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Secure Act amendment for terminating CB plan


D.J. Simonetti

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I’m terminating a cash balance plan with a PYE 7/31 and am trying to get all benefits paid out prior to that date so that the 5500 for that PY will be the final 5500. The plan document is from FT William which has a Secure Act amendment for terminating DC plans but has advised that it won’t have one for terminating CB plans for several months. Any ideas? Thanks.

 

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Consider what exactly the plan needs for the plan-termination amendment.

Beyond ending accruals and providing for the final distributions, an amendment for a plan’s termination might need no more than to state:

·           a provision the Internal Revenue Code requires as a condition of tax-qualified treatment; and

·           an optional provision presumed in the plan’s actual administration.

I don’t remember a SECURE 2019 change the Internal Revenue Code requires as a condition of a cash-balance defined-benefit pension plan’s tax-qualified treatment.

About optional provisions, one might not need an amendment if the plan was not changed. For example, if the sponsor could have changed the plan’s normal retirement age, early retirement age, or required beginning date but did not, there might be no need to write an amendment for a provision that never was adopted.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Do BenefitsLink mavens concur that changing a required beginning date to something later than age 70½ would have been an optional change, and if not done in the plan’s actual administration needs no amendment to tax-qualify the plan for its termination?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Plans still define, or need to define, IRS required beginning date per statute (in my opinion) regardless of whether the plan by its provisions (and administration) maintains an earlier required commencement date. For example, there are defined benefit plans that require commencement at normal retirement age (65) regardless of employment status but those documents are still required to have RMD provisions. And we had clients that desired to maintain 70 1/2 after SECURE, so we amended the statutory RMD requirements but maintained the earlier required commencement. The practical difference being if someone has available and elects a lump sum at a required commencement date before their statutory RBD age they can roll it all over rather than splitting into RMD and non-RMD pieces. And a plan sponsor might want to keep 70 1/2 to avoid actuarial increases between 70 1/2 and later commencement. For purposes of simplifying this discussion I left out the later retirement consideration. 

I also think the option available to the plan sponsor is retaining the prior commencement structure and foregoing the updated statutory structure (1.0 or 2.0), and an amendment would be required in either instance.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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If the plan has a variable interest crediting rate, it will need to be amended for SECURE 2.0 sec. 348.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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If there is a plan year that began or begins after December 29, 2022.

But perhaps SECURE 2022 § 348 doesn’t affect a plan year that began August 1, 2022.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Perhaps, but it would certainly apply to a plan year beginning 8/1/2023. For a plan beginning its termination process today, I would not want to risk its qualification status on the termination being completed, including distribution of all assets, before 8/1/2023. Particularly if the plan is covered by PBGC.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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