I'm trying to run a proposal for a plan.
They are Farmers and the owners are 77 years old - want to retire at 85 comp is $250,000 and they are a partnership
Can you do a 412(e)3 plan and what about the RMD's required in a fully insurance funded plan? What about PS-58 costs?
Is it worth it? What a about a tradtional DB plan - the RMD's are calculated differently and they can be high also.
Thanks

Don't plans have the ability these days to take in-service distributions at or after age 62 (earlier with supporting industry data). I wonder if you couldn't have an in-service distribution option in the plan and essentially fund and immediately rollout the contribution each year to the owners respective IRAs where there RMD distributions would be lower under the DC methodology as compared to the DB method.

I have no input on the 412(e) plans, my comments relate to a traditional DB plan or cash balance plan.

Why would you advocate a 412(e)3 plan for such a situation?

(Ned, feel free to chime in)

You have the mechanical issue of having the insurance company follow the terms of ERISA, so you should deal with a company that understands the need.

Basically, you have an annuity contract growing from age 77 to 82, your maximum retirement age, and continuing to age 85 late retirement.
Further, you can have 3 year cliff vesting, so no distributions until age 80. The contract would have to provide for annuity payments from age 80 forward.
But the effect would still be a substantial deferral of income.

The insurer will have a problem with amortizing the acquisition expenses of the policy, because you really have a five year policy, with the option for later payment.

Ignoring whether or not a fully insured plan is appropriate or not for their situation...

Off the cuff, yes, presumably you can do one. As for RMD's, you are going to calculate an annuity based upon the benefit, right? In essence no different than a traditional DB, other than how you arrive at the appropriate benefit, (I think.) As to taxable term costs, if they are unincorporated partners, they can neither deduct the TTC, nor can they recover it as basis later. Perhaps you can delay the effect a bit by using cliff vesting? Remember, you can't roll over the RMD's, so I guess you'd have to crunch some numbers to determine if all this fol-de-rol will ultimately be worth it. They might possibly be better off with a 401(k) and employer discretionary, and max themselves out, with catchups? Andy's opinion on that will be far more informed than mine in terms of potential numbers! Plus he's a Bosox fan, which makes him a fine, informed, trustworthy, intelligent person, as opposed to those who root for the Evil Empire, and are therefore pond scum.

Sorry, I can't help myself - baseball is in the air, so the world will soon be right again.

I see SoCal addressed some of the questions while I was typing this.

If there is a valid reason for a client to adopt a fully insured plans in this situation I am open to learning.

This could certainly be done through a regular DB plan, and the cliff vesting idea is a good one, although admittedly I'd hate to be the one keeping track of the minimum distribution requirements in year 4.

B, debating a 412(i) is just as fun as batting practice to me. But I guess that's obvious.

Have you considered whether or not a Cash Balance approach would work for them?

And dont forget about filing under 6707A to avoid the fine.

Did you get the fine?