Effen

I suggest you ask an ERISA lawyer those types of legal questions.

I agree that different assumptions will produce different answers, but to say "lump sum payments are most often less than the actuarially determined present value of a future stream of income", is just wrong. The lump sum IS the present value of the future payment, but they are based on a specific set of assumptions, including mortality expectations. Changing the assumptions produces a different answer, but that doesn't make one answer wrong and the other one right. It's just math. I think we are done here. Thank you for the comments.

When actuaries speak of "derisking", we are talking about shifting risk from the plan sponsor to someone else. Yes, a lump sum window is a form of derisking where the risk is shifted to the participant. Annuity purchases are also a form of derisking because the risk is shifted from the plan sponsor to the insurance company. The economics of derisking are part of the analysis. Most large plans derisk when interest rates are higher because the value of the liability is lower, and they can often derisk without any financial impact on their accounting. Plans that are paying maximum PBGC premiums derisk to save PBGC premiums. When you are paying $750+/person in PBGC premiums, the administrative cost associated with a lump sum window or annuity purchase is usually less than the savings in year 1 with the reduced participant count. IOW, there are many reasons for plans to derisk. I would argue that statement is not true. The lump sum is exactly the present value of a future stream of income. That is how it is determined. 417(e) provides the minimum lump sum permitted based on current unisex mortality and relatively current interest rates. You could argue is it under-paying females and over-paying males, but Congress doesn't let plans sex distinct mortality for lump sum. (You can for annuity purchases.) If interest rates are equal, than I agree the annuity purchase is generally higher than the lump sum, but that is related to expense loads changed by the carrier for future administration. If a plan is using 417(e) rates, those rates must be updated at least annually, but they can be updated more frequently. Annuity purchases are based on rates in effect at the time of purchase. Therefore, there is often a disconnect that causes lump sums to be more / less favorable than annuities depending on interest rates at the time of purchase.

Maybe, but that isn't what we are talking about. The only way for that statement to happen, if for the existing spouse to sign off. As David, and Bri, and I stated, the OP was asking about purchasing an annuity during the plan termination process. When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, the annuity purchased must provide all the same rights and features of the plan document. Therefore, the annuity purchase is not a distribution to the participant. The participant is not involved in the purchase. If the LS was a permanent feature of the plan, the annuity purchase would still need to provide that option in the future, as well as any other optional form of payment in the plan document. Once the participant reached an age they were eligible to receive the benefit, the spousal consent rules would still apply in order for them to receive the benefit from the ins. company. If the participant can get spousal consent at a future date, or if they no longer has a spouse, then they can take a lump sum later. If he still has a spouse, and they don't consent to a non-spousal option, his only option would be the QJSA/QOSA options in the plan. If you need a site, read REA from 1984. Not responding to the rest of your comments as you are hanging a picture in the wrong gallery.

spousal consent is not required for an annuity purchase.

There are brokers who can help - I will PM you. You can also go direct to the carriers. Did you try Midland and/or Mutual of Omaha? They will usually quote. I will send you a few options via PM for brokers who might be able to help.

See

A few comments: "I agree it would just be a way to see their account online and would only change annually." There are designs and administrative products/structures that allow for "daily valued" account balance information. Mostly used in larger plan markets - 50+, but can be used for any size if desired. "And an investment manager could allocate among the funds offered." Not exactly sure what you are referring to with this comment, but typically there is only one trust. You can have a daily valued defined benefit plan, but it would be very difficult to allow individual investment direction. (Not saying theoretically impossible, but practically impossible.)

There are market based cash balance plans and variable investment plans that can be daily record kept like a DC plan. Participants can log in to a website and see their the value of their account at any time. The design can be cost prohibitive for smaller groups, but for larger groups, or HCE only designs, they work very well. My firm specialize in the variable design. This is not technically a "cash balance" plan, but relies on a different section of the IRC. There are some problems with market based cash balance - especially around NDT, which is why we prefer the variable design. PM me is you would like additional information.

You should talk to your ERISA attorney. They can quantify the risks involved. Keep in mind there is no requirement to submit the plan termination to the IRS for approval, and those sound like very minor amendments.

It's a little late now to have that conversation. I think they are stuck with 2025 MRC. May have time to reduce 2026 if they haven't already worked another 1000 hours. Can freeze it prospectively so post 8/1/26 comp doesn't count. If they can't make all of the 2025 MRC, and you can reduce the 2026 MRC, maybe they can spread cash payments out over over a few years and minimize excise taxes.

No. If the participant met the requirements to accrue that year's benefit, then it cannot be taken away. What are the requirements for an accrual? 1 hour? 500 hours? 1000 hours? elapsed time? Might it be possible that the participant did not meet whatever requirements are in place for earning the accrual? What are you actually trying to accomplish? Are you trying to reduce the 2025 MRC?

Lowering AE to 2% for lump sums simply raises the "value" of the benefit. It does not impact the maximum lump sum which is still restricted by 415 limits. The 417(e) rates are just the statutory minimum basis. You can always pay more if you want, as long as you don't exceed the 415 maximum. You could also just raise the accrued benefit for the same effect. Really no point to do it in an "owner only" plan as their ultimate benefit is restricted to the amount of assets in the plan. You really only need to monitor the 415 maximum and insure the assets stay under that amount. If the value of the assets exceed 415 maximum, lowering the AE to 2% won't help.

When you say, "met the audit requirement threshold", do you mean is had > 100 participants and required an audit, or it did not require an audit? Can you provide additional information? How many participants are in the floor offset plan? How many of those have cash balance accounts? What is the type of business? There is nothing special about a floor offset plan that would exempt it from PBGC coverage, but some take the position that only those with cash balance accounts are actually participants.

