Effen

I know this isn't the question, but you said, "owner is the last one paid out. He makes small contribution to hit his 415 limit for his rollover". Does that mean there were other employees who were paid out first? Was his accrued benefit = 415 maximum at the time of termination? I just wanted to make sure he didn't pay everyone out, then make a contribution to create excess assets which he allocated to himself up to the 415 maximum, which would be a clear violation of 1.401(a)(4)-1(b)(4)

First, these are legal questions and should be discussed with an attorney. If it is a church plan, are you sure they are subject to ERISA? In other words, VCP/SCP may not apply since they aren't subject to ERISA. Are you saying the one that has been participating since the mid 80s doesn't have any signed agreements? I would probably punt to an attorney who would likely prepare a participation agreement for the newer employer ASAP.

Mutual of Omaha would probably take them. If you are waiting until early 2018, you can also try One America and Pacific Life. A lot of insurance companies won't bid on anything less than $5 million. It is also more difficult to place contracts in the 4th quarter as insurance companies are focused on the larger contracts. If you can't find a company to deal with you directly, you can go to Dietrich or Brentwood. They both have open contracts with several companies and can usually place an annuity of any size - of course they will charge a healthy fee for this service.

I see a number of issues and potential solutions: 1) If you make a valid attempt to contact the participants (paid locator service, documented searches and returned or ignored mailings) I believe you cannot be faulted for not paying the MRD. The tax penalties are on the participants, but the plan needs to comply with its terms. If you document you made a valid attempt to contact them, then I think the plan is off the hook. 2) If you know where they are, but don't know if they are married, I would inform the participant that they will be receiving the life only payment and that if they provide a SDOB, the amount may be lower. I don't believe any participant consent or election is necessary for MRDs, but they are typically obtained. Do nothing without plan's counsel's blessing.

The impact of the new mortality varies by age. Less at older ages, more at younger ages. I was seeing about 3.7% @65 and 4.7% at 25. (using 2.05, 3.61, 4.27)

I am not so sure. I think if he owned 50% of the prior entity, you can count the compensation. Someone will chime in with a confirmation of the percentage, but I believe it is 50%.

Form over function, and YES the IRS will have a big problem with it if you do it in the original plan draft. They must be separate amendments or the plan will fail the accrual rules. I tried exactly what you are expressing and the IRS played the dream crusher. Just do an amendment. I don't see any problem doing them both at the same time, but waiting until 2018 to increase the formula would be fine as well.

Maybe you should let them know that Puerto Rico is part of the United States... But seriously, this is probably a licensing issue. The companies you have talked to are probably not licensed to do business in PR - like some companies are not licensed in NY. There must be insurance companies inside PR that can help you.

It may be overkill, but I think PensioPro has a benefit distribution tracking module in their software. It might be an expensive solution, unless you are already using it.

Maybe you made a $5 error in the calculation of the present value of the contributions?

I don't believe you have any legitimate fixes, other than forcing IRA rollovers if < 5000, or purchasing an annuity if greater. Bigger problem is you probably won't be able to buy an annuity if you don't have an SSN or an address. Insurance companies don't want your problems either. If you have an SSN, we have had good luck with various search firms - Penchecks & Berwyn Group. Berwyn offers a "relative search", which can be helpful. If you don't have an SSN, I really don't know what you are supposed to do. I would suggest that you work with counsel and come up with a reasonable solution, but likely there is no "right" answer, just degrees of "wrong".

Notice 2017-49 that just came (within past two hours). Funding relief until January 28 if an Affected Plan. Notice 2017-49 Hurricane Funding Relief.pdf

I think those are only legal in Colorado, but I hear you can have them in California, as long as you don't sell them.

Yes, thank you. I recognize there are other ways to handle this and we are discussing various options. I was really just focusing on this one particular option. This is a traditional retirement benefit and the salaried group contains enough NHCEs to get through 410(b) using the ABT. I was really just trying to avoid the extra work of doing an (a)(4) test, but now that I have looked at it, I think it would pass anyway. But, if I don't need to do it, I would rather not. Since the decision makers are the HCEs currently in the plan, freezing their benefit isn't all that appealing to them. Since they are provide a 5% PS contribution, it seemed like a fairly seamless solution to just slide it into a cash balance formula and continue on.

I would say the beneficiary's.

Thank you, that was helpful. Let me try to simplify my question. Plan A satisfies 410(b) and contains a safe harbor formula Plan B satisfies 410(b) and contains a safe harbor formula Some active employees are not covered by either Plan A or Plan B No active employee benefits in both Plan A and Plan B. If the plans are separate, Plan A will soon fail 401(a)(26). If I combine Plan A and Plan B into one plan in order to satisfy 401(a)(26), do I need to do general testing under 401(a)(4) or can I just say they are safe harbors and move on.

