"Flip-flop" method of funding both a DB and DC plan and avoi

[Lorraine Dorsa]

The following question was addressed to the Plan Design Q&A column. I referred the questioner to the materials from the recent ASPA conference for details about the mechanics of this issue, but I think that discussion by practitioners who have used this method, or who have chosen not to, would be valuable to both the questioner and many others. Any comments?

Recently, I read about the so-called "flip-flop" method of taking deductions for corporations sponsoring both a DB plan and a DC plan (see the details in the DATAIR Winter 2000 news letter). Under this method, a business owner may contribute 30K to a MP plan each year and the full amount to a DB plan each year, and deduct both contributions and still comply with 404(a)(7). The deductions are taken not

in the same year for both plans, but 2 years of 30K DC contributions are deducted in one year, and 2 years of DB contributions are deducted in the following year, and so on. The timing of the contributions must be carefully laid out and followed. I have never heard of this method before,

and would like some comment from other practitioners. It would obviously be very valuable to some high-income small business owners.

[Guest]

The "flip-flop" is to be performed by a trained professional only. Do not try this at home. But seriously,folks,it works great if done properly,and doing it properly requires timing,coordination,and communication among the client,the actuary,and the CPA. If everybody does what they're supposed to do when they're supposed to do it,the technique will work fine. If everyone is not on the same page,it won't.

[Guest]

I have brought this to the attention of many clients and prospective clients, but have not had anyone actually elect to use it. I think it's one of these things that looks great on paper, but when push comes to shove it's too aggressive for most clients and/or their attorneys or accountants to accept.

[david rigby]

I would love to read some more about this technique. Know any sources, online or otherwise?

[Guest]

Kevin Donovan did a session at the 1999 ASPA conference and his outlines are pretty good. If you can't get them, let me know and I can email or fax you some things I did.

[Guest PAUL DUGAN]

Is there anyone out there that knows the ASPA session that has the Name or session # of the ASPA session. I looked at the index but could not find it. If I can get the number I can get the outline fro the disk or order the tape.