Yes. DB=Pension. Pension payout amounts are based on life expectancy
among other things. They require actuarial certification.

All opinions and recommendations expressed are personal, and do not
represent those of any institution, or business. Furthermore, my
opinions and recommendations carry neither an implied nor an explicit
warranty.

Will Trice wrote:
- quote -

Will,
To answer your rather concrete, yet abstract*, question: it'd be very
difficult to do without an actuary - impossible maybe. What "defined
benefit" means is "the plan pays a predetermined amount to participating
employees when they retire" - ie an old-fashioned pension plan. The
company needs to make sure there's enough money contributed to the plan
to meet that commitment, else it busts the rules for DB plans. "How much
is enough" is based on the composition of your workforce, projections
for their future income and longevity, and investment assumptions (all
of this in accordance with regulations). There really isn't a DIY way to
go about doing that.

BTW, today's low interest rates are part of the problem being faced by
corporate America - those companies with big DB plans anyway. If you
assume long term bond rates of 5% you need to make bigger up-front
(cash) contributions to your DB plans than when bonds paid 7.5%. Sort of
a death spiral at a certain point.

-Tad

* this reminds me, years ago I was in the library in college and came
across a civil engineering journal called "Concrete Abstracts". I
thought it was a better title for a philosophy journal...maybe some
editor had a sense of humor?

geertom wrote:
- quote -

And here I thought I asked a yes-or-no question (is that abstract or
real?), and I thought I got a yes-or-no answer (the answer was no). I
wasn't expecting Tad (or anyone else) to give me a matrix showing all
the legal combinations of the accounts we were discussing or anything
like that.

But I do have another question (I still don't know if it's abstract or
real): is it really necessary to hire an actuary to set up a DB plan?
It seems like figuring out the amount that can be invested would be a
fairly straight-forward formula. This is not to say that using a
professional is ill-advised, I'm just wondering about the actuary part.

-Will

To get answers to 401k rules and other ERISA protected plans, you need to
look at the department of labor's web site www.dol.gov


"raylopez99" <raylopez99[at]yahoo.com> wrote in message
news:1127260370.797960.247800[at]z14g2000cwz.googlegroups.com...
- quote -

Tad--thanks a bundle! Very interesting information. I did not realize
that there was a cap for Defined Contribution plans (which is what my
company has) of $42k (I assumed there was no such explicit cap, and to
play it safe was planning to treat the cap "as if" it was a 401(k))

Not to bother you, and don't go out of your way, but if you have an IRS
link or publ that discusses what the cap is for DC next year, in 2006,
please let me know. I assume it is inflation adjusted.

Good stuff here--I also did not realize that for Defined Benefit plans
you need actuarial statistics (I did realize DB was more complicated
than DC, and that's one reason I picked DC, which can have "zero"
contributions).

BTW, I have a 'close corporation' where the EEs do not care if there's
no contribution (ie., they're not about to go on strike or quit, since
they're relatives and have other jobs).

Once again, thanks, I'll archive this thread, with the usual caveats
that you have to do your own due diligence with any information you get
on a Usenet group.

Cheers,

Ray

Tad Borek wrote:
- quote -

No, Will, nobody has answered your question, myself included. If it's
an abstract question, there is no answer and everybody's just been
tryin to look pretty for you. If it's a real question, with real
stakes, none of the abstract answers is sufficient, because all of them
assume facts that none of us knows to be true. When I was a kid, and
argued with my Dad, he would segue from one meaning or implication of a
word to another (try that with "virtue" or "good"), and all we got were
sterile word games. And without real facts and real business
abjectives, that's all any of us did here, Not that it wasn't fun, it
was just useless.

Good luck.

Tad Borek wrote:

- quote -

Yep, I was just wondering. This answered my question.

