Top Heavy Status of a 412i Plan

[Guest merlin]

How is it determined? Do I start with the cash value of the policies at EOY, and if more than 60% are attributable to the Keys, then convert the cv into accrued benefits to see if the 2% minimum accrual is satisfied? If so, are the guaranteed policy rates considered"reasonable for purposes of the conversion?

[Blinky the 3-eyed Fish]

To answer your second question first, I think the answer depends on how your document is worded on the definition of accrued benefit. I have seen 412(i) documents that define the benefit as the CSV of the insurance policies, but have also see them define the AB as equal to the formula in the plan. Remember that 411(b)(1)(F) is one way for a 412(i) plan to satisfy 411, but not the only way. So, I think your answer is correct for determining the TH AB if the doc defines the benefit as the CSV, but if the definintion is the plan's formula, then you have an easy comparison between that and the TH minimum.

To your first question, I see that as the only way to determine if the plan is indeed TH, except if you had an existing side fund to consider that is funding previous TH accruals.

[Guest merlin]

The Corbel 412i plan document defines the accrued benefit as the policy cash value, which leads me to the question of 401a4. Assuming that the benefit formula is a flat benefit formula requiring at least 25 years of participation for the full benfit, and the premium payments are level to NRA, these three factors satisfy the design-based safe harbor for 412i plans, agreed? But if there must be an additional investment fund created to bring the accruals up to the top heavy minimum, or if thr accrual is part/part I no longer have a safe harbor, right?

[Blinky the 3-eyed Fish]

I agree with your first statement.

I don't agree with your next statement. The plan is still a safe harbor plan, meaning you don't have to perform general testing, if there is a side fund utilized to satisfy TH minimums. However, the side fund is what triggers the need to file a Sch B and use an enrolled actuary.

[Guest merlin]

I'm looking at 1.401a4-3b5iii and the ERISA Outline Book. Doesn't the presence of the side fund cause the plan to fail the requirement that it be funded exclusively through insurance contracts? I like your answer better, but...

[Blinky the 3-eyed Fish]

I am confident there is no way a side fund eliminates safe harbor status. Try this line of reasoning. I looked at it quickly, so check it carefully.

Look at 1.401(a)(4)-3(b)(6)(i). Then read 1.401(a)(4)-3(b)(6)(xi)(D)(3). I think this spells out that all is well.

[Guest merlin]

OK, Blinky, I like it. I was hung up on the insurance/annuity aspect of a 412i plan, but after all, it's still a db plan subject to the rest of the nondiscrim rules. After reading Larry Deutsch's article in the Sept/Oct 2003 issue of the ASPA Journal the last thing I want to do is apply the general test to a 412i. Thanks.

[Blinky the 3-eyed Fish]

I read that article too, but didn't agree with everything said. He states that the AB is equal to the CSV according to 411(b)(1)(F), but as I mentioned before, that doesn't have to be the case. In fact, I posed that question to Jim Holland during the ASPA 412(i) Webcase a few months ago, and he agreed. Try rereading the article knowing that the AB for nondiscrimination could be the benefit defined in the plan.

Of course you have already stated that for this plan the AB is the CSV, so you are right that you didn't want to general test it.