If a large employer's new Collective Bargaining Agreement no longer requires it to make contributions to a Defined Contribution (Money Purchase) Pension Plan, can the employees of that employer withdraw their funds? Is there reason why these employees cannot/should not be paid out? Is there any danger in the Plan losing its qualified status?

Thanks in advance.

Question on Pension Equity Plans (PEP):

I have a PEP that generates a lump sum through a FAP formula, then converts the lump sum to an annuity based on a 4.00% Interest Rate and the UP 1984 Mortality Table. I currently have a participant age 60 whose lump sum under the plan is equal to $13,600, and whose annuity based on the assumptions above converts to $130/mo., payable at NRD (age 65). Do I need to then calculate a revised lump sum based on the $130 annuity amount, but multiplied by the applicable segment rates (e.g. the December 2007 segment rates and the RP-2000 Combined Table for 2008 lump sums)?

Doing this generates a lump sum of $13,800, so I am thinking the plan may be required to kick in an extra $200 for this participant's lump sum.

I remember in the distant past (I think!) that if a 401(k) plan is top heavy and the 401(k) ADP fails; you still need to consider the original % that the HCE contributed in order to figure your required top heavy contribution, is this correct?

An ERISA plan is required to provide survivor rights to a spouse upon the participant's death. Is a SERP pension plan required to make a similar provision, or because a SERP pension is not subject to ERISA, can a company chose to draft a SERP in a way so as not to make any survivor rights available?

Do Money Purchase Plans need to include this amendment?

Boy val with a 2007 AFTAP around 65%. The sponsor has some participants that they want to pay out lump sums so we are working on getting the 2008 AFTAP done. Let me know if you find fault with this logic.

1/1/08 funding target: 500,000

1/1/08 assets (not including 2007 receivable): 300,000

12/31/07 CB (without 2007 receivable): 0

Client contributes 100,000, creating a 12/31/07 CB of 100,000.

AFTAP would be: (400,000 - 100,000) / 500,000 = 60%

However, the 100,000 CB is required to be burned to bring up the assets to 80% and lump sums can be paid.

Sound right?

The following seems to work out mechanically. Any disagree?

Participant has 4 outstanding loans:

#1 Balance of $4,500, max payoff date of 5/30/2012, payment of $48

#2 Balance of $12,400, max payoff date of 8/15/2010, payment of $184

#3 Balance of $3,300, max payoff date of 9/16/2009, payment of $62

#4 Balance of $4,100, max payoff date of 9/29/2008, payment of $142

Total current balance of $24,300

Total payment of $436 per pay

High balance in last 12 months of $30,900

Current total account balance (including loans) of $100,000

Current amount available for loan is $43,400 (50,000-(30,900-24,300))

New loan of $16,500 to refinance #2 and #4 (because of high payments)

Total current balance of $24,300 plus the new $16,500 equals $40,800

Since this is less than the $43,400 from above, he is permitted to repay the new loan over 5 years.

This works out to approximately $147 per pay (6% interest), for a total payment after refinancing of $257 per pay (saves $179).

There are various funding percentages calculated and used for different things under PPA. However, one particular series has raised some questions.

AA Actuarial value of assets

FT Funding target

CB Credit balance

PF Pre-funding balance

AN Annuities

1 FTAP

(AA - CB - PF) / FT

What is this percentage used for??

It appears it may go on the new Schedule B (SB).

It also appears to be the percentage used for the notice to participants? (Interesting when you have a large CB and the numerator is zero - telling the participant there plan is 0% funded)

2 AFTAP

(AA - CB - PF + AN) / FT

This one controls the restrictions under 436

I believe it also controls the use of the credit balance / pre-funding balance against the quarterlies and minimum contribution.

However, there appears to be a special exemption calculation for this (also used for the establishment of a shortfall base??)

(AA / FT) if this percentage is greater than 92 (2008) / 94 / 96 / 100 (2011)

Does this number then appear on the Actuarial Certification (if the exemption is used?)?

The regulations say something like 'for purposes of 436 and this section (but not section 430(d)'. I am not sure what 'this section' refers to (although I believe the reference to 430(d) is referring to the calculation for the use of the credit balance / pre-funding to offset the minimum contribution. Is this latter correct?

Thanks for any and all input.

Can an employer which fully insures a short term disability plan only offer the plan to certain employees (for example, physicians) or is there some nondiscrimination rule which would require it to offer the plan to all employees?

I see that Labor Reg. § 2510.3-1(b)(2) provides that “employee welfare benefit plan” and “welfare plan” shall not include—

...Payment of an employee's normal compensation, out of the employer's general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment)...

Does this mean that such a plan is not subject to ERISA?

What if the short term disability plan in my example doesn't pay the employee's "normal compensation" but a % of such employee's compensation?

I have a question regarding survivor benefits for my pension plan.

First, some information. I am the participant and there is a QDRO from a previous marriage applied to my pension. The pension is a defined benefit and the QDRO is a shared interest. The AP gets a defined % ((marriage time / work time) * .5 * pension) and her payments start when mine do. There is specific wording regarding the P predeceasing the AP:

"Should the P predecease the AP, the AP shall be designated as the surviving spouse for purposes of both the pre and post-retirement survivor annuity benefits. The AP's portion of both the pre and post-retirement survivor annuity shall be computed as described [in formula]."

There is no specific wording in the QDRO regarding the AP predeceasing the P. If this occurs, is it normal for the AP's benefits revert back to the P (me)? I have a call into the QDRO/pension administrator and I did not find anything in the plan description regarding this.

