Full Version: 412i Plan cross tested with a PS Plan
Is it possible to create a 412i Plan cross tested with a Profit sharing plan for a small group of employees?
It is possible. But it gets ugly quickly if you do not stay on top of the coordination of the plans. If you can coordinate the plans properly from the design point and then stay on top of the administrative factors, you should be okay.
I know, an actuary who hates to assume - now there's the definition of irony!
I am trying to better understand the question being tossed out for discussion.
Are you contemplating a scenario where a single employer would sponsor both a DB plan , and a DC plan (for younger participants only), offsetting the DB plan by benefits accruing under the DC, and then cross-testing the result to show it is non-discriminatory?
I suppose that this would work, but I can think of a few messy situations that might occur.......
One of the few advantages of a 412(i) over a traditional DB is that the funding can be smoothed out considerably by funding with insurance or annuities. If the DB benefit is now offset by the DC plan, and there are sudden investment gains or losses in the DC accounts, the funding patterns could become somewhat erratic.
Anyway, before I get carried away with too much discussion, can you tell me if I am clued in to the actual topic?
I am trying to better understand the question being tossed out for discussion.
Are you contemplating a scenario where a single employer would sponsor both a DB plan , and a DC plan (for younger participants only), offsetting the DB plan by benefits accruing under the DC, and then cross-testing the result to show it is non-discriminatory?
I suppose that this would work, but I can think of a few messy situations that might occur.......
One of the few advantages of a 412(i) over a traditional DB is that the funding can be smoothed out considerably by funding with insurance or annuities. If the DB benefit is now offset by the DC plan, and there are sudden investment gains or losses in the DC accounts, the funding patterns could become somewhat erratic.
Anyway, before I get carried away with too much discussion, can you tell me if I am clued in to the actual topic?
The plan is to create a DB DC Plan where the DB Plan is a 412i plan and under the final 404(a)(4) regs cross test for non-discrimination.-I am also an avid chessplayer actuarysmith.
It appears that my previous post was on the right track.
I know of no reason why you could not cross test a combination 412(i) DB and a DC plan. It is done with "traditional" DB plans and DC plans all the time.
Even though 415(e) has been repealed, the IRC 404 limits (25% of eligible payroll, or normal cost under the DB if greater) still applies. If the DB contribution is high enough, it will use up the entire deduction limit.
Since 412(i) plans are typically based upon more conservative interest rates, the required funding can be higher than the average non-412(i) plan making this more of an issue.
One other consideration, since starting in 2002, 401(k) deferrals do not count towards the 404 limits, why not consider adding a 401(k) plan with a 412(i) DB plan.
I would love to hear what others think on this subject. My impression is that there are not a lot of folks doing 412(i) plans out there. (TPA's I mean).
P.S. Npalaveda - I realize that you are an avid chess player. You have not figured out who I am yet. (I used to coach the Heritage Elementary Team).
I know of no reason why you could not cross test a combination 412(i) DB and a DC plan. It is done with "traditional" DB plans and DC plans all the time.
Even though 415(e) has been repealed, the IRC 404 limits (25% of eligible payroll, or normal cost under the DB if greater) still applies. If the DB contribution is high enough, it will use up the entire deduction limit.
Since 412(i) plans are typically based upon more conservative interest rates, the required funding can be higher than the average non-412(i) plan making this more of an issue.
One other consideration, since starting in 2002, 401(k) deferrals do not count towards the 404 limits, why not consider adding a 401(k) plan with a 412(i) DB plan.
I would love to hear what others think on this subject. My impression is that there are not a lot of folks doing 412(i) plans out there. (TPA's I mean).
P.S. Npalaveda - I realize that you are an avid chess player. You have not figured out who I am yet. (I used to coach the Heritage Elementary Team).
NPaleveda, this is the wrong board for this, but are you advocating a 412(i) plan, and if so, why?
I am not advocating 412i plans-nor am I disapproving them-I am working as a consultant to some large life insurance companies who ask questions which there appears to be no case law guidance or PLR's or TAMS or anything of substance. I also have reviewed some 412i plans I believe they will not work but would like other opinions on them.
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