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Frozen Pension Plan


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ya, well, I am calling BS....

If the plan's funded status was below 60%, then yes, the plan was frozen by statute (the actuary didn't "do it").  However, you were definitely required to be notified at the time of the freeze, and some say every year thereafter that it was below 60%.

If it was frozen for this purpose, once the funding level increased above 60%, it was automatically unfrozen (by statute), unless the sponsor amended it to keep it frozen.  Again, a required notice.  

It sounds like you at least know the reason for the freeze, now you just need to find out if it should have been automatically unfrozen at some future date.

The plan document will determine if you get those frozen accruals back.

Make sure you attorney requests the AFTAPs for every year since 2008.

This could be sloppy work by the actuary, but it could also be a deceitful plan sponsor.

 

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Agree with Effen.  To elaborate, don't overlook the possibility that the real BS is someone claiming it was "frozen by statute", as an excuse upon realizing that sending the 204h notice was missed. 

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Assuming for the sake of argument that there was a valid volitional freeze per a 204(h) notice, isn't it possible that minimum accruals were still required post-freeze under the top-heavy rules?  

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18 hours ago, Jim Nichols said:

The managing partner of the CPA firm just called me and told me that the actuary froze the plan in 2008 by "statute" because it was underfunded and supposedly didn't inform the managing partner until five years later that it was frozen.  He also told me that they had no responsibility to tell the participants that it was frozen and that they couldn't pay out anything other than the reduced benefit that they are currently offering.  

1.  OK, if that is exactly what happened, it does not sound particularly close to my understanding of what enrolled actuaries are supposed to do.  The enrolled actuary determined that the plan's funded percentage was below 60%, freezing accruals, and told nobody for years??? That just doesn't sound right.  And does the managing partner have a code section they can cite to back up the assertion that they had no responsibility to tell the participants it was frozen?  I am pretty sure that the law and regulations do require proper timely notice to the affected participants by the plan administrator (not by the enrolled actuary, who should certainly work with the plan administrator to help the plan administrator fulfill their obligations under the law). 

1 hour ago, jpod said:

Assuming for the sake of argument that there was a valid volitional freeze per a 204(h) notice, isn't it possible that minimum accruals were still required post-freeze under the top-heavy rules?  

2. If a plan must freeze accruals due to IRC Section 436, wouldn't that also freeze accruals of top-heavy benefits under 416, or would 416 override 436?

Always check with your actuary first!

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10 hours ago, Effen said:

Make sure you attorney requests the AFTAPs for every year since 2008.

 

The Form 5500-SF for years starting in 2009 or later should be available on the DOL website. The Schedule SB asks for the AFTAP.  For the actuaries, would SB line 15 be the applicable percentage? Would line 16 be the applicable percentage for the prior year?

The OP can search for the filings here:

https://www.efast.dol.gov/portal/app/disseminate?execution=e2s1

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If accruals are frozen then no top heavy. PPA/436 amendment must state what happens if/when a plan comes out of a restricted period - it can provide for resumed accruals, restoration of retroactive accruals, or continued suspension of accruals. If this what happened, it is statutory and compliance with plan document. However, as someone already stated, there is clearly a participant notice requirement under ERISA 101(j), within 30 days of the freeze. DOL penalties can be severe - see below. Unfortunately, I don't think any of this gets you a higher benefit, it will only punish the plan sponsor (rightly so) and likely delay completion of the plan termination - if it hasn't been completed yet.

The DOL may assess a civil penalty of up to $1,000 per day for each failure to provide a 101(j) Notice.  The DOL can implement the penalty for failure to notify any participant, alternate payee or beneficiary, and will consider the willfulness of the failure in assessing penalties.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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15 hours ago, Kevin C said:

The Form 5500-SF for years starting in 2009 or later should be available on the DOL website. The Schedule SB asks for the AFTAP.  For the actuaries, would SB line 15 be the applicable percentage? Would line 16 be the applicable percentage for the prior year?

The OP can search for the filings here:

https://www.efast.dol.gov/portal/app/disseminate?execution=e2s1

My understanding:  Line 15 is the AFTAP (which would, to the extent applicable, take into account annuity purchases for non-HCEs during the past two years).  Line 16 (an FTAP, not an AFTAP) is only concerned with whether credit balances can be used.  The former is net of both the carryover and prefunding balances (unless the percentage prior to subtraction is over 100%, in which case the AFTAP is determined without subtracting the credit balances), while the latter is determined without regard to either annuity purchases or the carryover balance (i.e., reduced only by the prefunding balance).  Only the AFTAP determines whether Section 436 limitations on distributions or accruals apply.

