Non-duplication rule of recent Regs provides that earnings on account balance plan amounts (that have been previously subject to FICA) will not be subject to FICA provided those earnings “reflect a rate of return that does not exceed either the rate of return on a predetermined actual investment ... or, if the income does not reflect the rate of return on a predetermined actual investment, a reasonable rate of interest.” (d)(2)(i)(A) If the NQDC plan account is funded by a managed portfolio of securities w/ actual returns allocated to the account, does this ‘predetermined rate’ rule apply?? That is, is the account portfolio itself an ‘actual investment’ under (d)(2)(i)(B) even though investments in the portfolio will change during the year? Thanks

I'm not sure about the FICA reg but I would be concerned about have too close a relationship between your nonqualified benefit plan and the financing vehicle. It seems that you would run a substantial risk of having the plan determined to be funded if you tried to argue that the growth in the plan was the "actual investment" in the financing vehicle.

There is a good chance that I am being overly careful with regards to this issue so any comments would be appreciated.

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Robin Davis
D&D Benefits, L.L.C.

The IRS has long ago dropped the issue that Robin Davis mentioned.

Using actual investment results does not create any problems. The IRS doesn't want you to be able to set up a formula with a benefit of $10 plus interest at the rate of 10% per week and report only $10 as subject to FICA taxes.

Kirk, are you suggesting that it is no longer of concern if a nonqualified plan is considered funded or not? Wouldn't that nullify that requirement that it be an unsecured promise to pay?

IRC401, now I understand - thanks for the clarification and info!

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Robin Davis
D&D Benefits, L.L.C.
972-755-3327



[This message has been edited by Robin Davis (edited 01-05-2000).]

Robin:

What the rate of return under the plan is does not affect whether or not the plan is funded. They are completely unrelated concepts.

Ok, thanks for clearing that up, I was confused! I wasn't really thinking of the rate of return itself but of tying it too closely with the funding vehicle. But I see how I might have worded it wrong.

Thanks again!

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Robin Davis
D&D Benefits, L.L.C.
972-755-3327