Looking for some thoughts on my wacky problem -

Traditional defined benefit plan where the normal form of benefit for an unmarried participant is a life annuity with a 5 year term certain.

Active Participant turns 70 1/2 in 1990. Elected to have his RMD based on his life expectancy only without recalculation (all copacetic with the 1987 regulations). Begins receiving his benefits in the form of the life annuity with 5 year term certain. Participant continues to work and accrue additional benefits under the Plan, which essentially bump up his payments the following year. Participant dies in 2007 without ever retiring. (Plan did not give the option to stop receiving RMDs under SBJPA).

His child calls the plan asking what benefits might be payable to his estate.

My initial thought was that this participant's beneficiary is not entitled to anything because the participant died at least 5 years after payments began. One of the senior actuaries in my group thinks that each annual bump is in and of itself a new life annuity with 5 year term certain, and that the beneficiary is entitled to receive the remainder of the five year certain for the last five years. The plan document is silent (who would contemplate this?) A more senior actuary and attorney thinks that "something is payable" but is honestly too busy to back that up with anything further.

Has anyone ever seen this before?

Much obliged!

We are taking over a 403(b) plan and putting them on our document. Currently their document allows the participants to make a one-time irrevocable election of 5% (along with elective deferrals into a separate plan). If they opt in, they get a 5% nonelective contribution from the ER. In our restatement, we would like to change the wording to allow the participants to make an irrevocable election but not specify the amount. If they did make at least 5% they would get the ER contribution. This would enable some of the HCEs to specify a higher % (several want to put in the $15,500 in "regular" deferrals and then put in another 10% of salary in "irrevocable" elections).

First, is there any problem allowing the employees to choose the deferral % they want to specify in an irrevocable election? I understand that once they do specify the percentage that they cannot change it.

Second, most of the employees made a 5% irrevocable election under the original plan. If the election they originally made was irrevocable, can an employee change it when providers and/or documents change? If not, does this mean that the employer is basically stuck forever with the original plan design? I also understand that the irrevocable election has to be made when the ee first becomes eligible. Since most employees were eligible a while back, does that mean that they would not be able to take advantage of the increased flexibility in a restated document?

One last thing -- the employer contribution is currently subject to the 5% irrevocable election -- you don't get it unless you contribute 5%. Under what conditions would the ER contribution have to satisfy 410(b)? Thanks!

Thanks!

A DRO to award 1/2 of the EE's accrued defined benefits was determined by the PA to be a QDRO. AP dies before EE reaches earliest retirement age. Thus, payment of the awarded 1/2 of the defined benefits had not commenced to AP.

Language of the QDRO provides that AP "shall hereafter own, as her sole and separate property, all right, title, and interest to" the awarded 1/2 of the EE's accrued defined benefits, "and shall have and enjoy all rights and privileges with respect thereto as provided by such plan and [REA]." Payment of the awarded 1/2 of the EE's accrued defined benefits was to commence as early as permitted, i.e. the EE's earliest retirement age.

The QDRO specifies that the AP may choose any form of benefit options permitted by the plan as to the awarded 1/2 of the EE's accrued defined benefits. However, given that the amount does not fall below a de minimis dollar cap for lump sums, a single life annuity is the only form of benefit available. Under the plan, the AP could postpone payout commencing on the EE's earliest retirement date, but here the QDRO specified that payments to the AP were to commence as soon as possible.

The plan document specifies what happens if the EE dies before the AP, i.e. the AP is treated as the 'surviving spouse' only to the extent provided in the QDRO. If the EE dies before reaching his earliest retirement age, the AP is entitled to benefits only if the QDRO specifies the AP as the EE's surviving spouse.

However, the plan is silent as to what happens to the awarded 1/2 of the EE's accrued defined benefits if the AP, as here, dies before the benefits commence. There's two possibilities. The 1/2 of the EE's accrued defined benefits that were awarded by the QDRO do or do not 'revert' to the EE. The argument favoring reversion would seem to be that the benefits were his all along, and the QDRO's provision that payment of that 1/2 of those benefits be made to the AP failed because she died before payout of the single life annuity commenced, and therefore the QDRO ought have no bearing on the benefits to which he is entitled under the plan. Afterall, there's been no loss to the plan since no part of his benefits ever were used to base a single life annuity on as the AP died before that could happen.