The attorneys I work with would say the estate should receive the payments. I have seen situations where the annuity is just paid to the executor, assuming they aren't splitting things up among a bunch of people. Either way, let the lawyer figure it out. I don't know how an insurance company would handle it, but I know they generally do a better job of maintaining the beneficiary information and doing death searches fairly often.

Let’s say I have a plan sponsor with 3 divisions and 250 employees. At one time they had a DB plan for the entire company, but the plan was closed several years ago. The plan now contains 52 active employees and is expected to drop below 50 at which point it will fail 401(a)(26). The plan is a safe harbor 1% of pay/yos. There are other HCEs outside the plan and the plan and the plan satisfies 410(b) using the average benefits test. We don’t need to do 401(a)(4) rate groups because the plan is a safe harbor. I think we are good so far. In an effort to avoid freezing the plan (they just feel obligated to provide the promised benefit), they are contemplating bringing in additional participants. They are thinking about adding a cash balance benefit for the salaried employees. This would add another 40 people to the plan. Although this would now include all of the HCEs, it would cover enough of the NHCEs and would still satisfy 410(b) using the average benefits test. My thought is to structure the cash balance formula in such a way that it would satisfy the cash balance safe harbor. If I have 2 safe harbor formulas inside the same plan, can I continue to avoid the 401(a)(4) rate group testing? In other words, can I disaggregate the plans and claim they are both safe harbors, even though they are inside the same plan? I know I also need to think about rights & features, but I want to get through the testing issues first. Would each component plan need to satisfy 410(b) on its own in order to call them both safe harbors under (a)(4)?

FWIW, I have asked the PBGC about possible non-majority owners and they were adamant that only majority owners can waive benefits. That said, they are open to creative ownership arrangements to get this done. Your best bet is to just call them and ask. They are usually helpful when you call.

My limited experience with bankrupt clients is "get in line" and expect to receive a few cents on the dollar in about 5 years. Work done after the bankruptcy can be cleared with the court and paid in full, but the outstanding invoices at the time of bankruptcy, may be a lost cause. Then again, our situations were small clients and it wasn't worth hiring our own lawyer to fight about it. You can always refuse to sign the SB until you are paid. Eventually the IRS MAY come asking and the court might approve your fees to prepare the required filings. Also, the PBGC will eventually ask you for information and you can pre-bill any expected time for compliance. Since they are going distress, ultimately the PBGC is responsible for your fees because the plan assets are not sufficient. Also, keep in mind the PBGC has their own actuaries, so you may never here from this client again.

I am curious why you would want to rescind, if you thought you might want to re-elect at a later date? I may have a client in a similar situation. Years ago we saw a potential credit balance problem coming, so they made the election. Things have gone well, contributions are up, benefit levels were lowered when PPA past and now the original CB problem appears to have passed. Since they are likely not to have a future CB problem, it might make sense to revoke the election, but I what would they gain by that? You can argue easier valuation process since I don't need to maintain two sets of amortization bases, but is there any other reason?

"Absent compliance with 204(h) the plan was never frozen." I am not so sure about this statement. I already posted my reasoning, but I think it is a facts / circumstances situation.

1- 2.5% 2- 95% - we ask the attorney to prepare any plan amendments, but we typically prepare all of the notices 3 - 2.5%

Also, the deadlines are stated as the latest possible distribution date, not the earliest. If you can get the PBGC filing prepared, and the NOPBs out before June 30, you can use a DOPT of 8/31/17 and make distributions on the next day. Of course you also need to also prep election packages, allow at least 30 days to make elections, chase down stranglers, coordinate distributions, shop annuities, etc. A small plan with all lump sums maybe able to get it done by 8/31, but it is a lot of work to accomplish for a larger plan. However, 12/31/17 should be do-able if they have already made the decision to terminate. Also, keep in mind the IRS submission is optional.

Is this a one person plan, or are there other participants? I know that shouldn't matter, but I think it is often helpful to consider the implications of the various interpretations. If it is a one life plan than I wouldn't worry about discrimination. I know the IRS can always raise the issue, but the chances they ever look at this are slim. If it has other participants, then you need to consider discrimination issues. I don't recall if increases in 415 limit are considered to be accruals (I think they are), but giving only the HCE an increase would likely cause problems. I think the $6,500 is safe, assuming you don't have any discrimination problems. I don't think the $7,000 would be permitted since that would require an increase in the plan-defined accrued benefit. I also think the $5,250 is probably ok, In all situations, it might be helpful to draft a clarifying resolution defining exactly what the intent was in the amendment, even after the fact. If there are other participants you need to think through the discrimination implications, and I wouldn't do anything that could potentially be discriminatory, but if there are no other employees, I think it is fairly safe to go with whichever answer you want.