Deduction Limits after PPA

[Gary]

In preparation for making a deductible limit calculation after PPA a couple of aspects are unclear and are as follows:

1. Plans with less than 500 participants are deemed "not at-risk". Can we still apply the at-rsik assumptions to the computation of the FT and TNC, including the loading factor, under 404? I would presume yes.

2. When computing the cushion amount for a plan that is covered by the PBGC, can increases that are expected to occur under 415(b) be taken into account? What about 401(a)(17)?

3. Are amounts calculated above allowed to be brought to the end of the plan year? For example if the amounts are 100k at BOY and 106k at end of year, can 106k be contributed and deducted if it is made any time during the plan year and up to the due date of tax return? So for a 2008 calendar plan/fiscal year that would mean 106k could be made anytime from 1/1/08 through 9/15/08 (assuming tax return extended to this date). I'm thinking the adjustment to the contributions using the effective interest rate applies to the minimum required contribution and not to the maximum deductible contribution.

Thank you.

[Gary]

I mean "9/15/09" in question 3.

The years are flying by.

[Andy the Actuary]

I mean "9/15/09" in question 3.

The years are flying by.

Yes, it seems like just yesterday it was 10/27/2008.

[david rigby]

I suggest your own research to confirm, but here is my best recollection:

1. No. The max is greater of amount under IRC 430 or greater of: (a) FT plus NC plus cushion amount, minus AVA, or (b) if not subject to at-risk, then FT plus NC (both determined using at-risk assumps) minus AVA. (For a non-frozen plan that is compensation-based, I'm not sure if (b) could be greater than (a), but I have not tested that.)

2. For cushion amount, assume both the comp and benefit limits apply, except that a PBGC covered plan may ignore the comp limit.

3. I don't see any interest adjustment in the contribution, for 430 or 404. It appears that all amounts (FT, NC, AVA, cushion, etc.) are calculated at the valuation date.

But I could be missing something.

[tymesup]

Pre-PPA 404 did not address interest adjustments. 1.404(a)-14(f)(3) provided for interest to the earlier of the end of the plan year or fiscal year.

Post-PPA 404 still does not address interest adjustments and -14 has not been rescinded. Therefore, I would assume interest adjustment is still allowed.

However, at the recent ASPPA conference, there were at least two sessions that did not provide for interest adjustment. There was no squealing from the audience.

If there is no interest adjustment, then we are left with the anomaly that EOY vals get a bigger deduction than BOY vals.

Given the 150% limit, an interest adjustment may be overkill and lead some clients/practitioners into trouble.

If one were to add interest, what rate should be used? The effective rate and the first segment are plausible, just for starters.

The feds don't seem to be in a hurry to issue guidance. Given some of their interpretations, we may be better off with ambiguity.

[Guest wheat667]

wrt 1. above:

I recently spoke to an Employee Plans guy at the IRS who said the IRS would interpret this 404(o)(2)(B) wording that a plan with < 500 participants would satisfy the "If section 430(i) does not apply..." condition, so you can use this clause. He mentioned that if there was something in the Committee Reports (or the equivalent of that for PPA) that contradicted that, he'd change his opinion but he didn't think there was.