The argument that the EE does not get a 'reversion' is that the QDRO was valid, for plan purposes following the PA's determination, and the QDRO gave the right to payment of 1/2 of the EE's accrued defined benefits to the AP as "her own, as her sole and separate property, all right, title, and interest". From the time of the QDRO being determined as such, the EE no longer had any right to payment of that 1/2 of the benefits. The QDRO could have, but did not, call for reversion to the EE if the AP died before payment of the awarded benefits began, as was the case here. The plan's actuarial determinations were, after the QDRO, based on two separate individuals' life expectancies, regarding the two halves and not on a joint and survivor basis. The death of the AP does not override the provisions of the QDRO, which only allow payment of that 1/2 awarded to the AP to be made to the AP.

Does anyone know how courts have ruled on such situations?

Could the EE go back into divorce court, giving notice to the executor of the AP's estate, and get a QDRO modification post-death since no payout of benefits has begun? DoL Reg 2530.206(b)(2), Example 1 permits QDRO's to be entered post-death, but what about after a risk-affecting event (here the AP's death) has transpired? Would the plan have standing to intervene and argue contrary to the EE?

Thanks in advance for responses to this post.

Nobody on the "correction of defects" board had an opinion, so let's try the DB crowd...

We are correcting some missed minimum distributions for a DB plan and sending in the VCP. The instructions indicate to make missed payments with an additional payment for "loss of use" of the money. Has anyone seen guidance for DB plans on what rate to use in this situation? Is it the plan stated actuarial equivalence, the trust asset rate, or maybe some other "reasonable" fixed income index? Do you think it would be the greater of the three? Is anyone familiar with an internal IRS document that may shed some light?

Thank you for any input!

Temporary staffing agency sponsors 401(k) plan beginning in 1994.

401(k) Plan provides that employees with 1000 hours are eligible to participate in plan.

Agency hires lots of "Temps".

Sometimes Temps have more than 1000 hours in a single year.

Agency ignores Temps for purposes of the Plan (i.e. Temps never enter Plan and Temps are ignored for minimum coverage testing purposes).

New recordkeeper discovers that Temps should be entering plan and should be included in minimum coverage testing. Also discovers that plan fails minimum coverage if Temps are included in the calculation.

My question: If this one problem or two problems?

I know how to fix the problem of excluding otherwise eligible employees under EPCRS (make up to them with QNEC).

But I am unsure whether I also need to correct for what is likely several years of minimum coverage testing failures.

Do we retest for minimum coverage after we make a QNEC to exlcuded Temps?

Any advice?

Anybody using the Corbel document for new CB plans? I'm wondering how others are dealing with the limitations.

Interest crediting, for example, is limited to (a) a fixed interest rate or (b) GATT rates.

Unless I am missing something, (a) is not allowed by the IRS at present and (b) really doesn't exist any more.

Also, the allocation group options (% or $) seem a bit limited.

These are the options from a 1/28/08 version.

Anybody else having this experience? Any insights as to their plans and timing?

So, what do we do for 415 calculations from distribution and from valuation perspective?

Are we still using GAR94 mortality table and not a new 2008 lump sum mortality table (let’s call it PPA table) for 415 calculations?

So, for the distribution purposes it is lesser of present value of accrued benefit under PPA table and lump sum segment rates and present value of 415 max benefit under GAR94 and rate which is greater of 5.5% and lump sum segment rates. Am I correct so far? Would you compare each segment rate with 5.5%?

Now for the valuation purposes let’s assume person is age 55, retiring at 65, with assumption of taking lump sum upon retirement.

What combination of mortalities (GAR94/PPA) and interest rates (5.5%/val segment rates/lump sum segment rates) should we used?

