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  #71  
Old 06-04-2019, 10:28 AM
Pride4Pride Pride4Pride is offline
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Just to throw in a random little personal experience with the PBGC, I had a participant in a plan refuse to receive her benefit due to being spiteful towards the owners. After years of repeated extensions being filed, the PBGC agreed to put this participant through the missing participant program even though she was not missing at all, just refusing to sign election forms.
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  #72  
Old 06-04-2019, 02:36 PM
davefarber davefarber is offline
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Originally Posted by bgoddu View Post
I thought, in general, that you ignore salary prior to the first year a plan was top heavy, and after the last year a plan was top heavy. If the plan didn't exist, wouldn't that fall under this exclusion?
No, that is not what regulation 1.416-1, Q&A M-2 says. It says that you ignore years of service that were not earned by the employee under IRC sections 411(a)(4), (5), and (6). That is generally all years of service, unless certain years are excluded by the plan (such as prior to age 18, or as is the potential issue in this question, years during which the employer did not maintain the plan or a predecessor plan). There is nothing about ignoring years before the plan first became top heavy for average compensation. Since there are not years of service specifically excluded in this question, you would include all years.
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  #73  
Old 06-04-2019, 04:00 PM
AlexioXela AlexioXela is offline
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Originally Posted by bgoddu View Post
I thought, in general, that you ignore salary prior to the first year a plan was top heavy, and after the last year a plan was top heavy. If the plan didn't exist, wouldn't that fall under this exclusion?
The question of which compensation is relevant for top heavy compensation came up EA-2A (not B) 2010 question 9 as well. The official answer was the one that excluded compensation prior to the first year the plan was top heavy, as you suggest. It was contested, and in the end they accepted both answers—excluding and not excluding compensation prior to the first year the plan was top heavy.

I looked at the solution offered by Software Polish. That solution states that the "official answer" excluding comp prior to first TH year seems "clearly defective." That solution has some additional information supporting its conclusion, likely similar to Dave's reasoning above.

My Actex textbook clearly states "Compensation earned in years before the first year a plan is top heavy or after the last year in which it is top heavy may be ignored for this purpose," (emphasis mine) but it provides no citation to law or regulation, and in general I have treated the information in the Actex manual with some skepticism. Actex's solution to EA-2A 2010 #9 states that either solution is right (because that comp "may" be ignored) and that's why both answers were taken.
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  #74  
Old 06-04-2019, 06:57 PM
davefarber davefarber is offline
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Originally Posted by AlexioXela View Post
The question of which compensation is relevant for top heavy compensation came up EA-2A (not B) 2010 question 9 as well. The official answer was the one that excluded compensation prior to the first year the plan was top heavy, as you suggest. It was contested, and in the end they accepted both answers—excluding and not excluding compensation prior to the first year the plan was top heavy.

I looked at the solution offered by Software Polish. That solution states that the "official answer" excluding comp prior to first TH year seems "clearly defective." That solution has some additional information supporting its conclusion, likely similar to Dave's reasoning above.

My Actex textbook clearly states "Compensation earned in years before the first year a plan is top heavy or after the last year in which it is top heavy may be ignored for this purpose," (emphasis mine) but it provides no citation to law or regulation, and in general I have treated the information in the Actex manual with some skepticism. Actex's solution to EA-2A 2010 #9 states that either solution is right (because that comp "may" be ignored) and that's why both answers were taken.
So first, a little EA exam history. Back when the EA-2 exams were parts A and B, A was the funding exam (and included the IRC section 415 and 416 topics). For part A, you were not responsible for knowing anything from part B (the law exam), and for part B it was assumed that you knew everything from part A. On that 2010 exam, there were a few questions, including question 9, that required some knowledge from the part B (law) exam. In this question it was that vesting service issue. This is why they gave credit for both answers (using or not using salary prior to the plan effective date). It is not that they truly felt that both answers/methods were correct, but rather they could not hold the exam candidates responsible for knowing material from EA-2B (in this case the vesting service exclusion rules). It is because of the few questions from the 2010 EA-2A exam that tested 2B topics that the Joint Board ultimately decided to change the order of the exams beginning in 2013 (with the law exam first and the funding exam second, and resulting in the new names EA-2L and EA-2F). The "real" correct answer in question 9 from the 2010 exam ignored salary prior to the plan effective date because of a statement in the question that the plan does not credit benefit service prior to the plan effective date. Question 42 on this year's exam does not have such a statement. So compensation prior to the plan effective date must be used for purposes of the top heavy average salary as you should assume that all years of service are being used for vesting (and benefits) with no statement to the contrary.

