Cloudy Posted January 20, 2015 Posted January 20, 2015 Looking at a cash balance plan as a potential takeover. The pay credit formula for the owners is based on 401(a)(17) limited comp then subtract out the bonus (comp - bonus). It seems like that allows the owners to virtually set their pay credit every year based on how much of their pay they label as "bonus". Does anybody think this is a concern?
Effen Posted January 21, 2015 Posted January 21, 2015 Yes, I would be concerned. It isn't as bad as other designs I have seen, but I would make sure the client understands your concerns. Also, make sure the clients attorney is also on board unless you are prepared to defend the formula yourself. A few years ago a lot of people were basing cash balance credits on a "special bonus". The IRS accepted this for a few years, then they stopped accepting it and started to challenge it. They even went as far as revoking previously issued determination letters. If you have a determination letter for the plan you are in a much stronger position, but even then, I would be a little concerned. Also, just because I would be concerned doesn't mean it isn't accepted in certain circles and hundreds of people are doing it. John Feldt ERPA CPC QPA 1 The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
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