Micks - Thank you for your participation on the board. Always nice to see new contributors. However, I created a new topic with your most recent post. Please don't start new topics on old threads. It makes it very difficult to search in the future.

Ok, I think you are saying Plan A issued the 1099, but plan B actually made the payment. So, Plan A needs to re-imburse Plan B for the improper payment. Since Plan A issued the 1099, I think Owner 1 taxes s/b correct, even though he received the money from the wrong trust. He will need an ERISA attorney and his accountant to help him sort all this out, but seems to me: Plan B may have incurred a PT for improper payment to an HCE Plan A needs to re-imburse Plan B. This should include some interest adjustment so that Plan B is restored to where it would be if the improper payment was never made. There are probably a myriad of other issues the IRS/DOL could pile on if they wanted. Check the Self-Correction Guidance and work with attorney and accountant on the best way forward.

It's just an AFN. Do whatever you think is reasonable. Generally, we are putting on the most current information available, but I don't know if there is a clear rule.

Thank you, but that wasn't the question. Which plan issued the 1099?

These are separate and distinct plans. How he solves these problems is up to him, his attorney, his accountant. The 5500 should reflect what actually happened in each plan. Did he get a 1099? Which plan reported the distribution? If Plan A reported the distribution, then he m/b ok on the personal side, but not on the plan side. He should retain an ERISA attorney to help him sort all this out.

It is ok that they have 2 plans, assuming both plans comply with the applicable non-discrimination rules. Do they both cover at least 40% of the eligible workforce, or have at least 50 participants? 1) Definitely a problem. They will need to reverse this. Put the money back into Plan A, and take it from Plan B. 2) I know you think of contributions as "his" contributions, but they are corporate contributions. "He" didn't really deposit "his" contributions into the wrong plan, the sponsor made the deposits, so that part is ok. How were they reported on the SB? Is plan A overfunded and plan B underfunded? You cannot transfer money between plans, but you could merge the plans to equalize the improper contributions and avoid future MRD issues.

I have heard about plans that only credit annual interest, but I have always felt that would cause a 411(d)(6) violation. I would think you would need to credit interest to the date of payment, otherwise you have a declining accrued benefit. So, I would use the 5-year average for post 12/31/25 and credit interest to 6/1 payment date. Just my opinion, others may disagree.

You should consult with the plan's ERISA attorney. My personal non-lawyer opinion is that the inaction of the AP caused the delay and therefore the plan should not provide interest on missed payments. I would also argue that the PA had no authority to withhold the P's payments for such an extended period of time. Most QDRO procedures allow a 180 escrow period, after that, if no DRO is presented, the P gests the full payment until the AP provides a DRO. Therefore, I might be inclined to argue that the majority of the 11 years of retro would go to the P - and maybe they should receive interest on those "lost" payments since PA had no authority to withhold them, but the AP would only potentially get 6 months of retro, and maybe none. But you asked about qualifying the DRO. Does this plan have established QDRO procedures? I agree the timing is no a big problem and the DRO c/b qualified, but if it requires 11 years of retro payments, I would look very hard at those provisions. Short answer - you should consult with the ERISA attorney.

Agree with what David said. "No formal QDRO was entered by a court until 11 years after the participant's annuity starting... Nevertheless, the participant commenced receiving reduced pension payments based upon the parties' agreed division as of his annuity starting date, in the form of a ten-year certain and life annuity. " Are you saying the PA withheld the AP's share for 11 years without a DRO?

I agree that $39,750 is the present value of a $2,028/year for 30 years @ 3%, assuming EOY payments. In reality, this should be done based on the probability of living each year, then each potential payment discounted back to present. The result would not be materially different. If you are saying your life expectancy is 30 years, that would put you around age 55. If you really wanted to complicate things, you could also try to quantify the value payable to your ex if you predecease him and he continues to receive the annuity payments. You chose, or the plan required you to chose, the J&100%S annuity. Trying to parse the value of the joint life annuity, or to quantify the impact of that choice on one party of the other, is difficult, both logically and mathematically.

A few general thoughts. Others opinions will vary. Form 5500 and Form 5330 are unrelated, each with their own timing requirements and penalties for late/insufficient filing. Use the Form 5330 when you are paying the excise tax for the missed MRC. One does not impact the other, but seems reasonable that you would want to clean them both up at the same time, but they are not connected. 1) I don't see any reason to wait. Penalty for not filing 5500 is a running clock based on days late. Even if DFVCP significantly limits the penalty, I think it would be best to stop the penalty clock on the late 5500 ASAP. 2) Maybe, but IRS is very understaffed and it might take them a long time to connect the dots. 3) I don't see any connection. 4) Not connected. Excise for missed MRC is due on the day it is late and the 5330 is also due on that date. That doesn't change. 5) Not connected. You need to correct the missed MRC ASAP. Keep in mind that the excise tax is due each year the payment is late, and the unpaid minimum gets rolled into the next year's MRC, therefore, the excise tax increases in a geometric like progression, compounding into future missed MRCs. Both the MRC & the excise tax needs to be paid. You can't reduce or waive benefits to avoid the MRC. That said, if they haven't done 5500s or made MRCs, you should check if they have certified AFTAPs. Might be a way to argue accruals were frozen at some point due to AFTAP failures which might lower future MRCs. Be careful to also check the plan's correction language to see if benefits are automatically restored once the AFTAP is signed.