DB plan for the benefit of all its employees. Any reason this can't be done? It seems to me that A is run as any other business, and in fact already sponsors a qualified plan (the 401(k) plan that owns A), so I don't see any reason why not. Would the answer be any different if the franchise were its own entity, and instead of owning it outright, A and the other entity were a controlled group?

I realize this is an old post, but I have a situation similar to drakecohen's. Andy, Effen, and Calavera, you're answers all address the lack of existing RASD provision, but what if the plan did allow RASD all along? Would you then say that b) is an acceptable solution to an overfunding problem? What about if the example were for a 71 year old who already took 2019 and 2020 RMD, does that change anything? This was not my plan until this year, but let's assume we're fully in compliance in every other way, and just don't want to go over 415 limit with lump sum payment. And just as an editorial note, this is the type of client who didn't listen when assets were way down in March and April...if they had, I wouldn't be posting this.

I inherited an overfunded one-participant plan. The participant is the 70 year old owner with three year average pay of $100,000. Maximum 415 lump sum is about $1,000,000, but plan has $1,560,000. She could take the lump sum and move the rest to a qualified replacement plan, but the company won't have income going forward (no way to use up the excess) and she wants to close it down (can't have a plan with no sponsor). So I have three questions: 1. If she were to use a Retroactive Annuity Starting Date of her 65th birthday, the back payments with interest would be $560,000. This amount would not be rolled over. Then she could use the $1,000,000 to purchase a life annuity with payments of $100,000 per year. Is this correct? 2. If she first took her RASD payments, could she then take her lump sum of $1,000,000? Or is this a 415 violation? 3. What if she were 71 (70-1/2 in 2019) and already took her RMD for 2019 and 2020. Does this affect the answers to 1 & 2?

Thanks for the help, everyone!

I do understand that, Lou, but I was under the impression that it was greater of plan or 417 rate but not in excess of 415 dollar limit. That is, if we're using 100% of pay, we would still apply 417 as long as the 417 lump sum does not go above the dollar limit lump sum. And I've spoken with other actuaries who are under the same impression. "Let's say his 3 yr avg pay is $252,000. LS based on AMT at 5.5% is now $2.6 mm. LS based on 417 is $3.2 mm. Would you now say his LS is $2.6 mm, or is it $2.9 mm?" If I've been looking at it incorrectly, then in my second example, the LS would be $2.6 mm?

I was expecting that answer, but why doesn't 417 apply? Let's say his 3 yr avg pay is $252,000. LS based on AMT at 5.5% is now $2.6 mm. LS based on 417 is $3.2 mm. Would you now say his LS is $2.6 mm, or is it $2.9 mm?

One participant plan, 71 year old owner with more than ten years of service and participation. NRA was 65. 3 yr avg pay is $280,000. Benefit is 100% of pay. Distribution will be made on 12/31/20. Actuarial equivalence of $230,000 limit is about $371,000. Lump sum of $371,000 based on AMT at 5.5% is about $3.8 mm. But maximum benefit is 100% of pay, or $280,000. Lump sum of 280,000 based on AMT at 5.5% is about $2.9 mm. Lump sum using 417 segment rates is about $3.5 mm. What is the maximum lump sum for this participant? I’d like to say $3.5 mm, but I’m not convinced. This would not be an issue if 417 rates weren’t so low.