Always check with your actuary first!

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Cuse Fan, how does what you said about TH square with this, from the IRS website:

Is a Frozen Defined Benefit Plan Subject to the Top-Heavy Minimum Benefit Rules?

Yes. A frozen defined benefit plan must meet the top-heavy minimum benefit rules.

A frozen plan may be one in which benefit accruals have ceased but all assets have not been distributed to participants or their beneficiaries. A defined benefit plan is top-heavy if, as of the determination date, the present value of the accrued benefits under the plan for the key employees is more than 60% of these benefits under the plan for all employees. If a frozen DB plan is top-heavy, it must provide top-heavy minimum benefit accruals to all non-key employees.

Many employers sponsor both a defined contribution and a defined benefit plan. In many instances, these plans’ provisions require the defined contribution plan to provide an extra minimum top-heavy contribution covering employees in both plans instead of the defined benefit plan crediting top-heavy minimum benefit accruals for these employees.

Alert: Employers that are amending a defined benefit plan to freeze benefit accruals should carefully review the plan’s top-heavy language. If these employers also maintain a defined contribution plan, they may want to amend both plans so that any top-heavy minimums are provided under the defined contribution plan. These amendments would avoid the frozen defined benefit plan having to provide minimum benefit accruals if the plan becomes top-heavy.

 

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I've had no luck finding any 5500s on the above mentioned website.  It only goes back to 2009 but it doesn't show any matches.  I'm putting the correct plan name, sponsor name, ein and plan number in.  Is it possible that they haven't been filing 5500s since the freeze? I've also asked the plan sponsor for the 2015 form 5500 but I have not received it and don't anticipate receiving it.

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43 minutes ago, jpod said:

Cuse Fan, how does what you said about TH square with this, from the IRS website:

Is a Frozen Defined Benefit Plan Subject to the Top-Heavy Minimum Benefit Rules?

Yes. A frozen defined benefit plan must meet the top-heavy minimum benefit rules.

A frozen plan may be one in which benefit accruals have ceased but all assets have not been distributed to participants or their beneficiaries. A defined benefit plan is top-heavy if, as of the determination date, the present value of the accrued benefits under the plan for the key employees is more than 60% of these benefits under the plan for all employees. If a frozen DB plan is top-heavy, it must provide top-heavy minimum benefit accruals to all non-key employees.

Many employers sponsor both a defined contribution and a defined benefit plan. In many instances, these plans’ provisions require the defined contribution plan to provide an extra minimum top-heavy contribution covering employees in both plans instead of the defined benefit plan crediting top-heavy minimum benefit accruals for these employees.

Alert: Employers that are amending a defined benefit plan to freeze benefit accruals should carefully review the plan’s top-heavy language. If these employers also maintain a defined contribution plan, they may want to amend both plans so that any top-heavy minimums are provided under the defined contribution plan. These amendments would avoid the frozen defined benefit plan having to provide minimum benefit accruals if the plan becomes top-heavy.

 

This language is from regulations issued before the enactment of EGTRRA and ought to have been updated by the IRS (who may be considering doing that) accordingly.  EGTRRA clearly provides that service in the defined benefit plan does not count for top heavy accruals if no key employee is benefiting under that plan (as would always be the case if the accruals have been frozen, "benefiting" having the meaning of earning benefits NOW).  The law refers to "the Plan" (in a way that would NOT bring in other plans in the required aggregation group), so receipt of a defined contribution amount by a key employee would not apparently affect whether the defined benefit plan owed non-key employees recognition of new top heavy service under the defined benefit plan.  The provision in EGTRRA only makes full sense when interpreted to mean that a frozen plan that is top heavy may be treated as fully frozen with respect to top heavy minimum benefits.

Further, the entire quoted text fails to mention IRC Section 436, and thus gives no guidance as to whether 416 or 436 is to prevail when a top heavy plan is frozen under Section 436.  Obsolete language!  Action by the IRS to integrate their 416 rules with subsequent changes in the law (EGTRRA and PPA, at least) is nearly 20 years overdue.

Always check with your actuary first!

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Jim, try it with just one of those items entered.

Also, do you want to send me the name of the company in a private message and I can see if I can wrangle it up?

