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Can you "merge" a county hospital authority cash balance pen


Guest Elizabeth R. Cook
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Guest Elizabeth R. Cook

County hospital authority had a defined benefit plan that was convered into a cash balance pension plan many years ago. Effective 1/1/99, assets of cash balance plan were transferred to new profit sharing plan. Accounts in cash balance plan were fully vested, but no annuities were purchased to fund benefits and participants were not given an election to receive a distribution from the cash balance plan. Instead, assets were transferred "en masse" to trustee of PSP plan. The old cash balance assets in the PSP are not subject to payment in the form of required survivor annuities. PSP doesn't even mention the old cash balance plan. We were retained to update PSP for GUST. However, I am reluctant to do so because I do not know "how" the cash balance assets were transferred to the PSP in the first place. I know the cash balance plan was not subject to PBGC standard termination filing, but I didn't think you could simply turn a defined benefit plan into a defined contribution plan. Certainly can't do that with a single employer plan. Can one argue that cash balance plan was merged into the PSP? That argument would not "work" for non government plan because a merger of a DB plan into a DC plan is a de facto termination of the DB plan and when a DB plan is terminated (de facto or "regular") one must make distributions or purchase annuities to provide the distributions. Any ideas on the authority for transferring the assets from the cash balance plan to the PSP? Authority for elimininating the annuity form of distribution?

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This one is complicated! In brief, governmental plans are not subject to PBGC requirements at all. However, some have argued that portions of the Internal Revenue Code that do apply to them may require vesting and/or annuity purchases upon a conversion of a cash balance or other defined benefit plan to a profit-sharing or other defined contribution plan.

What we normally recommend to our clients is that they consider obtaining a determination letter as to such a conversion. However, there are obviously a number of issues to consider if the transaction has already taken place, and the ability to undo it may be limited. Obviously, these are very fact-specific questions, and I'm reluctant to get into too many details on a public message board, but I hope that this at least gives you a start.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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