I received a question how to handle FMLA Leave and thier FSA Election. Here is the situation, the employee just found out that her daughter has cancer and is going to be needing some extra help, because of this the employee is going to go unpaid every other week in order to be with her daughter. The Participant will be out every other week from january until june. The employee would like to know if she can decrease her annual election based on unpaid leave of absence even though she will be getting a check for the weeks that she is there. For FMLA, I know that an employee taking FMLA leave is allowed to revoke or cancel an existing election under FSA at the time that they are going out on the leave and be reinstated in the Plan upon return. I am not sure how this would occur in the event that the participant is taking intermittent leave (one week working, one week not working for a total of 24 weeks (12 weeks working and 12 weeks of FMLA). Does anyone have any thoughts if the participant can lower their election in this situation, or just revoke it? Thanks in advance for your assistance.

I have drafted up amendments to merge to mirror DB plans, and have included language to address the following:

1. Code section 411(d)(6) protected benefits;

2. Code section 401(a)(4) unique benefits rights and features;

3. ERISA section 208/Code section 401(a)(12); and

4. Code section 414(l) protections.

We have also dealt with the non-document issues such as Form 5310-A, 204(h) notice, funding issues, etc. I was just wondering if there is anything else that I need to include in the actual plan merger amendments. Can anybody think of anything else?

Thanks!!!

Company X has established a new 401(k) plan effective Januaryu 1, 2008. A portion of the SPD has a section explaining the optional tax treatment of plan distributions (including averaging) and of course, there is the 402(f) notice. My question is, do we still need to refer to averaging since most of the people who could conceivably be eligible have since retired? Is there any conceivable set of facts by which an individual who was age 50 or older in 1986 could average today assuming plan-to-plan transfers involving several plans between 1986 and today? I know that in the case of plan-to-plan transfers, there are a number of private letter rulings concluding that, for purposes of the 5-year averaging requirement, the years of participation with the former plan could be tacked onto the years of participation after the transfer in determining whether the requirement was satisfied. Does this apply as well to eligibility for averaging in general?

Cross tested plan with doc and 2 younger ees has passed testing for last 5 years. 2007, newly eligible employee throws a monkey wrench into things. Doc is age 52. Newly eligible is 60. 2 rate groups are established in plan doc. If plan is amended to add third rate group, with separate allocation for new participant, 401(a)(4) passes.

Problem is how to categorize rate groups. Doc is easy. Of the 3 ees, 1 is receptionist and other 2 are nurses. One of the nurses is the problem child. Any suggestions?

I have a New Comparability plan.

First plan year is a calendar year ending on 12/31/07. No contribution or transfers of any kind were deposited during the 2007 year.

Is it true that because it is a new comparability plan, the receivable contribution (first contribution for the plan) IS included in the end balance for 2007?

I thought that since it is the first plan year, there would be no balance, as there were no contributions made yet, hence the plan would not be Top Heavy for the determination year (first plan year). Receivables are not counted in calculating top heavy...or are they?

Does anyone know where I could look this up?

New to the board.

Finally getting around to setting up a ROTH. Here's the plan.

Already an existing customer of Scottrade, so I started a ROTH account there. Will send them a check / pick some mutual funds or a mutual fund to start. Afterward, I will automatically deduct xx amount from my checking account every month to go to Scottrade and periodically buy more of the same fund(s). Essentially, I am dollar cost averaging to the cash account in scottrade, and am relying upon my discipline to invest.

Any opinions are welcome.

I was wondering if you have to provide a notice to participants in a 401(k) plan when deferrals will cease (due to proposed acquisition). I cannot find this and I was sure that I had read that somewhere.

While I am here, I told a client they had to provide a notice (every year) to participants in the participant directed 401(k) plan if they were going to make quarterly statements available online rather than mailing them or sending electronically. Notice just says statements are at www. ........ TPA said I was wrong, so I get nervous.