 

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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19 minutes ago, BG5150 said:

Jim, try it with just one of those items entered.

Also, do you want to send me the name of the company in a private message and I can see if I can wrangle it up?

 

This, of course, assumes that the sponsor, who may have chosen to ignore the notice requirements, was taking the trouble to file 5500-SFs.

Always check with your actuary first!

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The search engine on the DOL website is very picky and requires an exact match to the search terms.  If you have the EIN, it usually works best using only that to search.  Enter it without the dash. If you have a copy, the Summary Annual Report they are required to provide each year will show the EIN they are using for the filing.  If they stopped filing, there is another website (freeerisa) that should have the last filing or two that were done, even if it was before 2009.  If it turns out they are not filing a 5500, that's even more of a reason to contact the DOL.

 

 

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2 minutes ago, Kevin C said:

The search engine on the DOL website is very picky and requires an exact match to the search terms.  If you have the EIN, it usually works best using only that to search.  Enter it without the dash. If you have a copy, the Summary Annual Report they are required to provide each year will show the EIN they are using for the filing.  If they stopped filing, there is another website (freeerisa) that should have the last filing or two that were done, even if it was before 2009.  If it turns out they are not filing a 5500, that's even more of a reason to contact the DOL.

 

 

Since PPA, defined benefit plans are not required to issue summary annual reports.  They are required to issue annual funding notices, but why am I unsure that this sponsor has been doing so?

Always check with your actuary first!

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I would add on the Form 5500 search if you put in part of the name you will get more results and then you can thin from there.

Example:

You are looking for Dover Manufacturing, Inc.  but they have been filing as Dover Manufacturing.

If you put the first part in you might not get a hit. 

If you simply put Dover in you will get every company the first word in the name is Dover in the name.  So one of them ought to be Dover Manufacturing.

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10 minutes ago, Jim Nichols said:

I PM'd BG5150 with all the info and he couldn't locate any 5500s either unfortunately.

Maybe, as I noted before, they didn't bother to file 5500s!

Was there no identifying information in the plan termination material they sent you?

Always check with your actuary first!

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Unfortunately there wasn't.  The letter didn't even mention when the plan was terminated.  When I spoke to the managing partner of the firm the other day he informed me that the plan was terminated on 11/1/15 (19 months ago).  I don't think that falls within the notification guidelines.

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2 hours ago, My 2 cents said:

Since PPA, defined benefit plans are not required to issue summary annual reports.  They are required to issue annual funding notices, but why am I unsure that this sponsor has been doing so?

Only if PBGC covered, right? This is a small professional firm that most likely isn't covered by PBGC.

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2 hours ago, My 2 cents said:

Since PPA, defined benefit plans are not required to issue summary annual reports.  They are required to issue annual funding notices, but why am I unsure that this sponsor has been doing so?

PBGC covered DB plans are required to issue the annual funding notice instead of the SAR.  I may not be correct, but I assumed CPA firm and small company meant a professional service employer with under 25 active participants exempt from Title IV.

 

My suggestion is to contact the DOL. They have more leverage in getting information from plan sponsors than participants do.  I've had a few DOL investigators tell me that when they have an unresponsive plan sponsors, they issue a subpoena for the information they need.

 

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By law, the participants must be furnished with a paper copy of the 5500 and supporting documents and schedules upon request (after payment of reasonable copying costs).  Does that apply to DB plans, too?

 

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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2 hours ago, Jim Nichols said:

What is my best option at this point?  To talk to the DOL or an attorney?

Part of the equation is are you willing to pay for an attorney?

The DOL costs you nothing but they are the government and move at that speed.  They do have plenty of power and if there is something wrong they will most likely find it.  They will then work on a correction.

An attorney is obviously quicker but more expensive.  it is hard to predict how a little saber rattling by an attorney will work.  An attorney can help you get a solution also.  You just don't know how much time and cost it will take. 

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3 hours ago, Jim Nichols said:

I PM'd BG5150 with all the info and he couldn't locate any 5500s either unfortunately.

Did he try freeerisa.com?

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Mike, great idea!  I did find it there.  2007 & 2008.  (I only have a free account).

So it looks like 2008 was the last one they filed.  The EIN matches the one Jim sent me.  Same Plan administrator, too.

Odd:  2008 the only benefit code is 3E (back then, it was the code for prototype).  2007 only had 1A and 3E.

I sent Jim a link to the form on FreeERISA.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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