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Guest David Lipkin

ee contribs = help!

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Guest David Lipkin

In terminating a plan that has ee contributions, we are purchasing ann'ys from an insurance company.

Is it required (after the date of term.) to continue with the fancy method of crediting interest (i.e., 120% of apr), or can the insurance company switch at that point to its own (simpler) methodology?

Any guidance w/b appreciated/thx/David

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Guest D_NITSCHE

My gut feel is that the insurance company can

use it's own rates but I have no regulatory

basis. I'm curious though, is the concern/issue here the tax consequences of the longer/shorter " cash refund " tail ?

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Guest David Lipkin

No, its just that I want it to be done "right" to protect the client and the plan's tax qualification. Many insurers do not seem to want to quote on doing it "right" !

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this is a great question.

My gut feel is the opposite, howver. That is, when you buy an annuity, it is supposed to provide all of the features of the qualified plan., such as the same J&S factors, same ER reduction factors, etc. My guess is that the annuity would be required to do the same for the EE contributions.

Another possiblity might be to determine the ER portion at plan termination, refund the EE amounts, and purchase the annuity for the ER portion. Don't know if this is permitted. Even if so, it would likely require EE (and spouse) signoff to distribute a portion of the benefit.

Good luck.

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I agree with Pax; this is a great question, and that you would have to keep all of the annuity forms available as part of the plan termination.

That an insurance company will offer "their rates" is, in my opinion, not acceptable. Now, if you apply for plan termination approval to the PBGC and IRS, bring this to their attention, and get their approval, are you OK? Frankly, I doubt it. Conceivably, an employee could sue to get the plan's basis, not the insurance company's.

Can you forcibly cashout the employees' contributions, and then purchase annuities from an insurance company (without the cash refund feature required in a contributory plan)? No, becuause you cannot forcible cashout part of an employee's benefit.

What can you do if you cannot find an insurance company to quote using the plan's basis? That's a problem, since an insurance company that's willing frovide the quote might be very expensive; and that would come out of the client's pocket.

One idea is to purchase the annuities with the proper cash refund calculation from the PBGS. If an insurer is not able to be found, I believe the plan sponsor can buy the annuities from the PBGC. (This places the plan under PBGC trusteeship.) Unfortunately, the PBGC's interest rates are very low, and hence this is an expensive solution.

I don't like the above solutions, but what do you all think about the following idea?

Freeze the plan. Then purchase the annuities from an insurance company based on the insurance company's cashout calculation methodology. Then terminate the plan. Then buy the remaining "annuities" from the PBGC; i.e., place the remainder under PBGC trusteeship. Now, what is the remaining benefit liability. It is the difference between the different cash refund calculation metholologies, which (hoepfully) cannot be too expensive even at the PBGC's convservative valuation methodology.

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