Also, since I am remarried, my current spouse will get nothing if I die before the AP or I start drawing my pension while the AP is still alive - correct? If the AP dies before I start drawing my pension will my current spouse now be eligible for the survivor benefits? I would assume so, since the QDRO is void in this situation?

It would seem that it may be better, if the AP is still living at the time of retirement, to take a lump sum distribution and let the AP take her share and then the rest becomes part of my current estate. Thoughts on this?

Thanks in advance for any help,

CliffG

A handful of lost partiicpants with nominal balances were reported on the 2006 Sch. SSA. Plan Sponsor made reasonable efforts to find, but was not successful. Plan Sponsor ended up just forfeiting the balances. Do we report those particiants with a Code D on the Sch. SSA?

Thanks in advance for any guidance.

Can a 415(m) excess plan be excess to a defined contribution 403(b) plan? I would appreciate your insights and comments.

IRS Private Letter Ruling 200148054 approved a 415(m) excess plan that was excess to a defined contribution 403(b) plan. IRS PLR 200526025 approved a 415(m) excess plan that was excess to a defined contribution 401(a) qualified plan.

My concerns are:

1. IRC Section 415(m) appears to allow a 415(m) excess plan to be excess to only a defined benefit plan.

2. The April 5, 2007, final Treasury regulations under IRC Section 415 state that a 415(m) excess plan can be excess to a defined benefit plan but are silent on whether a 415(m) excess plan can be excess to a defined contribution plan.

3. For 415 purposes a 403(b) contract is treated as maintained by the employee, not the employer. Participants in the 403(b) plan also participate in the employer's defined contribution 401(a) plan, in which they do not hit the 415 limit.

Has anyone had any experience filing for a prohibited transaction individual exemption with the DOL? I have a client who wants to purchase a condo through his pension plan and then lease to his corporation as office space. He sponsors two plans- a floor offset db plan and a profit sharing plan. I believe because of the floor offset arrangement, the real property investment cannot be more than 10% of plan assets. I tried to convince him to take a profit sharing loan as an alternative, but he is insistent on trying for the DOL exemption.

On that note, who would qualify as a "qualified independent fiduciary"?

Any feedback would be appreciated.

Must you adopt a PPA amendment allowing for automatic enrollment that is effective as of 1/1/2008 in order to avoid nondiscrimination testing for 2008? How late in the year can the amendment be effective in order to obviate the testing requirements?

TIA

JP

I read an old post with this topic and I have a similar situation. Participant took a hardship withdrawal for purchase of primary residence and deal fell through. In my case, however, the participant did not cash the check, and has returned it. Withholding was taken out. Can this money be returned to the plan? If yes, will the participant need to put in an amount equal to the withholding for that to happen?

A calendar year plan was terminated in 2007 - it was not frozen on or before 09/01/05..

a) Is the plan required to have an AFTAP cert for 2008, and if yes,

b) Does the AFTAP have to be 80%+ for 2008 before the participants can be paid in full?

c) If payouts are restricted, does the plan termination stay in limbo?

d) What if the sponsor cannot come up with amount required to increase the AFTAP to 80%+?

Generally, employees who terminate within a year of the "termination date" of a plan being terminated are entitled to be fully vested in their benefits for termination purposes.

But how about employees who were terminated within a year of the termination date but were only partially vested or not vested at all--do they have entitlements? what are they? Thanks....

Is the ESOP repurchase liability a "future obligation of pension benefits" item that should be disclosed on the Employer/Plan Sponsor audited financial statements? My initial thought is no -- the ESOP is not a defined benefit pension plan where the employer is obligated to contribute sufficient cash to fund future promised pension benefits. The ESOP is, of course, a defined contribution plan with individual accounts and each participant's retirement benefit simply equals what has accumulated in his or her account. But, the unique nature of the Employer's obligation to at some point convert the participants' interests in company stock into cash makes me think my initial conclusion might not be right.

Thanks.

Most of the plans that I work on have a normal retirement age (NRA) of 65. When I process their cross testing, the EBARs are calculated by calculating years to retirement on the basis of 65 as the testing age. I recently got a plan that contains an NRA of 59 1/2. My questions/comments are as follows:

1) My assumption is that I should be using age 59 1/2 as my testing age. Is this correct?

2) If, so, I would assume that I base the calculating years to retirement on the year the participant turns age 59 1/2. Correct?

3) Or do I simply drop the 6 months requirement from the calculation of the exponent when calculating years to retirement? (Essentially makign the testing age 59?)

4) Am I permitted to use age 65 as my testing age?

5) Am I permitted to use a different age entirely as long as I do not exceed age 65? (I do not know why I would actually do this, but I am curious.)

6) What if the NRA in the doc was age 65 and 5 YOS? Is the testing age different for anyone who would not have 5 YOS by age 65? (66,67, etc...)

7) If the answer to #5 is that the ages would be different, would I not have a problem with some sort of uniform retirement age?

8) Is there anything else I should be aware of regarding NRA?

Thanks in advance for the replies.

Do the propose regs suggest that any 401 (k) contributions and loan payments made after 7 business days are automatically considered as "late" and therefore subject to the prohibited transaction rules?

Until the final regs are issued, what are others considering if the deposit occurs after the 7th business day? We've already informed our clients about the proposed regs, but my feeling is that we'll be looking at more prohibited transactions until the clients change their deposit habits.