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Suspension of Benefits Notice


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#1 Dougsbpc

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Posted 17 June 2009 - 12:42 AM

We administer a 30 participant DB that had recent investment losses.

The corporation that sponsors the plan is 100% owned by a family trust. The four beneficiaries (the kids) each have a 25% interest. I believe each are then deemed to own 25% of the corporation. Only one of the siblings (James) is a participant in the plan, and he is age 68. He is entitled to about 60% of the benefits.

The business will be sold at the end of next year and it is unlikely the plan will have sufficient assets to pay benefits. If he were a greater than 50% owner he would have no problem waiving a portion of his benefit. Given the fact that the trust owns the corporation, that will not be possible.

Could James (with spousal consent) execute a suspension of benefits notice to stop receiving an actuarial adjustment in the meanwhile and thereby stop the bleeding? He has never been in pay status.

#2 Effen

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Posted 17 June 2009 - 07:49 AM

The corporation (or family trust) can amend the plan to cease the actuarial rollup and all future benefit accruals and provided that they give James (and all other impacted participants) the proper 204h notice, it is frozen.

No need to get James' spousal consent - he's just another participant in the plan.
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#3 Dougsbpc

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Posted 17 June 2009 - 01:44 PM

Thanks Effen

The plan is already frozen and has been for a few years.

I did not think an actuarial adjustment could be eliminated.

We are using a volume submitter document with the variable provisions in article I (like an adoption agreement) and the non-variable provisions in articles II through XIII.

Article V states that " Unless the suspension of benefits notices are provided, the benefit paid to a participant on or after his or her normal retirement date shall be the greater of the benefit payable at normal retirement age recognizing additional service and compensation after normal retirement date or the actuarially increased benefit payable at any earlier retirement age."

With a volume submitter plan, I believe an amendment can make reference to a non-variable provision, but I don't think a non-variable provision can be changed.

#4 Blinky the 3-eyed Fish

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Posted 17 June 2009 - 02:29 PM

Why don't you think the actuarial adjustment can be eliminated? I think it can. He's not reached RMD age after all.

You can amend any part of the plan document. You probably will lose reliance on the VS determination letter and make it individually designed possibly.

But doesn't the language already there still fit your situation? Seems to me there would be an option in Article I to provide the actuarial increase or not. If not, the suspension of benefits notice is required (standard language).

Edited by Blinky the 3-eyed Fish, 17 June 2009 - 02:30 PM.

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#5 Dougsbpc

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Posted 18 June 2009 - 01:28 AM

Thanks Blinky

Unfortunately, Article I does not contain an option to provide or not provide an actuarial adjustment.

The suspension of benefits provision of the document really talks about participants who retire and are in pay status and then return to work. Can a suspension of benefits notice be used to effectively eliminate an actuarial adjustment for a participant who is past the NRA but has not retired and was not in pay status? In this case it would be the key employee.

#6 Effen

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Posted 18 June 2009 - 08:02 AM

Just another example where the few dollars they saved using a prototype will be more than offset by the cost to provide a benefit they didn't have to or to pay someone else to fix it.

Anyway, just because it is a prototype, doesn't mean you still can't amend it to do what you want. However, it probably means you might need to hire an ERISA attorney to make sure you amend it properly, and it will lose its prototype status.

Then again, I would follow Blinkys advice first, and read the document very carefully to make sure the option isn't there somewhere. Maybe even call the prototype provider, explain what you would like to accomplish, and ask them how the plan can be amended to accomplish it.
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#7 Dougsbpc

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Posted 18 June 2009 - 10:43 AM

It is actually a volume submitter document. Over the many years we have rarely run into any limitations of this document. This may be one of them but I will carefully read article I again.