Thanks!
-Will

Anybody can have one full DB and one full DC per employer nowadays. DB
plan provide better value when the employee is over age, say, 45.
However, they cost more because they have to have an actuary. So,
first, figure out how much you want to put into all plans. Second,
figure out how much you can do in a DC plan. Do not relying on that
publication, since it appears to be wrong. The limits are:

Deferrals--$14,000
Deferrals+employer--$42,000
Catch-up--$2,000

Deferrals, in general, are included in the $42,000. Catch-ups are not,
so the averall DB limit is $42,000 or $44,000 depending on age. Apply
my earlier message to determine the mix of comp and contributions. FYI,
that's what a SoloK is, just a marketing name like X Box for a 401(k)
plan.

Next, if the amount you want to put in a plan exceeds your limit, look
at DB plan. Do not rely on anybody but an actuary for DB planning. When
you work with the actuary, be sure to get his fees and include them in
you decision making process. You don't want to pay $1,000 in fees to
save taxes on $2000. The rest of us can guess, but only guess.

All this presupposes absolute control over a single-employee business.
This, in turn, assumes you are an independent contractor or a
legitimate personal service corporation not deemed related to the
entity now paying you. If you're not, then the real limits are the
savings appetites of the owners.

One last caveat. This all assumes the entity now paying you is taxable.
If it's not, there are other ways to save money.

You're getting a lot of different advice, which ought to (a) show how
complex this stuff is, and (b) make yu understand you cannot make final
decisions based on e-mails. Talk to an experienced, qualified
professional.

Will Trice wrote:
- quote -

Will,
Since it's a "just curious" question...there are quite a few different
plan alternatives here and some can be done in combination, others can't.

Vague enough? =)

-Tad

What you need to look at is the 412i plan, a small defined benefit plan.

Good with an older owner and a few younger employees.
You could defer over 200k in that type of plan.

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:akDXe.402$xc4.292[at]newssvr13.news.prodigy.com...
- quote -

Are all of these plans mutually exclusive (i.e. if I have a defined
benefit plan, can I also have a solo 401(k), etc.)?

Just curious,
-Will

raylopez99 wrote:
- quote -


Ray,
I have to chime in here...all sorts of problems in this thread. You were
talking before about Defined CONTRIBUTION plans. The annual contribution
limits on those are capped at $42k in 2005, and that's combined - both
employer and employee. You came up with a $92k figure, that's wrong, the
law is "the LESSER of $42,000 or x% of Y." If you put $200k a year into
a 401k, or any defined contribution plan, you're going to get a very
expensive penalty someday.

Defined BENEFIT plans - which is what that article you linked to
discusses - can in theory accept much higher contributions, but only for
a close-to-retirement individual with little or no money in the plan
already. And only if you have an actuary come up with a reasonable
projection of the plan's needs, to support the large contributions. But
it's a completely different kind of plan and it didn't sound like your
company has one.

Bottom line though is that if you're looking to maxmize retirement plan
contributions for a small business you control - hire someone to help
you figure it out, it's too expensive if you get it wrong (and too easy
to get it wrong).

-Tad

Just to complete this thread for future reference, this article on
thestreet.com explains how you can defer up to $200k a year if you have
your own retirement plan (HR10 or Keough/Keogh).

So I was right after all.

Ray

http://www.thestreet.com/_tscana/fun.../10242891.html

Defined Benefit Plan maximum contribution defined contribution plan
401(k) KEOGH

As long as you're at least 10 years away from retirement, you have the
opportunity to make up for lost time. At this point, the tax code
allows withdrawals of $170,000 a year from a defined benefit plan, says
Dick O'Donnell, a tax analyst at RIA, a Thomson business providing
information and software to tax professionals. So your goal should be
to put enough money away now so that you can withdraw $170,000 in
retirement. (Granted, that $170,000 amount might change by the time you
retire, but it's a guideline for now.)

You'll need to sit down with an actuary to determine how much you
should contribute to the plan now to hit that goal in retirement. And
the upside is you'll get a deduction for your full contribution, says
Bart Fooden, president of his own firm and a member of the NYSCCPA
Estate Planning and Tax Committees. For instance, if it's actuarially
determined that you need to put $200,000 away a year to meet your goal,
then you'll get a deduction for $200,000

SELF-EMPLOYED SEP-IRA - The total contribution can't exceed $42,000 for
2005 and the plan must be established by Dec. 31 to qualify for this
year, reminds O'Donnell


raylopez99 wrote:
- quote -

Thanks to all who have replied.