I do not have the ACTEX manual to look at context, but the statement that you quote is incorrect. Again, look at regulation 1.416-1, Q&A M-2 for rules about salary used for the top heavy minimum benefit. You will not find anything there that says you can ignore salary paid before the plan first became top heavy.
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  #75  
Old 06-13-2019, 09:33 AM
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Originally Posted by AlexioXela View Post
I looked at the solution offered by Software Polish. That solution states that the "official answer" excluding comp prior to first TH year seems "clearly defective." That solution has some additional information supporting its conclusion, likely similar to Dave's reasoning above.
After seeing EA-2A 2010 #9, I added several notes at the end of my solutions for exam problems which involved Top Heavy minimum benefit calculations:

1. The definition of T-H pay in IRC 416(c)(D) is really vague. My interpretation has always been that the T-H pay is updated each time the plan is found to be T-H. You look back at ALL years prior to the last year that the plan was Top Heavy, and find the five highest consecutive years. This period includes years that the plan is NOT Top Heavy, which is why the "XXXX pay" is included in the calculation of the T-H minimum benefit.

2. The code (and regulation) state that if any service is disregarded under IRC sections 411(a)(4), (5), or (6), then for the top heavy minimum benefit, salary paid for those years is ignored. But 411(a) concerns vesting service – not benefit accrual service.

3. Questions can get tricky when they specify the plan’s effective date. Years of service before the plan effective date can be excluded for vesting purposes, and this would affect the T-H pay calculation. You need to read the question carefully - for example, the problem could use language similar to this: "the plan credits the minimum amount of vesting service" or "the plan credits vesting service using the most restrictive rules allowed".

In problem 42, they forgot to add any such statement about excluding years of service for vesting purposes.
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  #76  
Old 07-12-2019, 09:43 AM
Pride4Pride Pride4Pride is offline
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Originally Posted by davefarber View Post
I've reviewed the exam, and have definite issues with two questions.

Question 12: This is a True statement, and it may simply be that the answer key has a typo (in which case they would most likely just fix that and give credit only for answer choice A). It is an almost word-for-word copy of IRC section 4975(c)(1)(B).

Question 42: The correct answer to this question is $252, which is choice A. As some have mentioned in this thread, the big issue here is whether to consider compensation paid to Smith prior to the plan effective date of 1/1/2015. Treasury regulation 1.416-1, Q&A M-2, part (b) discusses salary issues with regard to the top heavy minimum benefit, specifically with regard to salary paid in years prior to the plan effective date. If the plan allows for exclusion of those years under IRC section 411(a)(4)(C), then those years of salary are excluded for purposes of the top heavy minimum benefit. There is no mention of any service excluded in this question, and there is no general condition that states that any service is excluded. As a result, salary paid in this question prior to the plan effective date is used for the top heavy minimum 5-year average salary (excluding salary paid prior to 2015 gives a top heavy minimum of $260, which is in answer range B). They probably intended to include a statement in the question that said something such as "The plan uses the most restrictive definition of service for purposes of vesting under IRC section 411(a)." Based upon past history, my guess is that they will give credit for both answers A and B (although A is the truly correct answer).
Although the point may be moot for myself, has there been any correspondence with the Joint Board about the answers to these questions?
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  #77  
Old 07-12-2019, 10:47 AM
davefarber davefarber is offline
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Originally Posted by Pride4Pride View Post
Although the point may be moot for myself, has there been any correspondence with the Joint Board about the answers to these questions?
Yes, those were included in my exam comments to the Joint Board. Typically, when there are changes to the answer key due to these comments, the exam with updated answer key is released shortly after the exam results are released. I think that once the results are released, students have sometimes called the SOA to find out whether there were any changes to the answer key, in order to find out more quickly.
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  #78  
Old 07-14-2019, 05:23 PM
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Originally Posted by Pride4Pride View Post
Although the point may be moot for myself, has there been any correspondence with the Joint Board about the answers to these questions?
I never get any response back from the Joint Board after I send them comments on the exam solutions. Hopefully the changes will be reflected in a revised answer key.
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  #79  
Old 07-19-2019, 09:47 AM
mwells1695 mwells1695 is offline
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looks like they sent out the texts before even posting the passing candidate numbers?
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  #80  
Old 07-19-2019, 09:53 AM
DonaldStewart DonaldStewart is offline
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looks like they sent out the texts before even posting the passing candidate numbers?
That they did but was happy to receive it!
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