Thanks

An employee failed to report her divorce that was finalized over 8 months ago. I know that the ex-spouse became an ineligible dependent at that time and will be removing the ex-spouse from our plans and offering Cobra, but can we change the pre-tax election for the employee at this point? or do we have to wait until open enrollment? I definitely would NOT refund the difference in cost retro to the divorce, but do we make the change going forward on a mid-year basis?

Just wanting to do the right thing..........

A participant in pay status returns to active service. Their benefit payments are stopped, but no notice is provided. Conversely, there are also people who returned and their payments weren't stopped. The document states that benefits will cease upon returning to active employment.

For the participant who's benefits were stopped without receiving a notice, it seems that this is a victimless error and having reinstated payments upon separation would be correction enough.

For the participant who continued to receive payments, the plan would seem to have no recourse and the employer would need to make up the difference?

I can't find anything that addresses "failure to provide a suspension of benefit notice." Any ideas?

Prior to PPA, the funding standard account costs in the year of termination were prorated in accordance with Rev. Ruling 79-237. This revenue ruling references Section 412, and as we know costs for DB plans are now under Section 430 of the code, we need new quidance on how to determine the minimum required cost for 2008 if the plan terminates during this year ( and of course subsequent years under PPA).

There are clients requesting projections of costs if the plan were to terminate this year, and this cannot be calculated yet until quidance is issued.

I have not seen any quidance on this yet and wanted to know if anyone has seen anything that I may have missed.

I work for TPA and I got a call from a participant who is in open enrollment now, and of course has to turn his paprework in by today

He is a member of a professional organization of CPA's that offers a health insurance. My understanding is that to qualify for reimbursement under an FSA a health insurance plan must be truly an individula policy and not part of a group plan. When I explained this to the participant he told me that it is an individual policy that he pays for himself but put together or through this organization.

I do not want to tell him not to elect if he can in fact be reimbursed for these expenses.

Thanks!

Jeremy

How is everyone interpreting IR-2007-212 (see below)? We don't seem to have a clear concensus in our office about what you now must do, and what you may do. I would appreciate hearing other thoughts on the subject.

IRS, Treasury Issue Additional Proposed Regulations on Pension Protection Act Funding Rules

IR-2007-212, Dec. 28, 2007

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued proposed regulations that provide employers sponsoring single-employer defined benefit plans with guidance regarding the measurement of pension assets and liabilities under the new funding rules enacted as part of the Pension Protection Act of 2006.

These proposed regulations, together with proposed regulations related to mortality issued in May, proposed regulations relating to funding balances and funding-based benefit limitations issued in August, the yield curve guidance issued in October, and guidance on lump sum determinations issued in November will assist plan sponsors in determining the contribution requirements that apply to their defined benefit plans for the first year that the new funding rules apply.

Although the new funding rules are generally effective for plan years beginning on or after Jan. 1, 2008, these regulations are proposed to be effective for plan years beginning on or after Jan. 1, 2009. However, plan sponsors can rely on these proposed regulations for purposes of satisfying the requirements of section 430 for plan years beginning in 2008.

The Treasury Department and the Internal Revenue Service intend to issue guidance in the near future indicating that the proposed effective date for these regulations should also apply for the proposed regulations relating to employer-specific mortality tables issued in May and the proposed regulations related to funding balances and funding based-benefit limitations under sections 430(f) and 436 issued in August. Although final regulations will not apply to plan years beginning before January 1, 2009, plan sponsors may also rely on those proposed regulations for purposes of satisfying the statutory requirements for plan years beginning in 2008.

On Dec. 19, 2007, the Senate passed an amended version of the Pension Protection Technical Corrections Act of 2007. These proposed regulations, like the earlier proposed regulations, do not reflect any proposed technical corrections. Nor do they include any reflection of the proposed modification to the rules for determining asset values. After technical corrections are enacted, the regulations will be modified to take into account the enacted provisions.

If a money purchase plan applies for a funding waiver, does anyone know over what time period the funding waiver is to be amortized? I can't tell if it's 5 years (as it appears in the Code, but this may only apply to defined benefit plans) or 15 years as stated in Rev. Rul. 78-223. Can anyone help?