Couple of further points I neglected to mention: it's a small company,
like less than five people. It's not a 401(k), but more like a
"Keough" (obsolete term) plan or a HR10 "Defined Contribution, Profit
Sharing Plan" (Qualifed Plan). There is no discrimination in that the
officers get a much bigger salary than others.

So, going through my notes again, I've concluded that while the $75k a
year tax-deferred retirement set aside number is a bit much, I cannot
say it is illegal, since from IRS Publication 560 I concluded "41k in
EE contributions and 25% of compensation for EOR deductions, which in
theory could give $41k + ($205k[max]* 0.25 = $51k) = $92k total dollars
that may be set aside, tax-free, in a Qualifed Plan." Am I right or
wrong?

I personally am not going to push the envelope on this one, and will
probably set aside just something in the mid-teens, "as if" the
Qualifed Plan was a 401(k) (which it is not), but can anybody tell me
what is wrong with the above logic?

Thanks,

Ray

PS-- the solo 401k calculator website recommended by BMS was not
working last I checked.

BMS wrote:
- quote -

There's a solo 401k calculator at www.40khelpcenter.com


"geertom" <geertom[at]gmail.com> wrote in message
news:1126732714.696149.28440[at]o13g2000cwo.googlegroups.com...
- quote -

I agree with the other comments, with two qualfications. If you are
properly classifiable as an independent contractor (a big if), you can
creat your own plan. This means, effectively, that you can defer up to
the deferral limits, then combine 50% as pay and 50% as match (at up to
100% (I wouldn't go over)) and/or retirement contribution. But only if
you're self-employed. Otherwise, you have to do the same structure as
salary and contributions, and not blow up the employer's plan, which is
harder to do.

I fanybody tells you number like $75,000, turn around and walk away,
quickly. Anything that claims to be that high is certainly negligent,
and probably fraudulent. Since the numbers would show up crystal clear
on the first 5500, this is not a risk worth taking. I'm told jail is no
fun.

On 13 Sep 2005 14:10:02 GMT, "BMS" <mcfarland[at]yahoo.com> wrote:

- quote -

While the IRC does allow 100% of comp up to $18,000 ($14,000 under
50), it does not mandate that all plans comply. Some plans use a
lesser percentage, like 15% of comp. Always best to check the plan
document or ask the plan administrator.


-HW "Skip" Weldon
Columbia, SC

The following post was cross-posted. Since we had time, it is copied
below with corrected headers.

Begin copy--

Subject: Maximum Limit for EEs 401(k) with NO salary?!
From: "raylopez99" <raylopez99[at]yahoo.com

OK now hear this. This is not your run-of-the-mill question about
limits on employer (EOR) 401(k)s, which I believe are roughly $14k for
2005. Rather, my question is this:

How much of a 401(k) can an employer (me) give an employee (EE) if NO
salary is given? In other words, the employees 'salary' is really in
the form of payments to the EE's retirement plan.

I researched this and concluded that the IRS takes a somewhat dim view
if the amount contributed is much more than the maximum limit (of
roughly $14k, see above), since they view this as a tax-shelter scheme
to defer paying taxes (especially if the EE is a family member of the
EOR), but I also concluded that it is possible to contribute a lot
more than $14k (I recall that I concluded $75k was the limit). I also
intend to document everything so if I get audited I can justify my
point of view. Also I realize you still have to pay Social Security
and Medicare tax on the retirement fund monies.

Any ideas? I of course am not relying on anybody's counsel from a
Usenet newsgroup--just looking for validation / contrary opinions.

Also we're talking either defined contribution (preferred) or defined
benefit.

RL


End copy------




-HW "Skip" Weldon
Columbia, SC

You are allowed a 100% salary deferral, up to the limits, but it has to go
through as salary for the payment of the other taxes. What can also add is
profit sharing.

Better have a rock solid paper trail, especially if it is the only salary
the EE makes.


"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote in message
news:umjdi1tsdd9nlh5kld52fnlrrcd53d4p1q[at]4ax.com...
- quote -